EXHIBIT 10.31
FRONTLINE COMMUNICATIONS CORPORATION
SUBSCRIPTION AGREEMENT made as of this 25th day of November,
2003 between Frontline Communications Corporation, a corporation organized under
the laws of the State of Delaware with offices at One Blue Hill Plaza, P.O. Box
1548, Pearl River, New York 10965 (the "COMPANY"), and Scarborough Ltd. (the
"SUBSCRIBER").
WHEREAS, the Company desires to issue in a private placement
(the "PLACEMENT"): (i) 1,666,666 shares of the Company's common stock, $.01 par
value ("COMMON STOCK"), (ii) one (1) three-year warrant (the "A WARRANT") to
purchase 750,000 shares of the Company's Common Stock at an exercise price equal
to $.01 per share, and (iii) one (1) fo31rty-five (45) day warrant (subject to
extension as provided therein) (the "B WARRANT") to purchase 1,666,666 shares of
the Company's Common Stock at an exercise price equal to $.30 per share plus,
upon exercise of the B Warrant, one (1) three-year warrant (the "▇▇ ▇▇▇▇▇▇▇") to
purchase 1,250,000 shares of the Company's Common Stock at an exercise price
equal to $.01 per share, in the form attached as EXHIBIT A (collectively, the A,
B and B2 Warrants, the "WARRANTS");
WHEREAS, Beaufort International Associates Limited (the
"PLACEMENT AGENT") is acting as placement agent in connection with the
Placement;
NOW, THEREFORE, for and in consideration of the promises and
the mutual covenants hereinafter set forth, the parties hereto do hereby agree
as follows:
I. SUBSCRIPTION FOR COMMON AND WARRANTS AND REPRESENTATIONS BY
AND COVENANTS OF SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth,
the Subscriber hereby subscribes for and agrees to purchase from the Company
1,666,666 shares of Common Stock, one (1) A Warrant and one (1) B Warrant, at a
price equal to $500,000, and the Company agrees to sell such Common Stock, A
Warrant and B Warrant to the Subscriber for said purchase price. The purchase
price is payable by certified or bank check made payable to "Loeb & Loeb, LLP,
as Escrow Agent" or by wire transfer of funds, contemporaneously with the
execution and delivery of this Subscription Agreement. The Placement shall be
consummated after the release of all funds and securities due hereunder held in
escrow by Loeb & Loeb, LLP, as escrow agent (the "ESCROW AGENT") pursuant to the
terms of paragraph 3.2 herein.
1.2 The Subscriber recognizes that the purchase of Common
Stock, Warrants, the shares of common stock issuable upon the exercise of the A
and B Warrants (the "WARRANT SHARES"), and the shares of common stock issuable
upon the exercise of the B2 Warrants (the "B2 WARRANT SHARES") (collectively,
the "SECURITIES") involves a high degree of risk in that (i) an investment in
the Company is highly speculative and only investors who can afford the loss of
their entire investment should consider investing in the Company and the
Securities; (ii) an investment in the Securities is illiquid; and (iii)
transferability of the securities comprising the Securities is extremely
limited, as well as other risk factors as more fully set forth in the in the
Company's filings with the United States Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") or the
Securities Act of 1933, as amended (the "SECURITIES ACT").
1.3 The Subscriber represents and warrants that it is an
"accredited investor" as such term in defined in Rule 501 of Regulation D
promulgated under the Securities Act, and that he is able to bear the economic
risk of an investment in the Securities.
1.4 The Subscriber acknowledges that it has prior investment
experience, including investment in non-registered securities with a limited
trading market and that he recognizes the highly speculative nature of this
investment.
1.5 The Subscriber hereby represents that it has been
furnished by the Company during the course of this transaction with all
information regarding the Company that he has requested or desires to know and
that he has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Placement. The Subscriber represents
that he was not induced to invest by any form of general solicitation or general
advertising including, but not limited to, the following: (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over the news or radio; and (ii) any seminar or
meeting whose attendees were invited by any general solicitation or advertising.
1.6 The Subscriber acknowledges that this offering of
Securities may involve tax consequences and that neither the Company nor the
Placement Agent has provided it with tax advice or information. The Subscriber
acknowledges that it must retain its own professional advisors to evaluate the
tax and other consequences of an investment in Securities.
1.7 The Subscriber acknowledges that the Placement has not
been reviewed by the SEC because of the Company's representations that this is
intended to be a nonpublic offering pursuant to Sections 4(2) or 3(b) of the
Securities Act. The Subscriber represents that the Securities are being
purchased for its own account, for investment and not for distribution or resale
to others. The Subscriber agrees that it will not sell or otherwise transfer
such Securities unless they are registered under the Securities Act or unless an
exemption from such registration is available.
1.8 The Subscriber consents to the placement of a legend on
any certificate or other document evidencing the Securities stating that they
have not been registered under the Securities Act and setting forth or referring
to the restrictions on transferability and sale thereof, and to the issuance of
stop transfer instructions with respect thereto.
1.9 The undersigned Subscriber further represents and warrants
that: (i) it is authorized and otherwise duly qualified to purchase and hold the
Securities; and (ii) that this Subscription Agreement has been duly and validly
authorized, executed and delivered constitutes the legal, binding and
enforceable obligation of the undersigned.
1.10 The Subscriber hereby represents that the address of
Subscriber furnished by it at the end of this Subscription Agreement is the
undersigned's principal business address.
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1.11 The Subscriber hereby represents that no representations
or warranties have been made to the Subscriber by the Company or any agent,
employee or affiliate of the Company, including the Placement Agent, and in
entering into this transaction, the Subscriber is not relying on any
information, other than the results of independent investigation by the
Subscriber.
1.12 The Subscriber acknowledges that at such time, if ever,
as the Securities, are registered, sales of such securities will be subject to
state securities laws, including those of states which may require any
securities sold therein to be sold through a registered broker-dealer or in
reliance upon an exemption from registration.
1.13 The Subscriber acknowledges that the Company will cause
$125,000 out of the proceeds of the Placement to be used for principal, interest
and other fee payments due under the Term Loan and Security Agreement dated
April 3, 2003 among the Company, Proyecciones Y Ventas Organizadas, S.A. de
C.V., and IIG Equity Opportunities Fund Ltd. (the "LOAN AGREEMENT").
II. REPRESENTATIONS BY THE COMPANY
2.1 The Company represents and warrants to the Subscriber that
at the date hereof and at the Closing (as hereinafter defined):
(a) The Company is a corporation duly organized, existing and
in good standing under the laws of the State of Delaware and has the corporate
power to conduct the business which it conducts and proposes to conduct.
(b) The execution, delivery and performance of this
Subscription Agreement by the Company will have been duly approved by the board
of directors of the Company and all other actions required to authorize and
effect the offer and sale of the Securities will have been duly taken and
approved.
(c) The Securities have been duly and validly authorized and
when issued and paid for in accordance with the terms hereof, will be the
binding obligations of the Company.
(d) The Company will at all times have authorized and reserved
a sufficient number of Warrant Shares and B2 Warrant Shares to provide for
exercise of the Warrants.
(e) The issuance of the Warrant Shares and B2 Warrant Shares
upon the exercise of the A, B and B2 Warrants in accordance with the terms of
the Warrant Agreement shall be, against payment therefor (if any), validly
issued, fully paid and nonassessable.
(f) The Company has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations necessary
to the conduct of its business, except where the failure to obtain any of the
same would not be reasonably likely to have a material adverse effect on the
Company; such licenses, permits and other governmental authorizations obtained
are in full force and effect; and the Company is in all material respects
complying therewith.
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(g) The Company knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which would be
reasonably likely to materially adversely affect the business, property,
financial condition or operations of the Company.
(h) The Company is not in violation of or default under, nor
will the execution and delivery of this Subscription Agreement, the issuance of
the Securities, and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein contemplated,
result in a violation of, or constitute a default under, the Company's articles
of incorporation or by-laws, any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company is a
party or by which it or any of its properties may be bound or any material
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
(i) The Company will cause $125,000 out of the proceeds of the
Placement to be used for principal, interest and other fee payments due under
the Loan Agreement.
(j) There are no obligations of the Company to officers,
directors, stockholders or employees of the Company other than (a) for payment
of salary for services rendered, (b) reimbursement for reasonable expenses
incurred on behalf of the Company, (c) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company) and (d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings. None of the officers, directors
or, to the best of the Company's knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company. No officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. The
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
(k) Except as set forth in Schedule 2.1(k), since December 31,
2002, there has not been:
(i) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than
changes in the ordinary course of business, none of which
individually or in the aggregate has had or is reasonably
expected to have a material adverse effect on such assets,
liabilities, financial condition, prospects or operations of
the Company;
(ii) Any resignation or termination of any officer,
key employee or group of employees of the Company;
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(iii) Any material change, except in the ordinary
course of business, in the contingent obligations of the
Company by way of guaranty, endorsement, indemnity, warranty
or otherwise;
(iv) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the
properties, business or prospects or financial condition of
the Company;
(v) Any waiver by the Company of a valuable right or
of a material debt owed to it;
(vi) Any direct or indirect material loans made by
the Company to any stockholder, employee, officer or director
of the Company, other than advances made in the ordinary
course of business;
(vii) Any material change in any compensation
arrangement or agreement with any employee, officer, director
or stockholder;
(viii) Any declaration or payment of any dividend or
other distribution of the assets of the Company;
(ix) Any labor organization activity related to the
Company;
(x) Any debt, obligation or liability incurred,
assumed or guaranteed by the Company, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(xi) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible
assets;
(xii) Any change in any material agreement to which
the Company is a party or by which it is bound which may
materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of
the Company;
(xiii) Any other event or condition of any character
that, either individually or cumulatively, has or may
materially and adversely affect the business, assets,
liabilities, financial condition, prospects or operations of
the Company; or
(xiv) Any arrangement or commitment by the Company to
do any of the acts described in subsection (i) through (xiii)
above.
(l) Assuming the accuracy of the representations and
warranties of the Subscriber contained in this Subscription Agreement, the
offer, sale and issuance of the Securities will be exempt from the registration
requirements of the 1933 Act, and will have been registered or qualified (or are
exempt from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any of its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D) in connection with the offer or sale of the
Securities.
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(m) The Common Stock of the Company is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act and the Company has timely filed all
proxy statements, reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act. The Company has furnished the
Subscriber with copies of (i) its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002, (ii) its Quarterly Reports on Form 10-QSB for the
fiscal quarter ended March 31, 2003, June 30, 2003, and September 30, 2003 and
(iii) its Proxy Statement filed with the SEC on November 13, 2003 (collectively,
the "SEC REPORTS"). The Company is eligible to file a registration statement on
Form S-3 with the SEC. Each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed) and fairly present in all material respects the financial position of
the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(n) The Company's Common Stock is listed for trading on the
American Stock Exchange and satisfies all requirements for the continuation of
such listing. The Company has not received any notice that its Common Stock will
be delisted from the American Stock Exchange or that the Common Stock and the
Company do not meet all requirements for the continuation of such listing.
(o) In the event that shareholder approval is required to
consummate the transaction contemplated by this Agreement under the rules of the
American Stock Exchange, Nasdaq Stock Market or other applicable exchange, due
to issuance of 20% or more of its outstanding common stock, the Company shall
use its best efforts to obtain shareholder approval of such transaction on or
before January 20, 2004 (the "APPROVAL"). The Company shall have received
proxies from each of the executive officers and directors of the Company
agreeing to vote in favor of the Approval.
(p) Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the 1933 Act, or any applicable exchange-related
stockholder approval provisions, nor will the Company or any of its affiliates
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or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
III. TERMS OF SUBSCRIPTION
3.1 As compensation for the Placement Agent's services in
connection with the Placement, the Company shall (A) pay to the Placement Agent
a placement fee equal to 7% of $500,000, the purchase price of the Common Stock
and Warrants sold in the Placement (of which $25,000 shall be paid upon the
purchase of the Common Stock and Warrants and balance to be paid upon exercise
of any portion of the B Warrants), plus the exercise price paid on the B
Warrants to be paid in full on such exercise, (B) reimburse the accountable
expenses of the Placement Agent, and (C) reimburse the Subscriber for its legal
fees in an amount not to exceed $15,000. The Company shall also pay all expenses
in connection with the qualification of the Securities under the securities or
blue sky laws of the states which the Placement Agent shall designate, including
legal fees and filing fees.
3.2 Upon the signing of this Agreement by the Subscriber, all
funds due hereunder shall be deposited in escrow with the Escrow Agent until
such time as the Escrow Agent receives instructions to release such funds in
accordance with the terms of the escrow agreement between the Company and the
Escrow Agent (the "ESCROW AGREEMENT"). Upon the acceptance of this Agreement by
the Company, all Common Stock and Warrants due hereunder shall be deposited in
escrow with the Escrow Agent until such time as the Escrow Agent receives
instructions to release such Common Stock and Warrants in accordance with the
Escrow Agreement (the "CLOSING"). If the Company does not accept the
subscription within seven (7) days, then this subscription shall be void and all
funds paid hereunder by the Subscriber, without interest, shall be promptly
returned to the Subscriber, subject to paragraph 3.5 hereof, and all such Common
Stock and Warrants deposited hereunder by the Company shall be promptly returned
to the Company.
3.3 The Subscriber hereby authorizes and directs the Escrow
Agent to deliver certificates representing the Common Stock and Warrants to be
issued to such Subscriber pursuant to this Subscription Agreement to the
business address furnished by it at the end of this Subscription Agreement.
3.4 The Subscriber hereby authorizes and directs the Escrow
Agent to return any funds for unaccepted subscriptions to the same account from
which the funds were drawn.
3.5 If the Subscriber is not a United States person, such
Subscriber hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Common Stock and Warrants or any use of this Subscription
Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of the Common Stock and Warrants, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the securities comprising the Common Stock and Warrants.
Such Subscriber's subscription and payment for, and his or her continued
beneficial ownership of the Common Stock and Warrants, will not violate any
applicable securities or other laws of the Subscriber's jurisdiction.
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IV. REGISTRATION RIGHTS
4.1 AUTOMATIC REGISTRATION . The Company hereby agrees with
the holders of the Common Stock and Warrants or their transferees (collectively,
the "SECURITIES HOLDERS") that no later than ten (10) calendar days following
the date of the Closing, the Company shall prepare and file a registration
statement under the Securities Act with the SEC covering the Common Stock and
Warrant Shares (the "REGISTRABLE SECURITIES"), and the Company will use its best
efforts to cause such registration to become effective as promptly as
practicable and within ninety (90) days thereafter. If (i) a registration
statement covering applicable Registrable Securities is not filed on or before
ten (10) calendar days following the date of the Closing, or (ii) a registration
statement covering applicable Registrable Securities is not declared effective
by the SEC on or before the date ninety (90) days thereafter (any such failure
or breach being referred to as an "EVENT," and the date on which such Event
occurs being referred to as an "EVENT DATE"), then, in any such case, as partial
relief for the damages suffered therefrom by the Securities Holders (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall, on the Event Date and on the first day of each month
following the Event Date until the triggering Event is cured, pay to each
Securities Holder an aggregate amount, in cash, as liquidated damages and not as
a penalty, equal to an amount equal to two percent (2%) (the "APPLICABLE
PERCENTAGE") of $1,959,999, which is the aggregate fair market value of the
Registrable Securities on the date hereof (the "SHARE MARKET VALUE") (calculated
as $39,200) (the "LIQUIDATED DAMAGES"). The Liquidated Damages shall be payable
for each month, or prorated for each portion thereof, that an Event has occurred
and is continuing. In addition, for each month, or portion thereof, after the
first month that Liquidated Damages are required to be paid hereunder, the
Applicable Percentage shall be increased by one percentage point (for example,
Liquidated Damages shall equal 2% of the Share Market Value for the first month
following an Event Date, 3% of the Share Market Value for the next month, and so
on until the Event has been cured). The payments to which a Securities Holder
shall be entitled pursuant to this Section are referred to herein as
"REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be calculated
on a cumulative basis. If the Company fails to make Registration Delay Payments
in a timely manner, such Registration Delay Payments shall bear interest at the
rate of 2.0% per month (or the maximum rate permitted by law), pro-rated for
partial months, until paid in full.
The obligation of the Company under this Section 4.1 shall be
limited to one registration statement and shall not apply to any Registrable
Securities that at such time are eligible for immediate resale pursuant to Rule
144(k) under the Securities Act.
4.2 AUTOMATIC B2 REGISTRATION . The Company hereby agrees with
the holders of the B2 Warrants or their transferees (collectively, the "B2
SECURITIES HOLDERS") that no later than thirty (30) calendar days following the
issuance of the B Warrants, the Company shall prepare and file a registration
statement under the Securities Act with the SEC covering the B2 Warrant Shares
(the "B2 REGISTRABLE SECURITIES"), and the Company will use its best efforts to
cause such registration to become effective as promptly as practicable and
within ninety (90) days thereafter. If (i) a registration statement covering
applicable B2 Registrable Securities is not filed on or before thirty (30)
calendar days following the issuance of the B Warrants, or (ii) a registration
statement covering applicable B2 Registrable Securities is not declared
effective by the SEC on or before the date ninety (90) days thereafter (any such
failure or breach being referred to as a "B2 EVENT," and the date on which such
B2 Event occurs being referred to as a "B2 EVENT Date"), then, in any such case,
as partial relief for the damages suffered therefrom by the B2 Securities
Holders (which remedy shall not be exclusive of any other remedies available at
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law or in equity), the Company shall, on the B2 Event Date and on the first day
of each month following the B2 Event Date until the triggering B2 Event is
cured, pay to each B2 Securities Holder an aggregate amount, in cash, as
liquidated damages and not as a penalty, equal to an amount equal to two percent
(2%) (the "B2 APPLICABLE PERCENTAGE") of $600,000, which is the aggregate fair
market value of the B2 Registrable Securities on the date hereof (the "B2 SHARE
MARKET VALUE") (calculated as $12,000) (the "B2 LIQUIDATED DAMAGES"). The B2
Liquidated Damages shall be payable for each month, or prorated for each portion
thereof, that a B2 Event has occurred and is continuing. In addition, for each
month, or portion thereof, after the first month that B2 Liquidated Damages are
required to be paid hereunder, the B2 Applicable Percentage shall be increased
by one percentage point (for example, B2 Liquidated Damages shall equal 2% of
the B2 Share Market Value for the first month following a B2 Event Date, 3% of
the B2 Share Market Value for the next month, and so on until the B2 Event has
been cured). The payments to which a B2 Securities Holder shall be entitled
pursuant to this Section are referred to herein as "B2 REGISTRATION DELAY
PAYMENTS." B2 Registration Delay Payments shall be calculated on a cumulative
basis. If the Company fails to make B2 Registration Delay Payments in a timely
manner, such B2 Registration Delay Payments shall bear interest at the rate of
2.0% per month (or the maximum rate permitted by law), pro-rated for partial
months, until paid in full.
The obligation of the Company under this Section 4.2 shall be
limited to one registration statement and shall not apply to any B2 Registrable
Securities that at such time are eligible for immediate resale pursuant to Rule
144(k) under the Securities Act.
4.3 "PIGGYBACK" REGISTRATION RIGHTS. At any time commencing
six months after the Closing, if the Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale of any of its securities by
it or any of its security holders (other than a registration statement on Form
▇-▇, ▇-▇ or other limited purpose form), the Company will give written notice of
its determination to all Securities Holders and B2 Securities Holders of record.
Upon the written request from any such holders (the "REQUESTING HOLDERS"),
within 15 days after receipt of any such notice from the Company, the Company
will, except as herein provided, cause all such Registrable Securities and B2
Registrable Securities to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Registrable Securities and B2 Registrable Securities to
be so registered; provided, further, that nothing herein shall prevent the
Company from, at any time, abandoning or delaying any registration. If any
registration pursuant to this Section 4.3 shall be underwritten in whole or in
part, the Company may require that the Registrable Securities and B2 Registrable
Securities requested for inclusion pursuant to this Section 4.3 be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. In such event, the Requesting Holders
shall, if requested by the underwriters, execute an underwriting agreement
containing customary representations and warranties by selling stockholders and
a lock-up on shares not being sold. If in the good faith judgment of the
managing underwriter of such public offering the inclusion of all of the
Registrable Securities and B2 Registrable Securities originally covered by a
request for registration (the "REQUESTED STOCK") would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock or other securities offered by the Company, the number of
shares of Requested Stock otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders thereof
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requesting such registration or excluded in their entirety if so required by the
underwriter. To the extent only a portion of the Requested Stock is included in
the underwritten public offering, those shares of Requested Stock which are thus
excluded from the underwritten public offering shall be withheld from the market
by the holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering.
The obligation of the Company under this Section 4.3 shall not
apply to Registrable Securities and B2 Registrable Securities that at such time
are eligible for immediate resale pursuant to Rule 144(k) under the Securities
Act.
4.4 FORM S-3 REGISTRATION. In case the Company shall be
obligated to effect a registration pursuant to the terms hereunder, the Company
shall use its best efforts to effect such registration on Form S-3, or any
successor SEC short-form registration statement with respect to the Registrable
Securities and B2 Registrable Securities, if Form S-3 is available for such
offering by the Securities Holders or B2 Securities Holders under applicable
federal securities laws.
4.5 REGISTRATION PROCEDURES. To the extent required by Section
4.1, Section 4.2, Section 4.3, and Section 4.4 the Company will:
(a) prepare and file with the SEC a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective;
(c) furnish to the Securities Holders or B2 Securities Holders
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as the Securities Holders and B2 Securities Holders
may reasonably request in writing within 20 days following the original filing
of such registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified;
(e) notify the Securities Holders or B2 Securities Holders,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
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(f) notify the Securities Holders or B2 Holders promptly of
any request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) prepare and file with the SEC, promptly upon the request
of any Securities Holders or B2 Securities Holders, any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for such Securities Holders or B2 Securities Holders (and concurred
in by counsel for the Company), is required under the Securities Act or the
rules and regulations thereunder in connection with the distribution of Common
Stock by such Securities Holders or B2 Securities Holders;
(h) prepare and promptly file with the SEC and promptly notify
such Securities Holders or B2 Securities Holders of the filing of such amendment
or supplement to such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading; and
(i) advise the Securities Holders or B2 Securities Holders,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the SEC suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the issuance of any
stop order or to obtain its withdrawal if such stop order should be issued.
The Securities Holders and B2 Securities Holders shall
cooperate with the Company in providing the information necessary to effect the
registration of their Registrable Shares or B2 Registrable Shares, including
completion of customary questionnaires.
4.6 EXPENSES.
(a) With respect to the registration required pursuant to
Sections 4.1, 4.2, and 4.3 hereof, all fees, costs and expenses of and
incidental to such registration, inclusion and public offering (as specified in
paragraph (b) below) in connection therewith shall be borne by the Company.
(b) The fees, costs and expenses of registration to be borne
by the Company as provided in paragraph (a) above shall include, without
limitation, all registration, filing, and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered and qualified. The Company shall be responsible for fees and
disbursements of counsel and accountants for the Securities Holders or B2
Securities Holders and any other expenses incurred by the Securities Holders or
B2 Securities Holders not expressly included above up to $5,000.
4.7 INDEMNIFICATION.
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(a) The Company will indemnify and hold harmless each
Securities Holder of Registrable Securities or B2 Securities Holder of B2
Registrable Shares which are included in a registration statement pursuant to
the provisions of Section 4.1, Section 4.2, or Section 4.3 hereof, its directors
and officers, and any underwriter (as defined in the Securities Act) for such
Securities Holders or B2 Securities Holder and each person, if any, who controls
such Securities Holders or B2 Securities Holder or such underwriter within the
meaning of the Securities Act, from and against, and will reimburse such
Securities Holders or B2 Securities Holder and each such underwriter and
controlling person with respect to, any and all loss, damage, liability, cost
and expense to which such Securities Holders or B2 Securities Holder or any such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expenses arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by or on behalf of such Securities
Holders or B2 Securities Holder, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
(b) Each Securities Holders of Registrable Securities or B2
Securities Holder of B2 Registrable Securities included in a registration
pursuant to the provisions of Section 4.1, Section 4.2, or Section 4.3 hereof
will indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any underwriter
with respect to, any and all loss, damage, liability, cost or expense to which
the Company or any controlling person and/or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in such registration statement,
any prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in conformity with written information furnished by or on behalf of such
Securities Holders or B2 Securities Holder specifically for use in the
preparation thereof; provided however, that the total amounts payable in
indemnity by the Securities Holders or B2 Securities Holder under this Section
4.7 shall not exceed the net proceeds received by the Securities Holders or B2
Securities Holder in the registered offering out of which such all loss, damage,
liability, cost and expense arises.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 4.7 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
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any liability which it may have to any indemnified party hereunder, except to
the extent that the indemnifying party is actually prejudiced thereby. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, provided, however,
if counsel for the indemnifying party concludes that a single counsel cannot
under applicable legal and ethical considerations, represent both the
indemnifying party and the indemnified party, the indemnified party or parties
have the right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (iii) the indemnifying party has, in its sole discretion,
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party.
V. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Company, at its registered office, ▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇-▇▇▇▇▇▇▇▇, Chief Executive Officer, and to the Subscriber at its
address indicated on the last page of this Subscription Agreement. Notices shall
be deemed to have been given on the date of mailing, except notices of change of
address and notices sent from outside the continental United States, which shall
be deemed to have been given when received.
5.2 This Subscription Agreement shall not be changed, modified
or amended except by a writing signed by the parties to be charged, and this
Subscription Agreement may not be discharged except by performance in accordance
with its terms or by a writing signed by the party to be charged.
5.3 This Subscription Agreement shall be binding upon and
inure to the benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
5.4 Notwithstanding the place where this Subscription
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all the terms and provisions hereof shall be construed in accordance
with and governed by the laws of the State of New York without regard to such
states laws regarding conflicts of laws. The parties hereby agree that any
dispute which may arise between them arising out of or in connection with this
Subscription Agreement shall be adjudicated before a court located in New York
City and they hereby submit to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
13
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of this Subscription Agreement or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
below or such other address as the undersigned shall furnish in writing to the
other.
5.5 This Subscription Agreement may be executed in
counterparts. Upon the execution and delivery of this Subscription Agreement by
the Subscriber, this Subscription Agreement shall become a binding obligation of
the Subscriber with respect to the purchase of Securities as herein provided;
subject, however, to the right hereby reserved to the Company to enter into the
same agreements with other subscribers and to add and/or to delete other persons
as subscribers.
5.6 The holding of any provision of this Subscription
Agreement to be invalid or unenforceable by a court of competent jurisdiction
shall not affect any other provision of this Subscription Agreement, which shall
remain in full force and effect.
5.7 It is agreed that a waiver by either party of a breach of
any provision of this Subscription Agreement shall not operate, or be construed,
as a waiver of any subsequent breach by that same party.
5.8 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
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IN WITNESS WHEREOF, the parties have executed this
Subscription Agreement as of the day and year first written above.
Scarborough Ltd.
By:
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title:
c/o Euroba Management Limited
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇ 12 Bermuda
----------------------------------------------
Taxpayer Identification Number of Subscriber
$500,000
----------------------------------------------
Dollar Amount of Units Subscribed For
Subscription Accepted:
FRONTLINE COMMUNICATIONS CORPORATION
By:
------------------------------------------
Name:
Title
15
