UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - February 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________________ to ______________________
Commission File Number 0-18299
NEWS COMMUNICATIONS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-3346991
- -------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expwy., Fresh Meadows, New York 11365
-----------------------------------------------------------
(Address of principal executive offices)
(718) 357-3380
---------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
if changed since last report)
Indicate by check mark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of May 13, 1998. 8,207,374 shares $.01 par value common stock.
<PAGE>
FORM 10-QSB
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information............................................3
Item 1. Financial Statements.............................................3
Unaudited Consolidated Balance Sheet
February 28, 1998................................................3
Unaudited Consolidated Statements of
Operations for the three months ended
February 28, 1998 and February 28, 1997..........................4
Unaudited Consolidated Statements of Cash
Flows for the three months ended
February 28, 1998 and February 28, 1997..........................5
Notes to Consolidated Financial Statements.......................8
Item 2. Management's Discussion and Analysis
or Plan of Operation.............................................9
PART II. Other Information...............................................10
Item 1. Legal Proceedings...............................................10
Item 2. Changes in Securities and Use of Proceeds.......................10
Item 6. Exhibits and Reports on Form 8-K................................10
Signatures.................................................................11
2
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PART I -- ITEM 1
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1998
(UNAUDITED)
Assets:
Current Assets:
Cash $ 69,026
Accounts receivable [less: allowance for
doubtful accounts of $930,217] 3,124,587
Due from related parties 37,043
Other 185,381
---------
Total Current Asses 3,416,037
Investment in unconsolidated subsidiaries 72,242
Property and equipment at cost- net 395,602
Goodwill - net 3,411,286
Other - net 241,747
----------
Total Assets $ 7,536,914
===========
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1998
(UNAUDITED)
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 1,104,562
Accrued expenses 1,219,079
Accrued payroll and payroll taxes 92,516
Note payable 800,000
Unearned revenue 137,652
Due to related parties 1,136,021
---------
Total current liabilities 4,489,830
Related party - long term debt 1,415,338
---------
Minority interest 281,474
---------
Stockholders' Equity:
Preferred Stock, $1.00 par value; 500,000 shares authorized:
$2,527,000 aggregate liquidation value 200,340
Common Stock, $.01 par value; authorized 100,000,000
shares; 8,358,374 shares issued 83,583
Paid-in-capital preferred stock 2,077,025
Paid-in-capital common stock 14,430,444
(Deficit) (15,032,391)
------------
Total $1,759,001
Less: treasury stock [151,000 shares]- at cost 408,729
----------
Total Stockholders' Equity 1,350,272
----------
Total Liabilities and Stockholders' Equity $7,536,914
==========
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended February 28,
1998 1997
---- ----
Unaudited
---------
<S> <C> <C>
Net Revenues $3,418,997 $3,303,874
---------- ----------
Expenses:
Direct mechanical costs 1,154,141 1,183,767
Salaries, benefits and
outside labor costs 2,255,956 2,028,969
Rent, occupancy and utilities 210,320 202,398
Provisions for doubtful accounts 79,500 86,000
General and administrative 612,947 527,549
-------- ------------
Total Expenses 4,312,864 4,028,683
--------- -----------
Operating income (loss) before interest
expense (893,867) (724,809)
Interest expense 80,367 52,554
---------- -----------
Net (loss) on continuing operations $(974,234) $ (777,363)
---------- ------------
Loss from discontinued operations ---- (148,314)
---------- ---------
Net (loss) $(974,234) $(925,677)
========== ==========
Net (loss) per share $(.12) $(.12)
====== =======
Weighted average number of common
shares outstanding 8,134,300 7,907,015
============ ==========
</TABLE>
5
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended February 28,
1998 1997
---- ----
Unaudited
<S> <C> <C>
Operating Activities:
Net (loss) $(974,234) $ (925,677)
--------- ------------
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 106,628 122,538
Provision for losses on accounts
receivable 79,500 94,500
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable 275,182 (52,411)
(Increase) in other current
assets (8,643) (16,085)
(Increase) in due from related parties (9,430) (5,826)
Increase in due to related parties --- 4,000
Decrease in other assets (36,074) 10,664
(Increase) in investment in unconsolidated
subsidiaries (118,996) ---
Increase in accounts payable
and accrued expenses 476,548 8,039
(Decrease) in payroll taxes payable --- (122,320)
------------ ---------
Total Adjustments 764,715 43,099
--------- --------
Net Cash Used By Operating Activities - Forward (209,519) (882,578)
</TABLE>
6
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NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended February 28,
1998 1997
---- ----
Unaudited
---------
<S> <C> <C>
Net Cash Used By Operating Activities - Forward (209,519) (882,578)
========= =========
Investing Activities:
Capital expenditures (37,795) (25,865)
---------- ------------
Net Cash Provided (Used) by Investing Activities (37,795) (25,865)
---------- ------------
Financing Activities:
Principal payments note payable (100,000) (275,000)
Dividend on preferred stock (8,280) (9,466)
---------- ---------
Net Cash (Used) Provided by Financing Activities (108,280) (284,466)
---------- ------------
Net Increase (Decrease) in Cash (355,594) (1,192,909)
Cash - Beginning of Period 424,620 1,494,887
--------- ------------
Cash - End of Period $ 69,026 $ 301,978
========= ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 42,784 $ 51,483
</TABLE>
7
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation:
The Consolidated Balance Sheet as of February 28, 1998 and the Consolidated
Statements of Operations for the three-month periods ended February 28, 1998 and
February 28, 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 flows have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been consolidated or omitted. These consolidated financial statements
should be read in conjunction with the Company's annual report on Form 10-KSB
for the fiscal year ended November 30, 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"
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PART I -- ITEM 2
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
News Communications, Inc. publishes various weekly community newspapers and
related targeted audience publications.
The Company's net loss for the first quarter did not change materially from
926,000 in 1997 to $974,000 in 1998. Operating loss before interest expense and
loss on discontinued operations increased $169,000 (23%) from ($725,000) in 1997
to ($894,000) in 1998. The increase was due primarily to an increase of 140,000
in the loss at Nassau Newspapers as new management was installed to turn around
the operations, and the recording of the Company's 50% share ($50,000) of the
loss in the New York Blade start-up offset by a decrease of $40,000 in the loss
at The Hill as its revenues continue to increase each quarter. The increase in
interest expense of $28,000 (54%) from $52,000 in 1997 to $80,000 in 1998 was a
result of a loan from an affiliate of a principal shareholder and officer of the
Company being outstanding in 1998.
Total revenues for the Company were $3,419,000 for the first quarter of
1998, an increase of over $115,000 (3%) from $3,304,000 in 1997. This was
primarily attributable to increases at The Hill ($153,000, 51%) as a result of
marketplace recognition of high quality editorial content combined with a
circulation audit and a change in sales management and staff, Queens Tribune
($62,000, 10%) as a result of redirection of sales efforts, and at Brooklyn
Skyline where its growing acceptance as a newspaper and advertising force in the
community have helped increase revenues ($41,000, 13%), offset by a decrease at
Westside ($50,000, 19%) due to restructuring of sales management and staff, and
a decrease at Manhattan Spirit ($52,000, 14%) from a decrease in lower margin
outside printing jobs.
Salaries and outside labor costs increased $227,000 (11%) as a result of
the additional personnel at the South Shore Record, and from the upgrading of
the sales force at the publications.
Liquidity and Capital Resources:
At February 28, 1998, the Company had an excess of current liabilities over
current assets in the amount of approximately $1,074,000. 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 order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), the Company intends to offer its existing shareholders the right to
purchase additional shares of its Common Stock. The gross proceeds of the
offering would be approximately $3,500,000. To assure the Company that the
offering will raise the required funds, an officer and shareholder and a holder
of preferred stock of the Company have committed to purchase all shares of
Common Stock not purchased by other shareholders. The Company is in the process
of negotiating an extension of the shareholder loan which is due May 21, 1998 in
order that it be repaid from the capital raised.
Management believes that the Company's stock offering and the operations
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 its cash
needs.
9
<PAGE>
Part II.
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
An action entitled Jean Jee v. News Communications, Inc. was instituted in
Supreme Court, New York County in January 1991. The complainant alleged libel
against the Company in connection with an article printed in the Manhattan
Spirit and claimed $2,000,000 in compensatory damages and unspecified punitive
damages. The Company filed an answer denying the material allegations of the
complaint and the case was dormant for a number of years. In May 1998, the
plaintiff voluntarily discontinued the action with prejudice.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 1998 the Company issued 20,000 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 5 shares of Common Stock, subject to
adjustment in certain circumstances.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number Description
---------- ------------
4.2.6 Certificate of Designation of $10
Convertible Preferred Stock Series 2
10.41 Subscription Agreement dated as of
April 17, 1998 between the Company and
Bushad Investment Group, L.P.
27 Financial Data Schedule
(b) Reports on Form 8-K - None
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
(Registrant)
Date: May 21, 1998 By:/s/ Michael Schenkler
---------------------
Michael Schenkler, President
Date: May 21, 1998 By:/s/ Robert Berkowitz
--------------------
Robert Berkowitz, Controller
(Principal Financial and
Accounting Officer)
11
<PAGE>
<PAGE>
EXHIBIT 1
CERTIFICATE OF DESIGNATION
OF
$10.00 CONVERTIBLE PREFERRED STOCK SERIES 2
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
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of the Corporation on April 17, 1998, fixed the designations, preferences and
relative, participating, optional, conversion or other special rights, or
qualifications, limitations or restrictions of up to 20,000 shares of preferred
stock of the Corporation, $1.00 par value, as follows:
(1) DESIGNATION. A series of preferred stock shall be
designated and known as the $10.00 Convertible Preferred Stock Series 2
(hereinafter called "$10.00 Convertible Preferred Stock Series 2"). Each share
of $10.00 Convertible Preferred Stock Series 2 shall be identical in all
respects with the other shares of $10.00 Convertible Preferred Stock Series 2.
(2) NUMBER OF SHARES. The number of shares of $10.00
Convertible Preferred Stock Series 2 shall be 20,000 shares. Shares of $10.00
Convertible Preferred Stock Series 2 purchased by the Corporation shall be
canceled and shall revert to authorized but unissued shares of preferred stock
undesignated as to series. The shares of $10.00 Convertible Preferred Stock
Series 2 shall not be callable by the Corporation.
(3) DIVIDENDS.
(a) Dividends shall be payable on each share
of $10.00 Convertible Preferred Stock Series 2 at a rate equal to the product of
one and one-half times the amount of dividends, if any, per share (whether
payable in cash, securities of the Company or any subsidiary or affiliate of the
Company, or other property) declared and paid by the Corporation on its Common
Stock multiplied by the number of shares of Common Stock for which a share of
$10.00 Convertible Preferred Stock Series 2 may then be converted, as and when
dividends may be declared and paid upon the Common Stock,
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payable, in the case of cash dividends, out of funds legally
available for the declaration of dividends.
(b) Subject to the foregoing and to any further
limitations prescribed in accordance with the provisions of the Certificate of
Incorporation of the Corporation, the Board of Directors may declare, out of any
funds legally available therefor, dividends upon the then outstanding shares of
any junior stock, and/or any parity stock (other than $10.00 Convertible
Preferred Stock Series 2), and no holders of shares of $10.00 Convertible
Preferred Stock Series 2 shall be entitled to share therein.
(4) LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, after payment to holders of any series of preferred stock or
other class of securities entitled to a preference over holders of $10.00
Convertible Preferred Stock Series 2 but before any distribution or payment
shall be made to the holders of any junior stock, the holders of $10.00
Convertible Preferred Stock Series 2 shall be entitled to be paid the amount of
$10.00 per share, together with all accrued and unpaid dividends to such
distribution or payment date. If such payment shall have been made in full to
the holders of $10.00 Convertible Preferred Stock Series 2, then the remaining
assets and funds of the Corporation shall be distributed among the holders of
the other classes and series of capital stock of the Corporation, according to
their respective rights and preferences and in each case according to their
respective shares. If, upon any liquidation, dissolution or winding up of the
affairs of the Corporation, the amounts so payable are not paid in full to the
holders of all outstanding shares of $10.00 Convertible Preferred Stock Series
2, then the holders of $10.00 Convertible Preferred Stock Series 2 and the
holders
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of all other parity stock shall share ratably in any distribution of assets in
proportion to the full amounts to which they would otherwise be respectively
entitled according to their respective rights and preferences. The merger or
consolidation of the Corporation with or into one or more other entities or the
sale, lease or conveyance of all or a part of its assets shall not be deemed to
be a liquidation, dissolution or winding up of the affairs of the Corporation
within the meaning of the foregoing provisions of this Section (4).
(5) VOTING AND OTHER RIGHTS.
(a) Except as hereinafter specifically
provided, each issued and outstanding share of $10.00 Convertible Preferred
Stock Series 2 shall be entitled, with respect to all matters presented for a
vote to holders of Common Stock, to such number of votes such share would have
had if it had been converted into shares of Common Stock pursuant to Section (6)
on the record date of stockholders entitled to vote on such matters, or, if no
record date is established, at the date such vote is taken. The holders of
$10.00 Convertible Preferred Stock Series 2 shall be entitled to the same prior
notice of all stockholders' meetings as is given to other stockholders and to
vote together with such holders as set forth therein upon any matter submitted
to such holders for a vote and not as a separate class. Except as specifically
provided herein, if for any reason holders of $10.00 Convertible Preferred Stock
Series 2 shall be entitled to vote as a separate class, the holders of a
majority in interest of $10.00 Convertible Preferred Stock Series 2 entitled to
vote in such election shall bind the entire class of $10.00 Convertible
Preferred Stock Series 2. The shares of $10.00 Convertible Preferred Stock
Series 2 shall not have any relative, participating, optional or any other
special rights
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or powers other than as set forth herein.
(b) The vote of all of the holders of record
of the $10.00 Convertible Preferred Stock Series 2 shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation or any certificate
amendatory thereof or supplemental thereto (including any Certificate of
Designation or any similar document relating to any series of preferred stock)
so as to affect adversely the powers, preferences or rights of the $10.00
Convertible Preferred Stock Series 2. The increase of the authorized amount of
the Preferred Stock shall not be deemed to affect adversely the powers,
preferences or rights of the $10.00 Convertible Preferred Stock Series 2.
(6) CONVERSION.
(a) Any holder of a share of $10.00 Convertible
Preferred Stock Series 2 may convert each such share, at any time and from time
to time, into shares of Common Stock. The number of shares of Common Stock into
which each share of $10.00 Convertible Preferred Stock Series 2 may be converted
shall be obtained by dividing $10.00 by the Conversion Price, which shall be
equal to the lower of (i) $1.375 or (ii) the price per share of Common Stock at
which shares of Common Stock are sold in the earliest offering of equity
securities by the Company after the date this Certificate of Designation is
filed with the Secretary of State of Nevada in which gross proceeds of at least
$2,500,000 are raised by the Company, subject to adjustment from time to time as
hereinafter provided in Section (6)(d) or (e) below and subject to the
provisions regarding no issuance of fractional shares set forth in Section
(6)(j) below. The conversion of any shares of $10.00 Convertible Preferred Stock
Series 2
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shall not affect the holders' rights to dividends unpaid to the date of
conversion but all rights to future dividends and any interest thereon shall
terminate upon conversion. The shares of Common Stock into which the $10.00
Convertible Preferred Stock Series 2 is convertible shall be referred to as the
"Converted Securities."
(b) In order to convert shares of $10.00 Convertible
Preferred Stock Series 2 into Converted Securities pursuant to paragraph (a)
above, the holder thereof shall surrender the certificate or certificates for
$10.00 Convertible Preferred Stock Series 2, duly endorsed or in blank, to the
Corporation at its principal office (or such other place as may be reasonably
designated by the Corporation), shall give written notice to the Corporation at
said office that he elects to convert the same and shall state in writing
therein the name or names in which he wishes the certificates for Converted
Securities to be issued and shall make payment to the Corporation of any
applicable transfer or other taxes. The Corporation will, as soon as practicable
thereafter, deliver at said office to such holder of shares of the $10.00
Convertible Preferred Stock Series 2 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)(j). Shares of the $10.00 Convertible Preferred
Stock Series 2 shall be deemed to have been converted as of the date of the
surrender of such certificate or certificates for conversion as provided above,
and the person or persons entitled to receive the Converted Securities issuable
upon such conversion shall be treated for all purposes, including, but not
limited to, the right to vote the Common Stock included as part of the Converted
Securities, as the record holder or holders of such Common Stock on such date.
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(c) In case the Corporation shall, at any time prior
to the conversion of all of the $10.00 Convertible Preferred Stock Series 2,
offer to the holders of its Common Stock rights to subscribe to purchase
additional shares of Common Stock having an aggregate purchase price of at least
$3,000,000, then upon the consummation of the sale of Common Stock having an
aggregate purchase price of at least $3,000,000, each outstanding share of
$10.00 Convertible Preferred Stock Series 2 shall automatically convert into the
number of shares of Common Stock obtained by dividing $10.00 by the Conversion
Price. The Corporation will, as soon as practicable thereafter, deliver to each
holder of shares of $10.00 Convertible Preferred Stock Series 2 or to his
nominee, 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)(j). The person or
persons entitled to receive the Converted Securities shall be treated for all
purposes, including, but not limited to, the right to vote the Common Stock
included as part of the Converted Securities, as the record holder or holders of
such Common Stock on the date of such automatic conversion.
(d) The Conversion Price of the $10.00 Convertible
Preferred Stock Series 2 and, accordingly, the number of shares of Common Stock
into which the shares of $10.00 Convertible Preferred Stock Series 2 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
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into a smaller number of shares by recapitalization, reclassification or
combination thereof, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the holder of any shares of $10.00 Convertible
Preferred Stock Series 2 thereafter shall be entitled to receive, upon such
conversion effected after the happening of any of the events described above,
the same number of shares of Common Stock as such holder would have received had
such shares of $10.00 Convertible Preferred Stock Series 2 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 dividends under the laws of the State of Nevada), the Board of Directors
shall be required to make such equitable adjustment in the number of shares of
Common Stock into which each share of $10.00 Convertible Preferred Stock Series
2 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.
An adjustment made pursuant to this Section (6)(d) shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
recapitalization, reclassification or combination. Such adjustments shall be
made successively whenever any event described above shall occur.
(e) In the case of any reclassification of the
outstanding Common Stock (other than a change that solely
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affects the par value of such shares of Common Stock or a change covered by
Section (6)(d) hereof), or if the Corporation or any successor company shall
consolidate or merge with, or convey all or substantially all its property and
assets to, any other company, then, as a condition precedent to such
reclassification, consolidation, merger or conveyance (other than a
consolidation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), adequate provision shall be made whereby
the holders of shares of $10.00 Convertible Preferred Stock Series 2 at the time
outstanding shall thereafter be entitled to convert their shares of $10.00
Convertible Preferred Stock Series 2 (or any other securities, other than Common
Stock, that may be issued on such reclassification, consolidation, merger or
conveyance with respect to or in exchange for the $10.00 Convertible Preferred
Stock Series 2) into such shares of stock, securities or assets as may be
issuable or payable with respect to, or in exchange for, the number of shares of
Common Stock or the other shares of stock, securities or assets, as the case may
be, into which their shares of the $10.00 Convertible Preferred Stock Series 2
would be convertible immediately prior to such reclassification, consolidation,
merger or conveyance; and the right that the holders of $10.00 Convertible
Preferred Stock Series 2 have to receive additional shares of Common Stock on
conversion of their shares of $10.00 Convertible Preferred Stock Series 2 on
account of any adjustment made pursuant to Section (6)(d) shall continue and be
preserved in respect of any stock or other securities of the successor company
into which shares of the $10.00 Convertible Preferred Stock Series 2 shall
thereafter become exchangeable.
(f) In case the Corporation shall, at any time prior
to the conversion of all of the $10.00 Convertible
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Preferred Stock Series 2, offer to the holders of its Common Stock any rights to
subscribe for additional shares of Common Stock or shares of any other class of
the Corporation, then the Corporation shall give written notice thereof to the
registered holders of the $10.00 Convertible Preferred Stock Series 2 not less
than 20 days prior to the date on which the books of the Corporation are closed
or a record date is fixed for the determination of the stockholders entitled to
such subscription rights. Such notice shall specify the date as to which the
books shall be closed or record date fixed with respect to such offer of
subscription and the right of the holder of $10.00 Convertible Preferred Stock
Series 2 to participate in such offer of subscription shall terminate if the
$10.00 Convertible Preferred Stock Series 2 shall not be converted on or before
the date of such closing of the books or such record date.
(g) Whenever the number of shares of Common Stock
deliverable upon the conversion of each share of $10.00 Convertible Preferred
Stock Series 2 shall be adjusted pursuant to the provision of Section (6)(d) or
(e), the Corporation shall promptly (A) file with the transfer agent, if any,
for the shares of $10.00 Convertible Preferred Stock Series 2 a certificate,
signed by the Chairman of the Board or the President or a Vice President of the
Corporation, and (B) mail, or cause the transfer agent to mail, to all holders
of shares of $10.00 Convertible Preferred Stock Series 2, at their last address
as they shall appear upon the stock records of the Corporation, a notice setting
forth, in each case, the increased or decreased number of shares of Common Stock
thereafter deliverable upon the exchange of each share of $10.00 Convertible
Preferred Stock Series 2. 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
10
<PAGE>
based.
(h) The term "Common Stock" shall mean (A) the class
of stock designated as the "Common Stock" of the Corporation at the date of
initial issuance of shares of the $10.00 Convertible Preferred Stock Series 2 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 that 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)(d) or (e) above, the holder of any share
of the $10.00 Convertible Preferred Stock Series 2 thereafter surrendered for
conversion or converted automatically in accordance with Section (6)(c) shall
become entitled to receive any shares of the Corporation other than shares of
the Corporation's Common Stock as in effect on the date hereof, then the shares
so receivable upon conversion of any share of the $10.00 Convertible Preferred
Stock Series 2 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)(d) or (e).
(i) At all times, a sufficient number of the
authorized but unissued shares and/or treasury shares of Common Stock shall be
reserved by the Corporation for the purpose of conversion of all shares of the
$10.00 Convertible Preferred Stock Series 2 at the time outstanding.
11
<PAGE>
(j) In lieu of fractions of shares of Common Stock
issuable upon conversion of the $10.00 Convertible Preferred Stock Series 2, the
Corporation shall pay to the holder in cash the Fair Market Value (as
hereinafter defined) of any such fraction of a share of Common Stock on the date
of conversion.
(7) PREEMPTIVE RIGHTS. The holders of shares of $10.00
Convertible Preferred Stock Series 2 shall, as such, have no preemptive right to
purchase or otherwise acquire shares of any class of stock or other securities
of the Corporation now or hereafter authorized.
(8) JUNIOR AND PARITY STOCK. As used herein with respect to
$10.00 Convertible Preferred Stock Series 2, the following terms shall have the
following meanings:
(a) The term "parity stock" shall mean all series of
preferred stock (including, but not limited, to the $10.00 Convertible
Preferred Stock Series 2) and any other class of stock of the
Corporation hereafter authorized ranking on a parity with the $10.00
Convertible Preferred Stock Series 2 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, $10.00 Convertible
Preferred Stock Series 2, has preference or priority in the payment of
dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
(9) SENIOR STOCK. The Corporation may not, without the consent
of the holders of a majority of the $10.00 Convertible Preferred Stock Series 2,
create any new class or series of preferred stock with rights senior to the
$10.00
12
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Convertible Preferred Stock Series 2.
(10) Fair Market Value. As used herein with respect to $10.00
Convertible Preferred Stock Series 2, "Fair Market Value" shall mean:
(a) If the principal market for the Common Stock is a
national securities exchange or the Nasdaq National Market
System or the Nasdaq SmallCap Market, the closing sales price
of the Common Stock on such day as reported by such exchange
or market system, or on a consolidated tape reflecting
transactions on such exchange or market system; or
(b) If the principal market for the Common Stock is
not a national securities exchange or the Nasdaq National
Market System or the Nasdaq SmallCap Market and the Common
Stock is quoted on the National Association of Securities
Dealers Automated Quotation System, the average of the closing
bid and closing asked prices of the Common Stock on the date
in question, as quoted on such System; or
(c) If the principal market for the Common Stock is
not a national securities exchange or the Nasdaq National
Market System or the Nasdaq SmallCap Market and the Common
Stock is not quoted on the National Association of Securities
Dealers Automated Quotation System, the mean between the
highest bid and lowest asked prices for the Common Stock on
the date in question, as reported by the National Quotation
Bureau, Inc. ("NQB") or at least two market makers in the
Common Stock if quotations are not available from NQB but are
available from market makers; or
(d) If the principal market for the Common Stock is
not (a), (b) or (c), "Fair Market Value" shall be determined
by the Corporation's Board of Directors, whose decision shall
be final and binding.
(11) REGISTRATION RIGHTS.
(a) REGISTRATION IN RIGHTS OFFERING.
13
<PAGE>
(i) GRANT OF RIGHT. The shares of Common
Stock issuable upon conversion of the $10.00 Convertible Preferred Stock Series
2 (the "Registrable Securities") shall be registered for resale in the
registration statement under the Securities Act of 1933, as amended (the "Act"),
filed in connection with an offering by the Corporation to the holders of its
Common Stock to subscribe to purchase additional shares of Common Stock having
an aggregate purchase price of at least $3,000,000.
(ii) TERMS. The Corporation shall bear all
fees and expenses attendant to registering the Registrable Securities pursuant
to this Section 11(a), but the holders of the $10.00 Convertible Preferred Stock
Series 2 ("Holders") shall pay any and all underwriting commissions and
non-accountable expenses of any underwriter selected by the Holders to sell the
Registrable Securities and who acts for the Holders, together with the expenses
of any legal counsel selected by the Holders to represent them in connection
with the sale of the Registrable Securities. The Corporation agrees to use its
prompt best efforts to qualify or register the Registrable Securities in such
States as are reasonably requested by the Holders; provided, however, that in no
event shall the Corporation be required to register the Registrable Securities
in a State in which such registration would cause (A) the Corporation to be
obligated to do business in such State, or (B) the principal stockholders of the
Corporation to be obligated to escrow their shares of capital stock of the
Corporation. The Corporation shall cause any registration statement filed
purusant to Section 11(a) to remain effective for a period of at least three
years from the effective date of such registration statement.
(b) "PIGGY-BACK" REGISTRATION.
14
<PAGE>
(i) GRANT OF RIGHT. The Holders of
Registrable Securities shall have the right until five years from the date this
Certificate of Designations is executed by the Corporation to include the
Registrable Securities as part of any other registration of securities filed by
the Corporation if allowable under the Act and the rules promulgated thereunder;
provided however, that if, in the written opinion of the Corporation's managing
underwriter or underwriters, if any, for such offering, the inclusion of the
Registrable Securities, when added to the securities being registered by the
Corporation or selling securityholders, will exceed the maximum amount of
securities that can be marketed (A) at a price reasonably related to their then
current market value, or (B) without materially and adversely affecting the
entire offering, then the Corporation may exclude from such offering all or any
portion of the Registrable Securities to be so registered; provided further,
however, that in the event the registration is being filed upon the demand of
holders of the Corporation's $10.00 Convertible Preferred Stock, the Registrable
Securities may be excluded from the registration only if and in the same
proportion as the shares of Common Stock issuable upon exercise of the $10.00
Convertible Preferred Stock for which registration has been requested are
excluded.
(ii) TERMS. The Corporation shall bear all
fees and expenses attendant to registering the Registrable Securities pursuant
to this Section 11(b), but the Holders shall pay any and all underwriting
commissions and non-accountable expenses of any underwriter selected by the
Holders to sell the Registrable Securities, together with the expenses of any
legal counsel selected by the Holders to represent them in connection with the
sale of the Registrable Securities. In the event of such proposed registration,
the Corporation shall furnish the then Holders of the outstanding
15
<PAGE>
Registrable Securities with not less than thirty days' written notice prior to
the proposed date of filing of such registration statement. Such notice to the
Holders shall continue to be given for each registration statement filed (during
such five-year period) by the Corporation until such time as all of the
Registrable Securities have been registered and sold, if earlier. The Holders
shall exercise the "piggy-back" rights provided for herein by giving written
notice, within twenty days of the receipt of the Corporation's notice of its
intention to file a registration statement. The Corporation shall cause any
registration statement filed pursuant to the above "piggy-back" rights to remain
effective for at least nine months from the date that the Holders of the
Registrable Securities are first given the opportunity to sell all of such
securities.
(c) GENERAL TERMS.
(i) INDEMNIFICATION.
(A) The Corporation will indemnify
each Holder whose Registrable Securities are included in any such registration
statement, with respect to which registration, qualification or compliance has
been effected or attempted pursuant to this Section 11, and each underwriter, if
any, and each person who controls any underwriter within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state
16
<PAGE>
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Corporation of the
Act or any rule or regulation thereunder applicable to the Corporation in
connection with any such registration, qualification or compliance, and will
reimburse the Holder whose Registrable Securities are included in such
registration statement, each such underwriter and each person who controls any
such underwriter within the meaning of the Act or the Exchange Act, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action
provided that the Corporation will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Corporation by the Holder whose Registrable Securities are
included in such registration statement.
(B) It shall be a condition to the
Corporation's obligations under this Section 11 that each Holder whose
Registrable Securities are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Corporation, each of its directors and officers and each underwriter, if any, of
the Corporation's securities covered by such registration statement, each person
who controls the Corporation or such underwriter within the meaning of the
Exchange Act and the Act and the rules and regulations thereunder, each other
securityholder participating in such distribution and each of their officers,
directors and partners, and each person controlling such other securityholder,
against all claims, losses, damages and liabilities (or actions in respect
thereto) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any
17
<PAGE>
such registration statement, prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Corporation and such other securityholders, directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such document in
reliance upon and in conformity with written information furnished to the
Corporation such Holder; provided, however, that the obligations of such Holder
hereunder shall be limited to an amount equal to the proceeds received by such
Holder of securities sold as contemplated herein.
(C) Each party entitled to
indemnification under this subsection 11(c)(i) (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this subsection 11(c)(i). No Indemnifying Party, in the defense of any
such claim or liti-
18
<PAGE>
gation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(D) Notwithstanding the foregoing
provisions of this subsection 11(c)(i), the parties acknowledge that it is the
position of the SEC that indemnification for violations of the securities laws
is unenforceable.
(ii) INFORMATION. Each Holder shall
furnish to the Corporation such information regarding the Holder and the
distribution proposed by such Holder as the Corporation may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 11.
(d) TERMINATION. The rights granted under this
Section 11 shall terminate upon delivery to the Purchasers of an unqualified
opinion of counsel to the Corporation in form and substance reasonably
acceptable to counsel for the Purchaser to the effect that such rights are no
longer necessary for the public sale of the shares of Common Stock issuable upon
conversion of the Shares.
19
<PAGE>
IN WITNESS WHEREOF, NEWS COMMUNICATIONS, INC. has caused this
Certificate of Designation to be duly executed by its President and attested to
by its Assistant Secretary, who affirm that the information contained in the
foregoing Certificate of Designation is true under the penalties of perjury this
23rd day of April 1998.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
-----------------------
Michael Schenkler
President
By: /s/ Robert Berkowitz
-----------------------
Robert Berkowitz,
Assistant Secretary
STATE OF )
) ss
COUNTY OF )
I HEREBY CERTIFY that on this ___ day of April, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Michael
Schenkler, known to me or satisfactorily proven to be the person whose name is
subscribed above, who acknowledged that he is the President of News
Communications, Inc., a corporation organized under the laws of the State of
Nevada, and that he has been duly authorized to execute and has executed this
instrument on its behalf.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
NOTARIAL SEAL:
-------------------------------
Notary Public
20
<PAGE>
STATE OF )
) ss
COUNTY OF )
I HEREBY CERTIFY that on this ___ day of April, 1998, before me, a
Notary Public for the state and county aforesaid, personally appeared Robert
Berkowitz, known to me or satisfactorily proven to be the person whose name is
subscribed above, who acknowledged that he is the Assistant Secretary of News
Communications, Inc., a corporation organized under the laws of the State of
Nevada, and that he has been duly authorized to execute and has executed this
instrument on its behalf.
IN WITNESS WHEREOF, I have set my hand and Notarial Seal, the day and
year first above written.
NOTARIAL SEAL:
-----------------------------
Notary Public
21
<PAGE>
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, made as of April 17, 1998, between
NEWS COMMUNICATIONS, INC., a Nevada corporation with its principal offices at
173-15 Horace Harding Expressway, Fresh Meadows, New York 11365 (the "Company",
which term shall include any corporation or entity which succeeds to or
generally assumes the obligations of the Company), and BERSHAD INVESTMENT GROUP,
L.P., 2 Stonebridge Road, Montclair, New Jersey 07042 (the "Purchaser").
1. PURCHASE OF SECURITIES.
1.1 Subject to the terms and conditions of this Agreement, the
Company hereby agrees to issue and sell to the Purchaser and the Purchaser
hereby agrees to purchase from the Company, for $200,000 (the "Purchase Price"),
20,000 shares of the Company's $10.00 Convertible Preferred Stock Series 2, par
value $1.00 per share (the "Shares"), such Shares having designations,
preferences and relative participating, conversion or other special rights or
qualifications, limitations or restrictions as are set forth in the Certificate
of Designation with respect thereto annexed hereto as EXHIBIT 1.
1.2 At the Closing (as hereinafter defined), the Purchaser
shall initiate a wire-transfer in the amount of the Purchase Price to a bank
account specified by the Company and the Company shall deliver to the Purchaser
certificates representing the Shares.
1.3 The closing of the sale of the Shares ("Closing") shall
take place at the offices of Graubard Mollen & Miller, 600 Third Avenue, New
York, New York 10016, at 10:00 A.M., on the second business day following the
date on which
<PAGE>
the Certificate of Designation with respect to the Shares has been filed in the
office of the Secretary of State of Nevada.
1.4 Promptly after the Closing, the Company shall take such
steps as are necessary to cause the shares of the Common Stock issuable upon
conversion of the Shares to be listed for trading on the Nasdaq SmallCap Market,
subject to notice of issuance.
2. REPRESENTATIONS OF THE PURCHASER. The Purchaser represents and
warrants as follows:
2.1 It recognizes that making the investment hereby involves a
high degree of risk in that (i) it may not be able to liquidate its investment;
(ii) transferability of its investment may be unavailable or extremely limited;
and (iii) it could sustain the loss of its entire investment.
2.2 It is able to bear the economic risk of this investment.
2.3 It is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act").
2.4 It has sufficient prior investment experience, including
investment in non-registered securities, to evaluate the merits and risks of
such an investment on its behalf. It recognizes the highly speculative nature of
this investment.
2.5 It has been furnished by the Company during the course of
this transaction with all information regarding the Company that it had
requested or desired to know; that all documents that could be reasonably
provided have been made available for its inspection and review including, but
not
2
<PAGE>
limited to, any and all documents filed by the Company with the United States
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended ("Exchange Act"), or otherwise; that it has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the terms and
conditions of its investment hereby, and any additional information that it has
requested. It has made such investigation of the Company, including its business
and financial condition, as it has deemed necessary for its purposes and is not
relying upon any statements or information about the Company, its business,
properties, financial condition and prospects except the representations and
warranties set forth in this Agreement.
2.6 The Shares are being purchased for its own account, for
investment and not for distribution or resale to others.
2.7 It understands that the Shares will not be registered
under the Act by reason of a claimed exemption under the provisions of the Act
that depends, in part, upon its investment intention. In this connection, it
understands that it is the position of the SEC that the statutory basis for such
exemption would not be present if its representation merely meant that its
present intention was to hold the Shares for a short period, such as the capital
gains period of tax statutes, for a deferred sale, for a market rise, or for any
other fixed period. It realizes that, in view of the foregoing, a purchase with
an intent to resell would represent a purchase with an intent inconsistent with
its representation to the Company, and the SEC might regard such a sale or
disposition as a deferred sale to which the exemption is not available.
3
<PAGE>
3. RESTRICTION ON TRANSFER.
3.1 Neither the Shares nor any shares of Common Stock of the
Company issuable upon conversion of the Shares (collectively, the "Securities")
shall be transferable, except upon the conditions specified in this Agreement,
which conditions are intended, in part, to insure compliance with the provisions
of the Act.
3.2 The Purchaser covenants and agrees that it will not sell,
assign or otherwise transfer or pledge or hypothecate any of the Securities
except pursuant to an effective registration statement under the Act or in a
transaction that is exempt from the registration provisions of the Act. The
Purchaser will cause any proposed transferee of the Securities (other than
pursuant to an effective registration statement or pursuant to Rule 144
promulgated under the Act) to agree to take and hold such Securities subject to
the provisions of this Article 3.
3.3 All certificates representing any of the Securities will
bear a legend of the following or similar words:
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended. These
securities have been acquired for investment purposes and not
with a view to distribution or resale, and may not be sold,
assigned, pledged, hypothecated or otherwise transferred
without an effective Registration Statement for such
securities under the Securities Act of 1933, as amended, and
applicable state securities laws, or an opinion of counsel
satisfactory to News Communications, Inc. to the effect that
registration is not required under such Act or such state
securities laws.
4
<PAGE>
4. REPRESENTATIONS BY THE COMPANY.
4.1 The Company represents and warrants to the Purchaser that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
has the corporate power to conduct the business that it conducts and proposes to
conduct.
(b) The execution, delivery and performance of this
Agreement by the Company has been duly approved by the Board of Directors of the
Company. The Company knows of no pending or threatened action or proceeding
seeking to prevent the Company from consummating the transactions contemplated
by this Agreement.
(c) The Shares and the shares of Common Stock
issuable upon conversion of the Shares have been duly and validly authorized,
and, when issued in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable.
(d) To the best of the knowledge of the Company, the
action entitled Jean Jee v. News Communications, Inc. and all other litigation
brought against the Company or any of its subsidiaries as a defendant is without
merit, fully insured against or will not result in an adverse judgment that
would have a material adverse effect on the Company, except that an action
entitled Tracey Robinson v. The Hill, News Communications, Inc. and Media
Venture Group, Inc. instituted in September 1996 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
5
<PAGE>
award of fees and costs in the approximate amount of $150,000, which the
defendants are vigorously opposing.
(e) No warrants, options or other securities or
contracts that could lead to the issuance of Common Shares ("Derivative
Securities") have been issued or entered into since November 30, 1996, except
that on November 5, 1997, the Company issued to Rothschild Recovery Fund L.P.
("RRF") a five-year warrant to purchase, on or after February 28, 1998, 300,000
shares of Common Stock at an initial exercise price of $2.25 per share (subject
to adjustment). The warrant was issued to RRF in connection with a Loan
Agreement entered into on November 5, 1997 between Dan's Papers Inc. ("DPI"),
the Company and RRF pursuant to which DPI borrowed $1,500,000 from RRF.
(f) No Derivative Securities have been exercised by
any holder thereof since November 30, 1996, except that an aggregate of 49,047
shares of Common Stock were issued during such period upon the conversion of an
equal number of shares of the Corporation's 8% Convertible Preferred Stock.
(g) The Company knows of no investigation pending or
threatened by the SEC or any other regulatory or self-regulatory body concerning
the Company, except that (i) the Company has been advised by the staff of the
SEC that the Division of Enforcement of the staff of the SEC is considering
recommending that the SEC institute enforcement actions, which could include
civil penalties, against the Company for violation of Section 13(a) of the
Exchange Act, and the rules thereunder arising in connection with the Company's
failure to file an annual report on Form 10-KSB for the fiscal year ended
November 30, 1997 and the late filing of the Company's annual report on Form
10-KSB for the fiscal year ended November 30,
6
<PAGE>
1996, and (ii) the Company has been advised by The Nasdaq Stock Market, Inc.
("Nasdaq") that the Company is not in compliance with the net tangible
assets/market capitalization/net income requirement applicable to companies
listed on the Nasdaq SmallCap Market, as set forth in NASD Marketplace Rule
4310(c)(2), and the requirement that listed companies file with Nasdaq copies of
all reports filed or required to be filed with the SEC, as set forth in NASD
Marketplace Rule 4310(c)(14), and that Nasdaq had determined to terminate the
listing of the Company's Common Stock on the Nasdaq SmallCap Market. The Company
has filed a written request for continued listing with Nasdaq and has been
advised by Nasdaq that the request will be considered by a Listing
Qualifications Panel during the week of April 13, 1998.
(h) To the best of the knowledge of the Company, the
Annual Report of the Company on Form 10-K for the fiscal year ended November 30,
1996 and the quarterly reports of the Company on Form 10-Q for subsequent
periods through the quarter ended September 30, 1997, were, at the time they
were filed with the SEC, true and correct in all material respects. To the best
of the knowledge of the Company, since November 30, 1996, there has been no
material adverse change to the business or operations of the Company except as
described in this Section 4.1 and except that the Company estimates that it had
net losses of approximately $2,500,000 for the fiscal year ended November 30,
1997 and net losses of approximately $600,000 for the fiscal quarter ended
February 28, 1998.
4.2 The representations and warranties of the Company in
Section 4.1 shall survive the Closing until the first anniversary of the
Closing.
5. USE OF PROCEEDS. The proceeds received by the Company from the sale
of the Shares pursuant to this Agreement
7
<PAGE>
shall be used only to pay obligations of the Company and for
general working capital.
6. TRANSFER. The Company shall not be required to (i) transfer on its
books any securities of the Company that shall have been sold or transferred in
violation of any of the provisions of this Agreement or (ii) treat as owner of
such securities or to accord the right to vote as such owner or to pay dividends
to any transferee to whom such securities have been transferred in violation of
this Agreement.
7. AMENDMENT. No amendment or alteration of the terms of this Agreement
shall be valid unless made in writing and signed by both of the parties hereto.
8. GOVERNING LAW. This Agreement shall be governed by the law of the
State of New York applicable to agreements made
and to be performed therein.
9. SEVERABILITY. The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect.
10. NOTICES. Any notices required or permitted to be given hereunder
shall be sufficient if made in writing, and if delivered by hand against written
receipt therefor, or sent by certified mail, return receipt requested, to the
addresses set forth above or such other address as either party may from time to
time designate in writing to the other, and shall be deemed given as of the date
of the delivery (if delivered by hand) or mailing (if mailed).
11. WAIVER. It is agreed that a waiver by either party of a breach of
any provision of this Agreement shall not
8
<PAGE>
operate, or be construed, as a waiver of any subsequent breach
by that same party.
12. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto contain
the entire agreement of the parties with respect to the subject matter hereof
and shall be binding upon and inure to the benefit of the parties hereto and
their respective legal representatives, heirs, distributees, permitted
successors and assigns.
13. FURTHER ASSURANCES. The parties agree to execute and deliver all
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
14. HEADINGS. The article and section headings and subheadings
appearing in this Agreement are for purposes of easy reference and shall not be
considered a part of this Agreement or in any way to modify, amend or affect its
provisions.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Michael Schenkler
---------------------------
Michael Schenkler, President
PURCHASER:
BERSHAD INVESTMENT GROUP, L.P.
By:/s/ David J. Bershad
---------------------------
David J. Bershad,
General Partner
Taxpayer I.D. No. of
Purchaser:
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of News Communications, Inc. as of February 28, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 69,026
<SECURITIES> 0
<RECEIVABLES> 4,054,804
<ALLOWANCES> 930,217
<INVENTORY> 0
<CURRENT-ASSETS> 3,416,037
<PP&E> 991,640
<DEPRECIATION> 596,038
<TOTAL-ASSETS> 7,536,914
<CURRENT-LIABILITIES> 4,489,830
<BONDS> 0
<COMMON> 83,583
200,340
0
<OTHER-SE> 1,066,349
<TOTAL-LIABILITY-AND-EQUITY> 7,536,914
<SALES> 3,418,997
<TOTAL-REVENUES> 3,418,997
<CGS> 0
<TOTAL-COSTS> 4,312,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (80,367)
<INCOME-PRETAX> (974,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (974,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (974,234)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
