UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended - August 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from ________ to _________
Commission File Number 0-18299
NEWS COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
-----------------------------------------------------------
(Address of principal executive offices)
(718) 357-3380
--------------
(Issuer's telephone number)
----------------------------------------------
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 11, 1996: 7,826,415 shares $ .01 par value common stock.
<PAGE>
FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
at August 31, 1996........................................... 3
Unaudited Consolidated Statements of
Operations for the three and nine months
ended August 31, 1996 and August 31, 1995.................... 5
Unaudited Consolidated Statements of Cash
Flows for the three and nine months ended
August 31, 1996 and August 31, 1995.......................... 6
Notes to Consolidated Financial Statements................... 8
Item 2. Management's Discussion and Analysis
or Plan of Operation......................................... 9
PART II. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K
Signatures............................................................... 16
2
<PAGE>
PART I-ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1996
(UNAUDITED)
Assets:
Current Assets:
Cash and Cash Equivalents $ 316,499
Accounts Receivable [Less: Allowance for
Doubtful Accounts of $1,562,197] 5,488,203
Due From Related Parties 101,908
Other Current Assets 182,384
----------
Total Current Assets 6,088,994
Property and Equipment at Cost- Net of
Accumulated Depreciation of $817,196 562,067
Goodwill - Net 3,452,150
Other Assets 152,627
----------
Total Assets $10,255,838
==========
3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1996
(UNAUDITED)
Liabilities and Stochholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 2,041,330
Accrued Payroll and Payroll Taxes 219,015
Notes Payable - Bank 1,175,000
Due to Related Parties 13,567
----------
Total Current Liabilities 3,448,912
----------
Minority Interest 47,788
Notes Payable - Shareholder 1,000,000
----------
Stockholders' Equity:
Preferred Stock, $1.00 Par Value; 500,000 Shares Authorized:
10% Convertible Preferred Stock, 1,250 Shares Authorized;
32 Issued and Outstanding, $500 Per Share Per Annum
Cumulative Dividends, $160,000 Liquidation Value 32
8% Convertible Preferred Stock, 500 Shares Authorized,
217 Issued and Outstanding, $80 Per Share Per Annum
Cumulative Dividends, $217,000 Liquidation Value 217
12% Convertible Preferred Stock, 200 Shares Authorized,
200 Issued and Outstanding, $120 Per Share Per Annum
Cumulative Dividends, $200,000 Liquidation Value 200
Common Stock, $.01 Par Value; Authorized 100,000,000
Shares; 7,977,415 Shares Issued 79,774
Paid-in-Capital Preferred Stock 519,873
Paid-in-Capital Common Stock 13,755,256
(Deficit) (8,187,485)
----------
Total 6,167,867
Less: Treasury Stock [151,000 Shares]- At Cost (408,729)
Total Stockholders' Equity 5,759,138
Total Liabilities and Stockholders' Equity $ 10,255,838
===========
4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31
----------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
Unaudited
<S> <C> <C> <C> <C>
Net Revenues $5,504,204 $5,397,654 $13,856,070 $13,252,732
---------- --------- ---------- ----------
Expenses:
Direct Mechanical Costs 2,055,892 1,942,749 5,159,521 4,824,076
Salaries, Benefits and
Outside Labor Costs 2,472,156 2,529,690 7,176,835 7,091,924
Rent, Occupancy & Utilities 234,208 232,017 697,883 619,679
Provisions for Doubtful Accounts 111,000 87,000 199,000 159,000
General and Administrative 490,559 527,734 1,600,160 1,659,468
--------- --------- ---------- ----------
Total Expenses 5,363,815 5,319,190 14,833,399 14,353,517
--------- --------- ---------- ------------
Operating Income (Loss) Before Interest
Expense and Interest Income 140,389 78,464 (977,329) (1,100,785)
Interest Expense (32,122) (6,803) (72,439) (13,278)
Interest Income 1,750 13 1,750 31,591
--------- --------- ---------- ----------
Net Income (Loss $ 110,017 $ 71,674 $(1,048,018) $(1,082,472)
======== ========== ========== ==========
Net Income (Loss) Per Share $ .01 $ .01 $(.13) $(.14)
======== ========== ========== ==========
Weighted Average Shares
Outstanding 7,826,415 7,783,376 7,822,790 7,776,286
========= ========== ========== ==========
</TABLE>
5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended August 31,
-------------------------------------
1996 1995
---- ----
Unaudited
<S> <C> <C>
Operating Activities:
Net Income (Loss) $(1,048,018) $(1,082,472)
---------- ----------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 351,403 373,077
Provision for Losses on Accounts
Receivable 199,000 159,000
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (956,522) (1,375,859)
(Increase) Decrease in Other Current Assets (104,314) (212,772)
(Increase) in Due from Related Parties 17,325 3,856
Decrease (Increase) in Other Assets 1,552 23,153
(Increase) Decrease in Goodwill -- (23,033)
Increase (Decrease) in Accounts Payable
and Accrued Expenses 310,567 (255,951)
Increase (Decrease) in Payroll Taxes Payable (103,137) 226,383
Increase (Decrease) in Other Current Liabilities (15,615) 148,516
--------- ---------
Total Adjustments (299,741) (934,630)
--------- ---------
Net (Deficit) - Operating Activities - (1,347,759) (2,017,102)
Forward
</TABLE>
6
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended August 31,
----------------------------------
1996 1995
---- ----
Unaudited
<S> <C> <C>
Net (Deficit) - Operating Activities -
Forwarded (1,347,759) (2,017,102)
========= ==========
Investing Activities:
Sale of Marketable Securities -- 924,633
Capital Expenditures (42,194) (120,009)
-------- ----------
Net Cash Provided (Used) by Investing Activities (42,194) 804,624
-------- ----------
Financing Activities:
Principal Payments Long-Term Debt (24,000) (75,747)
Proceeds from Exercise of Warrants 19,498 9,216
Dividend on Preferred Stock (31,020) (31,020)
Proceeds from Exercise of Stock Options 12,500 19,758
Proceeds from Notes Payable - Bank 675,000 480,000
Proceeds from Notes Payable - Shareholder 1,000,000 --
--------- ---------
Net Cash Provided by Financing Activities 1,651,978 402,207
--------- ---------
Net Increase (Decrease) in Cash 262,025 (810,271)
Cash - Beginning of Periods 54,474 842,857
--------- ---------
Cash - End of Periods $ 316,499 $ 32,586
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 72,439 $ 9,547
Income Taxes -- --
</TABLE>
7
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The Consolidated Balance Sheet as of August 31, 1996 and the Consolidated
Statements of Operations for the three and nine-month periods ended August 31,
1996 and August 31, 1995, and the Consolidated Statements of Cash Flows have
been prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the company's annual report on Form 10-KSB
for the fiscal year ended November 30, 1995 and the related audited financial
statements included therein.
B. Loss per Share:
Loss per share is based on the weighted average number of shares outstanding
during the periods.
C. The results of operations for 1995 have been restated to reflect additional
expenses and loss.
8
<PAGE>
PART I-ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
News Communications, Inc. publishes various weekly community newspapers
and related targeted audience publications.
The Company publishes the Dan's Papers, and the Montauk Pioneer, Our Town,
the Manhattan Spirit, the Chelsea Clinton News, and the Westsider, the Queens
Tribun , the Bronx Press Review, (and the Riverdale Review), the Nassau
Newspapers, (including Lynbrook USA, Malverne Times, Rockville Centre News &
Owl, Valley Stream MAILeader, Independent Voice of Long Beach, Oceanside &
Island Park, Rockville Centre-Oceanside Beacon, Baldwin Citizen, East Rockaway
Observer, the Long Island Market and Long Island Lifestyles) and the Brooklyn
Skyline - all weekly regional newspapers. The Company also publishes a monthly
glossy magazine, Manhattan File, and The Hill, a weekly newspaper devoted to
coverage of the United States Congress. The following table sets forth, for the
periods indicated, certain information relating to each of the Company's
publications and to certain expenses incurred by the parent company, News
Communications, Inc. The information for the three and nine months ended August
31, 1996 and August 31, 1995 is unaudited.
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
----------------------------- ------------------------------
1996 1995(3) 1996 1995 (3)
---- ---- ---- ----
Unaudited
<S> <C> <C> <C> <C>
Queens Tribune $ 808,944 $ 820,876 $ 2,500,419 $ 2,320,369
Dan's Papers 1,753,280 1,621,268 2,851,634 2,535,152
Manhattan Spirit 399,931 387,993 1,200,445 1,226,334
Our Town 325,924 348,883 1,034,706 1,136,363
The Bronx Press/Riverdale Review 217,760 257,748 684,040 731,827
Nassau Newspapers 584,062 619,948 1,632,291 1,722,871
The Hill 372,880 403,379 1,064,623 1,019,990
Manhattan File 480,959 365,629 1,269,262 1,041,547
Brooklyn Skyline 325,615 300,915 921,498 752,111
Westside Publications 234,849 271,015 697,152 766,168
--------- --------- ---------- -----------
Total Net Revenues $5,504,204 $5,397,654 $13,856,070 $13,252,732
========= ========= ========== ==========
Income (Loss) Publications Before Goodwill:
Queens Tribune $ 138,071 $ 81,579 $ 410,864 $ 375,422
Dan's Papers 620,057 558,027 743,848 672,997
Manhattan Spirit 16,010 (10,421) 50,890 10,102
Our Town 29,381 11,088 79,492 91,180
The Bronx Press/Riverdale Review 12,562 (21,350) 23,813 (36,271)
Nassau Newspapers (79,715) (14,439) (192,426) (199,570)
The Hill (125,947) (67,448) (433,180) (407,556)
Manhattan File (26,951) (75,392) (245,553) (320,323)
Brooklyn Skyline (5,806) (17,813) (59,925) (102,539)
Westside Publications (4,940) 13,237 (39,851) 31,551
--------- --------- --------- ---------
Income (Loss) - Publications $ 572,722 $ 457,068 $ 337,972 $ 114,993
========= ========= ========== ==========
Income (Loss) Publications After Goodwill (1):
Queens Tribune $ 111,354 $ 54,862 $ 330,713 $ 295,271
Dan's Papers 607,382 545,352 705,823 634,972
Manhattan Spirit 16,010 (10,421) 50,890 10,102
Our Town 15,920 (2,373) 39,109 50,797
The Bronx Press/Riverdale Review 9,000 (24,912) 13,127 (46,957)
Nassau Newspapers (88,176) (22,188) (217,809) (222,817)
The Hill (125,947) (67,448) (433,180) (407,556)
Manhattan File (27,751) (75,392) (247,953) (320,323)
Brooklyn Skyline (7,336) (19,207) (64,515) (106,721)
Westside Publications (9,014) 9,976 (52,073) 21,768
--------- --------- ---------- ----------
Income (Loss)-Publications $ 501,442 $ 388,249 $ 124,132 $ (91,464)
========= ========= ========== ==========
Parent Company Expenses:
Personnel, Rent, General and Administrative 360,054 309,785 $ 1,101,461 $1,009,322
Interest (2) 30,371 6,790 70,689 (18,314)
--------- -------- ---------- ---------
Total Parent Company Expenses 390,425 316,575 1,172,150 991,008
--------- -------- ---------- ---------
Net Income (Loss) $ 110,017 $ 71,674 $(1,048,018) $(1,082,472)
========= ======== ========== ==========
</TABLE>
(1) Reflects expense for amortization of goodwill by publication as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended August 31, Nine Months Ended August 31,
----------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Queens Tribune $ 26,717 $ 26,717 $ 80,151 $ 80,151
Dan's Papers 12,675 12,675 38,025 38,025
Our Town 13,461 13,461 40,383 40,383
The Bronx Press Review 3,562 3,562 10,686 10,686
Nassau Newspapers 8,461 7,749 25,383 23,247
Brooklyn Skyline 1,530 1,394 4,590 4,182
Manhattan File 800 -- 2,400 --
Westside Publications 4,074 3,261 12,222 9,783
-------- -------- -------- -------
$ 71,280 $ 68,819 $ 213,840 $206,457
======== ======= ======== =======
<FN>
(2) Net of interest income of $1,750 and $13 for the three months ended August
31, 1996 and 1995 respectively and $1,750 and $31,591 for the nine months ended
August 31, 1996 and 1995 respectively.
(3) The quarter ended August 31, 1995 included 14 issues versus 13 issues during
the same quarter of 1996 (for all publications except Dan's Papers, Manhattan
File and The Hill).This fact adversely affects the comparison between 1996 and
1995.
Results of Operations:
The following discussion compares results of operations for the three months
ended and nine months ended August 31, 1996 and August 31, 1995.
Three Months Ended August 31, 1996 and August 31, 1995 (Note: The period ending
August 31, 1996 includes 13 weeks as compared to August 31, 1995 which includes
14 weeks for most
publications).
</FN>
</TABLE>
11
<PAGE>
Net Revenues:
Even though 1995 had the benefit of an additional issue, the total
revenues for 1996 were still up almost 4%. The Queens Tribune had an increase
(6%) in its ave age weekly revenues, due in part to expansion with the "Bayside
Trib at Home." Average weekly revenues for Nassau Newspapers publications have
stayed even. Dan's Papers has continued to expand its market share in the Long
Island posh resort area, the Hamptons. By effectively positioning itself as the
advertising standard on Long Island's east end, it is continuing its dominance
in its market area and increasing its revenues (8%). There were decreases in
average weekly revenues at the Bronx Press Review (9%) and Westside (7%),
attributed in part to a change in sales management and the downsizing of
Westchester Lifestyles. The Hill had a decrease (8%) in revenue as a result of
frequent periods when Congress was not in session during the quarter due to the
presidential election year. Manhattan File had an increase (32%) in revenue as a
result of additional special supplements and issues. Brooklyn Skyline had an
increase in average weekly revenue (17%) due to its expansion into a fifth zone
and an increased effective sales effort.
Income (Loss) - Publications:
Net Income from publications increased dramatically in 1996 (even
though most publications had one less issue this year) as the Company continues
to benefit from the effect of a series of budget cuts, instituted during the
second quarter, which will save the Company approximately $1.3 million on an
annualized basis. In addition, the Company has o going negotiations with
printers to take advantage of decreasing newsprint prices. The increases in
income for the Queens Tribune (69%) and Dan's Papers (11%), are attributed to
their increased revenues, budget cuts and decreased print costs. Our Town had an
increased profit (165%), while the Bronx Press Review and the Manhattan Spirit
had profits compared to losses last year primarily as a result of the budget
cuts and print costs. Nassau Newspapers had an increased loss as a result of the
lower revenue and repositioning the publications by converting some shoppers to
newspapers. Westside incurred a loss as a result of decreased revenues. The Hill
had an increased loss as a result of lower revenues. As a result of budget cuts
and increased revenues, Manhattan File was able to decrease its loss (64%) as
compared to last year.
12
<PAGE>
The Company is continuing to focus on increasing sales and controlling
costs.
Parent Company Expenses:
The increase in parent company expenses was primarily a result of
increased interest expense, professional fees and a change in the timing of
various expenses previously incurred in the fouth quarter.
Nine Months Ended August 31, 1996 and August 31, 1995 (Note: The period ending
August 31, 1996 includes 39 weeks as compared to August 31, 1995 which includes
40 weeks for most
publications).
Net Revenues:
Even though 1995 had the benefit of an additional issue, the total
revenues were still up almost 8%. The Queens Tribune had an increase (8%) in its
average weekly revenue, due to expansion with the "Bayside Trib at Home".
Average weekly revenues for Nassau Newspapers publications has stayed even.
Dan's Papers has continued to expand its market share in the Long Island posh
resort area, the Hamptons. By effectively positioning itself a the advertising
standard on Long Island's east end, it is continuing its dominance in its market
area and increasing its revenues (12%). Average weekly revenues at the Bronx
Press Review, Westside and Our Town remained even. The Hill had an increase (4%)
in revenue as a result of increased market share. Manhattan File had an increase
(22%) in revenue as a result of an improved sales effort and additional special
supplements. Brooklyn Skyline had an increase in average weekly revenue (17%)
due to its expansion into a fifth zone and an ongoing increased sales effort.
Income (Loss) - Publications:
As the Company continues to benefit from the effect of a series of
budget cuts, instituted during the second quarter, which will save the Company
approximately $1.3 million on an annualized basis, Net Income from publications
(which included the effect of the additional issue in 1995) increased
dramatically in 1996. In additi n, the Company has ongoing negotiations with
printers to take advantage of decreasing newsprint prices. The increases in
13
<PAGE>
income for the Queens Tribune (9%) and Dan's Papers (11%), are attributed to
their increased revenues and budget cuts and print costs. Our Town had an
increased profit (165%), while the Bronx Press Review and the Manhattan Spirit
had profits compared to losses last year primarily as a result of the budget
cuts and print costs. Nassau Newspapers had an increased loss as a result of
lower revenue and repositioning the publication by converting some shoppers to
newspapers. Westside incurred an increased loss as a result of decreased
revenues. The Hill had an increased loss as a result of lower revenues. As a
result of budget cuts and increased revenues, Manhattan File (23%) and Brooklyn
Skyline (42%) decreased their losses as compared to last year.
The Company is continuing to focus on increasing sales and controll ng
costs.
Parent Company Expenses:
The increase in parent company expenses was primarily a result of
increased interest expense, professional fees and a change in the timing of
various expenses previously incurred in the fouth quarter.
Liquidity and Capital Resources:
At August 31, 1996, the Company had an excess of current assets over
current liabilities of approximately $2,640,000. In May 1996 the Company
obtained a $1,000,000 two-year loan, from its largest shareholder, which was
used primarily for working capital needs resulting from seasonal fluctuations in
cashflow. On October 4, 1996 the Company announced that a group of investors
would be investing $2,000,000 in the company through the purchase of a new
series of Con ertible Preferred Stock.
Although there can be no assurance, management believes that the Company's
operations will generate positive cash flow for the fiscal year ending November
30, 1996 and that the Company has sufficient funds to meet its needs.
14
<PAGE>
Part II. OTHER INFORMATION
ITEM 5. Other Information.
As of October 4, 1996, the Company entered into an agreement
("Agreement") with a group of purchasers ("Purchasers") pursuant to which the
Company agreed to issue and sell to the Purchasers, for an aggregate
consideration of $2,000,000, 200,000 shares of a newly designated $10.00
Convertible Preferred Stock ("$10.00 Preferred") and warrants to purchase
800,000 shares of Common Stock at $2.00 per share. The warrants will be
exercisable during the five-year period beginning on the date of the closing of
the sale contemplated by the Agreement. It is expected that such closing will
take place on or about October 22, 1996.
Pursuant to the Agreement, the Company's Board of Directors
will be increased to 16 members and the holders of the $10.00 Preferred, so long
as at least 100,000 shares thereof are outstanding, shall be entitled to elect
one-half of the members. In this regard, the Agreement provides that Messrs.
Gary Ackerman, Eric Breindel, John Catsimatidis, Jerry Finkelstein, Andrew
Maloney, Michael Schenkler, Andrew Stein and Arthur Tarlow, each of whom is
presently a member of the Board of Directors, shall continue as directors and
the remaining present members of the Board of Directors, Messrs. Joseph K.
Fisher, David Jaroslawicz, William J. Kelleher, Jr., Christopher McGrath and
Martin J. McLaughlin, will resign effective as of the closing. The Purchasers
have designated Messrs. Carl Bernstein, Mark Dickstein, John E. McConnoughty,
Jr., Robert P. Nederlander, Wilbur L. Ross, Jr., Sy Syms, Hillel Weinberger and
Sydney Gruson as their designees for election to the Board of Directors upon the
closing.
Upon his election to the Board, Mr. Ross is to serve as
Chairman of the Executive Committee of the Board of Directors. He will also
serve as Chief Executive Officer of the Company until such time as a full-time
paid Chief Executive Officer is hired. In consideration for the services
rendered by Mr. Ross in such capacities, he is to be paid $1.00 per year and
shall be granted five-year options to purchase 200,000 shares of Common Stock at
$2.00 per share under the Company's Discretionary Directors' and Officers' Stock
Option Plan.
In connection with the transactions contemplated by the
Agreement, the Employment Agreement between the Company and Mr. Jerry
Finkelstein, Chairman of the Board, is to be extended for a period of five years
from its present date of expiration on the terms and conditions as are presently
in effect.
In consideration for services rendered by Rothschild Inc., of
which Mr. Ross is Senior Managing Director, the Company has agreed to pay
Rothschild Inc. the sum of $100,000. Rothschild Inc. has also agreed to
purchase 50,000 shares of the Company's Common Stock for the sum of $100,000.
15
<PAGE>
Full descriptions of the rights, designations, preferences and
other rights, qualifications, limitations and restrictions of the $10.00
Preferred and of the Warrants are in exhibits to the Agreement, a copy of which
is filed as an exhibit to this report, and are incorporated herein by reference.
Effective May 17, 1996, the Company entered into an agreement
with D.H. Blair Investment Banking Corp. ("Blair") pursuant to which Blair is to
act as a non-exclusive financial advisor and investment banker to the Company.
As an inducement to Blair's providing such services, the Company issued Blair a
five-year warrant to purchase 400,000 shares of its Common Stock at an initial
exercise price of $2.50 per share.
On May 21, 1996, Blair, the Company and the Company's
subsidiaries, Tribco Incorporated ("Tribco") and Access Network Corp.
("Access"), entered into a secured loan agreement pursuant to which Blair loaned
the Company, Tribco and Access (the "Borrowers") the sum of $1,000,000. The
principal amount of the loan is repayable on May 21, 1998. Interest on the loan
accrues at the rate of 8 1/2% per annum and is payable quarterly. The loan is
secured by a security interest granted by the Borrowers to Blair on all of their
personal property and fixtures and by a pledge made by the Company to Blair of
all of the outstanding common stock of Tribco and Access. As additional
consideration for the loan, the Company issued Blair a five-year warrant to
purchase 200,000 shares of Common Stock at an initial exercise price of $2.50.
As of May 21, 1996, Blair and certain of its affiliates were
the beneficial owners of the aggregate of 1,717,030 shares of the Company's
Common Stock and 600,000 shares issuable upon the exercise of the two warrants
described above, of which 1,579,515 shares and all of the warrants were
beneficially owned by Blair.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.28 Agreement dated May 17, 1996 between D.H. Blair
Investment Banking Corp. ("Blair") and the Company.
10.29 Loan Agreement dated May 21, 1995 among Blair, the
Company, Tribro Incorporated ("Tribco") and Access
Network Corp. ("Access").
10.30 $1,000,000 Promissory Note dated May 21, 1996 issued
by the Company, Tribco and Access to the order of
Blair.
10.31 Warrant dated May 17, 1996, to purchase 400,000
shares of the Company's Common Stock issued by the
Company to Blair.
10.32 Warrant, dated May 21, 1996, to purchase 200,000
shares of the Company's Common Stock issued by the
Company to Blair.
10.33 Form of Subscription Agreement made as of October
4, 1996 among the Company and persons designated
therein as "Purchasers," including Exhibit 1 thereto,
form of Certificate of Designation of $10.00
Convertible Preferred Stock, and Exhibit 2 thereto,
form of Warrant.
27 Financial Data Schedule (filed electronically only).
B. Reports on Form 8-K - None
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: October 14, 1996 By: /s/ Michael Schenkler
----------------------------
Michael Schenkler, President
Date: October 14, 1996 By: /s/ Robert Berkowitz
----------------------------
Robert Berkowitz, Controller
18
May 17, 1996
Michael Schenkler
President
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Gentlemen:
D.H. Blair Investment Banking Corp. ("Blair") is pleased to act as
non-exclusive financial advisor and investment banker to News Communications
Inc. (the "Company") in connection with: (i) assisting the Company in its
strategic planning including assisting with the development of its business plan
and introducing the Company and its management to analysts, bankers, fund
managers and brokers (ii) provides general business and financial analysis of
the Company and/or (iii) advise the Company with respect to the development of
the Company's business and/or (iv) any proposed business combination involving
the Company and another party (a "Third Party"); and/or (v) any common venture
involving the Company and another party (a "Partner"); and/or (vi) any financing
for the Company which may be arranged or provided by a party introduced to the
Company by Blair (a "Financing Agent"). This letter is to confirm our
understanding with respect to our engagement. As used in this letter, the term
"business combination" means any merger, consolidation, reorganization or other
corporate transaction pursuant to which a significant portion of the business of
the Company is combined with that of a Third Party, including but not limited to
the acquisition, directly or indirectly, by a Third Party of at least 10% of the
capital stock, or all or a substantial portion of the assets of the Company, or
the acquisition, directly or indirectly, by the Company of at least 10% of the
capital stock, or all or a substantial portion of the assets of a Third Party,
by way of tender or exchange offer, negotiated purchase or otherwise, whether
effected in either such case in one transaction or a series of transactions. As
used in this letter, the term "common venture" means (i) any joint venture,
partnership, distribution, consulting, research and development or license
agreement or other arrangement with a Partner providing for: (a) the sale by the
Company or any of its affiliates of products and/or services of the Partner or
any of its affiliates or the funding by the Company or any of its affiliates of
the research and development of the Partner or any of its affiliates; (b) the
sale by the Partner or any of its affiliates of any products and/or services of
the Company or any of its affiliates or the funding by the Partner or any of its
affiliates of the research and development of the Company or any of its
affiliates; or (c) the sale of products and/or services or the funding of any
research and development of the Company, the Partner or any of their respective
affiliates by any venture
<PAGE>
News Communications, Inc.
May 17, 1996
Page 2
in which the Company or any of its affiliates, and the Partner or any of its
affiliates, have an interest. As used in this letter, the term "venture sales"
shall mean the gross sales price, less freight and taxes, if any, of all
products and/or services sold pursuant to a common venture. As used in this
letter, the term "financing" shall mean any bank or institutional loan or any
private placement or public offering of debt and/or equity securities by the
Company.
Blair will assist the Company as provided in clauses (i), (ii) and
(iii) above and in identifying potential Third Parties, Partners and Financing
Agents and in analyzing, structuring, negotiating and effecting a business
combination with a Third Party, common ventures with Partners, and/or financings
with a Financing Agent, on the terms and conditions of this letter. As an
inducement to Blair's providing the services referred to in clauses (i), (ii)
and (iii) above, simultaneously with the execution of this Agreement the Company
shall issue to Blair a warrant to purchase 400,000 shares of its common stock,
$.01 par value, at an initial exercise price of $2.50 per share, in the form
annexed hereto as Exhibit A.
Blair shall not be entitled to any other fees in connection with the
services to be provided hereunder, provided, however, that Blair shall be
entitled to such additional fees as Blair and the Company may agree upon in the
event Balir shall serve as the Financing Agent in connection with any future
financing.
Additionally, the Company agrees to reimburse Blair promptly upon
request made from time to time, for its actual out-of-pocket expenses, including
reasonable legal and other professional fees and expenses incurred in connection
with Blair's engagement hereunder.
The Company agrees to indemnify Blair and its affiliates and their
respective shareholders, directors, officers, employees, agents and controlling
persons (Blair and each such person being an "Indemnified Party") from and
against any and all losses, claims, damages and liabilities, joint or several,
to which such Indemnified Party may become subject under any applicable federal
or state law, or otherwise, related to or arising out of any business
combination, common venture or financing contemplated by this letter or the
engagement of Blair pursuant to, and the performance by Blair of the services
contemplated by, this letter and will reimburse any Indemnified Party for all
expenses (including, subject to the provisions of the seventh sentence of this
paragraph, reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for, or defense of, any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party, provided that the Company
shall have the right to control the defense and settlement of any such claim.
The Company will assume the defense of such action or proceeding and will employ
counsel reasonably satisfactory to Blair and will pay the fees and expenses of
such counsel. The Company
<PAGE>
News Communications, Inc.
May 17, 1996
Page 3
shall not be liable for any settlement effected without the consent of the
Company, which consent shall not be unreasonably withheld, and the Company shall
not settle any claim without the consent of Blair, which consent shall not be
unreasonably withheld. In addition, the Company further agrees that any
settlement entered into by the Company shall include an explicit and
unconditional release from the party bringing the claim, action or proceeding of
all Indemnified Persons, which release shall be reasonably satisfactory to
Blair. Notwithstanding the obligation of the Company to employ counsel in
connection with any such action or proceeding, an Indemnified Party will be
entitled to employ counsel separate from counsel for the Company and from any
other party in such action if such Indemnified Party reasonably determines that
representation by counsel chosen by the Company constitutes a conflict on any
significant issue between the positions of such Indemnified Party and the
Company, or the Company have failed to provide counsel reasonably satisfactory
to the Indemnified Party in a timely manner. In such event, the reasonable fees
and disbursements of such separate counsel will be paid promptly by the Company.
In no event will the Company be responsible for the fees and expenses of more
than one counsel (in addition to any necessary local counsel) for all
Indemnified Parties at any time in connection with any action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction. The Company will not be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability or expense is
finally judicially determined to have resulted directly from Blair's gross
negligence or intentional misconduct.
The Company and Blair agree that if any indemnification or
reimbursement sought pursuant to the preceding paragraph is judicially
determined to be unavailable for a reason other than the gross negligence or
intentional misconduct of Blair then, whether or not Blair is the Indemnified
Person, the Company, on one hand, and Blair, on the other hand, shall contribute
to the losses, claims, damages, liabilities and expenses for which such
indemnification or reimbursement is held unavailable (i) in such proportion as
is appropriate to reflect the relative benefits to the Company, on the one hand,
and Blair, on the other hand, in connection with the transactions to which such
indemnification or reimbursement relates, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative faults of the Company, on the one hand, and Blair, on the
other hand, as well as any other equitable considerations.
The Company will furnish Blair with such information as the Company and
Blair believe appropriate to the assignment (all such information so furnished
being "Information"). The Company recognizes and confirms that Blair (a) will
use and rely primarily on the Information and on information available from
generally recognized public sources in performing the services
<PAGE>
News Communications, Inc.
May 17, 1996
Page 4
contemplated by this letter without having independently verified the same, (b)
does not assume responsibility for the accuracy or completeness of the
Information and such other information, and (c) will not make an appraisal of
any assets of the Company for any prospective Third Party, Partner, or Financing
Agent.
This letter agreement shall be for a term of two years commencing upon
the date hereof, provided, however, that the provisions relating to the payment
of fees and expenses of Blair, the indemnification and contribution provisions
and the provisions of the succeeding paragraphs will survive the termination of
this agreement for any reason.
Except as required by applicable law, any advice to be provided by
Blair under this agreement shall not be disclosed publicly or made available to
third parties without the prior written approval of Blair, and accordingly such
advice shall not be relied upon by any person or entity other than the Company.
The Company agrees that Blair has the right following the closing of a
business combination, common venture or financing to place two tombstone
advertisements in financial and other newspapers and journals at the Company's
expense describing Blair's services hereunder, provided that Blair will submit a
copy of any such advertisements to the Company for approval, which approval
shall not be unreasonably withheld.
Nothing in this agreement, expressed or implied, is intended to confer
or does confer on any person or entity other than the parties hereto or their
respective successors and assigns, and to the extent expressly set forth herein,
the Indemnified Persons, any rights or remedies under or by reason of this
agreement or as a result of the services to be rendered by Blair hereunder. The
Company further agrees that neither Blair nor any of its controlling persons,
affiliates, directors, officers, employees or agents shall have any liability to
the Company for any losses, claims, damages, liabilities or expenses arising out
of or relating to this agreement or the services to be rendered by Blair
hereunder, unless it is finally judicially determined that such losses, claims,
damages, liabilities or expenses resulted directly from the gross negligence or
willful misconduct of Blair.
The invalidity or unenforceability of any provision of this agreement
shall not affect the validity or enforceability of any other provision of this
agreement, which shall remain in full force and effect.
This agreement may not be amended or modified except in writing signed
by each of the parties and shall be governed by and construed and enforced in
accordance with the laws of the
<PAGE>
News Communications, Inc.
May 17, 1996
Page 5
State of New York, without regard to principles of conflict of laws. The Company
and Blair hereby irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States District Courts located in the City of New York, and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such lawsuit, claim or other proceeding brought in any such
court has been brought in an inconvenient forum. Any right to trial by jury with
respect to this agreement or the services to be rendered by Blair hereunder is
expressly and irrevocably waived. The service of any notice, process, motion or
other document in connection with any lawsuit, claim or other proceeding arising
out of or relating to this agreement may be effected by registered mail, return
receipt requested, if to the Company, to the Company's address set forth herein
(or to such other address as the Company may provide in writing to Blair) or, if
to Blair, to D.H. Blair Investment Banking Corp., 44 Wall Street, 2nd Floor, New
York, N.Y. 10005, Attention: Martin A. Bell, Vice Chairman and General Counsel
(or to such other address as Blair may provide in writing to the Company.)
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Blair the duplicate copy of this letter enclosed
herewith.
Very truly yours,
D.H. BLAIR INVESTMENT BANKING CORP.
By: /s/ J. Morton Davis
--------------------------------
J. Morton Davis
Chairman
Accepted and Agreed
to as of the date first
written above:
NEWS COMMUNICATIONS INC.
By: /s/ Michael Schenkler
---------------------------
Michael Schenkler
President
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT, dated May 21, 1996 is made and entered into by and
between D.H. BLAIR INVESTMENT BANKING CORP. ("Lender"), a Delaware corporation
whose address is 44 Wall Street, 2nd Floor, New York, New York 10005 and NEWS
COMMUNICATIONS, INC. ("News") and, a Nevada corporation whose address is 174-15
Horace Harding Expressway, Fresh Meadows, New York 11365, TRIBCO INCORPORATED, a
New York corporation whose address is 174-15 Horace Harding Expressway, Fresh
Meadows, New York 11365, and ACCESS NETWORK CORP., a New York corporation whose
address is 242 West 30th Street, New York, New York 10001 (each of the foregoing
a "Borrower" and collectively, the "Borrowers").
WHEREAS, the Borrowers desire to borrow from Lender the principal sum
of One Million Dollars ($1,000,000) (the "Loan"); and
WHEREAS, Lender is willing to make the Loan upon the terms and
conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this Loan Agreement to
reflect the terms and conditions of, and to describe their respective rights and
obligations with respect to, the Loan;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the parties hereto agree as follows:
1. The Loan. Lender agrees to make the Loan to the Borrowers in the
principal amount of $1,000,000 on the terms and conditions contained herein and
as provided in the Note (as hereinafter defined).
2. Loan Terms (a) The Loan shall be evidenced by a promissory note as such may
be amended, modified, extended, restated, or a promissory note issued as a
replacement or substitution therefor (the "Note") payable to Lender in
substantially the form attached hereto as Exhibit A.
(b) The Loan shall be payable in one installment of all outstanding
principal and unpaid, accrued interest on May 21, 1998 (the "Maturity Date").
(c) Interest shall accrue on the principal amount outstanding under the
Loan at the rate of eight and one-half percent (8-1/2%) per annum and shall be
payable quarterly commencing on July 1, 1996 and on the Maturity Date or the
date of any other payment of principal under the Note. Interest shall be
calculated on a 365-day year basis and actual days elapsed from disbursement
date until paid.
(d) The entire amount of unpaid principal and accrued interest shall,
from and after the Maturity Date and from and after an "Event of Default" (as
hereinafter defined), bear interest at the
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<PAGE>
rate equal to the lesser of (i) twenty-four percent (24%) per annum and (ii) the
maximum interest rate permitted by law.
(e) The Borrowers may at any time prepay in whole or in part the
principal sum, plus accrued interest on the amount so prepaid to date of
payment, of the Note, without premium or penalty. Unless otherwise agreed by
Lender, any prepayments shall be applied first to accrued interest and then to
the unpaid principal amount of the Loan.
(f) The Loan, and each and every modification, extension, renewal, or
refinancing thereof, and the performance of all covenants, duties and
obligations of the Borrowers and the compliance by the Borrowers with all
conditions, representations and warranties set forth in this Loan Agreement, the
other "Loan Documents" (as hereinafter defined) and all documents executed in
connection herewith, shall be secured by a security interest in all assets of
the Borrowers pursuant to a Security Agreement annexed hereto as Exhibit B and
all of the stock of the Borrowers (other than News) pursuant to a Pledge
Agreement annexed hereto as Exhibit C.
(g) Simultaneously with the execution of this Loan Agreement, News
agrees to issue to Lender a five-year warrant to purchase 200,000 shares of
common stock of News at an initial exercise price of $2.50 per share pursuant to
the Warrant (the "Warrant") annexed hereto as Exhibit D.
(h) Lender shall not be required to make the Loan hereunder, unless and
until the following shall be satisfied:
1. The Loan Agreement, the Note, the Security Agreement and
the Pledge Agreement (collectively, the "Loan Documents") and the Warrant have
been duly executed and delivered to Lender and shall be in full force and effect
in accordance with their terms.
2. The Borrowers shall have theretofore complied with all of
the conditions, terms, covenants and agreements contained in this Loan
Agreement, the other Loan Documents and all documents executed in connection
herewith including the Warrant and all representations and warranties of the
Borrowers are true and correct as of the date of the borrowing.
3. At the time of the borrowing hereunder, the Borrowers shall
deliver to the Lender a certificate, dated the date of the borrowing, confirming
that no Event of Default (as hereinafter defined) or any event which upon notice
or passage of time or both would constitute an Event of Default shall have
occurred and be continuing at the time of such borrowing.
4. On or prior to the date of the borrowing hereunder, the
Lender shall have received from News:
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(x) A certificate of an officer of News dated the
date of such borrowing and certifying (i) that attached thereto is a true and
complete copy of the articles and bylaws of News as in effect prior to the
adoption of the resolutions referred to in the immediately following clause and
at all times since such adoption, (ii) that attached thereto is a true and
complete copy of the resolutions adopted by the Board of Directors of News
authorizing the execution, delivery and performance of this Loan Agreement and
the other Loan Documents by all of the Borrowers and the Warrants by News, and
(y) such other documents as the Lender may reasonably
request.
(i) If any payment of principal, interest or any other amount due
hereunder is due upon a day which is not a day upon which the Lender's bank is
open for business ("Business Day") then such payment shall be due on the next
succeeding Business Day and such extension shall in such case be included in the
computation of interest accrued thereon.
3. Borrowers' Representations, Warranties and Covenants. Each Borrower
represents, warrants, and covenants to Lender that, as of the date hereof, and
as long as any amount hereunder or under the Note remains outstanding (and with
respect to the Warrant, until expiration or exercise of the Warrant):
(a) there is no provision of any contract, agreement, indenture or
other instrument to which the Borrower is or will be a party which would be
contravened or violated by any of the representations, warranties, covenants or
agreements made or actions to be taken hereunder or under the other Loan
Documents or Warrant by such Borrower.
(b) there is no action, suit, proceeding, arbitration or investigation
pending at law or in equity or before any governmental agency or instrumentality
or, to the knowledge of such Borrower, threatened against or affecting such
Borrower or which, in any case, might materially adversely affect such Borrower
or its operations, business, assets, properties or condition (financial or
otherwise) or its ability to perform or otherwise comply with its obligations to
Lender. If, in the future, such action, suit, proceeding, arbitration or
investigation is pending or threatened, such Borrower shall provide Lender with
immediate notification and the details thereof.
(c) such Borrower is a corporation duly organized and validly existing
under the laws of the state of its incorporation. Such Borrower has the power
and authority to conduct all of the activities conducted by it and to own or
lease all of the assets owned or leased by it and such Borrower is duly licensed
or qualified to do business as a foreign corporation in all jurisdictions in
which the nature of its business require it to be so licensed or qualified. Such
Borrower is in all material respects in compliance with all laws, regulations
and ordinances applicably to it.
3
<PAGE>
(d) the execution, delivery and performance by such Borrower of this
Loan Agreement, the other Loan Documents and the Warrant (i) do not require the
approval of any governmental authority, (ii) do not violate the certificate of
incorporation or bylaws of such Borrower and (iii) do not violate any provisions
of law, any writ, order or decision of any court or other governmental
authority, or any indenture, agreement or other instrument to which such
Borrower is a party or by which its properties may be bound or affected. This
Loan Agreement, the other Loan Documents, the Warrant and any other documents
executed by such Borrower in connection herewith are, or upon execution and
delivery will be, the legal, valid and binding obligations of such Borrower,
enforceable in accordance with their respective terms, and are not and will not
be, without Lender's prior written consent, subordinated in right of payment to
any other obligation of such Borrower.
(e) such Borrower has obtained all necessary corporate and other
approvals for the execution and delivery of this Loan Agreement, the other Loan
Documents and the Warrant. Such Borrower has the power and authority to execute
this Loan Agreement, the other Loan Documents and the Warrant and to consummate
the transactions contemplated hereby and thereby.
(f) except for approximately $170,000 in overdue payroll taxes, which
the Borrower will repay from the proceeds of the Loan, no delinquency presently
exists with respect to payment of any tax, assessment or other governmental
charge owing by such Borrower. There are no material unresolved questions or
claims concerning any tax liability of such Borrower.
(g) insurance of the types and in the amounts customarily carried in
lines of business similar to such Borrower is maintained and kept in force.
(h) there is no condition of existing default by such Borrower under
any agreement, lease, contract or other instrument which would have a material
adverse effect on such Borrower, its operations, business, assets, properties,
or condition (financial or otherwise) or its ability to fulfill its obligations
to Lender hereunder or under the other Loan Documents or the Warrant.
(i) such Borrower has no contingent or disputed liabilities or
unrealized or anticipated losses which in the aggregate are material, or any
material commitments of an unusual or burdensome character.
(j) there is no fact which materially adversely affects the ability of
such Borrower to perform its obligations to Lender which has not been set forth
herein.
(k) none of this Loan Agreement, the other Loan Documents or the
Warrant, nor any certificate, statement or other document furnished or to be
furnished to the Lender in connection with the transactions contemplated hereby
or thereby contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, not misleading.
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<PAGE>
4. Covenants. Unless Lender otherwise agrees in writing, until payment
and performance in full of the Loan and all obligations hereunder and under the
other Loan Documents, each Borrower shall:
(a) duly and punctually pay or cause to be paid the principal of and
interest on the Note on the dates, in the places and in the manner set forth
therein and herein, and perform and observe all other obligations of such
Borrower under this Loan Agreement, the other Loan Documents, the Warrant and
any other instruments, documents and agreements executed in connection herewith.
(b) maintain and preserve its existence, rights, privileges and
franchises in good standing under the laws of the state of its incorporation and
of such states in which it may decide to maintain its existence and maintain its
right to transact business in all other states where its activities and
ownership of assets are such that qualification to transact business is
necessary under the laws of such states.
(c) keep and maintain full and accurate accounts and records of its
operations in accordance with generally accepted accounting principles
applicable to businesses of the type in which it is engaged and consistent with
principles heretofore applied by it in preparation of its financial statements.
(d) with respect to News, timely file all documents and reports
required to be filed by it under the Securities Exchange Act of 1934, as
amended, and provide copies of all such filings, documents and reports to Lender
immediately after their filing with the Securities and Exchange Commission or
any other governmental or regulatory body.
(e) permit Lender to inspect the accounts and records of such Borrower
at any time during normal business hours.
(f) comply in all material respects with all laws, regulations, rules
and orders of governmental authorities applicable to it or to its operations,
business or property.
(g) duly pay and discharge, all wages, indebtedness, obligations,
assessments, governmental charges and taxes, real and personal, including
federal and state income taxes, levied upon or assessed against it or against
its properties or income prior to the date on which penalties were attached
thereto, unless and except to the extent only such shall be contested in good
faith and by appropriate proceedings diligently conducted by it.
(h) execute and deliver to Lender such other and further instruments,
security agreements documents and information and to do such other and further
acts as may be reasonably required and requested by Lender in order to fully
vest and maintain in Lender any security interest or rights herein contemplated.
5
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(i) promptly after learning thereof, notify Lender in writing of the
occurrence of (i) any Event of Default or any act, condition, or event that
would constitute an Event of Default upon notice, failure to cure or lapse of
time or all of the foregoing; (ii) any material adverse change in its business,
property, assets, operations or condition (financial or otherwise) or (iii) the
pendency or threat of any investigation or litigation or arbitration and of any
tax deficiency, tax determination or other proceeding before any governmental
body or official affecting it.
(j) will not voluntarily create, suffer, or permit to be created any
new or additional liens against the "Collateral" (as such term is defined in the
Security Agreement) or any liens against the "Pledged Securities" (as such term
is defined in the Pledge Agreement) except any lien created hereby. Each
Borrower shall not incur any indebtedness except in the ordinary course of
business without Lender's prior written consent which shall not be unreasonably
withheld.
(k) except with Lender's prior written consent, not (a) sell, lease,
transfer, spin off to shareholders or otherwise dispose of two or more of the
Borrowers' newspapers and/or other publications or any of the Pledged Securities
or (b) enter into any arrangement with any person with respect thereto.
5. Events of Default. If any of the events specified in this Section 5
shall occur (herein individually referred to as an "Event of Default"):
(i) Default in payment of principal or interest under the Note when due;
(ii) A default by any Borrower in any obligation, or breach by any
Borrower of any representation, warranty, covenant or agreement, set forth
herein or in any other Loan Document or the Warrant, or other documents signed
by any Borrower in connection with the Loan which is not cured or cannot be
cured by such Borrower, within ten (10) days after the Lender has given such
Borrower written notice of such default;
(iii) The institution by any Borrower of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it or the filing by it of a petition or answer
or consent seeking reorganization or release under the federal Bankruptcy Code,
or any other applicable federal or state law, or the consent by it to the filing
of any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official for all or any substantial part of its
property or the taking of any action by any Borrower in furtherance of any such
action;
(iv) If, within sixty (60) days after the commencement of an action
against any Borrower seeking any bankruptcy, insolvency, reorganization,
liquidation or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of such Borrower,
or all orders or proceedings thereunder affecting the property of such Borrower,
6
<PAGE>
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within sixty (60) days after the appointment without the consent
or acquiescence of such Borrower of any trustee or receiver for all or any
substantial party of its property such appointment shall not have been vacated;
(v) Any default of any Borrower under any indebtedness or other
obligations which aggregate at least $100,000 if such default is not cured by
such Borrower before the earlier of (1) ten (10) days after the Lender has given
such Borrower written notice of such default or (2) the obligee of such
indebtedness or other obligation has made demand or notified the Borrower of any
acceleration and in either case, any cure period has lapsed; or
(vi) The rendering of one or more judgments or orders against any
Borrower for the payment of money exceeding any applicable insurance coverage by
more than $100,000 in the aggregate, and either (1) enforcement proceedings
shall have been commenced by any creditor upon any such judgment or order, or
(2) there shall be any period of 30 consecutive days during which a stay of
enforcement of any such judgement or order, by reasons of a pending appeal or
otherwise, shall not be in effect; or
(vii) Any event if default under any other Loan Document; or
(viii) The dissolution or liquidation of any Borrower or if any
Borrower or its directors or shareholders shall take action approving or
authorizing the dissolution or liquidation of such Borrower
then, with the exception of an Event of Default specified in clauses
(iii) or (iv) above, the Lender may, by notice to the Borrowers, declare any
outstanding indebtedness to Lender under the Note and this Loan Agreement, all
interest thereon and all other amounts payable hereunder or thereunder to be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrowers,
whereupon the principal amount of the Note, all such interest and all such
amounts shall become and be immediately due and payable, and exercise any and
all of its other rights under applicable law.
Upon the occurrence of an Event of Default specified in clauses (iii)
or (iv) above, any outstanding indebtedness to Lender under the Note and this
Loan Agreement, all interest thereon and all other amounts payable hereunder or
thereunder shall thereupon and concurrently therewith become due and payable,
all without any action by the Lender, and without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived by the
Borrowers, anything in this Loan Agreement or the Note to the contrary
notwithstanding.
In addition to its rights hereunder Lender may also exercise any or all
of its rights contained in any other Loan Document.
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<PAGE>
6. Miscellaneous.
(a) Any notice required, desired or permitted to be given to the
Borrowers or the Lender hereunder shall be in writing and shall be delivered
personally, sent certified or registered United States mail, return receipt
requested, or sent by overnight courier service addressed to:
Borrowers: Michael Schenkler
President
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Lender: J. Morton Davis
Chairman
D.H. Blair Investment Banking Corp.
44 Wall Street
2nd Floor
New York, New York 10005
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service, (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other parties.
(b) In the event any term or provision of this Loan Agreement, any
other Loan Document, the Warrant or any other instrument, document or agreement
executed pursuant hereto shall be finally determined to be superseded, invalid,
illegal or otherwise unenforceable pursuant to applicable law by any authority
having jurisdiction, such determination shall not affect the validity, legality
or enforceability of the remaining terms and provisions of this Loan Agreement,
any Loan Document, the Warrant or any such other instrument, document or
agreement, which shall be enforced as if the unenforceable term or provision
were deleted.
(c) No course of dealing on the part of Lender, its officers,
directors, employees, consultants or agents, nor any failure or delay by Lender
with respect to exercising any rights, remedy, power or privilege of Lender
under this Loan Agreement, any other Loan Document the Warrant, or any other
instrument, document or instrument executed and delivered in connection herewith
at law or in equity shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise or the exercise
of any other right, remedy, power or privilege. No waiver or consent shall be
effective unless the same shall be in writing and signed by Lender and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrowers in any
case shall entitle the Borrowers to any other or further notice or demand in
similar or other circumstances.
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<PAGE>
(d) The enforcement of any rights of Lender to any security for the
Loan including under the Loan Documents shall not affect the rights of Lender to
enforce payment of the Loan and to recover judgement for any portion thereof
remaining unpaid. The rights and remedies herein expressed are cumulative and
not exclusive of any right or remedy that Lender shall otherwise have.
(e) This Loan Agreement, the other Loan Documents, the Warrant and all
instruments, documents or agreements executed pursuant hereto shall be governed
by and construed in accordance with the laws of the State of New York without
giving effect to the principles of conflicts of laws thereof.
(f) The Borrowers may not assign any of their respective rights or
obligations hereunder or under any of the other Loan Documents or the Warrant,
without the prior written consent of Lender. Any such assignment without such
consent shall be void and shall constitute an Event of Default hereunder and
under the other Loan Documents. Lender may assign its rights and obligations
hereunder or under the other Loan Documents or the Warrant without the prior
consent of the Borrowers.
(g) This Loan Agreement shall be binding upon, and inure to the benefit
of, and be enforceable by, the Borrowers and the Lender, and their respective
successors and permitted assigns.
(h) This Loan Agreement contains the entire agreement between the
Borrowers and the Lender with respect to the subject matter hereof, and
supersedes and cancels any prior agreements or understanding, oral or written
among the parties hereto with respect thereto. This Loan Agreement may not be
amended or modified except in a writing signed by the Lender and the Borrowers.
(i) All representations and warranties contained in this Loan Agreement
or made in writing by or on behalf of Borrowers in connection with the
transactions contemplated hereby shall survive the execution and delivery of
this Loan Agreement and of the other Loan Documents, regardless of any
investigation at any time made by Lender or on its behalf. This Loan Agreement
shall continue in full force and effect so long as any amounts borrowed, or
expenses, fees, including legal fees, or interest remain unpaid.
(j) This Loan Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one agreement. This Loan Agreement will be deemed to be a binding agreement
among the parties hereto upon the receipt by each party of fully executed copies
of this Agreement by mail, facsimile or otherwise.
(k) The Lender is not a partner or a joint venturer with the Borrowers
with respect to the transactions contemplated hereby or by the other Loan
Documents or the Warrant and the Lender shall not be deemed liable as such with
respect to any liability of the Borrowers.
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<PAGE>
(l) The Borrowers hereby consent to service of any notice, process,
motion or other document in connection with any lawsuit or other proceeding
arising out of or relating to this Loan Agreement, the other Loan Documents or
the Warrant, by registered mail, return receipt requested, to the address set
forth in Section 6(a) hereof or such other address as the Borrowers shall
provide the Lender in writing and the Borrowers hereby waive any right to trial
by jury in any such lawsuit or proceeding.
(m) Each Borrower hereby agrees not to raise or interpose any defense,
set-off or counterclaim of any kind or nature whatsoever which it may have
against the Lender in any action brought upon this Loan Agreement, the other
Loan Documents or the Warrant and each Borrower acknowledges that it has no
defense of any kind or nature to the enforcement of this Loan Agreement, the
other Loan Documents and the Warrant or to the binding nature of the obligations
represented hereby or thereby.
(n) The Borrower agrees to pay all of Lender's legal fees and expenses
incurred in connection with the documentation, negotiation and execution of this
Loan Agreement, the other Loan Documents and the Warrant, and all expenses
incurred, including legal fees and expenses, in collecting any of Borrower's
obligations hereunder or thereunder.
D.H. BLAIR INVESTMENT NEWS COMMUNICATIONS, INC.
BANKING CORP.
By: /s/ J. Morton Davis By: /s/ Michael Schenkler
------------------------- ----------------------------
J. Morton Davis Michael Schenkler
Chairman President
TRIBCO INCORPORATED
By: /s/ Michael Schenkler
----------------------------
Michael Schenkler
President
ACCESS NETWORK CORP.
By: /s/ Michael Schenkler
---------------------------
Michael Schenkler
President
10
<PAGE>
PROMISSORY NOTE
$1,000,000 New York, New York
May 21, 1996
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THIS PROMISSORY NOTE UNDER THE SECURITIES ACT OF 1933 AND
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE BORROWERS THAT SUCH REGISTRATION IS NOT REQUIRED.
News Communications, Inc. a Nevada corporation whose address is 174-15
Horace Harding Expressway, Fresh Meadows, New York 11365, Tribco Incorporated, a
New York corporation whose address is 174-15 Horace Harding Expressway, Fresh
Meadows, New York 11365 and Access Network Corp., a New York corporation whose
address is 242 West 30th Street, New York, New York 10001 (each of the foregoing
a "Borrower" and collectively the "Borrowers") for value received, hereby,
jointly and severally, promise to pay to the order of D.H. Blair Investment
Banking Corp., (the "Lender"), a Delaware corporation, 44 Wall Street, 2nd
Floor, New York, New York 10005, the sum of One Million Dollars ($1,000,000), or
such lesser amount as shall then equal the outstanding principal amount hereof,
on May 21, 1998 (such date, or such earlier date upon which the principal and
interest is due upon acceleration pursuant to Section 5 of the "Loan Agreement"
(as hereinafter defined) hereinafter referred to as the "Due Date") and to pay
interest from the date hereof on the unpaid principal amount hereof at the rate
set forth below, all on the terms and conditions set forth herein. Payment for
all amounts due hereunder shall be made in lawful money of the United States of
America by certified mail, return receipt requested, to the address of the
Lender or by wire transfer to an account designated in writing by the Lender.
The indebtedness evidenced by this Note is further evidenced by a Loan
Agreement, dated the date hereof, between the Borrowers and the Lender (the
"Loan Agreement") and is secured as provided therein. The Lender will have the
right to accelerate the indebtedness evidenced hereof upon the occurrence of an
Event of Default as set forth in the Loan Agreement. The Loan Agreement is
incorporated by reference herein. All terms used herein and not defined herein
shall have the meaning set forth in the Loan Agreement.
1. Interest. Interest shall accrue from the date hereof until all
outstanding principal and interest on this Note shall have been paid in full at
the rate of eight and one-half percent (8-1/2%) per annum on the unpaid
principal balance hereof and shall be payable quarterly commencing on July 1,
1996 and on the Due Date or the date of any other payment of principal on the
Note. In the event that the principal amount of this Note is not paid in full on
the Due Date, interest at the rate equal to the lesser of (i) the maximum
legally permitted interest rate and (ii) twenty-four percent (24%) per annum
1
<PAGE>
shall continue to accrue on the balance of any unpaid principal and accrued
interest from the Due Date until such balance is paid.
2. Prepayment. The Borrowers may at any time prepay in whole or
in part the principal sum, plus accrued interest on the amount so prepaid to
date of payment, of this Note, without penalty or premium. All such prepayments
shall be applied in the manner set forth in the Loan Agreement.
3. Waiver of Presentation, Demand, Etc. All parties now or hereafter
liable with respect to this Note, whether the Borrowers, guarantor, endorser or
any other person hereby expressly waive presentment, demand of payment, protest,
notice for demand of payment, protest and notice of non-payment, or any other
notice of any kind with respect thereto. No delay or failure on the part of the
Lender in the exercise of any right or remedy hereunder or under the Loan
Agreement, or at law or in equity, shall operate as a waiver thereof, and no
single or partial exercise by the Lender of any right or remedy hereunder or
under Loan Agreement shall preclude or estop another or further exercise or any
other right or remedy.
4. Defense, Set-Offs, Counterclaims. Each Borrower hereby agrees not to
raise or interpose any defense, set-off or counterclaim of any kind or nature
whatsoever which it may have against the Lender in any action brought upon this
Note or the Loan Agreement or the other Loan Documents and each Borrower
acknowledges that it has no defense of any kind or nature to the enforcement of
this Note or the Loan Agreement or the other Loan Documents or to the binding
nature of the obligations represented hereby or thereby.
5. Amendments. No amendment, modification, alteration or change of
any of the provisions of this Note shall be effective unless in writing signed
by the Borrowers and the Lender and only to the extent therein set forth.
6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
7. Time of the Essence. Time is of the essence with respect to this Note
and in case this Note is collected by law or through an attorney at law or under
advice therefrom, or any remedy is exercised under the Loan Agreement, the
Borrowers, jointly and severally, agree to pay all costs of collection or costs
associated with the exercise of any such remedy including reasonable attorneys'
fees. The Lender shall be under no duty to exercise any or all of the rights and
remedies given by this Note or the Loan Agreement and no party to this
instrument shall be discharged from the obligations or undertakings hereunder
(a) should the Lender release or agree not to sue any person against whom the
party has, to the knowledge of Lender, a right to recourse, or (b) should the
Lender agree to suspend the right to enforce this Note or its interest in any
collateral pledged to secure this Note against such person or otherwise
discharge such person.
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<PAGE>
8. Severability. In the event that any term or provision of this Note
shall be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by any authority having jurisdiction,
such determination shall not impair or otherwise affect the validity, legality
or enforceability of the remaining terms and provisions of this Note, which
shall be enforced as if the unenforceable term or provision were deleted.
9. Consent to Service and Waiver of Jury Trial. Each Borrower hereby
consents to service of any notice, process, motion or other document in
connection with any lawsuit or other proceeding arising out of or relating to
this Note, by registered mail, return receipt requested, to the address set
forth in the Loan Agreement or such other address as such Borrower shall provide
Lender in writing and each Borrower hereby waives any right to trial by jury in
any such lawsuit or proceeding.
IN WITNESS WHEREOF, the undersigned have caused this Note to be issued
this 21st day of May, 1996.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
-----------------------------
Michael Schenkler
President
TRIBCO INCORPORATED
By: /s/ Michael Schenkler
----------------------------
Michael Schenkler
President
ACCESS NETWORK CORP.
By: /s/ Michael Schenkler
----------------------------
Michael Schenkler
President
3
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE "ACT") OR
APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE SOLD,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT OR
(ii) (OTHER THAN A SALE OR TRANSFER IN WHOLE OR IN PART, TO ANY OF HOLDER'S
OFFICERS, DIRECTORS OR AFFILIATES, ANY OFFICER OR DIRECTOR OF ANY SUCH AFFILIATE
OR ANY MEMBER OF THE IMMEDIATE FAMILY OF ANY SUCH OFFICER OR DIRECTOR) UPON THE
ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE
COMPANY OF SUCH EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN
EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION
OF THE ACT AND THE STATE ACTS.
Void after 5:00 p.m. New York Time, on May 17, 2001.
Warrant to Purchase 400,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
NEWS COMMUNICATIONS, INC.
This is to Certify That, FOR VALUE RECEIVED, D.H. Blair
Investment Banking Corp. or assigns ("Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from NEWS COMMUNICATIONS, INC., a Nevada
corporation ("Company"), Four Hundred Thousand (400,000) fully paid, validly
issued and nonassessable shares of Common Stock, par value $.01 per share, of
the Company ("Common Stock") at a price of $2.50 per share at any time or from
time to time during the period from May 17, 1996 to May 17, 2001, but not later
than 5:00 p.m. New York City Time, on May 17, 2001. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
<PAGE>
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part
at any time or from time to time on or after May 17, 1996 and until May 17, 2001
(the "Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to May 17, 2001, the Holder shall have the right to exercise this Warrant
commencing at such time through May 17, 2001 into the kind and amount of shares
of stock and other securities and property (including cash) receivable by a
holder of the number of shares of Common Stock into which this Warrant might
have been exercisable immediately prior thereto. This Warrant may be exercised
by presentation and surrender hereof to the Company at its principal office, or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Warrant Shares specified in such form. As soon as practicable
after each such exercise of the Warrants, but not later than seven (7) days from
the date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this Section
(a)(2), by surrendering this Warrant at the principal office of the Company or
at the office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
2
<PAGE>
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION AND LISTING OF SHARES. The Company shall at
all times reserve for issuance and/or delivery upon exercise of this Warrant
such number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of the Warrants. The Company will at all times use its
best efforts to maintain the listing of the Common Stock on NASDAQ and to list
the Warrant Shares upon the exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq system,
the current market value shall be the last reported sale price
of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or
if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current market value shall
be the mean of the last reported bid and asked prices reported
by the National Quotation Bureau, Inc. on the last business
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
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<PAGE>
Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company at its principal office or at the office of its stock transfer agent, if
any, with the Assignment Form annexed hereto duly executed and funds sufficient
to pay any transfer tax, the Company shall, without charge, execute and deliver
a new Warrant in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
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<PAGE>
(2) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common
Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price
of the Common Stock (as defined in Subsection (8) below) on
the record date mentioned below, or less than the Exercise
Price on such record date the Exercise Price shall be adjusted
so that the same shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered)
would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in
the event the Subscription Price is equal to or higher than
the current market price but is less than the Exercise Price,
the price determined by multiplying the Exercise Price in
effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the
number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase
at the Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive such rights
or warrants; and to the extent that shares of Common Stock are
not delivered (or securities convertible into Common Stock are
not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock
(or securities convertible into Common Stock) actually
delivered.
5
<PAGE>
(3) In case the Company shall hereafter distribute to
the holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions and
dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case
the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as
defined in Subsection (8) below), less the fair market value
(as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of shareholders
entitled to receive such distribution.
(4) In case the Company shall issue shares of its
Common Stock [excluding shares issued (i) in any of the
transactions described in Subsection (1) above, (ii) upon
exercise of options granted to the Company's employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise
be included in this Subsection (4), (but only to the extent
that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's
Common Stock outstanding at the time of any issuance), (iii)
upon exercise of options and warrants outstanding at May 17,
1996, and this Warrant (iv) to shareholders of any corporation
which merges into the Company in proportion to their stock
holdings of such corporation immediately prior to such merger,
upon such merger, or (v) issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to any other specific
subsection of this Section (f) (without regard to Subsection
(9) below) with respect to the transaction giving rise to such
rights] for a consideration per share (the "Offering Price")
less than the current market price per share [as defined in
Subsection (8) below] on the date the Company fixes the
offering price of such additional shares or less than the
Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i)
the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock
which the aggregate consideration received [determined as
provided in Subsection (7) below] for the issuance of such
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<PAGE>
additional shares would purchase at such current market
price per share of Common Stock, and the denominator of
which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional
shares or (ii) in the event the Offering Price is equal to or
higher than the current market price per share but less than
the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate
consideration received [determined as provided in subsection
(7) below] for the issuance of such additional shares would
purchase at the Exercise Price in effect immediately prior to
the date of such issuance, and the denominator of which shall
be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an
issuance is made.
(5) In case the Company shall issue any securities
convertible into or exchangeable for its Common Stock
[excluding securities issued in transactions described in
Subsections (2) and (3) above] for a consideration per share
of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities [determined as
provided in Subsection (7) below] less than the current market
price per share [as defined in Subsection (8) below] in effect
immediately prior to the issuance of such securities, or less
than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i)
the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received [determined as provided in
Subsection (7) below] for such securities would purchase at
such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance
and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate
or (ii) in the event the Conversion Price is equal to or
higher than the current market price per share but less than
the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding immediately prior to
the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received
[determined as provided in subsection (7) below] for such
7
<PAGE>
securities would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance
of such securities and the maximum number of shares of Common
Stock of the Company deliverable upon conversion of or in
exchange for s uch securities at the initial conversion
or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsections (1), (2),
(3), (4) and (5) above or Section (9) below, the number of
Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting
consideration received pursuant to Subsections (4) and (5)
above, the following shall apply:
(A) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith;
(B) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors
of the Company (irrespective of the accounting
treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of
securities convertible into or exchangeable for
shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Company for the
issuance of such securities plus the additional
minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof [the
consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of
this Subsection (7)].
(8) For the purpose of any computation under
Subsections (2), (3), (4) and (5) above, the current market
price per share of Common Stock at any date
8
<PAGE>
shall be deemed to be the lower of (i) the average of the
daily closing prices for 30 consecutive business days before
such date or (ii) the closing price on the business day
immediately preceding such date. The closing price for each
day shall be the last sale price regular way or, in case no
such reported sale takes place on such day, the average of the
last reported bid and asked prices regular way, in either case
on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on such exchange, the average of
the highest reported bid and lowest reported asked prices as
reported by Nasdaq, or other similar organization if Nasdaq is
no longer reporting such information, or if not so available,
the fair market price as determined by the Board of Directors.
(9) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (9) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. In the event the Company
does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the
lowest Offering Price, Subscription Price or Conversion Price,
as applicable, since the date of this Warrant, and the number
of shares issuable upon exercise of this Warrant shall be
adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board
of
9
<PAGE>
Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section (f),
and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section (f), the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification,
10
<PAGE>
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company shall advise the Holder of this
Warrant or of the Warrant Shares or any then holder of
Warrants or Warrant Shares (such persons being collectively
referred to herein as "holders") by written notice at least
four weeks prior to the filing of any new registration
statement or post-effective amendment thereto under the
Securities Act of 1933 (the "Act") covering securities of the
Company and will for a period of six years from the date
hereof upon the request of any such holder, include in any
such registration statement such information as may be
required to permit a public offering of the Warrants or the
Warrant Shares. The Company shall supply prospectuses and
other documents as the Holder may request in order to
facilitate the public sale or other disposition of the
Warrants or Warrant Shares, qualify the Warrants and the
Warrant Shares
11
<PAGE>
for sale in such states as any such holder designates and do
any and all other acts and things which may be necessary or
desirable to enable such Holders to consummate the public sale
or other disposition of the Warrants or Warrant Shares, and
furnish indemnification in the manner as set forth in
Subsection (3)(C) of this Section (j). Such holders shall
furnish information and indemnification as set forth in
Subsection (3)(C) of this Section (j), except that the maximum
amount which may be recovered from the Holder shall be limited
to the amount of proceeds received by the Holder from the sale
of the Warrants or Warrant Shares.
(2) If any majority holder (as defined in Subsection
(4) of this Section (j) below) shall give notice to the
Company at any time during the five year period commencing on
the date hereof to the effect that such holder contemplates
(i) the transfer of all or any part of his or its Warrants
and/or Warrant Shares, or (ii) the exercise and/or conversion
of all or any part of his or its Warrants and the transfer of
all or any part of the Warrants and/or Warrant Shares under
such circumstances that a public offering (within the meaning
of the Act) of Warrants and/or Warrant Shares will be
involved, and desires to register under the Act, the Warrants
and/or the Warrant Shares, then the Company shall, within two
weeks after receipt of such notice, file a registration
statement pursuant to the Act, to the end that the Warrants
and/or Warrant Shares may be sold under the Act as promptly as
practicable thereafter and the Company will use its best
efforts to cause such registration to become effective and
continue to be effective (current) (including the taking of
such steps as are necessary to obtain the removal of any stop
order) until the holder has advised that all of the Warrants
and/or Warrant Shares have been sold; provided that such
holder shall furnish the Company with appropriate information
(relating to the intentions of such holders) in connection
therewith as the Company shall reasonably request in writing.
In the event the registration statement is not declared
effective under the Act prior to May 17, 2001, the Company
shall extend the expiration date of the Warrants to a date not
less than 90 days after the effective date of such
registration statement. The holder may, at its option, request
the registration of the Warrants and/or Warrant Shares in a
registration statement made by the Company as contemplated by
Subsection (1) of this Section (j) or in connection with a
request made pursuant to Subsection (2) of this Section (j)
prior to the acquisition of the Warrant Shares upon exercise
of the Warrants and even though the holder has not given
notice of exercise of the Warrants. If the Company determines
to include securities to be sold by it in any registration
statement originally requested pursuant to this Subsection (2)
of this Section (j), such registration shall instead be deemed
to have been a registration under Subsection (1) of this
Section (j) and not under Subsection (2) of this Subsection
(j). The holder may thereafter at its option, exercise the
Warrants at any time or from time to time subsequent to the
12
<PAGE>
effectiveness under the Act of the registration statement in
which the Warrant Shares were included.
(3) The following provision of this Section (j)
shall also be applicable:
(A) Within ten days after receiving any such
notice pursuant to Subsection (2) of this Section
(j), the Company shall give notice to the other
holders of Warrants and Warrant Shares, advising that
the Company is proceeding with such registration
statement and offering to include therein Warrants
and/or Warrant Shares of such other holders, provided
that they shall furnish the Company with such
appropriate information (relating to the intentions
of such holders) in connection therewith as the
Company shall reasonably request in writing.
Following the effective date of such registration,
the Company shall upon the request of any owner of
Warrants and/or Warrant Shares forthwith supply such
a number of prospectuses meeting the requirements of
the Act, as shall be requested by such owner to
permit such holder to make a public offering of all
Warrants and/or Warrant Shares from time to time
offered or sold to such holder, provided that such
holder shall from time to time furnish the Company
with such appropriate information (relating to the
intentions of such holder) in connection therewith as
the Company shall request in writing. The Company
shall also use its best efforts to qualify the
Warrant Shares for sale in such states as such
majority holder shall designate.
(B) The Company shall bear the entire cost
and expense of any registration of securities
initiated by it under Subsection (1) of this Section
(j) notwithstanding that Warrants and/or Warrant
Shares subject to this Warrant may be included in any
such registration. The Company shall also comply with
one request for registration made by the majority
holder pursuant to Subsection (2) of this Section (j)
at its own expense and without charge to any holder
of any Warrants and/or Warrant Shares; and the
Company shall comply with one additional request made
by the majority holder pursuant to Subsection (2) of
this Section (j) (and not deemed to be pursuant to
Subsection (1) of this Section (j)) at the sole
expense of such majority holder. Any holder whose
Warrants and/ or Warrant Shares are included in any
such registration statement pursuant to this Section
(j) shall, however, bear the fees of his own counsel
and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to
the Warrant Shares sold by him pursuant thereto.
(C) The Company shall indemnify and hold
harmless each such holder and each underwriter,
within the meaning of the Act, who may
13
<PAGE>
purchase from or sell for any such holder any
Warrants and/or Warrant Shares from and against any
and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement or any post-effective
amendment thereto or any registration statement under
the Act or any prospectus included therein required
to be filed or furnished by reason of this Section
(j) or caused by any omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or
omission or alleged omission based upon information
furnished or required to be furnished in writing to
the Company by such holder or underwriter expressly
for use therein, which indemnification shall include
each person, if any, who controls any such
underwriter within the meaning of such Act provided,
however, that the Company will not be liable in any
such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or
omission or alleged omission made in said
registration statement, said preliminary prospectus,
said final prospectus or said amendment or supplement
in reliance upon and in conformity with written
information furnished by such Holder or any other
Holder, specifically for use in the preparation
thereof.
(D) Neither the giving of any notice by any
such majority holder nor the making of any request
for prospectuses shall impose any upon such majority
holder or owner making such request any obligation to
sell any Warrants and/or Warrant Shares, or exercise
any Warrants.
(4) The term "majority holder" as used in this
Section (j) shall include any owner or combination of owners
of Warrants or Warrant Shares in any combination if the
holdings of the aggregate amount of:
(i) the Warrants held by him or among them,
plus
(ii) the Warrants which he or they would be
holding if the Warrants for the Warrant Shares owned
by him or among them had not been exercised, would
14
<PAGE>
constitute a majority of the Warrants originally
issued.
The Company's agreements with respect to Warrants or Warrant
Shares in this Section (j) shall continue in effect regardless of the exercise
and surrender of this Warrant.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
------------------------------
Michael Schenkler
President
[SEAL]
Dated: May 17, 1996
Attest:
/s/ Robert Berkowitz
- ----------------------------
Assistant Secretary
15
<PAGE>
PURCHASE FORM
Dated ___________, ______
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing shares of Common Stock and hereby
makes payment of in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
Signature __________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and
transfers unto
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint_______________ Attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date ______________, ________
Signature __________________________________
16
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE
"ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT
FOR CONSIDERATION) BY THE HOLDER EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT
OR (ii) (OTHER THAN A SALE OR TRANSFER IN WHOLE OR IN PART, TO ANY OF HOLDER'S
OFFICERS, DIRECTORS OR AFFILIATES, ANY OFFICER OR DIRECTOR OF ANY SUCH AFFILIATE
OR ANY MEMBER OF THE IMMEDIATE FAMILY OF ANY SUCH OFFICER OR DIRECTOR) UPON THE
ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL OR SUBMISSION TO THE
COMPANY OF SUCH EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN
EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION
OF THE ACT AND THE STATE ACTS.
Void after 5:00 p.m. New York Time, on May 21, 2001.
Warrant to Purchase 200,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
NEWS COMMUNICATIONS, INC.
This is to Certify That, FOR VALUE RECEIVED, D.H. Blair
Investment Banking Corp. or assigns ("Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from NEWS COMMUNICATIONS, INC., a Nevada
corporation ("Company"), Two Hundred Thousand (200,000) fully paid, validly
issued and nonassessable shares of Common Stock, par value $.01 per share, of
the Company ("Common Stock") at a price of $2.50 per share at any time or from
time to time during the period from May 21, 1996 to May 21, 2001, but not later
than 5:00 p.m. New York City Time, on May 21, 2001. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
<PAGE>
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part at
any time or from time to time on or after May 21, 1996 and until May 21, 2001
(the "Exercise Period"), subject to the provisions of Section (j)(2) hereof;
provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to May 21, 2001, the Holder shall have the right to exercise this Warrant
commencing at such time through May 21, 2001 into the kind and amount of shares
of stock and other securities and property (including cash) receivable by a
holder of the number of shares of Common Stock into which this Warrant might
have been exercisable immediately prior thereto. This Warrant may be exercised
by presentation and surrender hereof to the Company at its principal office, or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Warrant Shares specified in such form. As soon as practicable
after each such exercise of the Warrants, but not later than seven (7) days from
the date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this Section
(a)(2), by surrendering this Warrant at the principal office of the Company or
at the office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to
2
<PAGE>
the next highest integer) equal to (i) the number of Warrant Shares specified by
the Holder in its Notice of Exchange (the "Total Number") less (ii) the number
of Warrant Shares equal to the quotient obtained by dividing (A) the product of
the Total Number and the existing Exercise Price by (B) the current market value
of a share of Common Stock. Current market value shall have the meaning set
forth Section (c) below, except that for purposes hereof, the date of exercise,
as used in such Section (c), shall mean the Exchange Date.
(b) RESERVATION AND LISTING OF SHARES. The Company shall at
all times reserve for issuance and/or delivery upon exercise of this Warrant
such number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of the Warrants. The Company will at all times use its
best efforts to maintain the listing of the Common Stock on NASDAQ and to list
the Warrant Shares upon the exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq system,
the current market value shall be the last reported sale price
of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or
if no such sale is made on such day, the average closing bid
and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current market value shall
be the mean of the last reported bid and asked prices reported
by the National Quotation Bureau, Inc. on the last business
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the
3
<PAGE>
same number of shares of Common Stock purchasable hereunder. Upon surrender of
this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
cancelled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at
any time and the number and kind of securities purchasable upon the exercise of
the Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
4
<PAGE>
(2) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into Common
Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less than the current market price
of the Common Stock (as defined in Subsection (8) below) on
the record date mentioned below, or less than the Exercise
Price on such record date the Exercise Price shall be adjusted
so that the same shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction,
the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered)
would purchase at such current market price per share of the
Common Stock, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such
record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in
the event the Subscription Price is equal to or higher than
the current market price but is less than the Exercise Price,
the price determined by multiplying the Exercise Price in
effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the
number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase
at the Exercise Price in effect immediately prior to the date
of such issuance, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional
shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become
effective immediately after the record date for the
determination of shareholders entitled to receive such rights
or warrants; and to the extent that shares of Common Stock are
not delivered (or securities convertible into Common Stock are
not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock
(or securities convertible into Common Stock) actually
delivered.
5
<PAGE>
(3) In case the Company shall hereafter distribute to
the holders of its Common Stock evidences of its indebtedness
or assets (excluding cash dividends or distributions and
dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case
the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as
defined in Subsection (8) below), less the fair market value
(as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied
by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of shareholders
entitled to receive such distribution.
(4) In case the Company shall issue shares of its
Common Stock [excluding shares issued (i) in any of the
transactions described in Subsection (1) above, (ii) upon
exercise of options granted to the Company's employees under a
plan or plans adopted by the Company's Board of Directors and
approved by its shareholders, if such shares would otherwise
be included in this Subsection (4), (but only to the extent
that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's
Common Stock outstanding at the time of any issuance), (iii)
upon exercise of options and warrants outstanding at May 21,
1996, and this Warrant (iv) to shareholders of any corporation
which merges into the Company in proportion to their stock
holdings of such corporation immediately prior to such merger,
upon such merger, or (v) issued in a bona fide public offering
pursuant to a firm commitment underwriting, but only if no
adjustment is required pursuant to any other specific
subsection of this Section (f) (without regard to Subsection
(9) below) with respect to the transaction giving rise to such
rights] for a consideration per share (the "Offering Price")
less than the current market price per share [as defined in
Subsection (8) below] on the date the Company fixes the
offering price of such additional shares or less than the
Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i)
the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock
which the aggregate consideration received [determined as
provided in Subsection (7) below] for the
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<PAGE>
issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the
denominator of which shall be the number of shares of Common
Stock outstanding immediately after the issuance of such
additional shares or (ii) in the event the Offering Price is
equal to or higher than the current market price per share but
less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to
the date of issuance by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares
and the number of shares of Common Stock which the aggregate
consideration received [determined as provided in subsection
(7) below] for the issuance of such additional shares would
purchase at the Exercise Price in effect immediately prior to
the date of such issuance, and the denominator of which shall
be the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an
issuance is made.
(5) In case the Company shall issue any securities
convertible into or exchangeable for its Common Stock
[excluding securities issued in transactions described in
Subsections (2) and (3) above] for a consideration per share
of Common Stock (the "Conversion Price") initially deliverable
upon conversion or exchange of such securities [determined as
provided in Subsection (7) below] less than the current market
price per share [as defined in Subsection (8) below] in effect
immediately prior to the issuance of such securities, or less
than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i)
the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the
aggregate consideration received [determined as provided in
Subsection (7) below] for such securities would purchase at
such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such issuance
and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate
or (ii) in the event the Conversion Price is equal to or
higher than the current market price per share but less than
the Exercise Price, the price determined by multiplying the
Exercise Price in effect immediately prior to the date of
issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding immediately prior to
the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received
[determined as provided in subsection (7) below] for such
securities would purchase at the
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<PAGE>
Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior
to the issuance of such securities and the maximum number of
shares of Common Stock of the Company deliverable upon
conversion of or in exchange for such securities at the
initial conversion or exchange price or rate. Such adjustment
shall be made successively whenever such an issuance is made.
(6) Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsections (1), (2),
(3), (4) and (5) above or Section (9) below, the number of
Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting
consideration received pursuant to Subsections (4) and (5)
above, the following shall apply:
(A) in the case of the issuance of shares of
Common Stock for cash, the consideration shall be the
amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts
or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith;
(B) in the case of the issuance of shares of
Common Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors
of the Company (irrespective of the accounting
treatment thereof), whose determination shall be
conclusive; and
(C) in the case of the issuance of
securities convertible into or exchangeable for
shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the
consideration received by the Company for the
issuance of such securities plus the additional
minimum consideration, if any, to be received by the
Company upon the conversion or exchange thereof [the
consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of
this Subsection (7)].
(8) For the purpose of any computation under
Subsections (2), (3), (4) and (5) above, the current market
price per share of Common Stock at any date
8
<PAGE>
shall be deemed to be the lower of (i) the average of the
daily closing prices for 30 consecutive business days before
such date or (ii) the closing price on the business day
immediately preceding such date. The closing price for each
day shall be the last sale price regular way or, in case no
such reported sale takes place on such day, the average of the
last reported bid and asked prices regular way, in either case
on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on such exchange, the average of
the highest reported bid and lowest reported asked prices as
reported by Nasdaq, or other similar organization if Nasdaq is
no longer reporting such information, or if not so available,
the fair market price as determined by the Board of Directors.
(9) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (9) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to
make such changes in the Exercise Price, in addition to those
required by this Section (f), as it shall determine, in its
sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to
the Holders at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. In the event the Company
does not provide the Holder with such notice and information
within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the
lowest Offering Price, Subscription Price or Conversion Price,
as applicable, since the date of this Warrant, and the number
of shares issuable upon exercise of this Warrant shall be
adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board
9
<PAGE>
of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section
(f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (1) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of the foregoing Section (f), the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
10
<PAGE>
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company shall advise the Holder of this
Warrant or of the Warrant Shares or any then holder of
Warrants or Warrant Shares (such persons being collectively
referred to herein as "holders") by written notice at least
four weeks prior to the filing of any new registration
statement or post-effective amendment thereto under the
Securities Act of 1933 (the "Act") covering securities of the
Company and will for a period of six years from the date
hereof upon the request of any such holder, include in any
such registration statement such information as may be
required to permit a public offering of the Warrants or the
Warrant Shares. The Company shall supply prospectuses and
other documents as the Holder may request in order to
facilitate the public sale or other disposition of the
Warrants or Warrant Shares, qualify the Warrants and the
Warrant Shares
11
<PAGE>
for sale in such states as any such holder designates and do
any and all other acts and things which may be necessary or
desirable to enable such Holders to consummate the public sale
or other disposition of the Warrants or Warrant Shares, and
furnish indemnification in the manner as set forth in
Subsection (3)(C) of this Section (j). Such holders shall
furnish information and indemnification as set forth in
Subsection (3)(C) of this Section (j), except that the maximum
amount which may be recovered from the Holder shall be limited
to the amount of proceeds received by the Holder from the sale
of the Warrants or Warrant Shares.
(2) If any majority holder (as defined in Subsection
(4) of this Section (j) below) shall give notice to the
Company at any time during the five year period commencing on
the date hereof to the effect that such holder contemplates
(i) the transfer of all or any part of his or its Warrants
and/or Warrant Shares, or (ii) the exercise and/or conversion
of all or any part of his or its Warrants and the transfer of
all or any part of the Warrants and/or Warrant Shares under
such circumstances that a public offering (within the meaning
of the Act) of Warrants and/or Warrant Shares will be
involved, and desires to register under the Act, the Warrants
and/or the Warrant Shares, then the Company shall, within two
weeks after receipt of such notice, file a registration
statement pursuant to the Act, to the end that the Warrants
and/or Warrant Shares may be sold under the Act as promptly as
practicable thereafter and the Company will use its best
efforts to cause such registration to become effective and
continue to be effective (current) (including the taking of
such steps as are necessary to obtain the removal of any stop
order) until the holder has advised that all of the Warrants
and/or Warrant Shares have been sold; provided that such
holder shall furnish the Company with appropriate information
(relating to the intentions of such holders) in connection
therewith as the Company shall reasonably request in writing.
In the event the registration statement is not declared
effective under the Act prior to May 21, 2001, the Company
shall extend the expiration date of the Warrants to a date not
less than 90 days after the effective date of such
registration statement. The holder may, at its option, request
the registration of the Warrants and/or Warrant Shares in a
registration statement made by the Company as contemplated by
Subsection (1) of this Section (j) or in connection with a
request made pursuant to Subsection (2) of this Section (j)
prior to the acquisition of the Warrant Shares upon exercise
of the Warrants and even though the holder has not given
notice of exercise of the Warrants. If the Company determines
to include securities to be sold by it in any registration
statement originally requested pursuant to this Subsection (2)
of this Section (j), such registration shall instead be deemed
to have been a registration under Subsection (1) of this
Section (j) and not under Subsection (2) of this Subsection
(j). The holder may thereafter at its option, exercise the
Warrants at any time or from time to time subsequent to the
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<PAGE>
effectiveness under the Act of the registration statement in
which the Warrant Shares were included.
(3) The following provision of this Section (j) shall
also be applicable:
(A) Within ten days after receiving any such
notice pursuant to Subsection (2) of this Section
(j), the Company shall give notice to the other
holders of Warrants and Warrant Shares, advising that
the Company is proceeding with such registration
statement and offering to include therein Warrants
and/or Warrant Shares of such other holders, provided
that they shall furnish the Company with such
appropriate information (relating to the intentions
of such holders) in connection therewith as the
Company shall reasonably request in writing.
Following the effective date of such registration,
the Company shall upon the request of any owner of
Warrants and/or Warrant Shares forthwith supply such
a number of prospectuses meeting the requirements of
the Act, as shall be requested by such owner to
permit such holder to make a public offering of all
Warrants and/or Warrant Shares from time to time
offered or sold to such holder, provided that such
holder shall from time to time furnish the Company
with such appropriate information (relating to the
intentions of such holder) in connection therewith as
the Company shall request in writing. The Company
shall also use its best efforts to qualify the
Warrant Shares for sale in such states as such
majority holder shall designate.
(B) The Company shall bear the entire cost
and expense of any registration of securities
initiated by it under Subsection (1) of this Section
(j) notwithstanding that Warrants and/or Warrant
Shares subject to this Warrant may be included in any
such registration. The Company shall also comply with
one request for registration made by the majority
holder pursuant to Subsection (2) of this Section (j)
at its own expense and without charge to any holder
of any Warrants and/or Warrant Shares; and the
Company shall comply with one additional request made
by the majority holder pursuant to Subsection (2) of
this Section (j) (and not deemed to be pursuant to
Subsection (1) of this Section (j)) at the sole
expense of such majority holder. Any holder whose
Warrants and/ or Warrant Shares are included in any
such registration statement pursuant to this Section
(j) shall, however, bear the fees of his own counsel
and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to
the Warrant Shares sold by him pursuant thereto.
(C) The Company shall indemnify and hold
harmless each such holder and each underwriter,
within the meaning of the Act, who may purchase from
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<PAGE>
or sell for any such holder any Warrants and/or
Warrant Shares from and against any and all losses,
claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material
fact contained in the Registration Statement or any
post-effective amendment thereto or any registration
statement under the Act or any prospectus included
therein required to be filed or furnished by reason
of this Section (j) or caused by any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, exceptminsofar
as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon
information furnished or required to be furnished in
writing to the Company by such holder or underwriter
expressly for use therein, which indemnification
shall include each person, if any, who controls any
such underwriter within the meaning of such Act
provided, however, that the Company will not be
liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue
statement or omission or alleged omission made
in said registration statement, said preliminary
prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity
with written information furnished by such Holder
or any other Holder, specifically for use in the
preparation thereof.
(D) Neither the giving of any notice by any
such majority holder nor the making of any request
for prospectuses shall impose any upon such majority
holder or owner making such request any obligation to
sell any Warrants and/or Warrant Shares, or exercise
any Warrants.
(4) The term "majority holder" as used in this
Section (j) shall include any owner or combination of owners
of Warrants or Warrant Shares in any combination if the
holdings of the aggregate amount of:
(i) the Warrants held by him or among them,
plus
(ii) the Warrants which he or they would be
holding if the Warrants for the Warrant Shares owned
by him or among them had not been exercised,
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<PAGE>
would constitute a majority of the Warrants
originally issued.
The Company's agreements with respect to Warrants or Warrant
Shares in this Section (j) shall continue in effect regardless of the exercise
and surrender of this Warrant.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
--------------------------------
Michael Schenkler
President
[SEAL]
Dated: May 21, 1996
Attest:
/s/ Robert Berkowitz
- ------------------------------
Assistant Secretary
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<PAGE>
PURCHASE FORM
Dated ____________, _______
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _________ shares of Common Stock
and hereby makes payment of ______________ in payment of the actual exercise
price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________
(Please typewrite or print in block letters)
Address ____________________________________
Signature __________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________ hereby sells, assigns and
transfers unto
Name________________________________________
(Please typewrite or print in block letters)
Address ____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _________________ Attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.
Date _____________, _______
Signature __________________________________
16
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, made as of October 4, 1996, between
NEWS COMMUNICATIONS, INC., a Nevada corporation with its principal offices at
173-15 Horace Harding Expressway, Fresh Meadows, New York 11365 (the "Company",
which term shall include any corporation or entity which succeeds to or
generally assumes the obligations of the Company), and the Persons listed on
Schedule A annexed hereto (each a "Purchaser").
1. Purchase of Securities.
1.1 Subject to the terms and conditions of this Agreement, the
Company hereby agrees to issue and sell to each Purchaser and each Purchaser
hereby agrees to purchase from the Company, for the sum listed next to such
Purchaser's name on Schedule A in the column entitled "Purchase Price," (a) the
number of shares of the Company's Convertible Preferred Stock, par value $1.00
per share (the "Shares"), listed next to such Purchaser's name in Schedule A in
the Column entitled "No. of Shares," such Shares having designations,
preferences and relative participating, conversion or other special rights or
qualifications, limitations or restrictions as are set forth in the Certificate
of Designation with respect thereto annexed hereto as Exhibit 1, and (b)
warrants, in the form annexed hereto as Exhibit 2, to purchase the number of
shares of the Company's Common Stock, par value $.01 per share (the "Warrants"),
listed next to such Purchaser's name in Schedule A in the column entitled "No.
of Warrants."
1.2 At the Closing (as hereinafter defined), each Purchaser
shall initiate a wire-transfer in the amount of its Purchase Price to a bank
account specified by the Company and the Company shall deliver to such Purchaser
certificates representing the Shares and the Warrants purchased by it.
1.3 The closing of the sale of the Shares and the Warrants
("Closing") shall take place at the offices of Graubard Mollen & Miller, 600
Third Avenue, New York, New York 10016, at 10:00 A.M., on the second business
day following the date on which the Certificate of Designation with respect to
the Shares has been filed in the office of the Secretary of State of Nevada. It
shall be a condition to the obligations of each Purchaser hereunder that, (a) on
or before the Closing, the Company and Jerry Finkelstein shall have entered into
an agreement extending the term of Mr. Finkelstein's employment agreement for a
period of five years from its present date of expiration on the terms and
conditions of such employment agreement as are in effect on the date hereof and
(b) the Purchasers shall receive a certificate executed by the President and the
Chief Financial Officer of the Company reaffirming the representations and
warranties of the Company set forth herein as being true and correct on the date
of the Closing. It shall be a condition to the obligations of the Company
hereunder that Mr. Wilbur Ross shall agree to serve as a director of the
Company, as Chairman of its Executive Committee and as its Chief Executive
Officer, as set forth in Section 6 hereof.
<PAGE>
1.4 Promptly after the Closing, the Company shall take such
steps as are necessary to cause the shares of the Common Stock issuable upon
conversion of the Shares and exercise of the Warrants to be listed for trading
on the Nasdaq SmallCap Market, subject to notice of issuance.
2. Representations of the Purchaser. Each Purchaser
represents and warrants for itself as follows:
2.1 It recognizes that making the investment hereby involves a
high degree of risk in that (i) it may not be able to liquidate its investment;
(ii) transferability of its investment may be unavailable or extremely limited;
and (iii) it could sustain the loss of its entire investment.
2.2 It is able to bear the economic risk of this
investment.
2.3 It is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act").
2.4 It has sufficient prior investment experience, including
investment in non-registered securities, to evaluate the merits and risks of
such an investment on its behalf. It recognizes the highly speculative nature of
this investment.
2.5 It has been furnished by the Company during the course of
this transaction with all information regarding the Company which it had
requested or desired to know; that all documents which could be reasonably
provided have been made available for its inspection and review including, but
not limited to, any and all documents filed by the Company with the United
States Securities and Exchange Commission ("SEC") under the Securities Exchange
Act of 1934, or otherwise; that it 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 its
investment hereby, and any additional information which it has requested. It has
made such investigation of the Company, including its business and financial
condition, as it has deemed necessary for its purposes and is not relying upon
any statements or information about the Company, it business, properties,
financial condition and prospects except the representations and warranties set
forth in this Agreement.
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2.6 The Shares and Warrants are being purchased for
its own account, for investment and not for distribution or
resale to others.
2.7 It understands that the Shares and the Warrants will not
be registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon its investment intention. In
this connection, it understands that it is the position of the SEC that the
statutory basis for such exemption would not be present if its representation
merely meant that its present intention was to hold the Shares or the Warrants
for a short period, such as the capital gains period of tax statutes, for a
deferred sale, for a market rise, or for any other fixed period. It realizes
that, in the view of the foregoing, a purchase with an intent to resell would
represent a purchase with an intent inconsistent with its representation to the
Company, and the SEC might regard such a sale or disposition as a deferred sale
to which the exemption is not available.
3. Restriction on Transfer.
3.1 Neither the Shares, the Warrants nor any shares
of Common Stock of the Company issuable upon conversion of the Shares or
exercise of the Warrants (collectively, the "Securities") shall be transferable,
except upon the conditions specified in this Agreement, which conditions are
intended, in part, to insure compliance with the provisions of the Act.
3.2 Each Purchaser covenants and agrees that it will not sell,
assign or otherwise transfer or pledge or hypothecate any of the Securities
except pursuant to an effective registration statement under the Act or in a
transaction which is exempt from the registration provisions of the Act. Each
Purchaser will cause any proposed transferee of the Securities (other than
pursuant to an effective registration statement or pursuant to Rule 144
3
<PAGE>
promulgated under the Act) to agree to take and hold such Securities subject to
the provisions of this Article 3.
3.3 All certificates representing any of the
Securities will bear a legend of the following or similar
words:
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended. These
securities have been acquired for investment purposes and not
with a view to distribution or resale, and may not be sold,
assigned, pledged, hypothe-
cated or otherwise transferred without an effective
Registration Statement for such securities under the
Securities Act of 1933, as amended, and applicable state
securities laws, or an opinion of counsel satisfactory to News
Communications, Inc. to the effect that registration is not
required under such Act or such state securities laws.
4. Representations by the Company.
4.1 The Company represents and warrants to each
Purchaser that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
has the corporate power to conduct the business which it conducts and proposes
to conduct.
(b) The execution, delivery and performance of
this Agreement by the Company has been duly approved by the Board of Directors
of the Company. The Company knows of no pending or threatened action or
proceeding seeking to prevent the Company from consummating the transactions
contemplated by this Agreement.
(c) The Shares, Warrants and shares of Common Stock
issuable upon conversion of the Shares and exercise of the Warrants have been
duly and validly authorized, and, when issued in accordance with the terms
hereof and thereof, will be validly issued, fully paid and non-assessable.
(d) To the best of the knowledge of the Company, the
action entitled Jean Jee v. News Communications, Inc. and all other litigation
brought against the Company or any of its subsidiaries as a defendant is without
merit, fully insured against or will not result in an adverse judgment which
would have a material adverse effect on the Company.
(e) No warrants, options or other securities or
contracts which could lead to the issuance of Common Shares ("Derivative
Securities") have been issued or entered into since May 1, 1996 except for the
issuance in May 1996 of warrants to purchase an aggregate of 600,000 Common
Shares issued to D.H. Blair Investment Banking Corp. and the granting in August
1996 of options to purchase 10,000 Common Shares to each of the Company's
present directors pursuant to the Company's Non-Discretionary Directors' Stock
Option Plan.
(f) No Derivative Securities have been exercised by any
holder thereof since May 1, 1996.
(g) The Company knows of no investigation pending or
threatened by the SEC or any other regulatory or self-regulatory body concerning
the Company.
(h) To the best of the knowledge of the Company, the
Company, the Annual Report of the Company on Form 10-K for the fiscal year ended
November 30, 1995 and the quarterly reports of the Company on Form 10-Q for
subsequent periods through the quarter ended May 31, 1996, as filed with the
SEC, are true and correct in all material respects. To the best of the knowledge
of the Company, since November 30, 1995, there has been no material adverse
change to the business or operations of the Company.
4.2 The representations and warranties of the Company in
Section 4.1 shall survive the Closing until February 28, 1998.
5. Use of Proceeds. The proceeds received by the
Company from the sale of the Shares and Warrants pursuant to
this Agreement shall be used only to pay indebtedness, for
acquisitions of new businesses and for general working
capital.
4
<PAGE>
6. Directors and Officers.
(a) On or before the Closing, the Company's
Board of Directors shall take such steps as are necessary to increase the size
of the whole Board to 16 members, of whom one-half shall be nominated and
elected by the holders of the Shares in accordance with the provisions of the
Certificate of Designation with respect to the Shares. As so reconstituted, the
Board of Directors shall consist of Gary Ackerman, Eric Breindel, John
Catsimatidis, Jerry Finkelstein, Andrew Maloney, Michael Schenkler Andrew Stein
and Arthur Tarlow, as designees of the management of the Company (the "Current
Directors"), and Carl Bernstein, Mark Dickstein, John E. McConnoughty, Jr.,
Robert P. Nederlander, Wilbur L. Ross, Jr., Sy Syms, Hillel Weinberger and
Sydney Gruson, as designees of the holders of the Shares (the "New Directors").
Joseph K. Fisher, David Jaroslawicz, William J. Kelleher, Jr., Christopher
McGrath and Martin J. McLaughlin, who are currently serving as directors of the
Company, shall resign as directors and shall be invited to serve as members of
advisory boards to the Company's publications.
(b) If a vacancy occurs among the Current
Directors which will be filled by the Board of Directors, the New Directors
shall vote to elect as a director the person selected by the remaining Current
Directors to fill such vacancy. If a vacancy occurs among the New Directors
which will be filled by the Board of Directors, the Current Directors shall vote
to elect as a director the person selected by the remaining New Directors to
fill such vacancy.
(c) Upon his election to the Board of Directors
of the Company, Wilbur L. Ross, Jr. shall serve as Chairman of the Executive
Committee of the Board of Directors. Until such time as a full-time paid Chief
Executive Officer is hired by the Company, Mr. Ross shall serve in such
capacity. In consideration for the services provided by Mr. Ross, he shall be
paid $1 per year and shall be granted five-year options to purchase 200,000
shares of Common Stock, exercisable at $2.00 per share, under the Company's
Discretionary Directors' and Officers' Stock Option Plan.
7. Transfer. The Company shall not be required (i) to transfer on its
books any securities of the Company which shall have been sold or transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such securities or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such securities have been transferred in
violation of this Agreement.
8. Amendment. No amendment or alteration of the terms
of this Agreement shall be valid unless made in writing and
signed by both of the parties hereto.
9. Governing Law. This Agreement shall be governed by the law of
the State of New York applicable to agreements made and to be performed therein.
10. Severability. The holding of any provision of this
Agreement to be invalid or unenforceable by a court of competent jurisdiction
shall not affect any other provision of this Agreement, which shall remain in
full force and effect.
11. Notices. Any notices required or permitted to be given hereunder
shall be sufficient if made in writing, and if delivered by hand against written
receipt therefor, or sent by certified mail, return receipt requested, to the
addresses set forth above or below or such other address as either party may
from time to time designate in writing to the other, and shall be deemed given
as of the date of the delivery (if delivered by hand) or mailing (if mailed).
12. Waiver. It is agreed that a waiver by either party of a
breach of any provision of this Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
13. Entire Agreement. This Agreement and the Exhibits hereto
contain the entire agreement of the parties with respect to the subject matter
hereof and shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, heirs, distributees, permitted
successors and assigns.
14. Further Assurances. 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 Agreement.
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<PAGE>
15. Headings. The article and section headings and subheadings
appearing in this Agreement are for purposes of easy reference and
shall not be considered a part of this Agreement or in any way to modify,
amend or affect its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
---------------------------------
Michael Schenkler, President
[PURCHASERS]
- ----------------------------------
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EXHIBIT 1
CERTIFICATE OF DESIGNATION
OF
$10.00 CONVERTIBLE PREFERRED STOCK
OF
NEWS COMMUNICATIONS, INC.
--------------------------------------
Pursuant to Section 78.195 of the
Nevada Revised Statutes
--------------------------------------
NEWS COMMUNICATIONS, INC., a corporation organized and
existing under the laws of the State of Nevada, DOES HEREBY CERTIFY THAT:
FIRST: News Communications, Inc. (the "Corporation") was
incorporated under the laws of the State of Nevada on May 20, 1986;
SECOND: Pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation of the Corporation, as amended, under
the provisions of Section 78.195 of the Nevada Revised Statutes, the Board of
Directors of the Corporation on October 3, 1996, fixed the designations,
preferences and relative, participating, optional, conversion or other special
rights, or qualifications, limitations or restrictions of up to 200,000 shares
of preferred stock of the Corporation, $1.00 par value, as follows:
(1) Designation. A series of preferred stock shall be
designated and known as the $10.00 Convertible Preferred Stock (hereinafter
called "$10.00 Convertible Preferred Stock"). Each share of $10.00 Convertible
Preferred Stock shall be identical in all respects with the other shares of
$10.00 Convertible Preferred Stock.
(2) Number of Shares. The number of shares of $10.00
Convertible Preferred Stock shall be 200,000 shares. Shares of $10.00
Convertible Preferred Stock purchased by the Corporation shall be canceled and
shall revert to authorized but unissued shares of preferred stock undesignated
as to series. The shares of $10.00 Convertible Preferred Stock shall not be
callable by the Corporation.
(3) Dividends. Dividends shall be payable on the $10.00
Convertible Preferred Stock at a rate equal to five times the amount of
dividends, if any, per share declared and paid by the Corporation on its Common
Stock, as and when dividends may be declared and paid upon the Common Stock,
payable out of funds legally available for the declaration of dividends.
7
<PAGE>
Subject to the foregoing and to any further limitations prescribed in
accordance with the provisions of the Certificate of Incorporation of the
Corporation, the Board of Directors may declare, out of any funds legally
available therefor, dividends upon the then outstanding shares of any junior
stock, and/or any parity stock (other than $10.00 Convertible Preferred Stock),
and no holders of shares of $10.00 Convertible Preferred Stock shall be entitled
to share therein.
(4) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, after payment to holders of any series of preferred stock or
other class of securities entitled to a preference over holders of $10.00
Convertible Preferred Stock but before any distribution or payment shall be made
to the holders of any junior stock, the holders of $10.00 Convertible Preferred
Stock shall be entitled to be paid the amount of $10.00 per share, together with
all accrued and unpaid dividends to such distribution or payment date. If such
payment shall have been made in full to the holders of $10.00 Convertible
Preferred Stock, then the remaining assets and funds of the Corporation shall be
distributed among the holders of the other classes and series of capital stock
of the Corporation, according to their respective rights and preferences and in
each case according to their respective shares. If, upon any liquidation,
dissolution or winding up of the affairs of the Corporation, the amounts so
payable are not paid in full to the holders of all outstanding shares of $10.00
Convertible Preferred Stock, then the holders of $10.00 Convertible Preferred
Stock and the holders of all other parity stock shall share ratably in any
distribution of assets in proportion to the full amounts to which they would
otherwise be respectively entitled according to their respective rights and
preferences. The merger or consolidation of the Corporation with or into one or
more other entities or the sale, lease or conveyance of all or a part of its
assets shall not be deemed to be a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of the foregoing provisions of
this Section (4).
(5) Voting and Other Rights.
(a) Except as hereinafter specifically
provided, each issued and outstanding share of $10.00 Convertible Preferred
Stock shall be entitled, with respect to all matters presented for a vote to
holders of Common Stock, to such number of votes such share would have had if it
had been converted into shares of Common Stock pursuant to Section (6) on the
record date of stockholders entitled to vote on such matters, or, if no record
date is established, at the date such vote is taken. The holders of $10.00
Convertible Preferred Stock shall be entitled to the same prior notice of all
8
<PAGE>
stockholders' meetings as is given to other stockholders and to vote together
with such holders as set forth therein upon any matter submitted to such holders
for a vote and not as a separate class. Except as specifically provided herein,
if for any reason holders of $10.00 Convertible Preferred Stock shall be
entitled to vote as a separate class, the holders of a majority in interest of
$10.00 Convertible Preferred Stock entitled to vote in such election shall bind
the entire class of $10.00 Convertible Preferred Stock. The shares of $10.00
Convertible Preferred Stock shall not have any relative, participating, optional
or any other special rights or powers other than as set forth herein.
(b) So long as at least 100,000 shares of
$10.00 Convertible Preferred Stock are outstanding, the holders of record
thereof, acting as a single class, shall be entitled, at all meetings of
stockholders and other times when directors are elected or appointed, to the
exclusion of the holders of the Common Stock, to nominate and elect that number
of directors of the Corporation equal to one-half of the total number of
directors that shall constitute the whole Board of Directors. Any director so
elected may be removed by, and shall not be removed without cause except by, the
vote of the holders of record of a majority of the outstanding shares of the
$10.00 Convertible Preferred Stock acting as a single class. During the period
that the preceding provisions of this Section (5)(b) are in effect, the holders
of the $10.00 Convertible Preferred Stock shall not be entitled to vote for the
election of any other directors except as provided in this Section (5)(b).
The vote of all of the holders of record
of the $10.00 Convertible Preferred Stock shall be necessary for authorizing,
effecting or validating the amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation or any certificate amendatory
thereof or supplemental thereto (including any Certificate of Designation or any
similar document relating to any series of preferred stock) so as to affect
adversely the powers, preferences or rights of the $10.00 Convertible Preferred
Stock. The increase of the authorized amount of the Preferred Stock shall not be
deemed to affect adversely the powers, preferences or rights of the $10.00
Convertible Preferred Stock.
Unless the vote or consent of the holders
of a greater number of shares shall then be required by law, so long as at least
100,000 shares of $10.00 Convertible Preferred Stock are outstanding, the vote
of the holders of record of a majority of the outstanding shares thereof, acting
as a single class, shall be necessary for authorizing, effecting or validating
(i) the merger or consolidation of the Corporation into or with any other
corporation, (ii) the sale of all or substantially all of the assets of the
Corporation or (iii) the issuance of any parity stock (as hereinafter defined).
In calculating s uch majority, the vote of any holder who has an interest in the
transaction other than solely as a holder shall not be included.
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<PAGE>
(6) Conversion.
(a) Any holder of a share of $10.00 Convertible
Preferred Stock may convert each such share, at any time and from time to time,
into shares of Common Stock. The number of shares of Common Stock into which
each share of $10.00 Convertible Preferred Stock may be converted shall be
obtained by dividing $10.00 by the Conversion Price, which shall initially be
$2.00 and shall be subject to adjustment from time to time as hereinafter
provided in Section (6)(c) or (d) below and subject to the provisions regarding
no issuance of fractional shares set forth in Section (6)(i) below. The
conversion of any shares of $10.00 Convertible Preferred Stock shall not affect
the holders' rights to dividends unpaid to the date of conversion but all rights
to future dividends and any interest thereon shall terminate upon conversion.
The shares of Common Stock into which the $10.00 Convertible Preferred Stock is
convertible shall be referred to as the "Converted Securities."
(b) In order to convert shares of $10.00
Convertible Preferred Stock into Converted Securities, the holder thereof shall
surrender the certificate or certificates for $10.00 Convertible Preferred
Stock, duly endorsed or in blank, to the Corporation at its principal office (or
such other place as may be reasonably designated by the Corporation), shall give
written notice to the Corporation at said office that he elects to convert the
same and shall state in writing therein the name or names in which he wishes the
certificates for Converted Securities to be issued and shall make payment to the
Corporation of any applicable transfer or other taxes. The Corporation will, as
soon as practicable thereafter, deliver at said office to such holder of shares
of the $10.00 Convertible Preferred Stock or to his nominee or nominees,
certificates for the number of full Converted Securities to which he shall be
entitled as aforesaid and, if applicable, a check in lieu of any fractional
share of Common Stock as provided in Section (6)(i). Shares of the $10.00
Convertible Preferred Stock shall be deemed to have been converted as of the
date of the surrender of such certificate or certificates for conversion as
provided above, and the person or persons entitled to receive the Converted
Securities issuable upon such conversion shall be treated for all purposes,
including, but not limited to, the right to vote the Common Stock included as
part of the Converted Securities, as the record holder or holders of such Common
Stock on such date.
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<PAGE>
(c) The Conversion Price of the $10.00
Convertible Preferred Stock and, accordingly, the number of shares of Common
Stock into which the shares of $10.00 Convertible Preferred Stock may be
converted, shall be subject to adjustment from time to time as follows:
A. In case the Corporation shall (i)
subdivide or split its outstanding shares of Common Stock into a larger number
of shares by recapitalization, reclassification or split-up thereof, or by
issuance of shares of Common Stock as a dividend or distribution on the Common
Stock, or (ii) combine its outstanding shares of Common Stock into a smaller
number of shares by recapitalization, reclassification or combination thereof,
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the holder of any shares of $10.00 Convertible Preferred Stock thereafter
shall be entitled to receive, upon such conversion effected after the happening
of any of the events described above, the same number of shares of Common Stock
as such holder would have received had such shares of $10.00 Convertible
Preferred Stock been converted immediately prior to the happening of such event.
B. In case the Corporation after the
date hereof shall distribute to all of the holders of outstanding shares of
Common Stock any securities or other assets (other than a cash distribution made
as a dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the State of Nevada), the Board of
Directors shall be required to make such equitable adjustment in the number of
shares of Common Stock into which each share of $10.00 Convertible Preferred
Stock is convertible pursuant to Section (6)(a) hereof, as in effect immediately
prior to the record date for such distribution, as may be necessary to preserve
for the holder rights substantially proportionate to those enjoyed hereunder by
the holder immediately prior to the happening of such distribution.
C. In case the Corporation shall sell
any shares of Common Stock for a consideration per share less than the
then-current Conversion Price, the Conversion Price in effect immediately prior
to such sale shall be changed to a price (including any applicable fraction of a
cent) determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and (ii) the number of shares of Common Stock which the
aggregate consideration received for the issuance of such additional shares
11
<PAGE>
would purchase at the Conversion Price in effect immediately prior to such sale
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares; provided,
however, that no such adjustment shall be made upon (i) the exercise of any
options, warrants or other rights to acquire Common Stock outstanding on the
date of issuance of the $10.00 Convertible Preferred Stock or (ii) the exercise
of any options, warrants or other rights to acquire Common Stock granted
pursuant to any employee benefit plan of the Corporation, whether such plan is
in effect on the date of issuance of the $10.00 Convertible Preferred Stock or
thereafter adopted.
An adjustment made pursuant to this Section (6)(c) shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a Section
or combination. Such adjustments shall be made successively whenever any event
described above shall occur.
(d) In the case of any reclassification of the
outstanding Common Stock (other than a change which solely affects the par value
of such shares of Common Stock or a change covered by Section (6)(c) hereof), or
if the Corporation or any successor company shall consolidate or merge with, or
convey all or substantially all its property and assets to, any other company,
then, as a condition precedent to such reclassification, consolidation, merger
or conveyance (other than a consolidation or merger in which the Corporation is
the continuing corporation and which does not result in any reclassification or
reorganization of the outstanding shares of Common Stock), adequate provision
shall be made whereby the holders of shares of $10.00 Convertible Preferred
Stock at the time outstanding shall thereafter be entitled to convert their
shares of $10.00 Convertible Preferred Stock (or any other securities, other
than Common Stock, that may be issued on such reclassification, consolidation,
merger or conveyance with respect to or in exchange for the $10.00 Convertible
Preferred Stock) into such shares of stock, securities or assets as may be
issuable or payable with respect to, or in exchange for, the number of shares of
Common Stock or the other shares of stock, securities or assets, as the case may
be, into which their shares of the $10.00 Convertible Preferred Stock would be
convertible immediately prior to such reclassification, consolidation, merger or
conveyance; and the right which the holders of the $10.00 Convertible Preferred
Stock have to receive additional shares of Common Stock on conversion of their
shares of $10.00 Convertible Preferred Stock on account of any adjustment made
pursuant to Section (6)(c) shall continue and be preserved in respect of any
stock or other securities of the successor company into which shares of the
$10.00 Convertible Preferred Stock shall thereafter become exchangeable.
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In the case the Corporation shall, at any
time prior to the conversion of all of the $10.00 Convertible Preferred Stock,
offer to the holders of its Common Stock any rights to subscribe for additional
shares of Common Stock or shares of any other class of the Corporation, then the
Corporation shall give written notice thereof to the registered holders of the
$10.00 Convertible Preferred Stock not less than 20 days prior to the date on
which the books of the Corporation are closed or a record date is fixed for the
determination of the stockholders entitled to such subscription rights. Such
notice shall specify the date as to which the books shall be closed or record
date fixed with respect to such offer of subscription and the right of the
holder of $10.00 Convertible Preferred Stock to participate in such offer of
subscription shall terminate if the $10.00 Convertible Preferred Stock shall not
be converted on or before the date of such closing of the books or such record
date.
Whenever the number of shares of Common
Stock deliverable upon the conversion of each share of $10.00 Convertible
Preferred Stock shall be adjusted pursuant to the provision of Section (6)(c) or
(d), the Corporation shall promptly (A) file with the transfer agent, if any,
for the shares of $10.00 Convertible Preferred Stock a certificate, signed by
the Chairman of the Board or the President or a Vice President of the
Corporation, and (B) mail, or cause the transfer agent to mail, to all holders
of shares of $10.00 Convertible Preferred Stock, at their last address as they
shall appear upon the stock records of the Corporation, a notice, setting forth
in each case, the increased or decreased number of shares of Common Stock
thereafter deliverable upon the exchange of each share of $10.00 Convertible
Preferred Stock. The certificate filed with the transfer agent shall show, in
addition, in reasonable detail the method of calculation and the facts requiring
such adjustment and upon which such calculation is based.
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The term "Common Stock" shall mean (A) the
class of stock designated as the "Common Stock" of the Corporation at the date
of initial issuance of shares of the $10.00 Convertible Preferred Stock or (B)
any other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value or from no par value to par value, or (C) any capital
stock of the Corporation hereafter authorized which shall not be limited to a
fixed sum or percentage of par or preference value in respect of the rights of
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation. In the event that, at any time, as a result of an adjustment made
pursuant to Section (6)(c) or (d) above, the holder of any share of the $10.00
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than shares of the
Corporation's Common Stock as in effect on the date hereof, then the shares so
receivable upon conversion of any share of the $10.00 Convertible Preferred
Stock shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions contained in Section
(6)(c) or (d).
At all times, a sufficient number of the
authorized but unissued shares and/or treasury shares of Common Stock shall be
reserved by the Corporation for the purpose of conversion of all shares of the
$10.00 Convertible Preferred Stock at the time outstanding.
In lieu of fractions of shares of Common
Stock issuable upon conversion of the $10.00 Convertible Preferred Stock, the
Corporation shall pay to the holder in cash the Fair Market Value (as
hereinafter defined) of any such fraction of a share of Common Stock on the date
of conversion.
(7) Preemptive Rights. The holders of shares of $10.00
Convertible Preferred Stock shall, as such, have no preemptive right to purchase
or otherwise acquire shares of any class of stock or other securities of the
Corporation now or hereafter authorized.
(8) Junior and Parity Stock. As used herein with
respect to $10.00 Convertible Preferred Stock, the following
terms shall have the following meanings:
(a) The term "parity stock" shall mean all series of
preferred stock (including, but not limited, to the $10.00 Convertible
Preferred Stock) and any other class of stock of the Corporation
hereafter authorized ranking on a parity with the $10.00 Convertible
Preferred Stock in the payment of dividends or in the distribution of
assets on any liquidation, dissolution or winding up of the
Corporation.
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(b) The term "junior stock" shall mean the
Corporation's Common Stock, par value $.01 per share, and any other
class of stock of the Corporation hereafter authorized over which
preferred stock, including, but not limited to, $10.00 Convertible
Preferred Stock, has preference or priority in the payment of dividends
or in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(9) Senior Stock. The Corporation may not, without the consent
of the holders of a majority of the $10.00 Convertible Preferred Stock, create
any new class or series of preferred stock with rights senior to the $10.00
Convertible Preferred Stock.
(10) Fair Market Value. As used herein with respect
to $10.00 Convertible Preferred Stock, "Fair Market Value"
shall mean:
(a) If the principal market for the Common Stock is a
national securities exchange or the Nasdaq National Market
System or the Nasdaq SmallCap Market, the closing sales price
of the Common Stock on such day as reported by such exchange
or market system, or on a consolidated tape reflecting
transactions on such exchange or market system; or
(b) If the principal market for the Common Stock
is not a national securities exchange or the Nasdaq National
Market System or the Nasdaq SmallCap Market and the Common
Stock is quoted on the National Association of Securities
Dealers Automated Quotation System, the average of the closing
bid and closing asked prices of the Common Stock on the date
in question, as quoted on such System; or
(c) If the principal market for the Common Stock is
not a national securities exchange or the Nasdaq National
Market System or the Nasdaq SmallCap Market and the Common
Stock is not quoted on the National Association of Securities
Dealers Automated Quotation System, the mean between the
highest bid and lowest asked prices for the Common Stock on
the date in question, as reported by the National Quotation
Bureau, Inc. ("NQB") or at least two market makers in the
Common Stock if quotations are not available from NQB but
are available from market makers; or
(d) If the principal market for the Common Stock is
not (a), (b) or (c), "Fair Market Value" shall be determined
by the Corporation's Board of Directors, whose decision shall
be final and binding.
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(11) Registration Rights.
(a) Demand Registration
Grant of Right. The Corporation,
upon written demand ("Demand Notice") of any holder or holders of not less than
forty percent (40%) of the outstanding Shares ("Converting Holder(s)") made
within five years of the date of this Agreement, agrees to register, on one
occasion, all or any portion, as requested by the Converting Holder(s) in the
Demand Notice, of the shares of Common Stock ("Common Shares") issuable upon
conversion of the Shares of the Converting Holder(s) (collectively the
"Registrable Securities"). On such occasion, the Corporation will use its best
efforts to file a registration statement under the Act covering the Registrable
Securities within ninety days after receipt of the Demand Notice and use its
best efforts to have such registration statement declared effective promptly
thereafter. The Corporation covenants and agrees to give written notice of its
receipt of any Demand Notice by any Converting Holder(s) to all other holders of
the Shares within ten days from the date of the receipt of any such Demand
Notice and will include in the registration statement the Registrable Securities
of all such other holders who convert their Shares into Common Shares and who so
request by written notice to the Corporation within ten days thereafter.
Terms. The Corporation shall bear
all fees and expenses attendant to registering the Registrable Securities
pursuant to this Section 11(a), but the Converting Holder(s) whose Registrable
Securities are included in the registration statement ("Holders") shall pay any
and all underwriting commissions and non-accountable expenses of any underwriter
selected by the Holders to sell the Registrable Securities, together with the
expenses of any legal counsel selected by the Holders to represent them in
connection with the sale of the Registrable Securities. The Corporation agrees
to use its prompt best efforts to cause the filing required herein to become
effective and to qualify or register the Registrable Securities in such States
as are reasonably requested by the Holders; provided, however, that in no event
shall the Corporation be required to register the Registrable Securities in a
State in which such registration would cause (A) the Corporation to be obligated
to do business in such State, or (B) the principal stockholders of the
Corporation to be obligated to escrow their shares of capital stock of the
Corporation. The Corporation shall cause any registration statement filed
pursuant to the demand rights granted under Section 11(a) to remain effective
for a period of at least nine months from the effective date of such
registration statement.
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(b) "Piggy-Back" Registration.
(i) Grant of Right. In addition to the
foregoing demand right of registration, the Holders of Registrable Securities
shall have the right until five years from the date of this Agreement to include
the Registrable Securities as part of any other registration of securities filed
by the Corporation if allowable under the Act and the rules promulgated
thereunder; provided however, that if, in the written opinion of the
Corporation's managing underwriter or underwriters, if any, for such offering,
the inclusion of the Registrable Securities, when added to the securities being
registered by the Corporation or selling securityholders, will exceed the
maximum amount of securities which can be marketed (A) at a price reasonably
related to their then current market value, or (B) without materially and
adversely affecting the entire offering, then the Corporation may exclude from
such offering all or any portion of the Registrable Securities to be so
registered.
(ii) Terms. The Corporation shall bear
all fees and expenses attendant to registering the Registrable Securities
pursuant to this Section 11(b), but the Holders shall pay any and all
underwriting commissions and non-accountable expenses of any underwriter
selected by the Holders to sell the Registrable Securities, together with the
expenses of any legal counsel selected by the Holders to represent them in
connection with the sale of the Registrable Securities. In the event of such
proposed registration, the Corporation shall furnish the then Holders of the
outstanding Registrable Securities with not less than thirty days written notice
prior to the proposed date of filing of such regis-
tration statement. Such notice to the Holders shall continue to be given for
each registration statement filed (during such five-year period) by the
Corporation until such time as all of the Registrable Securities have been
registered and sold, if earlier. The Holders shall exercise the "piggy-back"
rights provided for herein by giving written notice, within twenty days of the
receipt of the Corporation's notice of its intention to file a registration
statement. The Corporation shall cause any registration statement filed pursuant
to the above "piggy-back" rights to remain effective for at least nine months
from the date that the Holders of the Registrable Securities are first given the
opportunity to sell all of such securities.
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(c) General Terms.
(i) Indemnification.
(A) The Corporation will indemnify
each Holder whose Registrable Securities are included in any such registration
statement, with respect to which registration, qualification or compliance has
been effected or attempted pursuant to this Section 11, and each underwriter, if
any, and each person who controls any underwriter within the meaning of the Act
or the Securities Exchange Act of 1934 (the "Exchange Act"), against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Corporation of the Act or any rule or regulation thereunder applicable to
the Corporation in connection with any such registration, qualification or
compliance, and will reimburse the Holder whose Registrable Securities are
included in such registration statement, each such underwriter and each person
who controls any such underwriter within the meaning of the Act or the Exchange
Act, for any legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action
provided that the Corporation will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Corporation by the Holder whose Registrable Securities are
included in such registration statement.
(B) It shall be a condition to the
Corporation's obligations under this Section 11 that each Holder whose
Registrable Securities are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Corporation, each of its directors and officers and each underwriter, if any, of
the Corporation's securities covered by such registration statement, each person
who controls the Corporation or such underwriter within the meaning of the
Exchange Act and the Act and the rules and regulations thereunder, each other
securityholder participating in such distribution and each of their officers,
directors and partners, and each person controlling such other securityholder,
against all claims, losses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Corporation and such other securityholders, directors, officers, partners,
persons, underwriters or control persons for any legal or any other expenses
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reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such document in reliance upon and in
conformity with written information furnished to the Corporation such Holder;
provided, however, that the obligations of such Holder hereunder shall be
limited to an amount equal to the proceeds received by such Holder of securities
sold as contemplated herein.
(C) Each party entitled to
indemnification under this subsection 11(c)(i)(the "Indemnified Party") shall
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this subsection 11(c)(i). No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
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(D) Notwithstanding the foregoing
provisions of this subsection 11(c)(i), the parties acknowledge that it is the
position of the SEC that indemnification for violations of the securities laws
is unenforceable.
(ii) Information. Each Holder shall
furnish to the Corporation such information regarding the Holder and the
distribution proposed by such Holder as the Corporation may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 11.
(d) Termination. The rights granted under
this Section 11 shall terminate upon delivery to the Purchasers of an
unqualified opinion of counsel to the Corporation in form and substance
reasonably acceptable to counsel for the Purchaser to the effect that such
rights are no longer necessary for the public sale of the shares of Common Stock
issuable upon conversion of the Shares.
IN WITNESS WHEREOF, NEWS COMMUNICATIONS, INC. has caused this
Certificate of Designation to be duly executed by its President and attested to
by its Secretary, who affirm that the information contained in the foregoing
Certificate of Designation is true under the penalties of perjury this ____ day
of October 1996.
NEWS COMMUNICATIONS, INC.
By: /s/Michael Schenkler
-----------------------------------
Michael Schenkler, President
By: /s/Martin J. McLaughlin
----------------------------------
Martin J. McLaughlin, Secretary
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EXHIBIT 2
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR UNDER ANY STATE SECURITIES LAW, HAS BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAW, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
News Communications, Inc. (the "Company") hereby grants to
(the
"Holder") the right, privilege, and option to purchase [ ,000] shares of its
Common Stock, par value $.01 per share ("Common Stock"), at the purchase price,
subject to adjustment as hereinafter provided, of U.S. $2.00 per share ("Warrant
Price"), in the manner and subject to the conditions hereinafter provided.
Time of Exercise of Warrant. This Warrant may be
exercised at any time or from time to time at or before 5:00 p.m., Eastern Time,
on the fifth anniversary of the date of issuance hereof. The Company in its sole
discretion may extend the duration of the period in which this Warrant may be
exercised.
Method of Exercise. This Warrant shall be exercised
in whole at any time or in part from time to time, by delivery of this Warrant
with the Purchase Form attached hereto duly completed and executed to the
Company at its principal executive offices accompanied by a certified or
cashier's check payable to the order of the Company in payment of the Warrant
Price, for the number of whole shares specified, together with appropriate
endorsements or transfer documents, if any, and a check for payment of any
applicable transfer or similar tax, if required. Upon clearance of the check,
the Company shall make immediate delivery of a stock certificate evidencing the
number of whole shares to which the Holder may be entitled. The Company shall
not be required to make any cash or other adjustment in respect of any fraction
of a share to which the Holder would otherwise be entitled. The Holder, by
acceptance of this Warrant, expressly waives any right to receive a certificate
for any fraction of a share or cash payment upon the exercise of this Warrant.
In case of the purchase of less than all the shares purchasable under this
Warrant, the Company shall cancel this Warrant upon surrender hereof and shall
execute and deliver a new Warrant of like tenor and date for the balance of the
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shares purchasable hereunder. The Company agrees at all times to reserve or hold
available a sufficient number of shares of Common Stock to cover the number of
shares issuable upon the exercise of this and all other Warrants of like tenor
then outstanding. All shares of Common Stock issued hereunder and in conformity
herewith shall be validly issued, fully paid and non-assessable.
Anti-Dilution Provisions. If and to the extent that
the number of issued shares of Common Stock of the Company shall be increased or
reduced by change in par value, split up, stock split, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to this Warrant and the Warrant Price shall be proportionately adjusted
so that the Holder, upon exercise hereof shall be entitled to receive the number
of shares of Common Stock which the Holder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto.
In case of any reorganization or any consolidation or merger
to which the Company is a party other than a merger or consolidation in which
the Company is the continuing corporation, or in case of any sale or conveyance
to another entity of the property of the Company as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a merger
of a third corporation into the Company), the Holder of this Warrant shall have
the right thereafter to receive on the exercise of this Warrant the kind and
amount of securities, cash or other property which he would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 3
with respect to the rights and interests thereafter of the Holder of this
Warrant to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant. The above provisions of this
Section 3 shall similarly apply to successive reorganizations, consolidations,
mergers, statutory exchanges, sales or conveyances. The issuer of any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant shall be responsible for all of the agreements and obligations of
the Company hereunder.
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In case the Company shall sell any shares of Common Stock for
a consideration per share less than the then-current Warrant Price, the Warrant
Price in effect immediately prior to such sale shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received for the
issuance of such additional shares would purchase at the Warrant Price in effect
immediately prior to such sale and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after the issuance of such
additional shares; provided, however, that no such adjustment shall be made upon
(i) the exercise of any options, warrants or other rights to acquire Common
Stock outstanding on the date of issuance of this Warrant or (ii) the exercise
of any options, warrants or other rights to acquire Common Stock granted
pursuant to any employee benefit plan of the Company, whether such plan is in
effect on the date of issuance of this Warrant or thereafter adopted.
No adjustment in the Warrant Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
share of Common Stock; provided, however, that any adjustments which by reason
of this paragraph are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 3
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be. The Company shall not issue fractional shares of Common Stock upon
exercise of this Warrant.
Upon the happening of any event requiring an adjustment of the
Warrant Price, the Company shall forthwith give written notice thereto to the
Holder of this Warrant stating the adjusted Warrant Price and the adjusted
number of shares purchasable upon the exercise hereof resulting from such event
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based.
Rights Prior to and Subsequent to Exercise of Warrant. This
Warrant does not entitle the Holder to any of the rights of a stockholder of the
company, including, without limitation, the right to receive dividends or other
distributions, to exercise any preemptive rights, to vote, or to consent or to
receive notice as a stockholder of the Company. If, however, at any time prior
to the expiration or redemption of this Warrant and prior to its exercise, any
of the following events shall occur:
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the Company shall declare any dividend payable
in any securities upon its shares of Common Stock or make any
distribution (other than a regular cash dividend) to the holders of its
shares of Common Stock; or
the Company shall offer to the holders of its
shares of Common Stock any additional shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock
or any right to subscribe for or purchase any thereof; or
a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger, sale,
transfer or lease of all or substantially all of its property, assets,
and business as an entirety) shall be proposed,
then in any one or more of said events the Company shall give notice in writing
of such event to the Holder at his last address as it shall appear on the
Company's records at least twenty (20) days' prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividends, distribution, or subscription rights,
or for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up. Each person in whose name any
certificate for shares of Common Stock is to be issued shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
this instrument was surrendered and payment of the Warrant Price was made,
irrespective of the date of delivery of such stock certificate, except that, if
the date of such surrender and payment is a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the holder
of such shares of Common Stock at the close of business on the next succeeding
date on which the stock transfer books are open.
Condition to Exercise of Warrant. In order to enable
the Company to comply with the Securities Act of 1933, as amended (the
"Securities Act"), and relevant state law, the Company may require the Holder as
a condition of the exercising of this Warrant, to give written assurance
satisfactory to the Company that the shares subject to this Warrant are being
acquired for his own account, for investment only, with no view to the
distribution of same, and that any subsequent resale of any such shares either
shall be made pursuant to a registration statement under the Securities Act
which has become effective and is current with regard to the shares being sold,
or shall be pursuant to an exemption from registration under the Securities Act.
If the shares of Common Stock purchased pursuant to the exercise of this Warrant
are not subject to an effective registration statement under the Securities Act,
the certificate(s) evidencing shares of Common Stock purchased upon exercise of
this Warrant shall bear the following restrictive legend or a similar legend to
the same effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
UNDER ANY STATE SECURITIES LAW, HAS BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THERETO UNDER THE ACT AND ANY APPLICA-
BLE STATE SECURITIES LAW, OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
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Registration Rights.
6.1 Demand Registration
(a) Grant of Right. If any holder or holders
of not less than forty percent (40%) of the outstanding Shares ("Exercising
Holder(s)") exercises the right to exercise its or their Warrants into shares of
Common Stock ("Common Shares"), the Company, upon written demand ("Demand
Notice") of such Exercising Holder(s) made within five years of the date of this
Warrant, agrees to register, on one occasion, all or any portion, as requested
by the Exercising Holder(s) in the Demand Notice, of such Common Shares
(collectively the "Registrable Securities"). On such occasion, the Company will
use its best efforts to file a registration statement under the Act covering the
Registrable Securities within ninety days after receipt of the Demand Notice and
use its best efforts to have such registration statement declared effective
promptly thereafter. The Company covenants and agrees to give written notice of
its receipt of any Demand Notice by any Exercising Holder(s) to all other
holders of the Shares within ten days from the date of the receipt of any such
Demand Notice and will include in the registration statement the Registrable
Securities of all such other holders who convert their Shares into Common Shares
and who so request by written notice to the Company within ten days thereafter.
(b) Terms. The Company shall bear all fees and
expenses attendant to registering the Registrable Securities pursuant to this
Section 6.1, but the Exercising Holder(s) whose Registrable Securities are
included in the registration statement ("Holders") shall pay any and all
underwriting commissions and non-accountable expenses of any underwriter
selected by the Holders to sell the Registrable Securities, together with the
expenses of any legal counsel selected by the Holders to represent them in
connection with the sale of the Registrable Securities. The Company agrees to
use its prompt best efforts to cause the filing required herein to become
effective and to qualify or register the Registrable Securities in such States
as are reasonably requested by the Holders; provided, however, that in no event
shall the Company be required to register the Registrable Securities in a State
in which such registration would cause (I) the Company to be obligated to do
business in such State, or (ii) the principal stockholders of the Company to be
obligated to escrow their shares of capital stock of the Company. The Company
shall cause any registration statement filed pursuant to the demand rights
granted under Section 6.1 to remain effective for a period of at least nine
months from the effective date of such registration statement.
6.2 "Piggy-Back" Registration.
(a) Grant of Right. In addition to the
foregoing demand right of registration, the Holders of Registrable Securities
shall have the right until five years from the date of this Agreement to include
the Registrable Securities as part of any other registration of securities filed
by the Company if allowable under the Act and the rules promulgated thereunder;
provided however, that if, in the written opinion of the Company's managing
underwriter or underwriters, if any, for such offering, the inclusion of the
Registrable Securities, when added to the securities being registered by the
Company or selling securityholders, will exceed the maximum amount of securities
which can be marketed (I) at a price reasonably related to their then current
market value, or (ii) without materially and adversely affecting the entire
offering, then the Company may exclude from such offering all or any portion of
the Registrable Securities to be so registered.
(b) Terms. The Company shall bear all fees and
expenses attendant to registering the Registrable Securities pursuant to this
Section 6.2, but the Holders shall pay any and all underwriting commissions and
non-accountable expenses of any underwriter selected by the Holders to sell the
Registrable Securities, together with the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Securities. In the event of such proposed registration, the Company shall
furnish the then Holders of the outstanding Registrable Securities with not less
than thirty days written notice prior to the proposed date of filing of such
registration statement. Such notice to the Holders shall continue to be given
for each registration statement filed (during such five-year period) by the
Company until such time as all of the Registrable Securities have been
registered and sold, if earlier. The Holders shall exercise the "piggy-back"
rights provided for herein by giving written notice, within twenty days of the
receipt of the Company's notice of its intention to file a registration
statement. The Company shall cause any registration statement filed pursuant to
the above "piggyback" rights to remain effective for at least nine months from
the date that the Holders of the Registrable Securities are first given the
opportunity to sell all of such securities.
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6.3 General Terms.
(a) Indemnification.
(i) The Company will indemnify each Holder
whose Registrable Securities are included in any such registration statement,
with respect to which registration, qualification or compliance has been
effected or attempted pursuant to this Section 6, and each underwriter, if any,
and each person who controls any underwriter within the meaning of the Act or
the Securities Exchange Act of 1934 (the "Exchange Act"), against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of the Act or any rule or regulation thereunder applicable to the
Company in connection with any such registration, qualification or compliance,
and will reimburse the Holder whose Registrable Securities are included in such
registration statement, each such underwriter and each person who controls any
such underwriter within the meaning of the Act or the Exchange Act, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by the Holder whose Registrable Securities are included in such
registration statement.
(ii) It shall be a condition to the
Company's obligations under this Section 6 that each Holder whose Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such registration statement, each person who controls the
Company or such underwriter within the meaning of the Exchange Act and the Act
and the rules and regulations thereunder, each other securityholder
participating in such distribution and each of their officers, directors and
partners, and each person controlling such other securityholder, against all
claims, losses, damages and liabilities (or actions in respect thereto) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
26
<PAGE>
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such other
securityholders, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such document in reliance upon and in conformity with written
information furnished to the Company such Holder; provided, however, that the
obligations of such Holder hereunder shall be limited to an amount equal to the
proceeds received by such Holder of securities sold as contemplated herein.
(iii) Each party entitled to
indemnification under this subsection 6.3(a) (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this subsection 6.3(a). No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(iv) Notwithstanding the foregoing
provisions of this subsection 6.3(a), the parties acknowledge that it is the
position of the SEC that indemnification for violations of the securities laws
is unenforceable.
(b) Information. Each Holder shall furnish to
the Company such information regarding the Holder and the distribution proposed
by such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 6.
6.4 Termination. The rights granted under this
Section 6 shall terminate upon delivery to the Holder of an opinion of counsel
to the Company to the effect that such rights are no longer necessary for the
public sale of the shares of Common Stock issuable upon exercise of this
Warrant.
Loss, etc. of Warrant. Upon receipt of evidence
satisfactory to the Company, of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen, or destroyed, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute, and deliver to the Holder a
new Warrant of like date, tenor and denomination.
Governing Law. This Warrant and any dispute,
disagreement, or issue of construction or interpretation arising hereunder
whether relating to its execution, its validity, the obligations provided herein
or performance shall be governed or interpreted according to the law of the
State of New York.
27
<PAGE>
IN WITNESS WHEREOF, News Communications, Inc. has caused
this Warrant to be executed on the ____ day of October, 1996.
(SEAL) NEWS COMMUNICATIONS, INC.
By: /s/Michael A. Schenkler
---------------------------------
Michael A. Schenkler, President
ATTEST:
- ----------------------------------
MARTIN J. McLAUGHLIN, Secretary
28
<PAGE>
PURCHASE
The undersigned, ________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for and
purchase _______________ shares of the Common Stock of NEWS COMMUNICATIONS, INC.
covered by said Warrant, and makes payment therefor in full at the price per
share provided by said Warrant.
The undersigned represents that the exercise of the foregoing
Warrant was solicited by __________________________. If not solicited by
_________________________, please write "unsolicited" in the space below. Unless
otherwise indicated, it will be assumed that the exercise was solicited by
________________________.
______________________________________
(Write "unsolicited" on above line if
not solicited by ___________________)
Dated:___________________ Signature: __________________________
Address: ____________________________
____________________________
FULL ASSIGNMENT
FOR VALUE RECEIVED ___________________________hereby sells, assigns and
transfers unto _______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
______________________, attorney, to transfer said Warrant on the books of NEWS
COMMUNICATIONS, INC.
Dated:___________________ Signature: __________________________
Address: ____________________________
____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________________ hereby assigns and transfers
unto _____________________________ the right to purchase ________________ shares
of Common Stock of NEWS COMMUNICATIONS, INC. by the foregoing Warrant, and a
proportionate part of said Warrant and the rights evidenced hereby, and does
irrevocably constitute and appoint ______________________, attorney, to transfer
that part of said Warrant on the books of NEWS COMMUNICATIONS, INC.
Dated:___________________ Signature: __________________________
Address: ____________________________
____________________________
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 316,499
<SECURITIES> 0
<RECEIVABLES> 7,050,400
<ALLOWANCES> 1,562,197
<INVENTORY> 0
<CURRENT-ASSETS> 6,088,994
<PP&E> 1,379,263
<DEPRECIATION> 817,196
<TOTAL-ASSETS> 10,255,838
<CURRENT-LIABILITIES> 3,448,912
<BONDS> 0
<COMMON> 79,774
0
449
<OTHER-SE> 5,678,915
<TOTAL-LIABILITY-AND-EQUITY> 10,255,838
<SALES> 5,504,204
<TOTAL-REVENUES> 5,504,204
<CGS> 0
<TOTAL-COSTS> 5,363,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30,372)
<INCOME-PRETAX> 110,017
<INCOME-TAX> 0
<INCOME-CONTINUING> 110,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,017
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<PAGE>
</TABLE>
