As filed with the Securities and Exchange Commission on November 16, 1998.
Registration No. 333-
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT
On
FORM SB-2
Under
THE SECURITIES ACT OF 1933
NEWS COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
Nevada 2711 13-3346991
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code Number)
Organization)
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
(Address and telephone number of principal executive offices and principal
place of business)
MICHAEL SCHENKLER
President
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
(718) 357-3380
(Name, address and telephone number of agent for service)
Copies to:
Paul J. Pollock, Esq.
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, NY 10020
(212) 835-6000
Fax No.: (212) 835-6001
Approximate date of commencement of proposed sale to the public: As soon
as practical after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |_| ___________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 464(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering.
|_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_| ___________
CALCULATION OF REGISTRATION FEE
- - -------------------------------------==========------------===============
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Share Price Fee
- - --------------------------------------------------------------------------
Common Shares, par 3,833,333 $1.50 $5,750,000 $2,144
value $.01 per share
- - --------------------------------------------------------------------------
Subscription Rights (1) ----- ----- -----
- - -----------------------------------------------------------===============
(1) Evidencing the right to subscribe for 3,833,333 shares of common stock.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
NEWS COMMUNICATIONS, INC.
3,833,333 Shares of Common Stock
-----------------
News Communications, Inc. is granting at no cost to you, as a holder of
Common Stock or Convertible Preferred Stock in the company, a non-transferable
right to purchase shares of the company's Common Stock. You will be entitled to
purchase a minimum of one share of the company's Common Stock; or a maximum of
two shares of Common Stock (based on availability) for every share owned as of
__________ ___, 1998 at a price of $1.50 per share. We are selling up to
3,833,333 shares of Common Stock in this rights offering. If shares remain
unsold after the rights offering, Wilbur L. Ross, Jr., Melvin I. Weiss and J.
Morton Davis will purchase any remaining unsold shares pursuant to a standby
agreement.
The principal market for trading of the Common Stock is the Nasdaq
SmallCap Stock Market, where the shares are listed under the symbol "NCOME." The
last reported sale price of the Common Stock on the Nasdaq SmallCap Stock Market
on November 11, 1998 was $1.20 per share.
-----------------
Investment in the Common Stock involves a high degree of risk.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved
of these securities or passed upon the adequacy or
accuracy of the prospectus. Any representation to the
contrary is a criminal offense.
-----------------
Per Share Total
--------- ------
Offering Price to the Public.. $1.50 $5,750,000
Proceeds to the company (1)... 1.4625 $5,606,250
(1) The proceeds are net of a financial advisory fee to the Messrs. Ross,
Weiss and Davis equal to 2.5% of the exercise price on 3,833,333 shares
sold in the offering. Before deducting offering expenses we will pay,
estimated to be $141,500.
-----------------
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is ___, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...........................................1
RISK FACTORS.................................................3
THE OFFERING.................................................8
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................10
USE OF PROCEEDS.............................................11
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.............11
CAPITALIZATION..............................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...14
RESULTS OF OPERATIONS.................................14
BUSINESS....................................................17
MANAGEMENT..................................................24
SUMMARY COMPENSATION TABLE..................................28
AGGREGATE YEAR-END OPTION VALUES............................29
CERTAIN TRANSACTIONS........................................30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................31
DESCRIPTION OF SECURITIES...................................33
INDEMNIFICATION AND INDEMNITY...............................35
SHARES ELIGIBLE FOR FUTURE SALE.............................36
LEGAL MATTERS...............................................37
EXPERTS.....................................................37
CHANGE IN ACCOUNTANTS.......................................37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................38
- - --------------------------
Some of the statements contained in this Prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis or Plan of
Operations" and "Business" are forward-looking. They include statements
concerning strategy, liquidity and capital expenditures, debt levels and the
ability to obtain financing, service debt, competitive pressures in the
newspaper business, legal proceedings and regulatory matters and general
economic conditions. Actual results may differ materially from those suggested
by the forward-looking statements for various reasons, including those discussed
under "Risk Factors."
--------------------------
Shares should be ready for delivery on or about __________, 1998, against
payment in immediately available funds.
<PAGE>
- - -------------------------------------------------------------------
PROSPECTUS SUMMARY
- - -------------------------------------------------------------------
This summary highlights information contained elsewhere in this
Prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the Common Stock. You should read the
entire Prospectus carefully, including the "Risk Factors" section and the
financial statements and the notes to those statements. Unless we say otherwise,
the statements in this Prospectus (1) assume an exercise price of $1.50 per
share, and (2) give effect to a one-for-three reverse split of the Common Stock
that authorized on October 1, 1998.
The Company
News Communications, Inc. ("News Communications") publishes and distributes
community oriented newspapers and targeted audience publications. The
publications serve specific geographic communities and, in most instances, are
distributed free of charge to selected residences and businesses in those
communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the
communities it serves. The principal source of our revenues (92% for the fiscal
year ended November 30, 1997, 89% for the fiscal year ended November 30, 1996
and 92% for the nine months ended August 31, 1998) is the sale of advertising
space in our publications.
The following table sets forth selected information relating to our
portfolio of print publications as of November 13, 1998.
Publication Community Served
----------- ----------------
Manhattan Spirit, The Blade, Chelsea-
Clinton News*, and Westsider* ... West Side of Manhattan, NYC
Our Town................................ Upper East Side of Manhattan,
NYC
Dan's Papers and Montauk Pioneer........ Eastern Long Island, New York
Queens Tribune, Western Queens Tribune,
and Bayside Trib at Home......... Borough of Queens, NYC
Riverdale Review and Bronx Press Review* Riverdale section
of the Bronx, NYC
Long Island Lifestyles, Long Island
Market, The South Shore Record*
(Five Towns), Lynbrook USA*,
Malvern Community Times*,
Rockville Center News & Owl*,
Oceanside Beacon*, Baldwin
Citizens*, East Rockaway
Observer*, Valley Stream
MAILleader*, The Independent
Voice of Long Beach*, Oceanside
and Island Park*, Elmont Life,
Franklin Square Life and West
Hempstead Life...................... Nassau County, New York
The Hill................................ (Weekly paper devoted to
coverage of US Congress)
Brooklyn Skyline........................ Borough of Brooklyn, NYC
* Paid circulation newspapers
News Communications has developed a regional group of publications in the
greater New York City metropolitan area. We believe this strategy has been
attractive to advertisers seeking a broad New York metropolitan area audience.
We also believe the company can take advantage of economies of scale,
combination of operations and other synergies not available to individual
publications. We intend to purchase more publications and seek other growth
opportunities in the New York region. We also plan to expand to other areas as
resources permit such as New Jersey, Connecticut, Massachusetts and resort
communities throughout the United States. Our executive offices are located at
174-15 Horace Harding Expressway, Fresh Meadows, New York 11365, and our
telephone number is (718) 357-3380.
<PAGE>
The Offering
Description of the
Rights Offered All holders of the Common Stock or Convertible
Preferred Stock on ________ ___, 1998 will
receive a right to purchase a minimum of 1
share and a maximum of 2 shares (based on
availability) of the company's Common Stock
for every share owned.
The Exercise Price of
the Rights The exercise and purchase price will be $1.50
per share of Common Stock.
When You Can Exercise
Your Rights The rights will only exercisable from the period
beginning on ____________, 1998 and ending on
______________, 1998 at 5:00 p.m., New York City
time.
How Your Rights Will be
Evidenced Each shareholder will receive a certificate
representing the non-transferable right.
Obligations of Wilbur L.
Ross, Jr. Melvin I.
Weiss and J. Morton
Davis Messrs. Ross, Weiss and Davis will purchase,
in proportion to their current ownership interest
in the company, any shares offered in the rights
offering that have not been purchased through
the exercise of the rights and have not otherwise
been sold by __________, 1998, at the exercise
price.
Number of shares of
Common Stock Offered
in the Rights Offering 3,833,333 shares.
Common Stock to be
Outstanding After the
Rights Offering 6,569,125 shares. (1)
Use of Proceeds Working capital and other general corporate
purposes, including possible acquisitions and
investments in other businesses. See "Use of
Proceeds."
Risk Factors The securities offered hereby involve a high
degree of risk. See "Risk Factors" and
"Business."
Nasdaq Symbol NCOME
- - ---------------------------
(1) Excludes (a) up to 122,223 shares issuable upon the exercise of stock
options granted and that may be granted under the company's 1987 Stock
Option Plan, (b) up to 500,000 shares issuable upon the exercise of
options granted and that may be granted under the company's
Discretionary Directors and Officers Stock Option Plan, (c) up to
166,667 shares issuable upon the exercise of options granted under the
company's Non-discretionary Directors Stock Option Plan, (d) up to
437,296 shares issuable upon conversion of outstanding shares of various
series of Preferred Stock and (e) up to 54,048 shares issuable upon the
exercise of other outstanding warrants and options.
<PAGE>
Summary Financial Information
The following summary financial information is taken from our Consolidated
Financial Statements included elsewhere in this Prospectus and should be read
along with the Consolidated Financial Statements and the related Notes.
Income Statement Data:
<TABLE>
<S> <C> <C>
Year ended November 30, Nine Months Ended August 31,
---------------------- ---------------------------
1996 1997 1997 1998
---- ---- ---- ----
Net Revenue.............. $ 16,614,501 $ 17,523,952 $ 13,051,666 $13,654,111
Operating Expenses....... $ 19,123,415 $ 19,832,177 $ 13,433,226 $13,996,299
Interest Expense......... $ (177,415) $ (200,948) ($143,101) $ (240,173)
Net Income (Loss)
Available to Common $ (3,881,428) $ (2,954,215) $ (872,829)$ (742,361)
Stockholders.............
Net Income (Loss) per
Share of Common Stock.... $ (1.47) $ (1.08) $ (.33) $ (.27)
Average Number of shares. 2,663,999 2,710,918 2,650,884 2,730,378
</TABLE>
Balance Sheet Data:
August 31, 1998
---------------
Pro Forma
Actual Pro Forma(2) As Adjusted(1)
------ ----------- --------------
Total Assets (3) $7,988,416 7,988,416 $ 13,453,166
Long-Term Debt $ 0 2,500,000 $ 2,500,000
Working Capital $(1,913,553) 586,447 $ 6,051,197
Stockholders' Equity $1,766,646 1,766,646 $ 7,231,396
- - --------------
(1) Reflects the sale of 3,833,333 shares of Common Stock at a price of
$1.50 per share as a result of this offering and our receipt of the
money.
(2) Reflects refinancing of Long-Term Debt.
(3) At August 31, 1998 assets included goodwill of
$3,271,629.
-2-
<PAGE>
RISK FACTORS
The securities we are offering involve a high degree of risk, including,
the risks described below. You should carefully consider the following risk
factors which affect the business of the company and this offering before
investing in the securities.
History of Losses; Accumulated Deficit
Our revenues have not been sufficient to satisfy our ongoing expenses of
operation. We had net losses of $2,954,215 and $3,881,428 for the fiscal years
ended November 30, 1997 and 1996, respectively, and $ 742,361 for the nine
months ended August 31, 1998. As of August 31, 1998, our accumulated deficit was
$14,816,018. Because of our history of losses, we cannot assure you that we will
ever be profitable. See "Management's Discussion and Analysis or Plan of
Operations."
Dependence upon Advertising Revenues
Advertising revenues made up nearly 92% of our revenues in fiscal 1997. We
do not have long-term contracts with our advertisers, so any advertiser can
terminate at any time. Our publishing schedules and advertising discount
programs affect the amount of advertising revenues. A change in the overall
economy or economic conditions affecting our advertisers in our publishing
schedules and discount programs would have a significant negative impact on
advertising revenues, particularly if any lost advertisers could not be
replaced.
Competition for advertising dollars is primarily based on advertising
rates, the nature and scope of readership, reader response to advertisers'
products and services and the effectiveness of sales efforts. If we do not
compete successfully for advertisers and readers, if our advertising revenues
are negatively impacted by the overall economy or economic conditions affecting
our advertisers, then our financial condition will be negatively affected as
well.
Significant Seasonality of Certain Publications
Dan's Papers' revenues, because it is a resort area newspaper, vary
significantly with the seasons. This makes June-August (the third fiscal
quarter) the most significant period in terms of revenue and income. Dan's
Papers must have an increase in advertising space during these months or it will
have a significant negative effect on our operating results and profitability
for full fiscal years. The Hill's revenues also vary throughout the year
depending on whether or not Congress is in session.
Uncertainties Regarding Company Operations
Our likelihood of success must be considered in light of the difficulties
in growing and maintaining the readership interest necessary to attract and hold
advertisers, our principal source of revenue. We cannot be sure that our
existing publications will keep or increase their present level of acceptance to
advertisers. Even if they attain greater acceptance, that does not mean we will
be able to recover our development and acquisition costs or become profitable on
an ongoing basis.
Fluctuations in Paper Costs
Paper is the principal raw material for our publishing operations. Paper
is provided by our contract printers. We utilize three different printers in the
New York metropolitan area and monitor the paper markets with them. Even though
we believe that we purchase paper and printing very effectively and that our
long-term relationships in the industry should allow us to continue to do so, we
cannot be sure the price of paper will not increase, or that we will be able to
recover any paper cost increases by increasing advertising or subscription
-3-
<PAGE>
rates. Any substantial cost increase in paper will have a significant negative
affect on the results of operations. See "Management's Discussion and Analysis
or Plan of Operations."
Control by Holders of $10 Convertible Preferred Stock and Certain Stockholders
So long as at least 100,000 shares of $10 Convertible Preferred Stock are
outstanding, the holders of this class of stock have the right to nominate and
elect half of the directors that make up our Board of Directors. They also have
the right to approve any sale of all or substantially all of our assets or a
merger or other similar transaction which we propose to undertake. As a result
of these rights, the holders of the $10 Convertible Preferred Stock and the
directors they elect are able to prevent us from undertaking any action or
entering into any agreement with which they do not agree even if such action or
agreement may be beneficial to the company or the holders of other classes of
our securities.
In addition, Wilbur L. Ross, Melvin I. Weiss and J. Morton Davis own more
than 50% of the company's outstanding Common Stock on a fully-diluted basis.
Their percentage ownership will increase if all of the rights are not exercised
by our current shareholders by virtue of their commitment to purchase any
unsubscribed rights. Accordingly, even after the number of shares of $10
Convertible Preferred Stock fall below 100,000, Messrs. Ross, Weiss and Davis,
if they were to act together, will be able to control our business and affairs.
Anti-Takeover Impact
The disproportionate voting rights between the $10 Convertible Preferred
Stock and the Common Stock could have an adverse effect on the market price of
the Common Stock. Such disproportionate voting rights may make the company a
less attractive target for a takeover than it otherwise might be, or render more
difficult or discourage a merger proposal, a tender offer or a proxy contest,
even if such actions were favored by holders of our Common Stock. Such
disproportionate voting rights may also deprive holders of the Common Stock of
an opportunity to sell their shares at a premium over then prevailing market
prices for the Common Stock.
Highly Competitive Industry
The newspaper business is extremely competitive. Our publications compete
for advertising dollars directly with other newspapers and magazines which are
distributed without charge in the areas in which we distribute our publications.
Our publications also compete with paid circulation newspapers and magazines
which are sold in the areas in which our publications are distributed, as well
as with other advertising media such as radio and television. Many of our
competitors have a competitive advantage by virtue of their longer standing
market positions and better name recognition, as well as greater marketing and
financial resources.
Dependence Upon Key Personnel
Our success is dependent upon the personal efforts and abilities of our
executive officers, including Jerry Finkelstein, Chairman of the Board, Wilbur
L. Ross, Chief Executive Officer, and Michael Schenkler, President. We are also
dependent upon certain key personnel who are publishers and/or editors of our
publications. These key personnel include Dan Rattiner, the publisher and editor
of Dan's Papers, Thomas Allon, the publisher and editor-in-chief of Manhattan
Spirit and Our Town and Marty Tolchin, the publisher and editor-in-chief of The
Hill. We do not maintain key-man life insurance on any of our employees. If any
officers or key personnel cease employment before we find qualified
replacements, it might have a significant negative impact on our publications
and overall business.
Mr. Ross and the other members of the Board of Directors have begun a
search for a full-time, paid Chief Executive Officer. If the search is
successful, Mr. Ross will remain as Chairman of the Executive Committee. There
can be no assurance of the outcome of the search. See "Management."
-4-
<PAGE>
Determination of Offering Price, Possible Volatility of Stock Price
The offering price of the shares was based upon the current market price
of our Common Stock and does not necessarily reflect the price at which our
shares may be sold in the public market during or after the offering. The public
markets, in general, have from time to time experienced extreme price and volume
fluctuations, which have in many cases been unrelated to the operating
performance of particular companies, and the market for stocks of companies with
smaller amounts of capital like ours can be subject to greater price volatility
than the stock market in general. In addition, factors such as new products by
our competitors or other companies, potential litigation, and strategic
alliances may have a significant impact on the market price of the Common Stock.
See "Price Range of Common Stock and Dividend Policy."
Qualification Requirements for Nasdaq Securities
The company's Common Stock is listed on The Nasdaq SmallCap Stock Market.
In August 1997, the Nasdaq Stock Market, Inc. ("Nasdaq") adopted new
requirements that we must meet for continued listing of our Common Stock,
including:
o maintaining a bid price of our shares of at
least $1.00;
o having at least $2,000,000 in net tangible
assets;
o maintaining a public float of at least
500,000 shares having a market value of at
least $1,000,000; and
o complying with certain corporate governance requirements, such as
electing at least two independent directors.
On July 29, 1998, following an expedited written hearing before a Nasdaq
Listing Qualifications Panel, a determination was made that News Communications
had failed to meet the minimum net tangible asset requirement and the minimum
market capitalization requirement. As a result, Nasdaq decided that our shares
would be delisted from The Nasdaq SmallCap Stock Market. The delisting process
was temporarily delayed because we requested an oral review/hearing by the
Nasdaq staff. The hearing was held on October 1, 1998 and we are awaiting a
response from Nasdaq. Although we have proposed a plan to regain compliance with
the requirements for continued listing (of which this offering is a part), we
cannot be sure that the shares will remain listed on The Nasdaq SmallCap Stock
Market after completion of the review process. If our securities are excluded
from The Nasdaq SmallCap Stock Market, it may negatively affect the prices of
the securities and your ability to sell them.
Even if our shares continue to be listed on The Nasdaq SmallCap Stock
Market, we cannot be certain that we will be able to continue to satisfy the
requirements for maintaining a Nasdaq listing after this offering.
In the event that our shares are delisted, we anticipate that they will
continue to be traded on the Nasdaq's Electronic Bulletin Board. In that event,
trading in our shares would be covered by "penny stock" rules promulgated for
non-Nasdaq and non-exchange listed securities. Under these rules, any
broker/dealer who recommends our shares to persons other than prior customers
and investors meeting certain financial requirements, must, prior to sale, make
a special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction. Securities are exempt from these
rules if the market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on the Nasdaq National Market and an equity security issued by the issuer that
has:
o net tangible assets of at least $2,000,000,
if such an issuer has been in continuous
operation for three years;
-5-
<PAGE>
o net tangible assets of at least $5,000,000,
if such issuer has been in continuous
operation for less than three years; or
o average revenue of at least $6,000,000 for
the preceding three years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated with trading in the
penny stock market.
If our shares become subject to the regulations on penny stocks, the price
and ability to sell our shares would be severely affected because the shares
could only be sold in compliance with the penny stock rules. We cannot be sure
that our securities will not be subject to the penny stock regulations or other
regulations that would negatively affect the market for our securities.
Potential Dilutive Effect of Outstanding Options and Convertible Securities;
Registration Rights
As of the date of this Prospectus, there were outstanding various options,
warrants and shares of Preferred Stock which, if exercised or converted by the
holders, entitle them to purchase up to 1,579,926 shares of Common Stock at
exercise or conversion prices ranging from $3.75 to $9.38 per share.
The exercise or conversion of any of such securities will most likely
occur at a time when the company's stock price exceeds the conversion or
exercise price. This would decrease the value of the company's Common Stock. The
existence of these securities could have a negative impact on the terms we could
negotiate for additional financing. In addition, some holders of Common Stock,
Preferred Stock and options and warrants have registration rights with respect
to the securities and we have granted certain registration rights with respect
to the other securities. These registration rights could be a substantial future
expense and could negatively affect any future equity or debt financing. Also,
the sale of these shares held by or issuable to persons holding registration
rights could have a negative effect on the market price, at that time, of our
shares.
Potential Depressive Effect of Shares Eligible for Future Sale Pursuant to Rule
144; Other Potential Sales
Approximately 50,000 shares of our Common Stock, upon conversion of the
$10 Convertible Preferred Stock Series 2, are "restricted" securities as that
term is defined in Rule 144 under the Securities Act. Of the restricted shares,
none have been held for over one year. Possible or actual sales of restricted
Common Stock by current stockholders of the company under Rule 144 or otherwise
may in the future decrease the price of our shares in any market which exists or
which may develop. In general, under Rule 144, a person who has satisfied a one
year holding period may, under certain circumstances, sell publicly, in each
three month period thereafter, an amount of shares that does not exceed the
greater of (i) 1% of the number of outstanding shares or (ii) the average weekly
trading volume of the shares during the four calendar weeks immediately
preceding such sale. Persons who have not been affiliated with the company for
at least three months and who have held their restricted securities for at least
two years are not subject to the volume and certain other limitations with
respect to the sale of such securities. See "Shares Eligible for Future Sale."
Potential Dilutive Effect of Authorized and Unissued Shares of Common Stock and
Preferred Stock.
We are authorized to issue 100,000,000 shares of Common Stock, of which
2,735,791 shares are presently outstanding, 447,259 are reserved for issuance
upon conversion of outstanding Preferred Stock, and 1,132,667 shares are
reserved for issuance upon exercise of options and warrants currently
outstanding. The balance of the authorized Common Stock will be issuable in the
discretion of the Board, and will not require stockholder approval. Although the
Board currently has no plans to issue any unissued shares except in payment of
dividends on the 10% Preferred Stock, the issuance of any new shares would have
the effect of diluting the interests of our existing stockholders.
-6-
<PAGE>
We are also authorized to issue 500,000 shares of "blank check" Preferred
Stock, of which 1,250 shares designated 10% Non-voting Convertible Preferred
Stock, 500 shares designated 8% Convertible Preferred Stock, 200 shares
designated 12% Convertible Preferred Stock, 220,000 shares designated $10
Convertible Preferred Stock are issued and outstanding. The balance of the
authorized Preferred Stock may be issued in our discretion by the Board, without
stockholder approval, with dividend, liquidation, conversion, voting or other
rights which could negatively affect the voting power or other rights of owners
of our Common Stock or other series of Preferred Stock. In the event of
issuance, the Preferred Stock could be used, under certain circumstances, as a
way to discourage, delay or prevent a change in control of News Communications,
Inc. which in turn could discourage bids for us and prevent stockholders from
receiving the maximum value for their shares. See "Description of Securities."
Broad Discretion in Application of Proceeds by Management; Potential Use of
Portion of Net Proceeds for Unspecified Acquisitions.
All of the estimated money we expect to receive from this offering is
going to be used for working capital and general corporate purposes. As such,
management will have broad discretion as to how to use this money. A portion of
the money earmarked to working capital may be used by us to buy other
businesses, including other publications. Although we have no agreement,
arrangement or understanding with respect to the purchase of any other business,
should an opportunity arise, the Board of Directors will have the power to
approve such acquisition without the consent of our stockholders. See "Use of
Proceeds."
Limits on How and When Dividends Can Be Paid
We have never paid any dividends on our Common Stock and do not believe we
will pay any dividends on the Common Stock in the near future. Provisions of the
outstanding series of Preferred Stock also restrict our ability to pay dividends
on the Common Stock. Applicable provisions of Nevada corporate law affect our
ability to declare and pay dividends and could significantly limit, or even
prohibit, our ability to pay dividends in the future. Specifically, Nevada
corporate law prohibits us to pay dividends if it would prevent us from paying
our customary debts in running our Business as they become due. Also, payment of
dividends would be prohibited if it would cause the total of our assets to be
less than the amount required, to pay, upon dissolution of the company, all
amounts owed to stockholders with superior rights to those stockholders
receiving the dividend.
Risks Associated with the Year 2000
The Year 2000 issue arose from computer programs which were written using
two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We have identified all of our significant internal software applications
which contain source code that may be unable to appropriately interpret the Year
2000 and have already begun to fix or replace those applications. We have
determined that our accounting system and employee network system are Year 2000
compliant. Our advertising acknowledgment system is the only operating program
that is not Year 2000 compliant. Management believes that the estimated costs to
modify or replace this system before the Year 2000 are not significant.
In addition, we have asked our major suppliers about their progress in
identifying and addressing problems related to the Year 2000. Certain of our
major suppliers have informed us that they do not anticipate problems in their
business operations due to Year 2000 compliance issues. We are currently unable
to determine the extent to which Year 2000 issues will affect our other
suppliers, or the extent to which we would be vulnerable to the suppliers'
failure to fix any of their Year 2000 problems.
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THE OFFERING
Why We are Selling Shares Through a Rights Offering
Although the rights offering is essentially a public offering directed to
the company's stockholders, we believe that the rights offering provides several
advantages over a traditional public offering. The offering gives us the
opportunity to offer our Common Stock to investors who, as the company's
stockholders, already have some knowledge of our business, and to distribute the
securities to a broader, more stable stockholder base.
We determined the exercise price based upon our current market price.
What You Can Do with Your Rights
Until ___________, 1998, you may purchase a minimum of 1 share for every
share owned and up to 2 shares (if available) for every share owned on the basis
of each right you receive. If more than 3,833,333 shares are subscribed for,
stockholders who have exercised their right to purchase more than one share will
have their subscription reduced proportionately. You may not exercise rights for
fewer than 1 share in an account. If you hold shares in multiple accounts, you
must meet the minimum purchase requirement for each account. You may, however,
consolidate your rights into one account. You should consult with your regular
investment advisor and carefully consider your alternatives.
When You Can Exercise Your Rights
You can exercise your rights at any time during the period beginning on
_________________, 1998 and ending at 5:00 p.m., New York City time, on
_________________, 1998. After that date, you will not be able to exercise your
right and it will be worthless. We will not honor any rights received for
exercise after ________________, 1998, regardless of when you sent your right to
the transfer agent for exercise.
The Shares May Not Be Registered in the State Where You Live
You may reside in a jurisdiction in which the shares offered are not
registered or may not be qualified for issuance or sale under the state
securities laws. In that case, we cannot issue shares of Common Stock to you
unless the shares could be registered or otherwise qualified for sale in the
jurisdiction to which you move, unless an exemption from such registration or
qualification exists in such jurisdiction. We cannot be sure you will be able to
legally exercise your right to purchase the shares. If you are unable to
purchase shares, your interest in News Communications will be diluted.
How You Can Exercise Your Rights
You may exercise your rights by completing and signing the election to
purchase form that appears on the back of each rights certificate. You must send
the completed and signed form, along with payment in full of the exercise price
for all shares that you wish to purchase to Continental Stock Transfer & Trust
Company. Continental Stock Transfer & Trust Company must receive these documents
and the payment by 5:00 p.m. on _____________, 1998. We will not honor any
exercise of rights received by Continental Stock Transfer & Trust Company after
that date.
We will, however, accept your exercise if Continental Stock Transfer &
Trust Company has received full payment of the exercise price for shares, and
has received a letter or telegraphic notice from a bank, trust company or member
firm of the New York Stock Exchange or the American Stock Exchange setting forth
your name, address and taxpayer identification number or Social Security Number,
the number of shares you wish to purchase, and guaranteeing that a properly
completed and signed election to purchase form will be delivered to Continental
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Stock Transfer & Trust Company by 5:00 p.m. on _________________, 1998. If the
properly executed documents are not received by 5:00 p.m. on _________________,
1998, the subscriptions will not be accepted.
We suggest, for your protection, that you deliver your rights exercise for
Continental Stock Transfer & Trust Company by overnight or express mail courier.
If you mail your rights, we suggest that you use registered mail. If you wish to
exercise your rights, you should overnight mail or hand deliver your rights and
payment for the exercise price as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
You must pay the exercise price in U.S. dollars by check or money order
payable to the "News Communications, Inc. Escrow Account." Until the offering is
closed, your payment will be held in escrow by Continental Stock Transfer &
Trust Company, who will serve as the escrow agent.
Continental Stock Transfer & Trust Company will issue certificates to you
representing the Common Stock purchased through the exercise of rights by
____________, 1998. Until that date, Continental Stock Transfer & Trust Company
will hold all funds received in payment of the exercise price in escrow and will
not deliver any funds to us until the shares have been issued.
If you are a broker or depository who holds our shares for the account of
others and you receive rights certificates for the account of more than one
beneficial owner, you should provide copies of this Prospectus to the beneficial
owners. You should also carry out their intentions as to the exercise or
transfer of their rights.
We will decide all questions as to the validity, form, eligibility
(including times of receipt, beneficial ownership and compliance with minimum
exercise provisions), and the acceptance of subscription forms and the exercise
price will be determined by us. We will not accept any alternative, conditional
or contingent subscriptions. We reserve the absolute right to reject any
subscriptions not properly submitted. In addition, we may reject any
subscription if the acceptance of the subscription would be unlawful. We also
may waive any irregularities (or conditions) in the subscription of shares of
Common Stock, and our interpretations of the terms (and conditions) of the
rights offering shall be final and binding.
If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than ___________, 1998. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived. If
your exercise is rejected, your payment of the exercise price will be promptly
returned by __________________.
What Happens to the Unsubscribed Shares
To the extent that any unsubscribed shares remain unsold after the rights
offering, Wilbur L. Ross, Jr., Melvin I. Weiss and J. Morton Davis will purchase
these shares in proportion to their current ownership interest in the company,
at the exercise price. Messrs. Ross, Weiss and Davis must purchase these shares
no later than _____________, 1998.
In connection with this offering, Messrs. Ross, Weiss and Davis will
receive a fee equal to 2.5% of the exercise price on the shares sold in the
rights offering. The fee is for services and advice rendered in connection with
the structuring of the offering, valuation of the business of the company, and
financial advice to the company before and during the offering.
We intend to supplement the Prospectus after the rights exercise period is
over to set forth the results of the rights offering, and the number of
unsubscribed shares purchased, if any.
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What Happens if the Rights Offering is Canceled
Messrs. Ross, Weiss and Davis have the right to cancel the rights offering
if certain conditions are not satisfied or if certain circumstances exist prior
to the closing date of the offering. If you exercise rights and the rights
offering is canceled, Continental Stock Transfer & Trust Company will promptly
return to you, without interest, any payment received in respect of the exercise
price, and you will not receive any of our shares. The NASD has advised us that
trades in the when-issued shares of Common Stock in the market would be canceled
if the offering is not consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general summary of the material federal income tax
consequences of the rights offering is based upon the advice of Piper & Marbury
L.L.P., counsel to News Communications, Inc. It does not discuss all of the
federal income tax consequences which may affect a particular investor, nor does
it describe state, local, foreign or other tax consequences. Holders of Common
Stock should consult their own tax advisors concerning the tax treatment to them
of the rights offering.
Receipt of rights. Except as described below under "Payment of Dividends
With Respect to Preferred Stock," holders of Common Stock will not recognize
taxable income upon the receipt of rights in the offering. A holder's basis in
Common Stock with respect to which rights are distributed will be allocated
between the Common Stock and the rights in proportion to relative fair market
values. However, if the fair market value of the rights at the time they are
received is less than 15 percent of the fair market value of the Common Stock,
then no portion of the holder's basis in the Common Stock will be allocated to
the rights unless the holder so elects. Holders of Common Stock should consult
their own tax advisors concerning whether and how to make such an election.
Since the rights will not be transferable, it may be difficult to
establish the fair market value of the rights, and hence the allocation of basis
between the Common Stock and the rights.
A holder's holding period in rights received with respect to Common Stock
will include his holding period for the Common Stock with respect to which such
rights were distributed.
Payment of Dividends With Respect to Preferred Stock. If the company were
to pay any dividends with respect to the 8% Preferred Stock, the 10% Preferred
Stock, the 12% Preferred Stock or the $10 Convertible Preferred Stock within 36
months of the distribution of rights, or if it were to pay such a dividend at
any time and such dividend were deemed to be pursuant to a plan which includes
the distribution of rights, the distribution of rights could be treated as a
taxable dividend to the extent of the fair market value of the rights. However,
it would be so treated only to the extent the company has accumulated earnings
and profits as of the date of the rights distribution or current earnings and
profits for the year which includes the rights distribution.
News Communications, Inc. believes that (i) the rights are not likely to
have significant value, and (ii) the company will not have accumulated earnings
and profits as of the date of the rights distribution or current earnings and
profits for the year which includes such date. Therefore, even if the rights
distribution were treated as a taxable distribution, it is not anticipated that
the tax consequences to holders of Common Stock would differ significantly from
those described above.
Exercise of rights. No taxable income will be recognized upon the purchase
of Common Stock pursuant to the exercise of a right. A holder who acquires
Common Stock upon such exercise will have a basis in the Common Stock equal to
the sum of (i) his basis, if any, in the rights which are exercised (determined
as discussed above), and (ii) the exercise price paid. The holder's holding
period for the Common Stock acquired upon exercise of a right will begin on the
date of exercise, and will not include his holding period for the right.
Lapse of rights. If a right lapses without having been exercised, the
holder will recognize a loss equal to his basis, if any, in the right. Such loss
will be capital loss (assuming the Common Stock would have been a capital asset
in the holder's hands), and will be long-term or short-term depending upon
whether the holder's holding period in the lapsed rights (which, as discussed
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above, will include his holding period for the Common Stock with respect to
which the rights were received) is more than one year.
USE OF PROCEEDS
The net proceeds to be received by News Communications upon consummation
of the offering are estimated to be approximately $5,606,250. Such amounts will
be used for working capital and other general corporate purposes as and when
received. A portion of such proceeds may be used in the future for additional
acquisitions of or investments in other businesses, both related or non-related
to our newspaper business. Such investments could include controlling or
non-controlling or minority interests. We are in the process of identifying
appropriate candidates for acquisitions. Until utilized, the net proceeds of
this offering will be invested in short-term United States Government
securities, certificates of deposit, money market funds and other short-term or
long-term interest-bearing investments and investment grade common equities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares trade on The Nasdaq SmallCap Stock Market under the trading
symbol "NCOME". The following table sets forth, for the periods indicated, the
range of high and low closing bid quotations as reported by Nasdaq. The prices
set forth below have been adjusted to give effect to the 1-for-3 reverse stock
split of our shares authorized on October 1, 1998. The bid quotations set forth
above reflect inter-dealer prices, without retail markup, mark-down or
commission and may not necessarily represent actual transactions.
High Low
---- ----
Fiscal Year Ended November 30, 1996
First Quarter................... $9.75 $7.14
Second Quarter.................. 8.43 6.39
Third Quarter................... 7.50 4.89
Fourth Quarter.................. 7.68 3.00
Fiscal Year Ended November 30, 1997
First Quarter................... $8.64 $5.91
Second Quarter.................. 7.50 5.25
Third Quarter................... 6.75 4.89
Fourth Quarter.................. 7.32 4.50
Fiscal Year Ended November 30, 1998
First Quarter................... $5.85 $3.42
Second Quarter.................. 4.68 3.60
Third Quarter................... 3.96 2.52
Fourth Quarter (through
November 5, 1998)............ 2.91 1.22
On November 11, 1998, the last reported sales price for the Common Stock
on The Nasdaq SmallCap Stock Market was $1.20 per share. At November 11, 1998,
the company had 936 stockholders of record. The company estimates there are
approximately 2,100 beneficial owners of its Common Stock.
We have never paid cash dividends on our Common Stock and do not expect to
pay such dividends in the foreseeable future. We currently intend to retain any
future earnings for use in our business. The payment of any future dividends on
our Common Stock will be determined by the Board in light of the conditions then
existing, including our financial condition and requirements, future prospects,
restrictions in future financing agreements, business conditions and other
factors deemed relevant by the Board.
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Dividends on the 10% Preferred Stock are payable annually in an amount of
$500 per share of 10% Preferred Stock, in cash or in shares of Common Stock
having a fair market value of $500, payable on September 19th of each year.
Dividends on the 10% Preferred Stock may be paid in shares of Common Stock to
the extent News Communications has sufficient authorized but unissued Common
Stock even if we have sufficient assets or net profits to pay such dividends in
cash. It is anticipated that any permitted dividends will, at least in the
foreseeable future, continue to be paid in Common Stock. See "Description of
Securities" and "Consolidated Financial Statements".
CAPITALIZATION
The following table sets forth the capitalization of the company (a) at
August 31, 1998 adjusted for the one for three reverse stock split; and (b) as
adjusted to give effect to the issuance of 3,833,333 shares of Common Stock upon
completion of the offering (if required), and the application of the estimated
net proceeds therefrom:
Actual As Adjusted (1)
------ ---------------
Long-term Debt $ 0 $ 0
Stockholders' Equity:
Preferred Stock, $1.00 par
value, 500,000 shares
authorized
10% Convertible Preferred Stock,
1,250 shares authorized,
26 outstanding and as
adjusted $ 26 $ 26
8% Convertible Preferred Stock,
500 shares authorized,
114 outstanding and as
adjusted 114 114
12% Convertible Preferred Stock,
200 shares authorized
and outstanding and as adjusted 200 200
$10 Convertible Preferred Stock,
220,000 shares authorized,
and outstanding and as adjusted 220,000 220,000
Paid-in Capital Preferred Stock 2,257,025 2,257,025
Common Stock, $.01 par value,
100,000,000 shares authorized,
2,786,124 issued, 6,619,458 as
adjusted (2) 27,861 66,194
Paid-in Capital Common Stock 14,486,167 19,912,584
(Deficit) (14,816,018) (14,816,018)
------------ ------------
Totals $2,175,375 7,640,125
Less: Treasury Stock, 50,333
shares actual and as adjusted (408,729) (408,729)
--------- ---------
Total Stockholders' equity $1,699,898 $7,164,648
========== ==========
- - -------------------
(1) Assumes no proceeds of offering will be used to retire
debt. See "Use of Proceeds."
(2) Excludes (a) up to 122,223 shares issuable upon the
exercise of stock options granted and that may be
granted under the company's 1987 Stock Option Plan, (b)
up to 500,000 shares issuable upon the exercise of
options granted and that may be granted under the
company's Discretionary Directors and Officers Stock
Option Plan, (c) up to 166,667 shares issuable upon the
exercise of options granted under the company's
Non-discretionary Directors Stock Option Plan, (d) up
to 437,296 shares issuable upon conversion of
outstanding shares of various series of Preferred
Stock, and (e) up to 54,048 shares issuable upon the
exercise of other outstanding warrants and options.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of News
Communications' results of operations and financial condition. The discussion
should be read in conjunction with our audited consolidated financial statements
and notes thereto.
RESULTS OF OPERATIONS
Nine Months Ended August 31, 1997 Compared To Nine Months Ended August 31, 1998
The company reduced its net loss for the nine months by $130,000 (15%)
from ($872,000) in 1997 to ($742,000) in 1998. Operating loss before interest
expense and equity in loss of unconsolidated subsidiary decreased by 40,000
(10%) from ($382,000) in 1997 to ($342,000) in 1998 primarily from increased
profit at The Hill, which was a result of its strong increase in revenues,
offset by an increased loss at Nassau Newspapers which is in a transitional year
due to management change and has included replacing marginally profitable
third-party printing and distribution revenues with new revenues while absorbing
the acquisition of the South Shore Record. The increase in interest expense of
$97,000 (68%) from $143,000 in 1997 to $240,000 in 1998 was a result of the loan
from an affiliate of a principal stockholder and officer being outstanding in
1998.
Total revenues for the company were $13,654,000 for the nine months of
1998 an increase of almost $602,000 (5%) from $13,052,000 in 1997. The increase
in revenues was primarily a result of The Hill's increased sales effort and new
sales management, and Dan's Papers' capitalization on the continued growth of
the market in the Hamptons resort area of Long Island and its positioning as one
of the advertising standards on Long Island's east end. These increases were
offset by decreases at the Manhattan newspapers (Our Town, Manhattan Spirit and
Chelsea Clinton/Westsider). Decreased non-advertising revenues at the Nassau
Newspapers was offset by increased revenues from the South Shore Record.
Fiscal Year Ended November 30, 1997 Compared To Fiscal Year Ended November 30,
1996
1997 was a transitional year for News Communications. New management,
which came to the company during the last quarter of fiscal 1996, completed its
first full year of operation. Its objectives included increasing revenues,
implementing cost cutting measures and focusing on the publications which have
impacted the bottom line most negatively. New sales management and a new sales
team have resulted in a turnaround to profitability at The Hill. We decided to
discontinue the money losing operations at Manhattan File and have sold all but
a 10% interest in that subsidiary. Completing the transition of Brooklyn Skyline
to a newspaper from a shopper, the introduction of four-color printing and
bolstering the sales force has resulted in increasing revenues. A new publisher
was installed at the Nassau Newspapers and the South Shore Record was acquired
to provide Nassau with access to the high income demographic market of the "Five
Towns."
We increased our revenues 5% ($909,000) from $16,615,000 in fiscal 1996 to
$17,524,000 in fiscal 1997, and loss from continuing operations decreased by 43%
($1,494,000) from a loss of $3,462,000 in fiscal 1996 to $1,968,000 in fiscal
1997.
The increase in revenues was attributable primarily to The Hill, where the
effect of its high quality editorial content combined with a circulation audit
and a change in sales management and staff resulted in an increase of revenues
of $936,000 (71%); Brooklyn Skyline, where its increased acceptance as a
newspaper and as an advertising force in the community along with its 1996
expansion into a fifth zone helped increase revenues $221,000 (18%); and Dan's
Papers where its continuing capitalization on an ever increasing market in the
Long Island affluent resort area, the Hamptons, and an increased sales effort
combined to increase revenues $374,000 (10%). These revenue gains were offset in
part by Queens Tribune's decrease of $531,000 (16%), of which $200,000 related
to a softening of the advertising market in Queens and $331,000 related to the
discontinuance of various low profit margin print and distribution jobs; and the
Bronx Newspapers decrease of $124,000 (14%), which was a result of changes in
sales management.
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Salaries and outside labor costs increased $79,000 (1%), even as revenues
increased by 5%, as budget cuts phased in the beginning of 1996 took their full
effect.
Direct mechanical costs decreased $492,000 (8%) primarily as a result of
the decrease and stabilization of newsprint prices, coupled with the
renegotiation of printing contracts and the reduction in outside printing. We
believe that the changes made during 1996-97 will be more fully reflected in
improved operating results during fiscal 1997-98.
Discontinued Operations
News Communications owned 90% of Manhattan File Publishing, Inc. ("MFPI"),
publisher of Manhattan File, a monthly (plus special issues annually), 4-color,
perfect bound, glossy magazine, until February 1998, when the company sold 80%
of MFPI to an employee. The company now owns 10% of MFPI and the employee owns
90% of MFPI. All financial results for 1997 and 1996 attributable to Manhattan
File have been reclassified as discontinued operations.
Effects of Inflation
The company does not believe that inflation has had a significant impact
on its financial position or results of operations in the past three years.
Liquidity and Capital Resources
At August 31, 1998 the company had a shortage of current assets over
current liabilities in the amount of approximately $1,914,000. During the
quarter ended February 28, 1998, the company repaid $100,000 of bank loans from
cash on hand at the beginning of the year. In October 1998, the bank presented
the demand loans for payment. The company repaid $50,000 of the bank loans, and
payment of the balance has been extended to December 31, 1998.
At November 30, 1997, the company had an excess of current assets over
current liabilities of approximately $49,000. Net cash used by continuing
operations was $1,318,000. During the year ended November 30, 1997, the company
repaid $275,000 of the bank loans (an additional $100,000 was repaid in December
1997); $421,000 was used to purchase The South Shore Record; and $101,000 was
invested in or advanced to the Blade. The funds were provided from cash on hand
at the beginning of the year and from a $1,500,000 one-year loan in November
1997 from an affiliate of an officer and stockholder.
For the year ended November 30, 1997, net cash used by operations was
$1,318,184 and cash used for investing activities was $596,400. These funds were
provided by $141,421 from the exercise of warrants, $1,500,000 from loans and
$1,494,887 from cash on hand at the beginning of the year.
At November 30, 1996, the company had an excess of current assets over
current liabilities in the amount of approximately $2,146,000. Net cash used by
operations was $2,133,000. The funds were provided from a $1,000,000 two-year
loan from its largest stockholder in May 1996, a $675,000 increase in a bank
loan and from the issuance of $2,000,000 in $10 Convertible Preferred Stock in
October 1996. Approximately $500,000 of the proceeds was used to reduce the
company's accounts payable through November 30, 1996. In February 1997, the
company repaid $275,000 of the bank loans. The company presently has no material
commitment for capital expenditures.
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), the company is offering its existing stockholders the right to
purchase additional shares of its Common Stock. The gross proceeds of the
offering would be approximately $5,750,000.
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Management believes that News Communications will generate positive cash
flow for the fiscal year ending November 30, 1998. Although there can be no
assurances to this effect, management is confident that it has available a
variety of funding and revenue sources to meet the company's future cash needs.
Impact of Year 2000 Compliance
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We have established a committee to develop a comprehensive Year 2000 plan
with the goal of completing updates to key systems by December 31, 1998. We have
assessed the scope of our risks related to problems our computer systems may
have in processing date information related to the Year 2000 and believe such
risks are not significant.
We have identified all of our significant internal software applications
which contain source code that may be unable to appropriately interpret the year
2000 and has already begun to modify or replace those applications. We have
determined that our accounting system and employee payroll system are Year 2000
compliant. Our advertising acknowledgment system is the only operating program
that is not Year 2000 complaint. Management believes that the estimated costs to
modify or replace this system before the Year 2000 are not material.
In addition, we have inquired of our major suppliers about their progress
in identifying and addressing problems related to the Year 2000. Certain of our
major suppliers have informed us that such suppliers do not anticipate problems
in their business operations due to Year 2000 compliance issues. We are
currently unable to determine the extent to which Year 2000 issues will affect
our other suppliers, or the extent to which we would be vulnerable to the
suppliers' failure to remediate any of their Year 2000 problems.
NEW ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS No. 128")
which provides for the calculation of "basic" and "diluted" earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options. The assumed exercise of
various warrants and options would have been anti-dilutive and therefore, was
not considered in the computation of diluted earnings per share for November 30,
1997 and August 31, 1998. As required by this Statement, all periods presented
have been restated to comply with the provisions of SFAS No. 128.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Company does not anticipate that
SFAS Nos. 130 will have a material effect on the Company's financial position,
results of operations or financial statement disclosures.
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Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
("SFAS No. 131") which supersedes SFAS No. 14, Financial Reporting for Segments
of a Business Enterprise. SFAS No. 131 establishes standards for the way public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. The company does not
anticipate that SFAS No. 131 will have a material effect on the Company's
financial position, results of operations or financial statement disclosures.
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BUSINESS
News Communications, a Nevada corporation formed in 1986, has been
primarily engaged, through various wholly-owned and partly-owned subsidiaries,
in the publication and distribution of advertiser supported, community oriented
newspapers and related targeted audience publications. The community newspapers
are directed at specific geographic communities and, for the most part, are
distributed free of charge to selected residences and business establishments in
those communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the group of
communities at which it is directed. Some of the papers publish different
editions (with variations in editorial content and advertising) which are
distributed to each community in the targeted group. The principal source of the
company's revenues (92% for the fiscal year ended November 30, 1997, 89% for the
fiscal year ended November 30, 1996 and 92% for the nine months ended August 31,
1998) is the sale of advertising space in its publications.
As used herein, unless the context requires otherwise, the term "company"
refers to News Communications, Inc. together with its subsidiaries:
Publisher Publication
--------- ------------
Access Network Corp. ("Access")... Manhattan Spirit
(formerly called the West Side Spirit)
Tribco Incorporated ("Tribco").... The Queens Tribune published
in nine editions including The
Western Queens Tribune and
Bayside Trib at Home
Dan's Papers Inc. ("DPI")......... Dan's Papers and Montauk Pioneer
Manhattan Publishing Corp......... Our Town
Parkchester Publishing Co. Inc.... Bronx Press Review and
Riverdale Review (the "Bronx
Newspapers")
Nassau Community Newspaper
Group, Inc. ("NCNG")......... Lynbrook USA, Malverne Times,
Rockville Center News & Owl,
Valley Stream MAILeader,
Independent Voice of Long Beach,
Oceanside & Island Park,
Rockville Center-Oceanside
Beacon, Baldwin Citizen, East
Rockaway Observer, Elmont Life,
Franklin Square Life, West
Hempstead Life and Long Island
Lifestyles
South Shore Publishers, Inc....... South Shore Record (With NCNG,
the "Nassau Newspapers")
Capital Hill Publishing, Inc.
("Capital Hill").............. The Hill
Brooklyn Newspaper Publishing, Inc. Brooklyn Skyline
West Side Newspapers Corp......... Chelsea-Clinton News and
Westsider
All of the subsidiaries are wholly-owned except DPI, which is 80% owned by the
company.
News Communications is developing a regional group of publications in the
greater New York City metropolitan area. We believe this strategy has been
attractive to advertisers seeking a broad New York metropolitan area audience.
We also believe the company can take advantage of economies of scale,
combination of operations and other synergies not available to individual
publications. We intend to purchase more publications and seek other growth
opportunities in the New York region. We also plan to expand to other areas a
resources permit such as New Jersey, Connecticut, Massachusetts and resort
communities throughout the United States.
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Manhattan Spirit
The Manhattan Spirit is a weekly free circulation newspaper founded in
1985 which focuses on the lifestyle, culture, arts, entertainment, politics and
social issues of interest to the West Side and lower Manhattan. Editors and
support staff of Access, together with a variety of contributing free-lance
writers and columnists, write and edit all material for each weekly issue of the
Manhattan Spirit and perform all composition, layout, and typesetting work.
Printing is performed by outside contractors. In addition, the Manhattan Spirit
offers graphics and printing services to its customers.
The Manhattan Spirit has won many awards, including, New York State Bar
Association awards for excellence in journalism. Various national and
international magazines have reprinted articles from the Manhattan Spirit,
including Glamour Magazine and Cosmopolitan International. Editorial content
includes columns by well-known columnists in the fields of food and wine, movies
and social advice. Other columnists and writers focus on finance, theater and
topics of community interest.
The Manhattan Spirit is published in a 4-color tabloid format. It is
distributed each Thursday and Friday by independent contractors in bulk to
locations throughout Manhattan. The principal places of distribution are lobbies
of luxury apartment buildings, restaurants, banks, supermarkets and various
other business establishments, as well as in sidewalk distribution boxes.
Our Town
Our Town, is a 27-year-old weekly publication distributed in a single
edition predominantly on the Upper East Side of Manhattan. Our Town was acquired
by the company in May 1991. The company believes it is the East Side's largest
free circulation weekly community newspaper. Almost all of its income derives
from display and classified advertising.
Our Town is published in a 4-color tabloid format. Delivery is made by
independent contractors to apartment house lobbies, banks, supermarkets and
sidewalk distribution boxes.
Dan's Papers
Dan's Papers focuses on the lifestyle, culture, arts, entertainment,
politics and social issues of interest to the resort areas of the South and
North Forks of Eastern Long Island, New York, particularly the wealthy Hamptons
resort area. Its articles and columns include humor, news, celebrity profiles,
reviews of art gallery shows, restaurants, concerts, nightclubs and movies,
social satire, editorial cartoons and local environmental and political issues,
as well as a special section on real estate. Dan's Papers is published in
tabloid format (with a glossy cover for approximately 17 summer and 9 other
issues) on a weekly basis. It is distributed each week to locations on Eastern
Long Island, including art galleries, gift shops, supermarkets, newspaper and
card shops, restaurants and boutiques. There is also weekly distribution in
Manhattan. Management of the company believes that Dan's Papers has the largest
circulation in Eastern Long Island of any weekly publication.
DPI also publishes the Montauk Pioneer, which has been designated by the
Montauk Village Association as the official newspaper of the community of
Montauk, New York.
Queens Tribune
The Queens Tribune publishes twelve free circulation editions and one
paid-circulation edition weekly community newspapers serving areas in Queens
County in New York City. Included in such editions are three editions of the
Western Queens Tribune, plus the Bayside Trib at Home, which covers the news,
events and lifestyles in the community of Bayside, Queens.
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The Queens Tribune was started in 1970 and is believed by the company to
have the largest circulation of any weekly community newspaper in Queens County.
The format is a tabloid with four-color front and additional pages. Editorial
content focuses on local, borough-wide and occasionally city-wide political and
social issues. Features include community news and activities of the week, crime
reports, restaurant reviews and similar matters of interest to the targeted
circulation area. Substantially all of the articles and columns are written by
Tribco's editors and support staff. The Queens Tribune has won numerous awards
for journalistic excellence, including this year's New York Press Association's
coveted first place award for community leadership. Delivery is made by
independent contractors to heavy traffic locations, such as banks, supermarkets,
and sidewalk distribution boxes. Printing, graphics, consulting, distribution,
flyer and insert revenue are significant sources of income to The Queens Tribune
operation (D/B/A Multimedia) providing approximately 12% of its revenues in the
fiscal year ended November 30, 1997.
The Bronx Newspapers
Parkchester Publishing Co., Inc. is the publisher of the Bronx Press
Review, a 54 year old paper which took on a Bronx-wide identity to fill a vacuum
left by the absorption of the daily Bronx Home News by the New York Post in the
late 1940s. It is a tabloid paper with a 4-color front and back page. The Bronx
Press Review has been designated by the New York City Council as the official
newspaper of Bronx County for the publication of the Concurrent Resolutions of
the Legislature.
In the last quarter of 1993, the company started the Riverdale Review,
which serves the affluent Riverdale section of the Bronx. The Riverdale Review
is a community weekly covering the news, events, people and lifestyles of the
Riverdale community. It is distributed free of charge throughout the affluent
northwest Bronx community which it serves. Approximately 19,000 copies are
distributed door-to-door to private homes, in bulk to the lobbies and mailrooms
of the 175 apartment buildings in the section, and through street distribution
boxes and other bulk distribution to high traffic businesses and religious and
educational institutions.
The Nassau Newspapers
The company's Nassau Community Newspaper Group, Inc. publishes eight
Nassau Newspapers. Each of the Nassau Newspapers serves a community in Nassau
County, New York, a suburban county adjacent to Queens County in New York City.
The oldest of the Nassau Newspapers has been in continuous publication for 89
years. The group averages over 51 years of continuous weekly publication per
paper. Each of the Nassau Newspapers, other than Elmont Life, Franklin Square
Life and West Hempstead Life, has been designated as the official newspaper of
its community. The company has expanded into six additional Nassau County
communities with a shopper-type publication called the Long Island Market.
In 1995, the company developed a new publication, Long Island Lifestyles,
which serves as a second section to all of its Nassau publications and is also
distributed by itself in heavily trafficked areas. This new publication offers
moderately priced advertising to the central and south Nassau marketplace.
The company introduced Elmont Life and Franklin Square Life in 1996 and
West Hempstead Life in 1997. Also in 1997, the company acquired the South Shore
Record, a 33-year old mailed subscription newspaper serving the affluent
"five-towns" area of Nassau County.
Brooklyn Skyline
The Brooklyn Skyline is a five year old weekly published in five editions
which are distributed door-to-door in Brooklyn's southern tier. Originally a
tabloid shopper-type publication, the company is in the on-going process of
converting the Brooklyn Skyline to a community newspaper to complement its other
publications. The introduction of "Koch at the Movies," the News Communication
Telephone Poll and the company's citywide political page "NYConfidential" in
addition to local news coverage by Brooklyn reporters distinguish the Brooklyn
Skyline from its major competition, The Marketeer, an established door-to-door
shopper. In addition to its established display sales effort, the company has
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introduced a classified advertising section. Additional revenue is also
generated by the occasional sale or distribution of circulars to accompany the
door-to-door distribution of Brooklyn Skyline. It is printed on newsprint with
the use of spot color and is distributed by crews supervised and trained by the
company.
Chelsea-Clinton News and Westsider
The Chelsea-Clinton News and Westsider are the only paid circulation
weekly newspapers on the West Side of Manhattan. The Westsider, a 25-year-old
community newspaper, covers the area from 59th to 125th Streets from Riverside
Drive to Central Park West. The Chelsea-Clinton News, a 56 year-old community
newspaper, covers the area from l4th-59th Streets from 5th Avenue to 11th
Avenue. These two publications rely on revenue from display advertising,
classified advertising, subscriptions, newsstand sales and legal advertising.
The Hill
In September 1994, the company began the publication of The Hill, a weekly
newspaper devoted to the coverage of the United States Congress. The paper,
which offers comprehensive coverage of every aspect of Congress and life on
Capitol Hill, is distributed free of charge to members of Congress and their
staffs, governmental agencies, law firms, lobbying organizations and others. The
Hill derives the largest portion of its revenue from the sale of display
advertising to companies wishing to influence the decisions of Congress.
Additional revenues come from classified advertising, local retail advertising,
subscriptions and the sale of the paper outside of the Capitol area. The Hill is
operated out of its own offices in Washington, D.C. It is printed on newsprint
in black ink and process four color. It is primarily distributed to
Congressional office buildings and government agencies as well as to select
retail locations, hotels and street boxes. The company also has a five day a
week morning show The Hill Reporter, which is carried in the Washington, D.C.
area pursuant to a Program Services Agreement with radio station WYRE-AM.
The New York Blade News
In a joint venture that began in the summer of 1997, the company joined
with the Washington Blade, a large and respected gay and lesbian weekly
newspaper, to publish The New York Blade News, a weekly, 4-color tabloid
newspaper that debuted in 1997. The paper, which is distributed by independent
contractors to more than 800 locations in the New York metropolitan area that
are frequented by New York's gay and lesbian community, derives its revenue from
the sales of display and classified advertising and personal advertisements. The
New York Blade News, which is distributed each Friday throughout Manhattan and
areas of Brooklyn, the Bronx, Queens, Staten Island as well as Long Island and
New Jersey, is operated out of its own offices in New York City but shares
production and distribution staff with Our Town, Manhattan Spirit, Westsider and
Chelsea-Clinton News.
Printing and Production
The printing of each of the company's publications is presently done by
independent printing shops. The company sends to the printer completely
composed, laid-out, typeset pages for photo-offset reproduction. In each case,
the printer is able to provide all of the necessary materials (i.e., paper, ink,
etc.) for printing, and bills the company for its services and materials used.
The company believes that it obtains its printing services at competitive
prices, and if, for any reason, the arrangements that it has with any of its
printers should terminate, management believes that similarly favorable
arrangements could be had with several other printing shops in or around New
York City.
Advertisers and Readers; Marketing Activities
Most of the company's publications are weeklies primarily distributed free
of charge to their readers. The Bronx Press Review, nine of the Nassau
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Newspapers, Westsider and Chelsea-Clinton News and one edition of The Queens
Tribune are paid circulation publications. The primary source of the company's
revenue is through the sale of advertising space in the publications, although
several of the weekly publications also offer graphics and printing services to
outside service purchasers, including several school publications. The
advertising revenues of each of the company's publications are derived from a
wide variety of businesses and individuals reflecting the varied opportunities,
tastes and demands of the residents of each of the targeted distribution areas.
Currently, at least 85% of the advertising space in the company's publications
which have been in existence at least six months represents multiple insertion
advertising (where an advertising client runs an advertisement in two or more
issues of a publication). This percentage has remained fairly stable for the
company's publications over the last five years. On a year-to-year basis, the
company estimates that, over the last four fiscal years, approximately
two-thirds of its display advertising revenues have been from advertisers who
were advertisers in the prior year. No one advertiser represents more than 5% of
the company's advertising revenues. Classified advertising has been a growing
area of revenues for the weekly publications.
The company employs sales representatives who are paid through
incentive-based compensation packages. The company has commenced supplementing
the sales activities of the individual publications with centralized group sales
activities seeking advertisers for all or a combination of the company's
publications. Management believes such a program is particularly attractive to
advertisers who seek audiences throughout the greater New York metropolitan
area, such as chain store and franchise operations.
Competition
The company competes directly for advertising revenues with newspapers and
magazines which are sold to readers or are distributed free, as well as other
advertising media. The company does not significantly compete, however, with
other publishers of newspapers or magazines for paid circulation revenues as
most of its publications are distributed free of charge to its readers.
Those newspapers and magazines competing with the Manhattan Spirit and Our
Town for advertising and targeted at Manhattan or parts thereof include, among
others, The Resident, New York Press, New York Observer and The Village Voice.
In order to compete with the lower advertising rates of smaller publications in
the Manhattan Spirit's market area, the company utilizes a split zone program
whereby advertisers may purchase space in only half of the Manhattan Spirit's
copies at an appropriately reduced rate. During the months from May through
September, Dan's Papers serves the same market as Hampton Magazine, a free
circulation publication. Dan's Papers is aimed at the same market as the East
Hampton Star and the Southampton Press, which are sold to readers and the free
weekly The Independent. The Montauk Pioneer is the only paper that serves
Montauk. The Queens Tribune competes with many publications, including Newsday
and the free circulation publications Queens Chronicle and Queens Courier, both
of which are believed to be somewhat smaller in circulation and advertising
revenue than The Queens Tribune. The Bronx Press Review competes against
community newspapers such as the Bronx Times Reporter and the Bronx News.
The Riverdale Review is the only saturation circulation, free distribution
newspaper serving that affluent community. The Riverdale Press, a paid
circulation weekly, has a smaller circulation.
In addition to Newsday, a daily newspaper, the Nassau Newspapers have
several other weekly competitors in the south-west section of the county. These
include the South Shore Tribune, a free circulation newspaper, a group of paid
circulation newspapers published by Richner Publications, and Pennysaver/This
Week and Shoppers Guide, two free circulation shopper publications.
Although there is no competition for subscriptions or legal revenue
because there are no other paid circulation weeklies on the West Side, the
Chelsea-Clinton News and Westsider do compete for display and classified
advertising with other free weeklies on the West Side, including the Manhattan
Spirit and The Resident.
The Brooklyn Skyline is one of a number of free distribution papers in
Brooklyn. The Marketeer, an established door-to-door shopper, is its primary
competitor.
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The Hill, which is the largest circulation paper on Capitol Hill, services
the same market as Roll Call, a paid circulation that delivers twice weekly and
has been in publication nearly 50 years.
There are numerous other publications distributed in the company's
circulation areas, some of which have resources substantially greater than those
of the company, which compete for advertising against the company's
publications. Management of the company believes the company's publications are
competitive because the company can offer customers the ability to focus its
advertisements on a specific market, thereby giving the customer a chance to
control costs by narrowing its advertising scope. Management believes that, over
the years of publication, the company's newspapers have developed a favorable
reputation and following. The company also believes it can compete favorably by
offering advertisers the opportunity to choose from a menu of the company's
publications, by offering advertisers more favorable rates as the number of
publications increases and by affording advertisers the ability to pinpoint a
specific group or geographic area or combination thereof. The major barrier to
the entry of new competitive publications is the need for sufficient capital to
start up and continue operations until a sufficient advertising base is created.
Employees
As of November 1, 1998, the company had 285 full- and part-time employees,
of whom 53 were editorial; 88 were engaged as display and classified advertising
sales personnel; 78 were engaged in production; and 66 were engaged in
administrative and clerical activities. The company also maintains a roster of
free-lance contractors. Management considers its relations with the company's
employees to be satisfactory. None of its employees are represented by a union.
Seasonality
Dan's Papers and the Montauk Pioneer, which are resort area newspapers,
have significant seasonal variations in revenues. This seasonality may cause
operating results to vary significantly from quarter to quarter, with the third
fiscal quarter being the most significant in terms of revenues and income. The
Hill's revenues also vary throughout the year depending on whether or not
Congress is in session.
Properties
The company and its subsidiaries operate out of seven separate locations.
The Manhattan Spirit, Our Town, Chelsea-Clinton News and the Westsider share
7,000 square foot premises at 242 West 30th Street, New York, New York, under a
lease which commenced in 1995 and terminates in January 2001, at an annual
rental of $52,000 for the first year, increasing over the term to $75,380 in the
last year.
DPI leases 1,910 square feet of office space in a building on Montauk
Highway, Bridgehampton, New York, at an annual rate of $38,200 (plus
cost-of-living increases) for a term of ten years terminating in October 2008.
Pursuant to the lease, the company has agreed to an increased rental amount if
the owner expands the building. The company has an option to renew its lease for
an additional five-year term and commencing November 2008. See "Certain
Transactions."
Tribco has a ten year lease, which commenced on November 1, 1990, to rent
approximately 8,000 square feet of office space and space for publication of the
Queens Tribune in Fresh Meadows, New York, for annual base rents ranging from
$88,000 to $128,000. The lease is renewable for five years at a $152,000 base
annual rent. These premises also serve as the company's executive and financial
offices.
Parkchester Publishing Co., Inc. has a five year lease for 2,500 square
feet of office space at 170 West 233rd Street, Bronx, New York, commencing June
1994, at an annual rental of $34,200, increasing over the term to $38,500 in the
last year.
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NCNG has a five year lease for 7,600 square feet of office space at 216
East 2nd Street, Mineola, New York, commencing November 1994, at an annual
rental of $53,400, increasing over the term to $62,350 in the last year. The
company has an option to renew its lease for an additional five years.
Capitol Hill Publishing, Inc. has a five year lease for 3,735 square feet
of office space at 733 15th Street, N.W., Washington, D.C., commencing August
1994, at an annual rental of $68,880.
Brooklyn Newspaper Publishing, Inc. has a five year lease for 2,110 square
feet of office space at 2102 Utica Avenue, Brooklyn, New York, commencing
February 1998, at an annual rental of $38,400, increasing over the term to
$46,675 in the last year.
The company believes that its present space is adequate for current
purposes and offers moderate expansion possibilities.
Legal Proceedings
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.
and Media Venture Group, Inc. et al. was instituted in September 1996 in the
United States District Court for the District of Columbia in which the
plaintiff, a former salesperson for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million plus back pay, front pay and
other relief. The case was tried to a jury and resulted in an adverse
determination of liability to the company and the other defendants in the amount
of $100,000. No appeal has been taken from that finding. The plaintiff has
requested an award of fees and costs in the approximate amount of $150,000,
which the defendants are vigorously opposing.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms.
MANAGEMENT
Directors and Executive Officers
The company's directors, executive officers and other significant
employees and their ages and positions are as follows:
Name of Individual Age Position with company and Subsidiaries
- - ------------------ --- --------------------------------------
Jerry Finkelstein (3) 82 Chairman of the Board and Director
of the company
Wilbur L. Ross, Jr. (3) 60 Director and Chief Executive Officer
of the company
Michael Schenkler (3) 52 Director and President of the company and director
and officer of subsidiaries
Gary Ackerman 55 Director of the company
Carl Bernstein 53 Director of the company
John Catsimatidis (1) 49 Director of the company
Mark Dickstein 39 Director of the company
Andrew J. Maloney 66 Director of the company
Robert E.
Nederlander (2) 64 Director of the company
Andrew J. Stein 52 Director of the company
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Sy Syms 71 Director of the company
Arthur Tarlow (1)(2) 68 Director of the company
Hillel Weinberger 44 Director of the company
Thomas Allon 34 Executive Vice President of the company
Robert Berkowitz 49 Chief Financial Officer and Controller of the
company
Daniel Rattiner 58 President, Publisher, Editor and Director of DPI
Marty Tolchin 70 President, Publisher, and Editor of The Hill.
- - ------------------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Executive Committee
Jerry Finkelstein has been a director of News Communications since
December 1987 and became Chairman of the Board in August 1993. He served as
publisher of The New York Law Journal from 1960 to 1984. Mr. Finkelstein was
Chairman of the Board of Struthers Wells Corporation for more than five years
prior to November 1993, when he resigned. Struthers Wells Corporation filed for
protection under Chapter XI of the United States Bankruptcy Code in February
1994. Mr. Finkelstein is a former member of the Board of Directors of
Rockefeller Center, Inc., Chicago Milwaukee Corporation, Chicago Milwaukee
Railroad Corporation and TPI Enterprise, Inc. (formerly Telecom Plus
International Inc.), a communications company. He is also a former Commissioner
of the Port Authority of New York and New Jersey.
Wilbur L. Ross, Jr. was elected a director of News Communications in
October 1996. Since 1988, Mr. Ross has been Senior Managing Director of
Rothschild Inc. Mr. Ross is also a director of Mego Financial Corp., a premier
developer of timeshare properties, and Syms Corp., a clothing retailer.
Michael Schenkler has been a director of News Communications since March
1990, and has served as President since December 1991. He has been President of
The Queens Tribune since 1979 and is its publisher. Prior to taking over the
Queens Tribune in 1982, Mr. Schenkler spent 15 years as an educator employed by
the Board of Education of New York City, where he served as a teacher, assistant
principal and principal. Mr. Schenkler is President of all of News
Communications' subsidiaries other than DPI and NCNG, of which he is Vice
President.
Gary Ackerman has been a director of the company since March 1990. He has
served in the United States House of Representatives as a Representative from
New York since March 1983. From 1979 until 1983, Mr. Ackerman was a member of
the New York State Senate. From 1970 to 1979, Mr. Ackerman was the founder,
editor and publisher of The Queens Tribune.
Carl Bernstein has been a director of the company since October 1996. Mr.
Bernstein is a noted author and journalist. He has been a Contributing Editor to
Time Magazine and is presently a Contributing Editor to Vanity Fair. Mr.
Bernstein was the co-author, with Robert Woodward, of "All the President's Men"
and "The Final Days." His most recent publications are "Loyalties: A Son's
Memoir," published by Simon & Schuster, and, as co-author, "His Holiness: Pope
John Paul II and The Hidden History of Our Times," published by Doubleday.
John Catsimatidis has been a director of the company since December, 1991.
Mr. Catsimatidis is the Chairman of Red Apple Group, Inc., a holding company for
supermarket chains in New York. Since July 1988, Mr. Catsimatidis has served as
Chairman of the Board and director of Sloan's Supermarkets, Inc., an American
Stock Exchange listed company, which owns and operates supermarkets. Mr.
Catsimatidis is also currently the Chairman of the Board, Chief Executive
Officer and director of United Refining Company, a refiner and retailer of
petroleum products.
Mark Dickstein has been a director of the company since October 1996.
Since 1986, Mr. Dickstein has been President of Dickstein Partners Inc., a
private investment firm. He is also a director of Carson Pine Scott & Co. and
Hill Stores Company, leading retailing organizations.
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Andrew J. Maloney has been a director of the company since September 1993.
He is a partner at the New York law firm of Kramer Moftalis & Frankel. From 1986
until December 1992, Mr. Maloney was United States Attorney for the Eastern
District of New York. Mr. Maloney is a graduate of the United States Military
Academy at West Point and Fordham University School of Law.
Robert E. Nederlander has been a director of the company since October
1996. Since 1981, he has been President of Nederlander Organization, Inc., the
owner and/or operator of one of the world's largest chains of legitimate
theaters. Mr. Nederlander is also a director of Riddell Sports, Inc., Mego
Financial Corp., Mego Mortgage Corp., and Cendant Corp.
Andrew J. Stein has been a director of the company since July 1994. He is
President of Benake Corporation, a management consulting firm. Prior to assuming
such position in 1993, Mr. Stein was actively involved in public affairs. From
1986 to 1993, he was President of the Council, New York City. From 1978 to 1985,
he was President of the Borough of Manhattan and from 1969 to 1977, he was a
member of the New York State Assembly. He was also Chairman of the New York City
Commission on Public Information and Communication, and has been a Trustee of
the New York City Employees Retirement System and an ex officio member of The
Museum of The City of New York, The New York Public Library, The Metropolitan
Museum of Art and The Queens Borough Public Library. Mr. Stein is a son of Mr.
Finkelstein.
Sy Syms has been a director of the company since October 1996. He is
Chairman and Chief Executive Officer of Syms Corp., a clothing retailer, a
position he has held since 1983. Mr. Syms is also a director of Israel Discount
Bank of New York.
Arthur Tarlow has been a director of the company since August 1993. He is
an attorney currently of counsel to Meyer, Suozzi, English & Klein, P.C. of
Mineola, New York, where he has been practicing for more than 10 years as a
specialist in taxation, estates and trusts. He is also a Certified Public
Accountant and was a partner in the accounting firm of David Tarlow & company
for more than 25 years until August 1995. He is currently a partner in the
accounting firm of Tarlow & Tarlow. He is a member of the New York State Bar
Association, admitted to practice before the U.S. Tax Court, and a member of the
New York State Society of CPAs and the American Institute of Certified Public
Accountants.
Hillel Weinberger has been a director of the company since October 1996.
Since 1988, he has been Senior Vice President and Senior Portfolio Manager of
Loews/CNA Holdings, a diversified holding company. He is also a director of
Applause, Inc., a leading producer of licensed gift items.
Thomas Allon has been Executive Vice President of the company since
November 1994. He has been Publisher of the Manhattan Spirit and Our Town since
1992. From 1990 to 1991 he was Managing/Associate Publisher of the Manhattan
Spirit.
Robert Berkowitz has served as Controller of the company since December
1992. From November 1991 to November 1992, Mr. Berkowitz was a financial and
management consultant with Gobstein, Weingarten & Goldfarb, a certified public
accounting firm. From August 1989 to November 1991 he was the Chief Accounting
Officer for Meringoff Equities, an owner and manager of commercial real estate.
From August 1980 to August 1989 he was Vice-President and Controller of the
Trump Group, a private investment company specializing in the acquisition and
operation of both public and private companies. From 1977 to 1980, he was with
the public accounting firm of Price Waterhouse.
Daniel Rattiner is Publisher and Editor of Dan's Papers, having held these
positions since he founded the publication in 1960. He has also been President
and a director of DPI since its organization in October 1988.
Marty Tolchin is publisher and editor-in-chief of The Hill. This capped a
40-year career at the New York Times, including two decades in the Washington
Bureau. With his wife Susan he is the co-author of five books, including "To the
Victor: Political Patronage from the Clubhouse to the White House," which was
cited in three decisions of the U.S. Supreme Court. Their last two books have
been on international trade. Mr. Tolchin has been with The Hill since its
inception in September 1994.
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The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve at
the discretion of the Board of Directors.
Pursuant to the agreement regarding the sale of the $10 Convertible
Preferred Stock, the company's Board of Directors was increased to 16 members,
of whom the holders of the $10 Convertible Preferred Stock are entitled to
nominate and elect 8 members. Messrs. Bernstein, Dickstein, Nederlander, Ross,
Syms and Weinberger are the Board designees of the holders of the $10
Convertible Preferred Stock. There are presently three vacancies on the board of
directors due to the death of Sydney Gruson on March 1, 1998, the death of
another former director, Eric Breindel, on February 28, 1998 and the resignation
of John H. McConnaughy, Jr. effective April 1998. See "Description of Securities
- - - Preferred Stock - $10 Convertible Preferred Stock."
Committees of the Board of Directors
The Board currently has three committees: (i) Executive Committee; (ii)
Audit Committee; and (iii) Compensation Committee.
The Executive Committee is comprised of Messrs. Ross, Finkelstein and
Schenkler. Mr. Ross serves as Chairman of the Executive Committee.
The Audit Committee is comprised of Messrs. Nederlander and Tarlow.
The Audit Committee recommends the independent accountants appointed by
the Board to audit the financial statements of the company, which includes an
inspection of the books and accounts of the company, and reviews with such
accountants the scope of their audit and their report thereon, including any
questions and recommendations that may arise relating to such audit and report
or the company's internal accounting and auditing system procedures. The
composition of the Audit Committee complies with the independent director
requirements of Nasdaq.
The Compensation Committee is comprised of Messrs. Catsimatidis and Tarlow.
The function of the Compensation Committee is to review and approve the
compensation of executive officers and establish targets and incentive awards
under incentive compensation plans of the company. The Compensation Committee
reports to the Board.
Executive Compensation
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1997, 1996 and 1995 concerning compensation of (i) all
individuals serving as the company's executive officers during the fiscal year
ended November 30, 1997; and (ii) each other executive officer of the company
whose total annual salary and bonus exceeded $100,000 in fiscal 1997:
SUMMARY COMPENSATION TABLE
Long-Term
Other Compensation
Annual Compensation Annual Awards
Compensation
--------------------------------------------
Salary Bonus Options
Name and Principal Year ($) ($) ($) (#)
Position
--------------------------------------------
Jerry Finkelstein, 1997 195,000 --- --- ---
Chairman of the Board of 1996 195,000 --- --- 3,334
the company 1995 195,000 --- --- 120,000
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Wilbur L. Ross, Jr., 1997 $1 --- --- ---
Chief Executive Officer 1996 $1 --- --- 66,667
Michael Schenkler, 1997 158,197 --- --- ---
President of the company 1996 154,621 30,000 --- 3,334
and officer of 1995 150,000 --- --- 3,334
subsidiaries
Thomas Allon, Executive 1997 84,141 45,000 --- ---
Vice President of the 1996 82,341 45,000 --- ---
company 1995 80,885 45,000 --- ---
Daniel Rattiner, 1997 133,770 81,000 --- ---
Publisher, Editor and 1996 130,869 110,235 15,000(1) ---
President of Dan's 1995 127,813 61,169 15,000(1) ---
Papers, Inc.
- - ---------------------
(1) Mr. Rattiner is entitled to receive an aggregate of $15,000 per year
for discounted trade-sale merchandise from advertisers (who provide such
merchandise to Mr. Rattiner in lieu of paying the company for advertising).
Beginning in November 1997, Mr. Rattiner became entitled to a new leased or
purchased automobile every two years, having a value not in excess of $40,000,
and a new leased portable computer every two years, having a value not in excess
of $4,000.
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AGGREGATE YEAR-END OPTION VALUES
(November 30, 1997)
Number of unexercised options at Value of unexercised
fiscal year-end (#) in-the-money options at
year-end ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ------------- ----------- -------------
Wilbur L. Ross 66,667 0
Michael Schenkler 47,500 --- 417 ---
Jerry Finkelstein 232,500 --- 417 ---
Daniel Rattiner 11,667 --- 0 ---
Employment Agreements
Pursuant to an employment agreement entered into by the company and
Michael Schenkler as of October 15, 1994, and terminating October 14, 1999, Mr.
Schenkler is employed as President of the company and President of Tribco. The
employment agreement provides for a base salary of $150,000 per year (subject to
cost-of-living increases) and such annual bonuses as the Board of Directors of
the company may determine in its sole discretion. The agreement requires Mr.
Schenkler to protect confidential information of the company and restricts him
from engaging in certain competitive activities during the term of his
employment and for one year thereafter.
Pursuant to an employment agreement between DPI and Daniel Rattiner
terminating in 2007, Mr. Rattiner earns a base salary from DPI of $134,000 per
year, adjusted for increases in the consumer price index after 1997, plus a
bonus in each fiscal year based on net profits (as defined) of DPI and fringe
benefits totaling approximately $37,000 annually. Mr. Rattiner may terminate his
employment at any time. Mr. Rattiner has pledged to keep secret DPI's
confidential matters and, in the event he leaves the employ of DPI, not to
compete with DPI for specific periods of time, depending on the reasons for his
separation.
Pursuant to an amended and restated employment agreement entered into by
the company and Jerry Finkelstein as of August 20, 1993, and terminating on
August 19, 2003, Mr. Finkelstein is employed as Chairman of the Board of
Directors of the company at an annual salary of $195,000. Mr. Finkelstein may
also be paid annual bonuses at the discretion of the Board, based upon such
factors as the company's results of operations and transactions involving the
company which are introduced to the company by Mr. Finkelstein or in which he is
otherwise involved on behalf of the company. The company also provides Mr.
Finkelstein with medical and other benefits and perquisites. Mr. Finkelstein may
terminate the agreement at any time on at least 10 days' notice to the company.
In the event of his permanent disability or death, salary and bonuses shall
continue to be paid to him or the legal representative of his estate until the
end of the term of the agreement.
The company has no established compensation arrangements with its
directors. See "Directors' and Officers' Options," below.
Directors' and Officers' Options
On August 17, 1993, the Board adopted a Discretionary Directors and
Officers Stock Option Plan (the "Discretionary Option Plan") pursuant to which,
as amended, the Board may award options to purchase an aggregate of 500,000
shares of Common Stock to directors and officers of the company and its
subsidiaries which shall be exercisable at the market price on the date of grant
for periods, and under conditions, specified by the Board in such grants.
Options under the Discretionary Option Plan are non-qualified and non-incentive
options for purposes of income taxation and are not intended to qualify under
Section 422A of the Internal Revenue Code of 1986. No grants were made under the
Discretionary Option Plan during the fiscal year ended November 30, 1997.
On August 17, 1993, the Board also adopted a Non-Discretionary Directors
Stock Option Plan (the "Non-Discretionary Option Plan") pursuant to which each
director was granted on August 17, 1993 and is granted each anniversary thereof
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on which he or she continues to be a director, a five-year option to purchase
3,333 shares of Common Stock at the market price on the date of grant. The
Non-Discretionary Option Plan also provides that any person becoming a director
within the six months after any August 17, 1998 will be granted an option for
3,333 shares on the date he or she becomes a director. Pursuant to the
Non-Discretionary Option Plan, each person who was a director of the company
(other than Mr. Ackerman) on August 17, 1996 received a grant of an option to
purchase 3,333 shares of Common Stock exercisable at $4.875 per share and each
person who became a director on October 28, 1996 received a grant of an option
to purchase 1,666.67 shares of Common Stock exercisable at $6.75 per share. The
latter grants completed the grants that may be made under the Non-Discretionary
Option Plan.
CERTAIN TRANSACTIONS
The company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. In addition, Mr. Rattiner can require the company to
purchase his 20% interest in DPI at any time for a price equal to 20% of DPI's
retained earnings (if any) plus the greater of $200,000 or 20% of DPI's gross
collected revenues (after deduction of advertising agency commissions) for the
full fiscal year prior to the year in which notice is given.
DPI leases from Mr. Rattiner 1,910 square feet of office space at an
annual rate of $38,200 (plus cost-of-living adjustments) in a building on
Montauk Highway, Bridgehampton, New York, for a term of ten years terminating in
October 2008. Pursuant to the lease, the company has agreed to an increased
rental amount if Mr. Rattiner expands the building. DPI has the option to renew
the lease for one additional 5 year term.
Rothschild Inc., of which Wilbur L. Ross, Jr. is Senior Managing Director
and Sydney Gruson, a deceased former director of the company, was Senior
Advisor, furnished investment banking services to the company in connection with
the issuance and sale of the company's $10 Convertible Preferred Stock and
associated warrants. In consideration for such services, the company issued
Rothschild Inc. 16,668 shares of Common Stock, valued at $6.00 per share.
On November 5, 1997, DPI and the company entered into the Rothschild
Recovery Fund Loan Agreement with Rothschild Recover Fund L.P. ("RRF") pursuant
to which DPI borrowed $1,500,000 from RRF pursuant to a promissory note bearing
interest payable monthly at the rate of 9.75% per annum and with a maturity date
of December 31, 1998. The maturity date of the loan has been extended to January
31, 2000. The note is secured by a lien on all of DPI's assets and is guaranteed
by the company. In addition, in connection with the execution of the RRF Loan
Agreement, the company issued to RRF a five-year warrant to purchase 100,000
shares of Common Stock of the company at an initial exercise price of $6.75 per
share, subject to adjustment. Wilbur L. Ross, Jr. is Chairman of RRF.
In May 1996, the company, Tribco and Access obtained a $1,000,000 loan
from D. H. Blair Investment Banking Corp. ("DHBIB"), a principal stockholder of
the company. The loan is repayable on June 21, 1999 and bears interest at the
rate of 8.5% per annum payable quarterly. The loan is secured by a security
interest granted by the borrowers to DHBIB on all of their personal property and
fixtures and by a pledge made by the company to DHBIB of all of the outstanding
common stock of Tribco and Access. As additional consideration for the loan, the
company issued DHBIB a five-year warrant to purchase 66,667 shares of Common
Stock at an initial exercise price of $7.50 per share, subject to adjustment.
Effective May 17, 1996, the company entered into an agreement with DHBIB
pursuant to which DHBIB was engaged as a non-exclusive financial advisor and
investment banker to the company. As an inducement to DHBIB's providing such
services, the company issued DHBIB a five-year warrant to purchase 133,000
shares of Common Stock at an initial exercise price of $7.50 per share, subject
to adjustment.
Gristede's and Red Apple Markets, supermarket chains that are owned by Red
Apple Group, Inc., of which Mr. Catsimatidis is Chairman, and Sloan's
Supermarkets, Inc., of which Mr. Catsimatidis is Chairman, advertise in various
of the company's publications and also utilize various of the company's printing
services. Such advertising and printing services are charged at the company's
standard rates and totaled approximately $25,300 during the fiscal year ended
November 30, 1997.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
News Communications' Common Stock, as of November 12, 1998, and as adjusted to
reflect the sale of the shares offered hereby by each person known to the
company to own beneficially more than 5% of the outstanding Common Stock, by
each person who is a director of the company, by each executive officer of the
company listed in the Summary Compensation Table and by all directors and
officers of the company as a group.
<TABLE>
<S> <C> <C>
Percentage and Nature of Beneficially Owned
No. Shares of Common Stock Before Offering(1)(3) After Offering (2)
-------------------------- -------------------- ------------------
Gary Ackerman 128,881 (4) 4.7% 2.8%
218-14 Northern Boulevard
Bayside, NY 11432
Thomas Allon 61,666 (5) 2.2% 1.3%
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Carl Bernstein
35 East 84th Street
New York, NY 10028 1,667 (5) * *
John Catsimatidis
832 11th Avenue
New York, NY 10019 18,333 (5) * *
Mark Dickstein
120 East End Avenue
New York, NY 10028 61,667 (5)(6) 2.2% 1.3%
Jerry Finkelstein
150 East 58th Street
33rd Floor
New York, NY 10158 496,501 (5)(7) 16.7% 10.8%
Andrew J. Maloney
1 World Trade Center
New York, NY 10001 17,667 (5) * *
Robert E. Nederlander
570 Park Avenue 39,333 (5)(6) 1.4% *
New York, NY 10022
Daniel Rattiner
26 Three Mile Harbor
Hog Creek Road
East Hampton, NY 11932 56,103 (5)(8) 2.0% 1.2%
Wilbur L. Ross, Jr.
1251 Avenue of the Americas
New York, NY 10020 190,000 (5)(6)(9) 6.5% 4.1%
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Michael Schenkler
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365 151,756 (5)(10) 5.4% 3.3%
Andrew J. Stein
625 Madison Avenue
New York, NY 10022 60,000 (5) 2.2% 1.3%
Sy Syms
Syms Way
Secaucus, NJ 07094 61,667 (5)(6) 2.2% 1.3%
Arthur Tarlow
1505 Kellum Place
Mineola, NY 11501 26,572 (5) * *
Hillel Weinberger
667 Madison Avenue
New York, NY 10021 73,667 (5)(6) 2.6% 1.6%
Melvyn I. Weiss
One Pennsylvania Plaza
New York, New York 10119 178,133 6.5% 3.9%
J. Morton Davis
D.H. Blair Holdings, Inc.
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005 890,743 (11) 30.2% 19.4%
All Directors and Executive
Officers as a Group (17 persons) 1,434,668 (5)(12) 39.5% 31.2%
</TABLE>
- - -------------------------
* Less than one percent.
(1) Based upon 2,786,125 shares of Common Stock outstanding on November
12, 1998.
(2) Based upon 6,569,125 shares outstanding.
(3) Based upon information furnished by the persons listed. Except as
otherwise indicated, the stockholders listed possess sole voting and
investment power with respect to the shares listed.
(4) Includes 1,778 shares owned by Mr. Ackerman's children
for whom Mr. Ackerman is custodian.
(5) Includes the following numbers of shares purchasable
upon the exercise of presently exercisable options and
warrants: Mr. Bernstein--1,667; Mr. Allon-- 20,555;
Mr. Catsimatidis--18,333; Mr. Dickstein--28,333; Mr.
Finkelstein--232,500; Mr. Maloney--17,667; Mr.
Nederlander--15,000; Mr. Rattiner--11,667; Mr.
Ross--121,667; Mr. Schenkler--47,500; Mr.
Stein--43,333; Mr. Syms--28,333; Mr. Tarlow--22,500;
Mr. Weinberger--33,667.
(6) Includes the following numbers of shares issuable upon
conversion of shares of $10 Convertible Preferred
Stock: Mr. Dickstein--33,333; Mr. Nederlander--16,667;
Mr. Ross--66,667; Mr. Syms--33,333; Mr.
Weinberger--40,000.
(7) Includes (i) 9,945 shares owned by The Jerry Finkelstein Foundation,
Inc., of which Mr. Finkelstein is President, and (ii) 66,667 shares
owned by Mr.
Finkelstein's wife.
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(8) Includes (i) 167 shares owned by Mr. Rattiner's wife and (ii) 600
shares issuable upon conversion of the company's 10% Preferred Stock.
(9) Does not include (i) 16,667 shares owned by Rothschild
Inc. and (ii) 16,667 shares issuable upon conversion of
shares of $10 Convertible Preferred Stock owned by
Rothschild North America Inc. ("RNA"), (iii) 13,333
shares issuable upon exercise of warrants owned by RNA,
and (iv) 100,000 shares issuable upon exercise of
warrants owned by the Rothschild Recovery Fund L.P.
Mr. Ross disclaims beneficial ownership of all of such
shares.
(10) Includes (i) 3,000 shares that are issuable upon conversion of the
company's 10% Preferred Stock; and (ii) 13,678 owned by Mr.
Schenkler's wife as custodian for two minor children of which Mr.
Schenkler disclaims beneficial ownership.
(11) Includes (i) 622,538 shares of Common Stock and
warrants to purchase 207,867 shares owned by D.H. Blair
Investment Banking Corp. ("DHBIB"), a wholly-owned
subsidiary of D.H. Blair Holdings, Inc. ("Blair
Holdings"), of which J. Morton Davis is a stockholder
and director, (ii) 20,638 shares owned by Rivkalex
Corporation ("Rivkalex"), a private corporation owned
by Rosalind Davidowitz, Mr. Davis's wife, (iii) 29,867
shares of Common Stock owned by Rosalind Davidowitz and
(iv) 9,833 shares of Common Stock issuable upon
exercise of 1,967 shares of $10 Convertible Preferred
Stock. Mr. Davis, Blair Holdings and DHBIB expressly
disclaim beneficial ownership of all securities held by
Rivkalex and Rosalind Davidowitz.
(12) Includes shares issuable upon exercise of the options referenced in
(5) above, conversion of the $10 Convertible Preferred Stock
referenced in (6) above, as well as 7,500 shares issuable to Mr.
Robert Berkowitz, Chief Financial Officer and Controller of the
company, upon exercise of presently exercisable stock options.
DESCRIPTION OF SECURITIES
News Communications is presently authorized to issue 100,000,000 shares of
Common Stock, and 500,000 shares of Preferred Stock.
Common Stock
The holders of shares of Common Stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board, and are entitled to share ratably in all of the assets of the company
available for distribution to holders of Common Stock upon the liquidation,
dissolution or winding up of the affairs of the company. Holders of Common Stock
do not have preemptive, subscription or conversion rights to purchase or
subscribe to securities of the company. Holders of Common Stock are entitled to
one vote per share on all matters which stockholders are entitled to vote upon
at all meetings of stockholders. There is no cumulative voting. Thus, the
holders of more than 50% of the shares voting for election of directors can
elect all the members of the Board of Directors who are elected by the holders
of Common Stock and can decide any question brought before the stockholders
requiring approval by a simple majority of the holders of Common Stock. In such
event, the holders of the remaining shares of Common Stock will not be able to
elect any directors or carry out any other matter brought before the
stockholders.
Rights Description
News Communications is granting on the date hereof to holders of its
Common Stock and Convertible Preferred Stock the right to purchase a minimum of
one and a maximum of two share(s) of the company's Common Stock. The rights are
each exercisable at a price of $1.50 per share. The offering will terminate and
the rights will expire at 5:00 p.m., New York City time, on the Expiration Date,
which is ______________, 1998. After the Expiration Date, unexercised rights
will be null and void. For more information about the rights and the offering
process, reference should be made to "The Offering."
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Preferred Stock
The Articles of Incorporation of News Communications authorize the
issuance of 500,000 shares of Preferred Stock. The Board of Directors is
authorized to issue shares of Preferred Stock from time to time in one or more
series and, subject to the limitations contained in the Articles of
Incorporation and any limitations prescribed by law, to establish and designate
any such series and to fix the number of shares and the relative rights,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. Issuance of Preferred Stock, could,
under certain circumstances, have the effect of delaying or preventing a change
in control of the company and may adversely affect the rights of holders of
Common Stock such as by placing restrictions upon payments of dividends to
holders of Common Stock or by diluting the voting power of such holders. The
company has no present plans to issue any additional shares of Preferred Stock
other than the four series of Convertible Preferred Stock presently authorized.
Reference is made to the resolutions of the Board of Directors fixing the terms
of the Convertible Preferred Stock, copies of which have been filed as exhibits
to the prior Registration Statements of the company.
8%, 10% and 12% Convertible Preferred Stock. The Board of Directors has
authorized four series of Preferred Stock: 10% Convertible Preferred Stock ("10%
Preferred Stock"), of which 26 shares remain outstanding; 8% Convertible
Preferred Stock ("8% Preferred Stock"), of which 114 shares are outstanding; 12%
Convertible Preferred Stock ("12% Preferred Stock"), of which 200 shares are
outstanding; and the $10 Convertible Preferred Stock discussed below. For
purposes of paying interest and liquidation preference, the shares of 10%
Preferred Stock have a stated value of $5,000 per share, the shares of 8%
Preferred Stock and 12% Preferred Stock have stated values of $1,000 per share.
At the option of the company, interest on the 10% Preferred Stock may be paid in
an equivalent value of shares of Common Stock. Presently, the 10% Preferred
Stock, 8% Preferred Stock and 12% Preferred Stock are convertible into shares of
Common Stock at the rates of 6,000 shares of Common Stock per share of 10%
Preferred Stock, 158.73 shares of Common Stock per share of 8% Preferred Stock
and 158.73 shares of Common Stock per share of 12% Preferred Stock. In addition,
upon conversion of the 8% Preferred Stock, the holder is entitled to receive
5-year warrants to purchase an equivalent number of shares of Common Stock at an
exercise price equal to the per share conversion price.
$10 Convertible Preferred Stock. The company has 220,000 shares of $10.00
Convertible Preferred Stock ("$10 Convertible Preferred Stock") outstanding.
Dividends on the $10 Convertible Preferred Stock are payable at a rate equal to
five times the amount of dividends, if any, per share declared and paid by the
company on the Common Stock. The holders of the $10 Convertible Preferred Stock
are entitled to a liquidation preference of $10 per share.
Except as hereinafter described, each share of $10 Convertible Preferred
Stock is entitled to such number of votes such share would have had if it had
been converted into shares of Common Stock (presently one and sixth sevenths of
a share) on all matters presented for a vote to holders of Common Stock. So long
as at least 100,000 shares of $10 Convertible Preferred Stock are outstanding,
the holders of the $10 Convertible Preferred Stock are entitled to nominate and
elect one-half of the Board. Any director elected by the holders of the $10
Convertible Preferred Stock may only be removed with cause by the holders of a
majority of the $10 Convertible Preferred Stock. During the period that the
preceding provisions regarding election of directors are in effect, the holders
of the $10 Convertible Preferred Stock shall not be entitled to vote for the
election of any other directors.
The vote of all of the holders of the $10 Convertible Preferred Stock is
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of the company's Articles of Incorporation so as
to affect adversely the $10 Convertible Preferred Stock. So long as at least
100,000 shares of $10 Convertible Preferred Stock are outstanding, the vote of a
majority of the holders thereof (or such greater amount as may be required by
law), shall be necessary for authorizing (i) the merger or consolidation of the
company into or with any other corporation, (ii) the sale of all or
substantially all of the assets of the company or (iii) the issuance of any
other class of stock having parity with the $10 Convertible Preferred Stock.
The shares of $10 Convertible Preferred Stock are convertible at any time
into shares of Common Stock, initially at the rate of 1.667 shares of Common
Stock per share of $10 Convertible Preferred Stock, subject to adjustment in the
event of subdivisions or splits of the Common Stock or recapitalization or
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reclassification thereof or upon the sale of Common Stock at a price less than
the then current conversion price. The holders of the $10 Convertible Preferred
Stock have no preemptive rights. Upon the request of holders of at least 40% of
the outstanding shares of $10 Convertible Preferred Stock made on or prior to
October 27, 2001, the company, is required to register the Common Stock issuable
upon conversion of $10 Convertible Preferred Stock. During such period, the
holders of the $10 Convertible Preferred Stock also have the right to have such
shares of Common Stock included in any registration statement filed by the
company under that Act, subject to certain restrictions. These rights have been
waived in connection with the registration statement of which this Prospectus is
a part.
Transfer and Warrant Agent
The company's Transfer Agent is Continental Stock Transfer & Trust
company, 2 Broadway, New York, New York 10004.
INDEMNIFICATION AND INDEMNITY
Under the Nevada General Corporation Law, as amended, a director, officer,
employee or agent of a Nevada corporation may be entitled to indemnification by
the corporation under certain circumstances against expenses, judgments, fines
and amounts paid in settlement of claims brought against them by a third person
or by or in right of the corporation.
News Communications is obligated under its Articles of Incorporation to
indemnify any of its present or former directors who served at the company's
request as a director, officer or member of another organization against
expenses, judgments, fines and amounts paid in settlement of claims brought
against them by a third person or by or in right of the corporation if such
director acted in good faith or in a manner such director reasonably believed to
be in, or not opposed to, the best interests of the company and, with respect to
any criminal action or proceeding, if such director had no reason to believe his
or her conduct was unlawful. However with respect to any action by or in the
right of the company, the Articles of Incorporation prohibit indemnification in
respect of any claim, issue or matter as to which such director is adjudged
liable for negligence or misconduct in the performance of his or her duties to
the company, unless otherwise ordered by the relevant court. The company's
Articles of Incorporation also permit it to indemnify other persons except
against gross negligence or willful misconduct.
The company is obligated under its bylaws to indemnify its directors,
officers and other persons who have acted as a representatives of the company at
its request to the fullest extent permitted by applicable law as in effect from
time to time, except for costs, expenses or payments in relation to any matter
as to which such officer, director or representative is finally adjudged
derelict in the performance of his or her duties, unless the company has
received an opinion from independent counsel that such person was not so
derelict.
The Nevada General Corporation Law, as amended, also permits a corporation
to limit the personal liability of its officers and directors for monetary
damages resulting from a breach of their fiduciary duty to the corporation and
its stockholders. The company's Articles of Incorporation limit director
liability to the maximum extent permitted by the Nevada General Corporation Law,
which presently permits limitation of director liability except for a director's
acts or omissions that involve intentional misconduct, fraud or a knowing
violation of law and for a director's willful or grossly negligent violation of
a Nevada statutory provision that imposes personal liability on directors for
improper distributions to stockholders. As a result of the inclusion in the
company's Articles of Incorporation of this provision, the company's
stockholders may be unable to recover monetary damages against directors as a
result of their breach of their fiduciary duty to the company and its
stockholders. This provision does not, however, affect the availability of
equitable remedies, such as injunctions or rescission based upon a breach of
fiduciary duty by a director.
The company currently maintains director and officer liability insurance
in the amount of $1,000,000 for the benefit of its officers and directors.
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The foregoing indemnification obligations are broad enough to permit
indemnification with respect to liabilities arising under the Securities Act.
Insofar as the company may otherwise be permitted to indemnify its directors,
officers and controlling persons against liabilities arising under the
Securities Act or otherwise, the company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
News Communications currently has 2,735,791 shares of Common Stock
outstanding. In addition, 447,259 shares of Common Stock are currently issuable
upon conversion of outstanding shares of Preferred Stock. Of this amount,
approximately 50,000 shares are "restricted" securities as that term is defined
under Rule 144 promulgated under the Securities Act of 1933. Of the restricted
shares none have been held for at least two years.
Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the company (or
persons whose shares are aggregated), who has owned restricted shares of Common
Stock beneficially for at least one year, is entitled to sell, within any three
month period, a number of shares that do not exceed the greater of 1% of the
total number of outstanding shares of the same class or the average weekly
trading volume during a specified four-week period preceding the sale. A person
who has not been an affiliate of the company for at least 3 months and who has
beneficially owned shares of Common Stock for at least two years is entitled to
sell such shares under Rule 144 without regard to such volume limitations.
The company is unable to predict the effect that sales made under Rule
144, or pursuant to other exemptions under the Securities Act of 1933, may have
on the then prevailing market price of the Common Stock.
As of the date of this Prospectus, without taking into effect the
securities offered hereby, there were immediately exercisable options and
warrants which, upon exercise, would enable their holders to purchase up to
1,132,667 of Common Stock at prices ranging from $3.75 to $9.38 per share and
exercisable over periods of up to ten years.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon
for the company by Piper & Marbury L.L.P., New York, New York.
EXPERTS
The consolidated balance sheet as of November 30, 1997 and the
consolidated statements of income, stockholders' equity, and cash flows for the
years ended November 30, 1997 and 1996, included in this Prospectus, have been
included herein in reliance on the report of PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand L.L.P.) independent accountants, given on the
authority of that firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Moore Stephens, P.C. (formerly named Mortenson & Associates, P.C.) served
as independent auditors of the company for the fiscal years ended November 30,
1994 and 1995 and until February 3, 1997. On February 3, 1997, Moore Stephens,
P.C. was dismissed by the company because it was determined by the company that
its best interests would be served by retaining PricewaterhouseCoopers LLP The
decision to change auditors was approved by the Audit Committee of the company's
Board of Directors. The report of Mortenson & Associates, P.C. dated March 27,
1996, relating to the financial statements of the company as of November 30,
1995 and for the two years then ended contained a statement regarding
uncertainty about the company's ability to continue as a going concern. During
the company's two most recent fiscal years and the subsequent interim period
preceding such dismissal, there were no disagreements between the company and
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Moore Stephens, P.C. on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
PricewaterhouseCoopers LLP served as independent auditors of the company
for the fiscal years ended November 30, 1996 and November 30, 1997 and until
October 9, 1998. On October 9, 1998, PricewaterhouseCoopers LLP declined to
stand for reelection as the independent accountants of the company. During the
company's two most recent fiscal years and the subsequent interim period there
were no disagreements between the company and PricewaterhouseCoopers LLP on any
matters of accounting principles or practices, financial disclosure statements
or auditing scope or producers.
On October 30, 1998 the company engaged BDO Seidman, LLP as independent
accountants to audit its financial statements beginning with the fiscal year
ending November 30, 1998.
-36-
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of November 30, 1997
and August 31, 1998 (unaudited)...................... F-3
Consolidated Statements of Operations for the years
ended November 30, 1997 and 1996 and for the
nine months ended August 31, 1997 and
1998 (unaudited)..................................... F-4
Consolidated Statements of Cash Flows for the years ended
November 30, 1996 and 1997 for the nine months ended
August 31, 1997 and 1998 (unaudited)................ F-5
Consolidated Statements of Stockholders' Equity for the
years ended November 30, 1996 and 1997 and for
the nine months ended August 31, 1998 (unaudited)... F-6
Notes to Consolidated Financial Statements................ F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
News Communications, Inc.
Fresh Meadows, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1997, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the years ended November 30, 1997 and 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
News Communications, Inc. and Subsidiaries as of November 30, 1997, and the
consolidated results of their operations and their cash flows for the years
ended November 30, 1996 and 1997, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers & Lybrand LLP
New York, New York
May 15, 1998
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November August
30, 1997 31, 1998
---------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 424,620 $ 199,634
Accounts receivable, less
allowances for doubtful
accounts of $849,530 in
November 1997 and
$1,282,304
in August 1998........... 3,479,269 3,574,031
Due from related parties.... 27,613 38,610
Other....................... 176,738 214,468
----------- ----------
Total current assets..... 4,108,240 4,026,743
INVESTMENT IN UNCONSOLIDATED
ENTITIES.................... 72,242 249,729
PROPERTY AND EQUIPMENT (at
Cost), Net.................. 399,364 382,209
OTHER ASSETS:
Goodwill, Net............... 3,481,766 3,271,629
Other, Net.................. 81,267 58,106
----------- ----------
TOTAL ASSETS................... 8,142,879 7,988,416
=========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable............ 626,610 1,091,040
Accrued expenses............ 1,166,573 1,315,855
Accrued payroll and payroll
taxes....................... 92,516
Note payable................ 900,000 800,000
Unearned revenue............ 137,652 151,129
Related party short term debt 2,478,834
----------- ----------
Due to related party........ 1,136,021 103,438
----------- ----------
Total current liabilities 4,059,372 5,940,296
NET LIABILITIES OF DISCONTINUED
OPERATIONS.................. 53,908
RELATED PARTY - LONG-TERM DEBT. 1,415,338
COMMITMENTS AND CONTINGENCIES..
MINORITY INTEREST.............. 281,474 281,474
STOCKHOLDER'S EQUITY:
Preferred Stock, $1.00 Par
Value; 500,000
shares authorized;
$2,444,000 aggregate
liquidation value........ 200,340 220,340
Common Stock, $.01 Par Value;
100,000,000
shares authorized;
8,212,231 shares issued and
outstanding............. 82,122 83,584
PAID-IN-CAPITAL, PREFERRED STOCK 2,077,025 2,257,025
PAID-IN-CAPITAL, COMMON STOCK.. 14,431,905 14,430,444
RETAINED EARNINGS (Accumulated
deficit).................... (14,049,876)(14,816,018)
LESS: TREASURY STOCK (at Cost) (408,729) (408,729)
----------- ----------
Total Stockholder's Equity.. 2,332,787 1,766,646
========== ==========
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY........ $ 8,142,879 $7,988,416
========== ==========
See notes to consolidated financial statements.
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Year Nine Nine
Ended Ended Months Months
November November Ended Ended
30, 1996 30, 1997 August 31, August 31,
1997 1998
--------- ---------- --------- ----------
(Unaudited)(Unaudited)
NET REVENUES............. $16,614,501 $17,523,952 $13,051,666 $13,654,111
OPERATING EXPENSES:
Direct Mechanical Costs 6,175,727 5,683,638 4,504,294 4,458,967
Salaries, Benefits and
Outside Labor Costs 8,801,931 8,880,694 6,212,264 6,753,411
Rent, Occupancy &
Utilities............. 820,299 842,735 658,144 658,691
Provisions for Doubtful
Accounts............. 1,360,057 1,013,904 301,250 332,200
General and
Administrative........ 2,674,163 2,702,444 1,757,274 1,793,030
--------- ---------- --------- ----------
Total Operating
Expenses........... 19,123,415 19,832,177 13,433,226 13,996,299
========= ========== ========= ==========
OPERATING INCOME (LOSS)
Before Interest Expense
and Equity in Loss From
Unconsolidated Entities (3,217,676)(1,599,463) (381,560) (342,188)
INTEREST EXPENSE......... (177,471) (200,948) (143,101) (240,173)
INCOME (LOSS) BEFORE
INCOME TAXES.......... (3,395,147)(1,800,411)
INCOME TAX PROVISION
(BENEFIT)............. --- ---
EQUITY IN LOSS FROM
UNCONSOLIDATED ENTITIES --- (160,000)
--------- ---------- --------- ----------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS. (3,461,587)(1,967,657) (524,661) (742,361)
LOSS FROM DISCONTINUED
OPERATIONS............ (419,841) (730,585) (348,168) ---
GAIN (LOSS) ON DISPOSAL.. (255,973)
----------- ---------- --------- -----------
NET INCOME (LOSS) (3,881,428)(2,954,215) (872,829) (742,361)
========= ========== ========= ==========
LOSS PER COMMON SHARE:
Continuing Operations. $ (.44) $ (.24)
Discontinued Operations $ (.05) $ (.12)
Total Loss Per
Common Share....... $ (.49) $ (.36) $ (.11) $ (.09)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING........... 7,991,997 8,132,754 7,952,654 8,191,136
========= ========== ========= ==========
See notes to consolidated financial statements.
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Year Nine Nine
Ended Ended Months Months
November November Ended Ended
30, 1996 30, 1997 August 31, August 31,
---------- ---------- 1997 1998
----------- ----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Income (Loss)..... (3,881,428) (2,954,215) (872,829) (742,361)
Adjustments to
reconcile net loss to
net cash (used for)
Loss from discontinued
operations............ 419,841 986,558
Depreciation and
Amortization.......... 497,774 447,462 374,470 428,700
Provision for doubtful
accounts.............. 1,370,224 1,013,904 301,256 332,200
Compensation
recognized related to
warrants issued....... 128,000 --- --- ---
Amortization of debt
discount.............. 17,333 39,138
Minority interest..... 66,440 167,246
Change in Assets and
Liabilities:
(Increase) decrease
in:
Accounts receivable (345,658) (1,227,954) (1,465,061) (426,962)
Other current assets (63,424) (26,614) (7,679) (37,729)
Other assets....... 2,929 64,471 (28,869) 7,705
Related party
receivable......... 105,233 (13,613) 26,126 (58,247)
Increase (decrease)
in:...................
Accounts payable
and accrued expenses (181,351) 395,509 355,829 265,221
Accrued payroll and
payroll taxes....... 83,591 (316,076)
Other current
liabilities......... 122,653 15,000 4,222 13,477
Related party payable 30,506 91,000 --- ---
Total adjustments..... 2,254,091 1,636,031 (439,712) 524,365
---------- ---------- ----------- ----------
Net cash -
operating
activities of
continuing..........(1,627,337) (1,318,184) (1,312,541) (217,996)
---------- ---------- ----------- ----------
INVESTING ACTIVITIES OF
CONTINUING OPERATIONS:
Purchase of South
Shore Publishers, Inc. - (421,500)
Capital expenditures.. (47,626) (102,658) (85,090) (109,289)
Investment in
unconsolidated entities - (72,242) --- (175,986)
---------- ---------- ----------- ----------
Net cash - investing
activities - forward.. (47,626) (596,400) (85,090) (285,275)
---------- ---------- ----------- ----------
FINANCING ACTIVITIES OF
CONTINUING OPERATIONS:
Proceeds from
preferred stock....... 2,000,000 - 200,000
Proceeds from exercise
of stock options...... 12,500 181,090
Costs of raising
capital............... (18,183) (39,670)
Proceeds from exercise
of warrants and
underwriter options... 19,500 131,935
Principal payments
on notes payable...... (24,000) (275,000) (275,000) (100,000)
Dividend on preferred
stock................. (41,360) (35,426) (17,620) (23,780)
Proceeds from notes
payable............... 1,675,000 1,500,000
---------- ---------- ----------- ----------
Net cash -
financing activities
of continuing
operations............ 3,623,457 1,330,994 (160,685) 76,220
---------- ---------- ----------- ----------
Net cash used in
discontinued operations 508,081 486,677 88,632 202,065
---------- ---------- ----------- ----------
Net increase
(decrease) in cash.... 1,440,413 (1,070,267) (1,469,634) (224,986)
Cash - beginning of
year.................. 54,474 1,494,887 1,546,704 424,620
Cash - end of year.... 1,494,887 424,620 77,020 199,634
========== ========== =========== ==========
Supplemental disclosure
of cash flow
information:.....
Cash paid during
the year for
interest....... 130,969 189,572 75,674 94,730
See notes to Consolidated Financial Statements
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C>
Paid-in Paid-in Total
Preferred Capital Common Capital Stock-
Stock Preferred Preferred Stock Common Common Retained Treasury holders'
The company (shares) Stock Stock (shares) Stock Stock Deficit Stock Equity
-----------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30,
1996............... 20,449 $200,449 $ 2,201,690 8,038,039 $ 80,380 $14,062,652 ($11,047,235) $408,729 $5,089,207
Stock issued in
connection with
exercise of
C warrants......... --- --- --- 90,545 906 140,515 --- --- 141,421
Stock issued in
connection with
purchase of Nassau. --- --- --- 16,000 160 (160) --- --- ---
Conversion of 8%
Convertible
Preferred
Stock.............. (103) (103) (102,897) 49,047 490 102,510 --- --- ---
Warrants issued in
connection with
long term debt..... --- --- --- --- --- 91,800 --- --- 91,800
Conversion of 10%
Convertible
Preferred
Stock.............. (6) (6) (21,768) 10,800 108 21,666 --- --- ---
Stock issued as
preferred
dividends.......... --- --- --- 7,800 78 12,922 (13,000) --- ---
Dividend on
preferred stock.... --- --- --- --- --- --- (35,426) --- (35,426)
Net loss.............. --- --- --- --- --- --- (2,954,215) --- (2,954,215)
=================================================================================================
BALANCE, NOVEMBER 30,
1997 20,340 $ 200,340 $2,077,025 $8,212,231 $82,122 $14,431,905 $(14,049,876) $408,729 $2,332,787
=================================================================================================
Stock issued in
connection with
purchase of Nassau. --- --- --- 146,143 1,462 (1,461) (1) --- ---
Issuance of $10
Convertible
Preferred
Stock.............. 2,000 20,000 180,000 200,000
Dividends on
preferred stock.... --- --- --- --- --- --- (23,780) (23,780)
Net loss..............
--- --- --- --- --- --- (742,361) (742,361)
==================================================================================================
BALANCE, AUGUST 31,
1998 (unaudited) 22,340 $220,340 $2,257,025 $8,358,374 $83,584 $14,430,444 ($14,816,018) $(408,729) $1,766,646
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements at August 31, 1998
A. Basis of Presentation:
The Consolidated Balance Sheet as of August 31, 1998 and the Consolidated
Statements of Operations for the nine-month periods ended August 31, 1998 and
August 31, 1997, 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 Form
10-KSB for the fiscal year ended November 30, 1997 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. New Authoritative Accounting Pronouncements:
The FASB has issued the following standards which principally relate to
presentation and disclosure items. While not required to be adopted by the
company until 1999, the company does not anticipate that the standards will have
a material impact on the company's financial statement presentation or footnote
disclosures.
-SFAS No. 130, "Reporting Comprehensive Income"
-SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information"
-SFAS No. 132, "Employers' Disclosure about Pensions and other Post
Retirement Benefits"
1. Organization and Industry Segment:
News Communications, Inc., a Nevada corporation, is primarily engaged,
through various wholly-owned and majority-owned subsidiaries in the publication
and distribution of advertiser supported, community oriented newspapers. The
company's publishing subsidiaries are Access Network Corp. ("Access"), Manhattan
Publishing Corp. ("MPC"), Tribco Incorporated ("Tribco"), Dan's Papers, Inc.
("DPI"), Parkchester Publishing Co., Inc. ("Bronx Press Review"), Nassau
Community Newspaper Group, Inc. ("Nassau Newspapers"), Capitol Hill Publishing,
Inc. ("Capitol Hill"), Brooklyn Newspaper Publishing, Inc. ("Brooklyn"), West
Side Newspaper Corp. ("West Side") and South Shore Publishers, Inc. (South
Shore), News Communications, Inc. and Subsidiaries (the "Company") function in
one industry segment, that is the news publication business.
As discussed in Note 20, Manhattan File Publishing, Inc., ("Manhattan
File"), the company's only magazine publishing subsidiary, is presented as a
discontinued operation
2. Summary of Significant Accounting Policies:
Consolidation - The consolidated financial statements of the company
include the accounts of the parent company and its wholly-owned and
majority-owned subsidiaries. All material intercompany transactions have been
eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
F-7
<PAGE>
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates have been made by management
with respect to the company's allowance for doubtful accounts, amortization
relating to goodwill, depreciation and amortization in connection with property
and equipment, and the possible outcome of outstanding litigation among other
items. Actual results could differ from those estimates.
Property and Equipment - All expenditures for betterments and additions
are capitalized. Expenditures for normal repairs and maintenance are charged
against income as incurred. Depreciation and amortization are provided for
financial reporting purposes on the basis of the various estimated useful lives
of the assets, using the straight-line method as follows:
Years
-----
Furniture, fixtures and office
equipment 5-10
Leasehold improvements Shorter of useful life of asset
or length of lease
Goodwill - Goodwill represents the excess of the cost of acquired assets
over their fair values at dates of acquisition and is being amortized over ten
to twenty years on a straight-line basis. The company's policy is to record an
impairment loss against the net unamortized cost of goodwill in the period when
it is determined that the carrying amount of the asset may not be recoverable.
At each balance sheet date, the company evaluates the realizability of goodwill
for each subsidiary having a material goodwill balance. This determination is
based on an evaluation of such factors as the occurrence of a significant event,
a significant change in the environment in which the business operates or if the
expected future non-discounted net income of the subsidiary would become less
than the carrying amount of the goodwill asset. An impairment loss would be
recognized if the unamortized goodwill balance exceeds the non-discounted cash
flows of the subsidiaries. Based upon its most recent analysis, the company
believes that no impairment of goodwill exists at November 30, 1997.
Revenue Recognition - Advertising revenues are earned when advertisements
appear in the various publications.
Direct Mechanical Costs - Production- and distribution-related expenses
are classified as direct mechanical costs.
Seasonality - One of the company's publications (which generated
approximately 22% and 21% of revenues in fiscal 1997 and 1996 respectively) is a
resort-area newspaper, that earns a significant portion of its revenue during
the summer months.
Concentration of Customers - The majority of the company's customers are
located in four of the boroughs of New York City, in Nassau County and Eastern
Long Island.
Concentrations of Credit Risk - Financial instruments that potentially
subject the company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk of its customers, establishes an allowance for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowance is limited. The company
places its cash with high credit quality financial institutions. The company has
not experienced any losses with financial institutions. The amount on deposit in
any one institution that exceeds federally insured limits is subject to credit
risk. As of November 30, 1997, the company had approximately $425,000 with
financial institutions subject to a credit risk beyond the insured amount.
Reclassifications -Certain prior year amounts have been reclassified to
conform to the current year's presentation.
3. Property and Equipment and Depreciation and Amortization:
Major classes of property and equipment as of November 30, 1997 are as
follows:
Leasehold improvements: 281,112
Computer equipment and software 390,327
Machinery and equipment 114,637
F-8
<PAGE>
Furniture and fixtures and office
equipment 125,135
Distribution boxes 42,634
-------------
Total - at cost 953,845
Less: Accumulated depreciation and
amortization 554,481
-------------
Property and equipment - net $ 399,364
-------------
Depreciation and amortization expense for the years ended November 30, 1997 and
1996 amounted to $172,593 and $170,740, respectively.
4. Intangible Assets:
A breakdown of intangible assets at November 30, 1997 is as follows:
Amortization
Period
Years Cost Amortization Net
----- ---- ------------ ---
Goodwill 10-20 $5,474,720 $1,992,954 $3,481,766
========================================
Organization
costs 5 $30,184 $17,860 $12,324
========================================
Organization costs are included in the caption "Other Assets" on the balance
sheet.
Amortization expense of $289,467 and $314,397 was recognized for the years ended
November 30, 1997 and 1996, respectively.
5. Notes Payable
Short-term payable at November 30, 1997 consisted of a $900,000 loan due
on January 5, 1998 at the Bank's prime rate plus 3 percent. The prime rate at
November 30, 1997 was 8.5 percent. The Bank has not called the loan subsequent
to its due date, and, at its sole option, can continue to extend the due date of
the loan. $100,000 of the note was paid in January 1998. All of the Company's
accounts receivable are pledged as collateral for the loan.
Short-term note payable in the amount of $985,333 (net of unamortized
discount of $14,667) at November 30, 1997 consisted of a promissory note due to
a principal shareholder of the Company. The note is due on May 21, 1998, and has
as a stated interest rate of 8.5 percent per annum. Interest is payable
quarterly commecing July 1, 1996. As additional consideration for the promissory
note, detachable warrants to purchase 200,000 shares of the Company's common
stock at $2.50 per share were issued to the lender and, accordingly, $64,000 of
the proceeds of the promissory note were allocated to the detachable warrants
and included in additional paid-in-capital - common stock. All of the assets of
the Company, as well as all of the outstanding common stock of Tribco and
Access, are pledged as collateral for the note.
Long term note payable in the amount of $1,415,338 (net of unamortized
discount of $84,662) at November 30, 1997 consisted of a promissory note due to
an affiliate of a principal shareholder and officer of the Company. The note is
due on December 31, 1998, and has a stated interest rate of 9.75 percent per
annum. Interest is payable monthly commencing December 1, 1997. As additional
consideration for the note payable, warrants to purchase 300,000 shares of the
Company's common stock at $2.25 per share were issued to the lender, and,
accordingly $91,800 of the proceeds of the note were allocated to the warrants
and included in additional paid-in capital - common stock. The loan was made to
DPI, and all of the assets of DPI are pledged as collateral for the note.
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards ["SFAS"] No. 107, "Disclosures
about Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
F-9
<PAGE>
require the disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the consolidated balance sheet,
for which it is practicable to estimate fair value. The Company's financial
instruments include cash and cash equivalents, trade receivables, trade
payables, and current and long-term debt. The carrying value of the Company's
financial instruments approximates fair value. The fair values of cash and cash
equivalents, net accounts receivable, trade payables and short-term debt
approximate cost because of the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt is estimated based on
discounting expected cash flows at rates currently available to the Company with
similar risks and maturities.
7. Related Parties:
Certain company office facilities are leased from an officer of a
subsidiary of the company. Rental expense amounted to approximately $58,000 and
$49,000 for the years ended November 30, 1997 and 1996, respectively. The lease
commitment is adjusted annually based on the consumer price index as of
November. The lease term is for ten years with a renewal option of five years.
The original lease term expires on November 1, 2008.
At November 30, 1997, amounts owed to an officer of a subsidiary of the
company for a bonus and expenses amounted to approximately $150,000.
As discussed in Note 5, at November 30, 1997, the company has a short -
and long - term note payable due to affiliates of principal stockholders of the
company.
Revenues from related parties amounted to $25,300 and $354,125 during the
years ended November 30, 1997 and 1996, respectively.
8. Leases:
The company leases all operating facilities under operating leases
expiring through January 2003. Rent expense under operating leases was
approximately $541,000 and $512,000 for years ended November 30, 1997 and 1996,
respectively.
The future minimum payments under non-cancelable operating leases
consisted of the following at November 30, 1997:
Fiscal Year Ending Operating
November 30, Leases
------------------ ---------
1998 $ 487,229
1999 375,923
2000 243,911
2001 58,842
2002 46,675
----------
$1,212,580
==========
The operating leases also provide for cost escalation payments and payments for
maintenance and real estate taxes. The company has options to renew certain
leases for additional five-year terms.
9. Commitments and Contingencies:
A subsidiary of the company has indemnified two former employees and a
director from adverse judgments and legal fees arising in connection with
certain legal actions, except such adverse judgments as may be based on claims
that allege or involve wrongful conduct by said former employees and director.
F-10
<PAGE>
The company has an employment agreement expiring in 2007 with the
President of DPI. The agreement stipulates an annual salary of $10,000 greater
than his base salary for the fiscal year beginning December 1, 1997 (base salary
at December 1, 1997 was $134,000), adjusted for increases in the consumer price
index, plus a bonus in each fiscal year based on net profits (as defined) of
DPI, and fringe benefits totaling approximately $37,000 annually.
The President of DPI has a put option that requires the company to buy his
20 percent interest of DPI for a price equal to 20 percent of the retained
earnings, if any, of DPI plus the greater of $200,000 or 20 percent of gross
collected revenues [net of agency commissions] for the full fiscal year prior to
exercise of the option. At November 30, 1997, the value of the put option based
on the aforementioned formula was approximately $1 million. The option is
related to the 1988 acquisition of DPI by the company.
The company has an employment contract, through October 14, 1999, with its
President. The contract stipulates an annual base salary of $150,000 plus
bonuses as determined by the board of directors.
In August 1993, the Chairman of the Board entered into a five-year
employment agreement with the company. In October 1996, the agreement was
amended to extend the employment period through August 2003. The agreement calls
for an annual salary of $195,000 and certain other benefits. Stock options for
300,000 shares of the company's Common Stock at an exercise price of
approximately $2.38 per share expiring on August 31, 1998 were awarded to the
Chairman in connection with the agreement. At his request, the company will also
provide the Chairman of the Board with medical and other benefits and
perquisites, including reimbursement for expenses relating to maintenance of
appropriate office space for him, including rent and secretarial costs. The
Chairman of the Board may terminate the agreement at any time on at least 10
days' notice to the company. In the event of his permanent disability or death,
amounts of salary and bonuses shall continue to be paid to him or the legal
representative of his estate until the end of the term of the agreement.
The Publisher of Brooklyn has an employment agreement expiring in August
1999. The agreement stipulates an annual salary of $60,000, plus increases and
bonuses based upon the net profits (as defined) of Brooklyn.
Certain holders of options, warrants and stock of the company have
received registration rights with respect to the securities held by or issuable
to them. These registration rights could result in substantial future expense to
the company and could adversely affect any future equity or debt financing.
10. Legal Proceedings:
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.,
and Media Venture Group, Inc., was initiated in September 1996 in the United
States District Court for the District of Columbia in which the Plaintiff, a
former national advertising executive for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million. The case was tried to a jury
and resulted in an adverse determination of liability to the company in the
amount of $100,000, which has been recorded in the period ended November 30,
1997. No appeal has been taken from that finding. The plaintiff has requested an
award of fees and costs in the approximate amount of $150,000, which the company
is vigorously opposing.
Management of the company is unable to predict or determine the final
outcome of the aforementioned proceeding or whether the resolution of the
matters could materially affect the company's financial position, results of
operations, or liquidity.
11. Common Stock:
At November 30, 1997, the company has approximately 8,293,000 shares of
common stock reserved for issuance upon conversion of outstanding preferred
stock and exercise of options and warrants. In addition, the company had
reserved for issuance 146,143 shares of common stock (valued by the company at
approximately $320,000) in connection with the company's 1993 acquisition of the
Nassau Newspapers. In March 1998 the shares were issued; however, 36,572 have
been placed in escrow for delivery in December 1998.
F-11
<PAGE>
10. Preferred Stock:
Preferred Stock at November 30, 1997 consisted of the following:
10% non-voting convertible preferred $ 26
stock, 1,250 shares authorized; 26
issued and outstanding, $500 per share
per annum cumulative dividends,
$130,000 liquidation value
8% convertible preferred stock, 500 114
shares authorized, 114 issued and
outstanding, $80 per share per annum
cumulative dividends, $114,000
liquidation value
12% convertible preferred stock, 200 200
shares authorized, 200 shares issued
and outstanding, $120 per share per
annum cumulative dividends, $200,000
liquidation value
$10 convertible preferred stock, 200,000
200,000 shares authorized, issued and
outstanding, $2,000,000 liquidation
value
(a) The 10% Non-voting Convertible Preferred Stock is redeemable at the
option of the company, under certain circumstances. The holders can convert
their shares of preferred stock into shares of common stock at the rate of 6,000
shares of common stock for each share of preferred stock, subject to standard
anti-dilution provisions.
In October 1996, the company distributed 10,624 shares of its common stock
in payment of a $500 dividend per share due holders as of September 19, 1996 on
each of the 32 shares of 10% Non-voting Convertible Preferred Stock. As a
result, common stock at par increased by $106, additional paid-in-capital -
common stock was increased by $15,894 and retained earnings decreased by
$16,000.
(b) The 8% Convertible Preferred Stock and the 12% Convertible Preferred
Stock may be redeemed, in whole or in part, at the option of the company for a
redemption price equal to the liquidation preference of $1,000 per share plus
accrued and unpaid dividends. The holders of the 8% and 12% Convertible
Preferred Stock may convert each share, at any time, into shares of common
stock. The number of shares of common stock into which each share of preferred
stock may be converted shall be obtained by dividing $1,000 by a conversion
price of $2.10, which is subject to standard anti-dilution provisions. The 8%
and 12% Convertible Preferred Stock have no voting rights except if the company
is in default of four consecutive dividend payments, then holders are entitled
to vote.
During 1997, holders of the company's 8% Convertible Preferred Stock
converted 103 shares into 49,047 shares of common stock and 49,047 five-year
warrants to purchase common stock exercisable at $2.10 per share. As a result,
common stock at par increased by $490, additional paid-in-capital - common stock
increased by $102,510, preferred stock at par decreased by $103 and additional
paid-in-capital - preferred stock decreased by $102,897.
During the years ended November 30, 1997 and 1996, cash dividends totaling
$35,426 and $41,360, respectively were paid to the holders of the 8% Convertible
Preferred Stock and the 12% Convertible Preferred Stock.
(c) In October 1996, the company entered into an agreement with a group of
investors to which the company issued 200,000 shares of a newly designated
$10.00 Convertible Preferred Stock and warrants to purchase 266,000 shares of
common stock at $6.00 per share [See Note 15] for an aggregate consideration of
$2,000,000. The holders of $10 Convertible Preferred Stock, acting as a single
class, are entitled to nominate and elect, at all times, one-half of the total
number of directors of the company.
Dividends on the $10 Convertible Preferred Stock are noncumulative and are
payable at a rate of five times the amount of dividends, if any, per share
declared and paid by the company on its common stock. During 1996, no dividends
were declared and paid on the $10 Convertible Preferred Stock.
F-12
<PAGE>
The holders of the $10 Convertible Preferred Stock may convert each share,
at any time, into shares of common stock. The number of shares of common stock
into which each share of the $10 Convertible Preferred Stock may be converted is
obtained by dividing $10 by a conversion price. The conversion price is
initially set at $6.00, and is subject to adjustments generally for dilution or
decline in the market price below $6.00.
The holders of the $10 Convertible Preferred Stock have substantially the
same voting rights as the holders of the company's common stock; however, the
vote of the holders of the $10 Convertible Preferred Stock, acting as a single
class, is required for stockholder approval of certain corporate matters. Each
holder of the $10 Convertible Preferred Stock is entitled to the number of votes
that he or she would have had if each share of $10 Convertible Preferred Stock
had been converted into shares of common stock.
12. Treasury Stock:
Treasury stock is shown at cost and consists of 151,000 shares of Common
Stock.
13. Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ["FASB"] issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes financial accounting and reporting standards for employee
stock-based compensation plans and to transactions in which an entity issues its
equity instruments to acquire goods or services from non-employees. SFAS No. 123
encourages, but does not require, companies to record compensation cost for
employee stock-based compensation plans at fair value. The company has elected,
as permitted by SFAS No. 123, to account for its employee plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ( APB) Opinion No. 25. However, pro forma disclosures of net income and
earnings per share must be made as if the SFAS No. 123 accounting standard had
been adopted. The fair value of options for purposes of the SFAS No. 123
proforma disclosures has been estimated using a Black-Scholes option pricing
model. No options were granted by the company during 1997. Based on
Black-Scholes values, the weighted average fair value of options granted during
1996 was $0.75. The fair value is estimated on the date of grant with the
following weighted average assumptions used for options granted in 1996;
expected volatility of 72 percent; risk free interest rate of 6.27 percent; and
expected lives of approximately one year. As of November 30, 1997, the weighted
average remaining contractual life was approximately two years. Pro forma net
loss from continuing operations and pro forma net loss for 1996 would be
approximately $3,733,000 and $4,153,000, respectively. Pro forma loss per share
from continuing operations and proforma loss per share for 1996 would be
approximately $.47 and $.52, respectively.
Information regarding the company's stock option plans is as follows:
(a) Stock Option Plan - The company has a Stock Option Plan (the Plan)
pursuant to which it has reserved authorized, but unissued, shares of common
stock for issuance of both Qualified Incentive Stock Options and Non-Qualified
Stock Options to employees, officers and directors of the company. Under the
Plan, a maximum of 366,666 shares of common stock is available for issuance. The
option price will be the fair market value (110% of the fair market value for
Qualified Incentive Stock Options granted to a holder of 10% or more of the
company's Common Stock) as defined by the Plan. Generally, options may be
exercised commencing two years from the date of grant and terminating ten years
from the date of grant. At November 30, 1997 and 1996, approximately 36,667 and
121,200 options were exercisable, respectively. The following is a summary of
transactions:
1997 1996
-----------------------
Outstanding - Beginning of year 179,167 179,167
Granted during the year - -
Terminated during the year (42,500) -
Outstanding - End of year (1) 136,667 179,167
=======================
F-13
<PAGE>
(1) With an exercise price per share ranging from $2.00 to $9.00, giving
effect to the one-for-ten reverse stock split, which occurred on May 12, 1992.
The weighted average exercise price at November 30, 1997 was $2.24 per share.
At November 30, 1997 and 1996, there were 230,000 and 187,500 shares (after
giving effect to the December 15, 1995 amendment to the Stock Option Plan to
increase the number of shares of common stock available for issuance pursuant to
the Plan) available for future grants.
(b) Directors and Officers Stock Option Plan - On August 17, 1993, the
Board of Directors adopted a Discretionary Directors and Officers Stock Option
Plan as amended (the "Discretionary Option Plan") pursuant to which the Board
may award options to purchase an aggregate of 500,000 shares of Common Stock to
directors and officers of the company and its subsidiaries which shall be
exercisable at the market price on the date of grant for periods (generally five
years), and under conditions, specified by the Board in such grants. Options
under the Discretionary Option Plan are non-qualified and non-incentive options
for purposes of income taxation and are not intended to qualify under Section
422A of the Internal Revenue Code of 1986. No grants were made under the
Discretionary Option Plan during the fiscal year ended November 30, 1997.
On August 17, 1993, the Board also adopted a Non-Discretionary Directors
Stock Option Plan (the "Non-Discretionary Option Plan") pursuant to which each
director will be granted, on August 17, 1993 and each anniversary thereof on
which he or she continues to be a director, a five-year option to purchase 3,333
shares of Common Stock at the market price on the date of the grant. The
Non-Discretionary Plan also provides that any person becoming a director within
the six months after any August 17 will be granted options. The maximum number
of options authorized pursuant to the plan amounts to 166,666 which were granted
as of November 30, 1996.
The following is a summary of transactions relating the Directors and
Officers Stock Option Plans:
1997 1996
----------------------------
Outstanding - Beginning of 2,120,500 1,760,500
year
Granted during the year - 360,000
Outstanding - End of the year 2,120,500 2,120,500
(1)
============================
(1) With an exercise price per share ranging from $3.75 to $8.07. The
weighted average exercise price at November 30, 1997 was $6.63 share.
14. Stock Warrants
At November 30, 1997, the company has 812,376 shares of common stock
reserved for issuance upon exercise of warrants. Information regarding the
company's warrants outstanding is as follows:
Redeemable Class C Warrants - Each Class C Warrant, which entitles the
holder to purchase one share of the company's Common Stock at $6.00 per share,
became exercisable October 9, 1993 and expired October 9, 1996. During the year
ended November 30, 1996, 107,945 Redeemable Class C Warrants were exercised for
proceeds of $215,890. The common stock in connection with the October 1996
exercise of 90,545 of the Redeemable Class C Warrants was issued in March and
May 1997.
Redeemable Class D-9 Warrants - Each Class D Warrant, which entitles the
holder to purchase one share of the company's Common Stock at $1.50 per share,
became exercisable October 9, 1993 and expire October 9, 1998. The Class D
Warrants are redeemable by the company under certain conditions. At November 30,
1997 and 1996, the company had outstanding 284,645 Redeemable Class D Warrants.
Non-Redeemable Warrants - At November 30, 1997 and 1996, the company had
outstanding 628,333 and 528,333 non-redeemable warrants, respectively. Each
warrant entitles the holder to purchase one share of the company's common stock
at an exercise price ranging from $4.14 to $9.00 per share. The warrants are all
currently exercisable and expire on the following dates:
F-14
<PAGE>
Number of Expiration Date
Warrants
28,333 October 1998
33,333 May 1999
200,000 May 2001
266,000 October 2001
100,000 November 2002
There were no exercises of non-redeemable warrants during the years ended
November 30, 1997 and 1996.
All of the warrants that expire May 2001 were issued to a principal
stockholder of the company, of which 66,000 were issued in connection with a
promissory note (See Note 5) and 133,000 were issued as consideration for
consulting services. The 266,000 warrants expiring in October 2001 were issued
with the $10 convertible preferred stock (See Note 12). All of the warrants that
expire November 2002 were issued to an affiliate of principal stockholder of the
company in connection with a promissory note (See Note 5).
15. Income Taxes
The company has a deferred tax asset amounting to $3,854,612 at November
30, 1997, principally relating to net operating loss carryforwards of $9,560,829
and a basis difference in the carrying amount of trade accounts receivable for
financial reporting purposes and the amount used for income tax purposes. The
company recorded a valuation allowance amounting to the entire deferred tax
asset balance because the company's financial condition, its lack of a history
of consistent earnings, and possible limitations on the use of carryforwards
give rise to uncertainty as to whether the deferred tax asset is realizable. No
amount of current or deferred federal or state income tax is presented.
As of November 30, 1997, the approximate amount of the net operating loss
income tax carryforwards of continuing operations and their expiration dates are
as follows:
Expiring in Years
Ending November 30, Carryforwards
------------------- -------------
2004 202,301
2005 937,798
2006 144,487
2007 701,056
2008 0
2009 0
2010 538,204
2011 3,687,409
2012 3,349,574
Total 9,560,829
F-15
<PAGE>
16. Loss Per Share
Loss per share amounts are computed by dividing the net loss after
deduction of preferred stock dividends by the weighted average number of shares
outstanding. Options, warrants and convertible preferred stock are assumed
converted if dilutive.
17. New Authoritative Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share", which
will require companies to present basic earnings per share (EPS) and diluted
earnings per share, instead of the primary and fully diluted EPS that is
currently required. The new standard requires additional informational
disclosures, and also makes certain modifications to the currently applicable
EPS calculations defined in APB Opinion No. 15. The new standard is required to
be adopted by all public companies for reporting periods ending after December
31, 1997, and will require restatement of EPS for all prior periods reported.
Early adoption of the standard is prohibited. However, the company's loss per
share for the years ended November 30, 1997 and 1996 would not have been
materially different had the company applied the provisions of SFAS No. 128.
The FASB also issued the following additional standards. These standards
principally relate to presentation and disclosure items. While not required to
be adopted by the company until 1999, the company does not anticipate that the
standards will have a material impact on the company's financial statement
presentation or footnote disclosures:
- SFAS No. 130, "Reporting Comprehensive Income"
- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information"
- SFAS No. 132, "Employers' Disclosure about Pensions and other
Postretirement Benefits"
18. Acquisitions
On November 26,1997 the company acquired all of the outstanding stock of
South Shore Publishers, Inc. for approximately $421,500. In accordance with the
terms of the agreement, the company is entitled to an adjustment of purchase
price if certain net working capital requirements are not met as of the
acquisition date. The entire purchase price was allocated to intangible assets
and is being amortized over an average period of 15 years.
In 1997, the company acquired 50 percent of the outstanding stock of New
York Blade News, Inc. (NYBN) for approximately $100,000. The New York Blade
began publishing in October 1997 under the terms of a letter agreement between
the company and the owner of the remaining 50 percent interest in NYBN.
In April 1997, the company entered into an agreement, subject to certain
conditions, to acquire the business of a radio station in Annapolis, Maryland
for a purchase price of $268,000. As of November 30, 1997, the purchase had not
yet been consummated; however, a deposit of $25,000 was made during 1997.
19. Discontinued Operations
In August 1997, the company adopted a plan to discontinue the Manhattan
File glossy magazine business. Accordingly, operating results have been
reclassified and reported in discontinued operations. Net liabilities of
Manhattan File consist mainly of accounts receivable and accounts payable. On
February 26, 1998, the company entered into an agreement whereby it sold 80
percent of the outstanding shares of Manhattan File (retaining 10 percent) to
the holder of the remaining 10 percent of the shares. In accordance with the
F-16
<PAGE>
terms of the agreement, the only consideration to be received by the company is
any excess of accounts receivable, at the closing date, collected in excess of
payments of accounts payable that existed at the closing date. The estimated
loss on the sale of Manhattan File, which includes operating losses until
disposal, is approximately $256,000. Revenues from Manhattan File amounted to
approximately $1,582,000 and $1,720,000 for the years ended November 30, 1997
and 1996 ,respectively.
20. Subsequent Events
In February 1998, the company distributed 2,600 shares of its common stock
in payment of a $500 dividend per share due holders as of September 19, 1997 on
each of the 26 shares of 10% Non-voting Convertible Preferred Stock. As a
result, common stock at par increased by $78, additional paid-in-capital -
common stock increased by $12,922 and retained earnings decreased by $13,000.
In April 1998, the company entered into an agreement pursuant to which the
company issued 6,666 shares of $10.00 Convertible Preferred Stock for an
aggregate consideration of $200,000.
The company's common stock is listed on the Nasdaq Stock Market, Inc.
("Nasdaq"). The company has been advised by Nasdaq that the company is not in
compliance with Nasdaq's new net tangible assets/market capitalization/net
income requirements for companies listed on the Nasdaq SmallCap Stock Market
became effective on February 23, 1998, and that Nasdaq intended to delist the
company's securities from the Nasdaq SmallCap Stock Market as of the close of
business on March 16, 1998. On July 29, 1998, following an expedited written
hearing before Nasdaq Listing Qualifications Panel, a determination was made
that News Communications had failed to meet the minimum net tangible asset
requirement and the minimum market capitalization requirement. As a result,
Nasdaq decided that our shares would be delisted from the Nasdaq SmallCap Stock
Market effective as of the close of business on August 6, 1998. The delisting
process was temporarily delayed because we requested an oral review/hearing by
the Nasdaq staff. The hearing was held in October 1, 1998 and we are awaiting a
response from NASDAQ. Although we are challenging the delisting and have
proposed a plan to regain compliance with the requirements for continued listing
(of which this offering is a part), we cannot be sure that the shares will
remain listed on The Nasdaq SmallCap Stock Market after completion of the review
process. If the plan of compliance is rejected, the company's securities are
subsequently delisted from the Nasdaq SmallCap Stock Market, trading, if any, in
the company's securities would thereafter be conducted on the OTC Bulletin
Board.
On October 1, 1998, the company as in order to comply with Nasdaq's
minimum bid prize requirement authorized a one-for-three reverse stock split.
On October 19, 1998, the short-term note payable by Tribco and Access to
Blair was extended to June 21, 1999.
On October 6, 1998, the long-term note payable to RRF by the company was
extended to January 31, 2000.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Article Fifteenth of the company's Articles of Incorporation, as amended,
provides that the company shall indemnify its officers, directors, employees and
agents to the full extent permitted by Section 78.751 of the General Corporation
Law of Nevada ("GCL").
Article Sixteenth of the company's Articles of Incorporation, as amended,
provides for limitation of the personal liability of a director or officer to
the company or its stockholders for damage for breach of his fiduciary duty as a
director or officer, other than for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or for the payment of dividends
in violation of Section 78.300 of the GCL, which generally states that dividends
may be paid to stockholders from a corporation's excess of its assets over its
liabilities.
The company has obtained directors' and officers' insurance and company
reimbursement policy in the amount of $1,000,000 (subject to a $100,000 per
claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
would reimburse the company for such loss for which the company has lawfully
indemnified the directors and officers.
Item 25. Other Expenses of Issuance and Distribution.
The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration:
Securities and Exchange Commission
Registration Fee.................. $2,144
Nasdaq Listing Fee.................... 7,500
*Printing and Engraving Expenses...... 50,000
*Accounting Fees and Expenses......... 40,000
*Legal Fees and Expenses.............. 50,000
*Blue Sky Fees and Expenses........... 20,000
**Transfer Agent's and Registrar's
Fees and Expenses................. _____
Miscellaneous Expenses................ 10,000
**Total......................... $
======
* Estimate
** To be filed by amendment.
Item 26. Recent Sales of Unregistered Securities.
The following securities were issued by the company within the past three
years and were not registered under the Securities Act of 1933, as amended (the
"Act"). Each of the transactions is claimed to be exempt from registration with
the Securities Exchange Commission pursuant to Section 4(2) of the Act as
transactions by an issuer not involving a public offering. All of such
securities are deemed to be restricted securities for the purposes of the Act.
All certificates representing such issued and outstanding restricted securities
of the company have been properly legended and the company has issued "stop
transfer" instructions to its transfer agent with respect to such securities.
II-1
<PAGE>
(i) On May 17, 1996, the company issued to D.H. Blair Investment Banking
Corp. ("DHBIB") an immediately exercisable warrant to purchase 133,330 shares of
Common Stock exercisable at $7.50 per share.
On May 21, 1996, the company issued to DHBIB an immediately exercisable
warrant to purchase 66,000 shares of Common Stock exercisable at $7.50 per
share.
(ii) On August 17, 1996, the company granted immediately exercisable
options to purchase 3,333 shares of Common Stock to each of its then directors
other than Mr. Ackerman (12 persons) under the company's Non-Discretionary
Directors Stock Option Plan, exercisable at $4.785 per share.
(iii) On October 28, 1996, the company sold to a group of 15 private
investors an aggregate of 66,000 shares of its $10 Convertible Preferred Stock,
each of which is convertible into 1.667 shares of Common Stock at $10.00 per
share, and immediately exercisable warrants to purchase an aggregate of 266,666
shares of Common Stock exercisable at $6.00 per share. On that date the company
also granted Wilbur L. Ross, Jr. an immediately exercisable option to purchase
66,000 shares of Common Stock under the company's Discretionary Directors and
Officers Stock Option Plan, exercisable at $6.00 per share and granted 8 persons
who became directors options to each purchase 1,666 shares of Common Stock under
the company's Non-Discretionary Directors Stock Option Plan, exercisable at
$6.00 per share. In connection with such transactions, the company issued 50,000
shares of its Common Stock, valued at $100,000, to Rothschild Inc. as
consideration for investment banking services rendered by that firm.
(iv) On November 5, 1997, DPI and the company entered into a Loan
Agreement ("RRF Loan Agreement") with Rothschild Recovery Fund L.P. ("RRF")
pursuant to which DPI borrowed $1,500,000 from RRF. In connection with the
execution of the RRF Loan Agreement, the company issued to RRF a five-year
warrant to purchase, on or after February 28, 1998, 33,000 shares of Common
Stock of the company at an initial exercise price of $6.75 per share (subject to
adjustment).
(v) In April 1998 the company issued 6,666 shares of newly authorized $10
Convertible Preferred Stock, Series 2, to Bershad Investment Group, L.P., for
$200,000 in a transaction exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof. Each share of $10 Convertible Preferred
Stock, Series 2, is convertible into 1.667 shares of Common Stock, subject to
adjustments in certain circumstances.
II-2
<PAGE>
Item 27. Exhibits.
Exhibit Description Incorporated
Number by
Reference from
Document (1)
3.1 Articles of Incorporation of the A
company (formerly known as Applied
Resources, Inc.), filed with the
Secretary of State of the State of
Nevada on May 20, 1986.
3.1.1 Certificate of Amendment of the A
Articles of Incorporation of the
company, filed with the Secretary of
State of the State of Nevada on
December 8, 1987.
3.1.2 Certificate of Amendment of the B
Articles of Incorporation of the
company, filed with the Secretary of
State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the C
Articles of Incorporation of the
company, filed with the Secretary
of the State of Nevada on July 26,
1994.
3.2 By-Laws of the company (as amended C
and restated).
4.1 Form of Common Stock Certificate. B
4.2 Form of 10% Preferred Stock B
Certificate.
4.2.1 Resolution of Board of Directors B
fixing the terms of the 10%
Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors C
fixing the terms of the 8%
Convertible Preferred Stock.
4.2.3 Certificate of Amendment of C
Certificate of Designation of 8%
Convertible Preferred Stock.
4.2.4 Resolution of Board of Directors C
fixing the terms of the 12%
Convertible Preferred Stock.
4.2.5 Certificate of Designation of 12% *
Convertible Preferred Stock
4.2.6 Certificate of Designation of $10 H
Convertible Preferred Stock
(included as part of Exhibit 10.21).
5 Opinion of Piper & Marbury, L.L.P. **
10.1 1987 Stock Option Plan of the G
company, as amended.
10.2 Discretionary Directors and Officers C
Stock Option Plan.
10.3 Non-discretionary Directors Stock C
Option Plan.
10.4 Stockholders' Agreement, dated as of D
October 13, 1988, between Daniel Rattiner
and the company.
II-3
<PAGE>
10.5 Agreement of Lease, dated October D
31, 1988, between Daniel Rattiner
and DP Acquisition Corp., as to
building known as Dan's Papers, Ltd.
located on Montauk Highway,
Bridgehampton, New York.
10.6 Amendment of Lease, dated October *
31, 1998, between Dan's Paper's Inc.
(f/k/a D.P. Acquisition, Inc.) and
Daniel Rattiner.
10.7 Letter dated November 22, 1996 from J
the company to Daniel Rattiner
regarding exercise of option to purchase
stock of Dan's Papers, Ltd.
10.8 Employment and Stockholders' K
Agreement dated as of November 25,
1997 by and between the company and
Daniel Rattiner
10.9 Employment Agreement, dated as of F
October 15, 1994, between Michael
Schenkler and the company.
10.10 Amended and Restated Employment J
Agreement, dated October 28, 1996,
between Jerry Finkelstein and the company.
10.11 Stock Option Agreement dated C
September 1, 1993, between Jerry
Finkelstein and the company.
10.12 Letter Agreement, dated June 15, B
1990, between Dan's Papers, Inc. and
Dan's Papers, Ltd.
10.13 Lease for space at 174-15 Horace B
Harding Expressway, Fresh Meadows,
New York.
10.14 Agreement of Lease dated January 28, E
1993, between Furcraft Associates,
Inc. and the company.
10.15 Agreement dated May 17, 1996 between H
D.H. Blair Investment Banking Corp.
("Blair") and the company.
10.16 Loan Agreement dated May 21, 1995 H
among Blair, the company, Tribco
Incorporated ("Tribco") and Access
Network Corp. ("Access").
10.17 Waiver Agreement dated October 19, *
1998, between Blair, the company,
Tribro and Access regarding Loan
Agreement dated May 21, 1996.
10.18 $1,000,000 Promissory Note dated May H
21, 1996 issued by the company,
Tribco and Access to the order of
Blair.
10.19 Warrant dated May 17, 1996, to H
purchase 400,000 shares of the
company's Common Stock issued by the
company to Blair.
10.20 Warrant dated May 21, 1996, to H
purchase 200,000 shares of the
company's Common Stock issued by the
company to Blair.
10.21 Form of Subscription Agreement made H
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.
II-4
<PAGE>
10.22 Loan Agreement dated as of November K
5, 1997 by and between Rothschild
Recovery Fund L.P. and Dan's Papers,
Inc. and the company.
10.23 Waiver Agreement dated October 6, *
1998, between Rothschild Recovery
Fund L.P., Dan's Papers, Inc. and
the company regarding Loan Agreement
dated November 5, 1997.
10.24 Program Services Agreement dated as K
of April 11, 1997, between M.B.C.
Incorporated and the company.
16.1 Letter from Moore Stephens, P.C., I
dated February 7, 1997.
21 Subsidiaries of the company. K
23.1 Consent of Piper & Marbury L.L.P. **
(included in Exhibit 5).
23.2 Consent of PricewaterhouseCoopers *
LLP (formerly Coopers & Lybrand
L.L.P.)
Notes:
A Annual Report of the company on Form 10-K for the year ended November 30,
1987.
B Registration Statement of the company on Form S-1, No. 33-35484.
C Registration Statement of the company on Form S-1, No. 33-46467.
D Current Report of the company on Form 8-K relating to events occurring on
October 31, 1988.
E Annual Report of the company on Form 10-KSB for the year ended November
30, 1992.
F Annual Report of the company on Form 10-KSB for the year ended November
30, 1994.
G Annual Report of the company on Form 10-KSB for the year ended
November 30, 1995.
H Quarterly Report of the company on Form 10-QSB for the quarter ended
August 31, 1996.
I Current Report of the company on Form 8-K/A relating to event occurring
on February 3, 1997.
J Annual Report of the company on Form 10-KSB/A for the year ended
November 30, 1996.
K Annual Report of the company on Form 10-KSB for the year ended November
30, 1997.
* Filed herewith.
** To be filed by amendment to this Registration Statement.
II-5
<PAGE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(a)(1)....To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the Underwriter during
the subscription period, the amount of unsubscribed securities to be purchased
by the Underwriter, and the terms of any subsequent reoffering thereof. If any
public offering by the Underwriter is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post- effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 14th day of November, 1998.
NEWS COMMUNICATIONS, INC.
By /s/ Wilbur L. Ross, Jr.
-------------------------------------------
Wilbur L. Ross, Jr., Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Wilbur L. Ross, Jr. Director and Chief November __,
- - -------------------------Executive Officer 1998
Wilbur L. Ross, Jr. (Principal Executive
Officer)
Director November __,
- - --------------------- 1998
Jerry Finkelstein
/s/ Michael Schenkler Director November __,
- - --------------------- 1998
Michael Schenkler
/s/ Robert Berkowitz Controller (Principal November __,
- - --------------------- Financial and Accounting 1998
Robert Berkowitz Officer)
Director November __,
- - --------------------- 1998
Gary Ackerman
/s/ Carl Bernstein Director November __,
- - --------------------- 1998
Carl Bernstein
/s/ John Catsimatidis Director November __,
- - --------------------- 1998
John Catsimatidis
Director November __,
- - --------------------- 1998
Mark Dickstein
II-7
<PAGE>
/s/ Andrew J. Maloney Director November __,
- - --------------------- 1998
Andrew J. Maloney
/s/ Robert E. Director November __,
Nederlander 1998
- - ---------------------
Robert E. Nederlander
/s/ Andrew J. Stein Director November __,
- - --------------------- 1998
Andrew J. Stein
Director November __,
- - --------------------- 1998
Sy Syms
/s/ Arthur Tarlow Director November __,
- - --------------------- 1998
Arthur Tarlow
Director November __,
- - --------------------- 1998
Hillel Weinberger
II-8
<PAGE>
EXHIBIT 4.2.5
CERTIFICATE OF DESIGNATION
OF
12% 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 May 18, 1992, by unanimous written consent, fixed the
designations, preferences and relative, participating, optional, conversion or
other special rights, or qualifications, limitations or restrictions of up to
200 shares of preferred stock of the Corporation, $1.00 par value ("12%
Convertible Preferred Stock"), as follows:
(1) Designation. A series of preferred stock shall be designated and
known as the 12% Convertible Preferred Stock (hereinafter called "12%
Convertible Preferred Stock"). Each share of 12% Convertible Preferred Stock
shall be identical in all respects with the other shares of 12% Convertible
Preferred Stock.
(2) Number of Shares. The number of shares of 12% Convertible
Preferred Stock shall be 200 shares. Shares of 12% Convertible Preferred Stock
redeemed or purchased by the Corporation shall be canceled and shall revert to
authorized but unissued shares of preferred stock undesignated as to series.
(3) Dividends.
(a) Cumulative dividends shall be payable on the 12% Convertible
Preferred Stock at an annual rate of $120.00 per share, payable out of
funds legally available for the declaration of dividends. Dividends on
shares of 12% Convertible Preferred Stock are payable on August 31, 1992,
and on the last day of every third month thereafter. Dividends will not be
<PAGE>
pro rated in the event of a sale or redemption of the 12% Convertible
Preferred Stock or a liquidation of the Corporation., or for any other
reason, prior to a dividend payment date. Dividends shall be payable in
cash.
(b) Dividends not paid will accumulate without interest or
additional dividends until declared and paid, which declaration and
payment may be for all or part of the then accumulated dividend. The
holders of 12% Convertible Preferred Stock, in preference to the holders
of any junior stock, shall be entitled to receive, as and when declared by
the Board of Directors, out of any funds legally available therefor,
dividends at the rate fixed in Section (3) (a) hereof. No dividends shall
be paid upon, or declared or set apart for, any shares of 12% Convertible
Preferred Stock for any dividend period unless at the same time a
proportionate dividend for the same dividend period, ratably in proportion
to the respective sums which would be payable on such shares if all
dividends were declared and paid in full, shall be paid upon, or declared
and set apart for, all shares of any 12% Convertible Preferred Stock then
issued and outstanding and entitled to receive such dividend. In no event,
so long as any shares of 12% Convertible Preferred Stock shall be
outstanding, shall any dividend, whether in cash or property, be paid or
declared, or shall any distribution be made, on any junior stock, or shall
any junior stock be redeemed or purchased by the Corporation, unless all
dividends on the 12% Convertible Preferred Stock for all past dividend
periods and for the then current period shall have been paid or declared
and a sum sufficient for the payment thereof set apart. The provisions of
this paragraph shall not, however, apply to a dividend payable in any
junior stock or to the acquisition of shares of any junior stock in
exchange for shares of any other junior stock.
(c) 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 12% Convertible Preferred Stock), and no holders of shares of 12%
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 12%
Convertible Preferred Stock but before any distribution or payment shall be made
to the holders of any junior stock, the holders of 12% Convertible Preferred
Stock shall be entitled to be paid the amount of $1,000 per share, together with
all accrued and unpaid dividends to such distribution or payment date (subject
to the third sentence of Section (3) (a) hereof). If such payment shall have
been made in full to the holders of 12% 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 12% 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) Redemption.
(a) 12% Convertible Preferred Stock may be redeemed, in whole or
in part, at the option of the Corporation on not less than 30 days notice,
by resolution of its Board of Directors, at the redemption price of $1,000
per share, in cash, together with payment of accrued and unpaid dividends
to the redemption date (subject to the third sentence of Section 3(a)
hereof), if the Fair Market Value (as hereinafter defined) of the
Corporation's Common Stock (as adjusted as a result of events referred to
in Section (6) (c) ) exceeds $5.00 per share for twenty consecutive
trading days during a period ending within twenty trading days prior to
the date redemption is declared. The holders of the 12% Convertible
Preferred Stock will have the opportunity to convert shares of 12%
Convertible Preferred Stock into shares of Common Stock during such 30-day
notice period pursuant to Section (6) hereof.
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<PAGE>
(b) If less than all the outstanding shares of 12% Convertible
Preferred Stock are to be redeemed pursuant to this Section (5), the
shares to be redeemed shall be determined by lot or pro rata in such
manner as the Board of Directors may prescribe; provided, however, that if
all the shares of 12% Convertible Preferred Stock are held of record by
not more than ten persons, the shares of 12% Convertible Preferred Stock
to be redeemed shall be pro rata.
(c) Notice of every redemption of shares of 12% Convertible
Preferred Stock shall be mailed by first class mail, postage prepaid,
addressed to the holders of record of the shares to be redeemed at their
respective last addresses as they shall appear on the stock books of the
Corporation. Such mailing shall be made at least 30 days and not more than
60 days prior to the date fixed for redemption. Any notice which is mailed
in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the shareholder receives such notice, and
failure duly to give such notice by mail, or any defect in such notice, to
any holder of shares of 12% Convertible Preferred Stock designated for
redemption shall not affect the validity of the proceedings for the
redemption of any other shares of 12% Convertible Preferred Stock.
(d) If notice of redemption shall have been duly mailed, and if,
on or before the redemption date specified in the notice, the redemption
price, together with accrued dividends to the date fixed for redemption,
shall have been set aside by the Corporation, separate and apart from its
other funds, in trust for the benefit of the holders of shares so called
for redemption, so as to be and continue to be available therefor, then,
from and after the date of redemption so designated, notwithstanding that
any certificate for shares of 12% Convertible Preferred Stock so called
for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed outstanding, the
dividends thereon shall cease to accumulate, such shares will no longer be
eligible for conversion, and all rights with respect to the shares of 12%
Convertible Preferred Stock so called for redemption shall forthwith on
the redemption date ceases and terminate, except only the right of the
holders thereof to receive the redemption price and all accrued and unpaid
dividends to the redemption date (subject to the third sentence in Section
(3) (a) hereof), but without interest.
(e) The Corporation may also, at any time prior to the
redemption date, deposit in trust, for the account of the holders of the
shares of 12% Convertible Preferred Stock to be redeemed, with a bank or
trust company in good standing, organized under the laws of the United
States of America or of the State of New York, doing business in the
Borough of Manhattan, the City of New York, having a combined capital and
surplus of at least One Hundred Million ($100,000,000) Dollars, designated
in the notice of redemption, the redemption price, together with accrued
dividends to the date fixed for redemption, and, unless the notice of
redemption herein provided for has previously been duly mailed, deliver
irrevocable written instructions directing such bank or trust company, on
behalf and at the expense of the Corporation, to cause notice of
redemption specifying the date of redemption to the duly mailed as herein
provided promptly upon receipt of such irrevocable instructions. Upon such
deposit in trust, whether after due mailing of the notice of redemption or
accompanied by irrevocable instructions as provided above, and
notwithstanding that any certificate of shares of 12% Convertible
Preferred Stock so called for redemption shall not have been surrendered
for cancellation, all shares of 12% Convertible Preferred Stock with
respect to such shares of 12% Convertible Preferred Stock shall forthwith
cease and terminate except only the right of the holders thereof to
receive from such bank or trust company for the time herein provided, the
redemption price, including accrued dividends to the redemption date, but
without interest, of the shares so to be redeemed. Any money deposited by
the Corporation pursuant to this Section (5) (e) an unclaimed at the end
of two years from the date fixed for redemption shall be repaid to the
Corporation upon its request expressed in a resolution of its Board of
Directors, after which repayment the holders of the shares so called for
redemption shall look only to the Corporation for the payment thereof, but
without interest thereon.
(f) The Corporation shall not establish, and the holders of 12%
Convertible Preferred Stock shall not be entitled to the benefits of, any
sinking or retirement fund with respect to the shares of 12% Convertible
Preferred Stock.
-3-
<PAGE>
(6) Conversion.
(a) Any holder of a share of 12% Convertible Preferred Stock may
convert each such share, at any time and from time to time, into shares of
Common Stock, except that shares of 12% Convertible Preferred Stock called
for redemption may not be converted after the redemption date. The number
of shares of Common Stock into which each share of 12% Convertible
Preferred Stock may be converted shall be obtained by dividing $1,000 by
the Conversion Price (as hereinafter defined). The Conversion Price 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 12% 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 12%
Convertible Preferred Stock is convertible shall be referred to as the
"Converted Securities."
(b) In order to convert shares of 12% Convertible Preferred
Stock into Converted Securities, the holder thereof shall surrender the
certificate or certificates for 12% 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 of other
taxes. The Corporation will, as soon as practicable thereafter, deliver at
said office to such holder of shares of the 12% 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 12% 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, as the record holder or
holders of such Common Stock on such date.
(c) The conversion price of the 12% Convertible Preferred Stock
and, accordingly, the number of shares of Common Stock into which the
shares of 12% Convertible Preferred Stock may be converted, shall be
subject to adjustment from time to time as follows:
(i) 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 12% 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 12% Convertible Preferred Stock been converted
immediately prior to the happening of such event.
(ii) 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 dividend 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 12% 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.
(iii) An adjustment made pursuant to this Section (6) (c)
shall become effective immediately after the record date in the case of a
-4-
<PAGE>
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 12% Convertible
Preferred Stock at the time outstanding shall thereafter be entitled to
convert their shares of 12% 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 12% 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 12% Convertible Preferred Stock would be convertible
immediately prior to such reclassification, consolidation, merger or
conveyance and the right which the holders of the 12% Convertible
Preferred Stock have to receive additional shares of Common Stock on
conversion of their shares of 12% 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 12% Convertible Preferred Stock shall
thereafter become exchangeable.
(e) In the case the Corporation shall, at any time prior to the
conversion of all of the 12% Convertible Preferred Stock, offer to the
holders of its Common Stock any rights to subscribe for additional shares
of 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 12% 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 12% Convertible Preferred
Stock to participate in such offer of subscription shall terminate if the
12% Convertible Preferred Stock shall not be converted on or before the
date of such closing of the books or such record date.
(f) Whenever the number of shares of Common Stock deliverable
upon the conversion of each share of 12% 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 12% 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 12% 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 12% 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.
(g) 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 12% 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 12% Convertible Preferred Stock
-5-
<PAGE>
thereafter surrendered for conversion shall become entitled to receive any
shares of the Corporations 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 12% 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).
(h) 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 12%
Convertible Preferred Stock at the time outstanding.
(i) In lieu of fractions of shares of Common Stock issuable upon
conversion of the 12% Convertible Preferred Stock, the Corporation shall
pay to the holder in cash the Fair Market Value of any such fraction of a
share of Common Stock on the date of conversion.
(7) Voting and Other Rights. Except as required by statute and as set
forth in the following sentence, the holders of the 12% Convertible Preferred
Stock shall have no voting power on any matters of the Corporation. If the
Corporation shall not pay every dividend pursuant to Section 3(a) for four
consecutive dividend payment periods, and until such time as all unpaid and
accumulated dividends are paid in full, each issued and outstanding share of 12%
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. During such period as the right to vote set forth in the preceding
sentence is in effect, the holders of 12% Convertible Preferred Stock shall be
entitled to prior notice of all stockholders' meetings 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, the holders of a majority in interest of 12%
Convertible Preferred Stock shall be entitled to vote as a separate class, the
holders of a majority in interest of 12% Convertible Preferred Stock entitled to
vote in such election shall bind the entire class of 12% Convertible Preferred
Stock. The shares of 12% Convertible Preferred Stock shall not have any
relative, participating, optional or any other special rights or powers other
than as set forth herein.
(8) Preemptive Rights. The holders of shares of 12% 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.
(9) Junior and Parity Stock. As used herein with respect to 12%
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 12% Convertible Preferred Stock)
and any other class of stock of the Corporation hereafter authorized
ranking on a parity with the 12% Convertible Preferred Stock in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
(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, 12% 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.
(10) Senior Stock. The Corporation may not, without the consent of
the holders of a majority of the 12% Convertible Preferred Stock, create any new
class or series of preferred stock with rights senior to the 12% Convertible
Preferred Stock.
(11) Fair Market Value. As used herein with respect to 12%
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, the closing
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<PAGE>
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 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 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.
(12) Conversion Price. As used herein with respect to 12% Convertible
Preferred Stock, "Conversion Price" shall mean 70% of the closing bid price for
the Common Stock, as reported on the National Association of Securities Dealers
Automated Quotation System, on the date of sale of the 12% Convertible Preferred
Stock,. The Conversion Price shall be adjusted as set forth in Section (6).
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 20th day
of May 1992.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
------------------------------
Michael Schenkler, President
By: /s/ Martin J. McLaughlin
------------------------------
Martin J. McLaughlin,
Secretary
- - ---------------------
STATE OF NEW YORK )
: ss. :
COUNTY OF NEW YORK )
On May 20, 1992, before me personally came MICHAEL SCHENKLER and
MARTIN J. MCLAUGHLIN, to me known, who, being by me duly sworn, did depose and
say that they are respectively the President and Secretary of NEWS
COMMUNICATIONS, INC., the corporation described in and which executed the
foregoing instrument; and that they signed their names thereto by order of the
board of directors of said corporation.
/s/ Noah Scooler
----------------
Notary Public
-7-
<PAGE>
EXHIBIT 10.6
AMENDMENT OF LEASE
This Amendment of Lease, made this 31st day of October, 1998, by and
between DAN'S PAPERS, INC. (Lessee), a New York Corporation with a principal
place of business at Box 630, Bridgehampton, New York 11932, formerly DP
ACQUISITION CORP. and DANIEL RATTINER, a resident of the State of New York with
a principal residence of East Hampton, New York (Lessor).
W I T N E S S E T H
WHEREAS, lessor and lessee have entered into a certain lease, dated the
31st day of October, 1988 for the property situated at Main Street,
Bridgehampton, New York (hereinafter referred to as the "premises") and
WHEREAS, lessor and lessee desire to amend the lease as hereinafter
provided, extend the term thereof for an additional ten (10) years and provide
for alterations and additions to be made by the landlord, a portion of the cost
of which will be paid by the lessee.
NOW THEREFORE, in consideration of these premises, mutual covenants and
agreements and other good and valuable consideration, receipt of which is hereby
acknowledged the parties agree as follows:
1. The lease is extended for an additional ten (10) year term
beginning November 1, 1998 and terminating on October 31, 2008.
2. Rent shall continue as set forth in paragraph 3 of the Lease with
the base year remaining the same and the base rent of $38,200.00 also remaining
same.
3. Lessor agrees to construct an addition to the property,
approximately 911 square feet pursuant to plans, drawing and descriptions
previously agreed upon by the parties. It is understood that all costs of this
construction shall be borne by the lessor.
4. It is understood that landlord, in order to finance the
construction as set forth in paragraph 3 above, intends to refinance the
property and obtain a conventional mortgage, 15 amortization period, self
liquidating, at the prevailing interest rate. This mortgage will be sufficient
to satisfy the existing mortgage balance ($70,000.00) and all construction
costs, presently estimated at $130,000.00. Tenant, as additional rent, will pay
to landlord the proportionate shares of the monthly mortgage payments on the new
mortgage obtained relating to the construction costs. The formula for
determining this sum shall be as follows: Assuming a total loan of $200,000.00
with a payoff for the existing loan of $70,000.00 and $130,000.00 construction
costs, tenant will pay the sum determined by dividing $130,000.00 by $200,000.00
(65%). Based on this formula, tenant will pay 65% of the monthly mortgage costs
for the term of this lease and for any additional option period.
5. Provided that Tenant is not in default under any of the terms or
covenants of this lease, Tenant is hereby given the option to renew this lease
for an additional five (5) year term commencing November 1, 2008, upon the same
terms and conditions as set forth herein, including payment of the percentage of
mortgage payments as referred to in paragraph 4 above.
6. Written notice of Tenants election to exercise this option must be
received by Landlord no less than one (1) year, (12 months) prior to the
termination of this lease. Failure of Landlord to receive such notice prior to
this date, shall be a waiver of this option.
7. This amendment shall be binding upon and inure to the benefit of
the parties hereto, each respective heirs, legal representatives, successors and
permitted assigns.
<PAGE>
8. Except as herein expressly modified, all terms covenants and
conditions of the Lease are hereby ratified and certified in all respects and
shall remain in force and effect.
/s/ Daniel Rattiner
- - -----------------------
DANIEL RATTINER, Lessor
/s/ Michael Schenkler
- - -----------------------
MICHAEL SCHENKLER for
DAN'S PAPERS, INC., Lessee
/s/ Wilbur L. Ross
- - -----------------------
WILBUR L. ROSS FOR NEWS
COMMUNICATIONS, INC.
2
<PAGE>
EXHIBIT 10.17
October 19, 1998
D.H. BLAIR INVESTMENT BANKING CORP.
44 Wall Street, 2nd Floor
New York, New York 10005
Ladies and Gentlemen:
Reference is made to that certain Loan Agreement, dated May 21, 1996 (the
"Loan Agreement"), by and among DH Blair Investment Banking Corp. (the "Lender")
News Communications, Inc. ("NCI"), Tribro Incorporated and Access Network Corp.
(collectively, the "Borrowers"). Unless otherwise defined herein capitalized
terms shall have the meanings ascribed to them in the Loan Agreement.
Lender hereby expressly waives any default by the Borrowers that may have
occurred by reason of Borrowers failure to pay the Note on the Maturity Date of
the Note evidencing the Loan (referred to in Section 2(b) of the Loan Agreement)
until the date hereof. The Borrowers hereby request that the Lender agree to
extend the Maturity Date of the Note evidencing the Loan by thirteen months to
June 21, 1999.
By setting forth your signature below, the Lender and each of the
Borrowers hereby agree that the Loan Agreement and the Note are amended as
described in the second paragraph of this letter, and, except as set forth
herein, all terms and provisions of the Loan Agreement and the Note shall remain
in full force and effect, provided, however, that this agreement and the
extension of the Maturity Date as set forth herein shall be immediately null and
void, and the Maturity Date of the Note shall continue to be May 21, 1998 in the
event the Common Stock of NCI ceases to be listed on the NASDAQ market.
This letter shall be governed by the laws of the State of New York.
Very truly yours,
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
Accepted and agreed to
D.H. BLAIR INVESTMENT BANKING CORP.
BY: /s/ Mark A. Bell
-----------------
Mark A. Bell
Vice Chairman
<PAGE>
EXHIBIT 10.23
October 6, 1998
ROTHSCHILD RECOVERY FUND L.P.
1251 Avenue of the Americas
New York, New York 10020
Ladies and Gentlemen:
Reference is made to that certain Loan Agreement, dated November 5, 1997
(the "Loan Agreement"), by and among Rothschild Recovery Fund L.P. (together
with its successors and assigns, the "Lender"), Dan's Papers, Inc. (the
"Borrower") and New Communications, Inc. the parent of the Borrower ("NCI").
Unless otherwise defined herein capitalized tennis shall have the meanings
ascribed to them in the Loan Agreement.
The Borrower hereby requests that the Lender agree to extend the Maturity
Date of the Note evidencing the Loan (referred to in Section 2(b) of the Loan
Agreement) from December 31, 1998 to January 31, 2000.
By setting forth your signature below, the Lender, the Borrower and NCI
(as guarantor of the Loan) hereby agree that the Loan Agreement and the Note are
amended as described in the second paragraph of this letter, and except as set
forth therein, all terms and provisions of the Loan Agreement and the Note shall
remain in full force and effect.
This letter shall be governed by the laws of the State of New York.
Very truly yours,
DAN'S PAPERS, INC.
BY: /s/ Michael Schenkler
----------------------
Michael Schenkler
President
NEWS COMMUNICATIONS, INC.
BY: /s/ Michael Schenkler
-----------------------
Michael Schenkler
President
Accepted and agreed to:
ROTHSCHILD RECOVERY FUND L.P.
BY: /s/ Wilbur L. Ross
-------------------
Wilbur L. Ross
Chairman
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on
Form SB-2 (Registration No. 333-xxxxx) of our report dated May
15, 1998, on our audits of the consolidated financial statements
of News Communications, Inc. and Subsidiaries. We also consent
to the reference of our firm under the caption "Experts."
PricewaterhouseCoopers LLP
New York, New York
November 16, 1998
