U.S. SECURITIES AND EXCHANGE COMMISSION 5/19/98
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1997
OR
|_| TRANSITION REPORT UNDER 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.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 13-3346991
- --------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
174-15 Horace Harding Expressway, Fresh Meadows, New York 11365
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (718) 357-3380
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share Redeemable Class D Warrants
- ---------------------------------------- ---------------------------
(Title of Class) (Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ___ No __X_
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year were $17,538,952.
As of May 13, 1998, 8,207,374 shares of Common Stock were outstanding. The
aggregate market value of shares of Common Stock (based on the last sale price
as reported by Nasdaq) held by non-affiliates of the issuer was approximately
$6,350,000.
Transitional Small Business Disclosure Format (check one): Yes ___ No
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
News Communications, Inc., a Nevada corporation formed in 1986 (the
"Company"), 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, 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) that 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) 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, Access
Network Corp. ("Access"), publisher of the Manhattan Spirit (formerly called the
West Side Spirit), Tribco Incorporated ("Tribco"), publisher of the Queens
Tribune, the Western Queens Tribune and Bayside Trib at Home, Dan's Papers Inc.
("DPI"), publisher of Dan's Papers and the Montauk Pioneer, Manhattan Publishing
Corp., publisher of Our Town, Parkchester Publishing Co. Inc., publisher of the
Bronx Press Review and the Riverdale Review (collectively, the "Bronx
Newspapers"), Nassau Community Newspaper Group, Inc. ("NCNG"), publisher of
Lynbrook USA, the Malverne Times, the Rockville Center News & Owl, the Valley
Stream MAILeader, the Independent Voice of Long Beach, Oceanside & Island Park,
the Rockville Center-Oceanside Beacon, the Baldwin Citizen, the East Rockaway
Observer, Elmont Life, Franklin Square Life, West Hempstead Life and Long Island
Lifestyles and South Shore Publishers, Inc., publisher of the South Shore Record
(collectively, with the NCNG publications, the "Nassau Newspapers"), Capitol
Hill Publishing, Inc. ("Capitol Hill"), publisher of The Hill, Brooklyn
Newspaper Publishing, Inc., publisher of Brooklyn Skyline, and West Side
Newspaper Corp., publisher of Chelsea-Clinton News and the Westsider. All of the
subsidiaries are wholly-owned except DPI, which is 80% owned by the Company and
20% owned by Daniel Rattiner.
The Company plans to develop a regional group of publications in the
greater New York Metropolitan area. The Company intends to seek candidates
through acquisition, when possible, in order to utilize existing talent and
convert a potential competitor into an ally. However, the Company will also
consider start-up situations where it deems it to be geographically and
economically in its best interest.
In addition to the New York Metro area, the Company is also exploring
opportunities in resort communities throughout the United States and other niche
publishing areas, as well as other media ventures such as radio broadcasting and
electronic publishing on the Internet.
The Company believes that advertisers are receptive to wide circulation at
reduced cost offered by a group of publications providing a broad metropolitan
audience. Furthermore, because the marginal costs of adding editorial and
advertising content are generally significantly lower than the revenues that are
derived, management believes the Company can take advantage of economies of
scale, cross-selling and other synergies not available to individual
publications.
The Manhattan Spirit
The Manhattan Spirit is a weekly free circulation newspaper founded in
1985, which focuses on the news, lifestyle, culture, arts, entertainment,
politics and social issues of interest to the West Side and lower Manhattan.
Access editors and support staff, 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.
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The Manhattan Spirit has won many awards, including, in the past four
fiscal years, 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, but this is not a significant source of revenue. 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,
theatre and topics of community interest.
The Manhattan Spirit is published in a 4-color tabloid format. It is
distributed Friday of each week 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, a 27-year-old weekly publication distributed in a single edition
predominantly on Manhattan's Upper East Side, 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, published by DPI, 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
resort area known as the Hamptons. Its articles and columns include humor, news,
celebrity profiles, reviews of art gallery shows, restaurants, concerts,
nightclubs and movies, social satire, editorial cartoons, local environmental
and political issues, as well as a special section on real estate. Dan's Papers
is published in tabloid format with glossy cover 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.
Dan's Papers was first published in 1960 by Mr. Daniel Rattiner, and is
believed by the Company to be the first free resort newspaper in the United
States. The Company acquired its 80% interest in DPI (Mr. Rattiner is the owner
of the other 20%) in October 1988. Mr. Rattiner continues to be the publisher
and editor of Dan's Papers under an employment agreement with DPI expiring in
2007, subject to earlier termination under certain conditions.
Queens Tribune
In May 1989, Tribco acquired, by way of merger, all the outstanding stock
of two companies that, together, published and distributed the Queens Tribune,
which now consists of eight 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. It is distributed by hand,
door-to-door in Bayside, which is one of the most influential neighborhoods in
Queens County.
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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. 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, providing
approximately 12% of its revenues in the fiscal year ended November 30, 1997.
The Bronx Newspapers
On December 18, 1992, the Company acquired Parkchester Publishing Co. Inc.,
publisher of the Bronx Press Review. The Bronx Press Review is a 54-year-old
paper that 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 1940's. 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 area 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 that it serves. 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 area, and through street distribution boxes and other
bulk distribution to high traffic businesses and religious and educational
institutions.
The Nassau Newspapers
On December 9, 1993, the Company, through NCNG, acquired the assets of the
eight Nassau Newspapers from a group of sellers for an aggregate purchase price
of approximately $320,000 in cash and 162,143 shares of Common Stock, of which
shares 125,571 have been delivered and the remaining 36,572 will be delivered on
December 9, 1998. The 162,143 shares of Common Stock had an aggregate market
value of $709,375 on December 9, 1993 but, because of the deferral of their
issuance and their nature as restricted securities, were valued by the Company
at approximately $355,000 for financial accounting purposes.
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.
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 introduced Long Island Lifestyles, which serves as a
second section to each of the Nassau Newspapers and is also distributed by
itself in heavily trafficked areas. This product offers moderately-priced
advertising to the central and south Nassau marketplace.
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Brooklyn Skyline
The Brooklyn Skyline, which was acquired by the Company in August 1994, is
published weekly in five editions that are distributed door-to-door in
Brooklyn's southern tier. Originally a tabloid shopper-type publication, the
Brooklyn Skyline has been converted by the Company into a community newspaper to
complement its other publications. "Koch at the Movies," the News Communication
Telephone Poll and the Company's Citywide political page "NY Confidential," 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. The Brooklyn Skyline generates revenues from display and classified
advertising. Additional revenue is also generated by the occasional distribution
of circulars with the Brooklyn Skyline. The Brooklyn Skyline operates out of an
office in the Mill Basin section of Brooklyn. 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 26-year-old community
newspaper, covers the area from 59th- 125th Streets from Riverside Drive to
Central Park West. The Chelsea-Clinton News, a 57-year-old community newspaper,
covers the area from 14th-59th Streets from 5th Avenue to 11th Avenue. These two
publications rely on revenue from display advertising, classified advertising,
subscriptions, newsstand sales, legal advertising and from an in-house
typesetting shop that brings in more than 20% of the annual revenue. The
Chelsea- Clinton News and Westsider were acquired by the Company in October
1994.
The Hill -- WYRE
In September 1994, the Company embarked on its most ambitious undertaking
to date -- the publication of The Hill, a weekly newspaper devoted to the
coverage of the United States Congress. Martin Tolchin, an award-winning,
forty-year veteran of the New York Times, signed a five year contract to serve
as publisher and editor and chief of The Hill. The paper, which offers
comprehensive coverage of every aspect of Congress and life in the Capital, is
distributed free of charge to members of Congress and their staffs. 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 Capital 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 has entered into an agreement to purchase radio station
WYRE-AM, principally to provide an outlet in the Washington, D.C., area for its
five day a week morning show, The Hill Reporter. This show features Senators,
Congressmen, other elected officials, lobbyists and pundits in an interview
format on topics of current interest. The purchase price is $268,500, of which
$25,000 has been paid as a deposit and the balance is due on closing. Closing is
pending resolution of a dispute with the seller as to whether a proposed tower
will be adequate. The Company is presently paying WYRE to carry its programs
pursuant to a Programming Services Agreement.
The New York Blade News
In a joint venture that began in the summer of 1997, the Company joined
with the Washington Blade, the largest and most respected gay and lesbian weekly
newspaper in America, to publish The New York Blade News, a weekly, 4-color
tabloid newspaper that debuted on October 24, 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
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its own offices in New York City but shares production and distribution staff
with Our Town, Manhattan Spirit, the 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.
In some instances, the Company purchases its own paper rather than that supplied
by the printer. The Company believes that it obtains its printing services at
competitive prices, and if, for any reason, the arrangements that it has with
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, eight of the Nassau
Newspapers, the 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
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 six years.
On a year-to-year basis, the Company estimates that, over the last five fiscal
years, approximately two-thirds of its display advertising revenues have been
from advertisers who were advertisers in the prior year. No one advertising
client 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 compensated with
incentive-based compensation packages. The Company generally supplements the
sales activities of the individual publications with cross-publication 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 that 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
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Montauk. The Queens Tribune competes with many publications, including Newsday
and the free circulation publications Queens Chronicle and Queens Courier, both
of which are 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 notice revenues
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.
The Hill, which is the largest circulation paper on Capitol Hill, services
the same market as Roll Call.
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 expects to be 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 and eliminating waste. 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 30, 1997, the Company had 320 full- and part-time employees,
of whom 55 were editorial; 86 were engaged as display and classified advertising
sales personnel; 90 were engaged in production; and 89 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.
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.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company and its subsidiaries operate out of eight separate locations.
The Manhattan Spirit, Our Town, Chelsea-Clinton News and the Westsider share
7,000 square foot premises at both 242 West 30th Street, New York, New York,
under a lease with an unaffiliated landlord 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 from Mr. Daniel Rattiner, current 20% owner and President of
DPI, 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 1998. The Company has
an option to renew its lease for an additional five-year term and intends to
exercise the option.
Tribco has a 10 year lease, which commenced on November 1, 1990, with an
unaffiliated landlord for 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.
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
fee of office space at 2132 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.
ITEM 3. 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.
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.
and Media Venture Group, Inc. was instituted in September 1996 in the United
States District Court for the District of Columbia in which the plaintiff, a
former sales person 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
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costs in the approximate amount of $150,000, which the defendants are vigorously
opposing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of stockholders during the
last quarter of the fiscal year ended November 30, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the Nasdaq SmallCap Market under
the symbol NCOM. Units (symbol NCOMU), each consisting of one share of Common
Stock, one Redeemable Class C Warrant (symbol NCOMM) and one Redeemable Class D
Warrant (symbol NCOML), were also quoted on the Nasdaq SmallCap Market until
October 9, 1996, when they ceased to be quoted upon expiration of the exercise
period of the Class C Warrants. The Class D Warrants, although eligible, have
not been quoted separately. The prices listed below are the high sales and low
sale prices for the periods reported.
<TABLE>
<CAPTION>
Common Stock Units
-------------------------- -----------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
February 28, 1996 3.25 2.38 N/A N/A
May 31, 1996 2.81 2.13 3.00 2.75
August 31, 1996 2.50 1.63 N/A N/A
November 30, 1996 2.56 1.00 2.00 2.00
February 28, 1997 2.88 1.97 N/A N/A
May 31, 1997 2.50 1.75 N/A N/A
August 31, 1997 2.25 1.63 N/A N/A
November 30, 1997 2.44 1.50 N/A N/A
===== ==== ====== =====
</TABLE>
The Company has been advised by The Nasdaq Stock Market, Inc. ("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 Market which became effective on February 23, 1998, and that
Nasdaq intended to delist the Company's securities from the Nasdaq SmallCap
market at the close of business on March 16, 1998. The Company has received a
temporary exception to the new requirements and a temporary stay of delisting
pending a hearing. The Company has submitted a written plan to Nasdaq describing
how the Company will achieve and maintain compliance with the new requirements.
As of the date of this report the Nasdaq hearing panel has not yet rendered a
decision regarding the Company's plan of compliance. If the Nasdaq hearing panel
rejects the Company's plan of compliance, the Company may seek an oral hearing
of Nasdaq's decision to delist the Company's securities. There can be no
assurance that the plan of compliance will be accepted by Nasdaq. If the plan of
compliance is rejected and the Company's securities are subsequently delisted
from the Nasdaq SmallCap Market, trading, if any, in the Company's securities
would thereafter be conducted on the OTC Bulletin Board, in which event an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities. In addition, if
the Common Stock were to become delisted from trading on Nasdaq and the trading
price of the Common Stock were to fall below $5.00 per share, trading in the
Common Stock also would be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended, that require
additional disclosure by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
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and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage them from effecting transactions in the Company's securities,
which could severely limit the liquidity of the Company's securities and the
ability of investors to sell such securities in the secondary market. The
foregoing factors would adversely impact the Company's ability to raise funds
publicly.
The Company estimates that at November 30, 1997 there were approximately
1,900 beneficial owners of its Common Stock and approximately 650 beneficial
owners of the Class D Warrants. There were approximately 1,000 record holders of
the Company's Common Stock and approximately 80 record holders of the Class D
Warrants.
Dividend Policy
The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Company intends to retain any future earnings to finance
the growth of the Company. Applicable provisions of Nevada corporate law may
affect the ability of the Company to declare and pay cash dividends and common
stock dividends on the Common Stock as well as Preferred Stock. Under Nevada
law, dividends may be paid from a corporation's excess of assets over its
liabilities including capital (based upon certain computations) or in case there
shall be no such excess, out of its net profits for the current fiscal year and
the preceding fiscal year or out of its net profits for the preceding fiscal
year. 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 the Company has sufficient authorized but unissued Common Stock even
if the Company has 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 shares of Common Stock. There can be
no assurance that, in the future, the Company will have sufficient surplus
available for payment of cash or Common Stock dividends. See "Description of
Securities" and Consolidated Financial Statements and Notes thereto.
Recent Sales of Unregistered Securities
The following securities were issued by the Company during the fiscal year
ended November 30, 1997, 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 and/or Regulation D promulgated thereunder 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.
(i) 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, 300,000 shares of Common Stock of the Company at
an initial exercise price of $2.25 per share (subject to adjustment).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
1997 was a transitional year for the Company. New management, which came to
the Company during the last quarter of 1996, completed its first full year of
operations. 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. The Company decided to discontinue
the money losing operations at Manhattan File and has sold all but a 10%
interest in that subsidiary. Completing the transition of Brooklyn Skyline to a
Page 11
<PAGE>
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 demographic market of the "Five Towns."
The Company increased its revenues 5% ($909,000) from $16,615,000 in 1996
to $17,524,000 in 1997, and loss from continuing operations decreased by 43%
($1,494,000) from a loss of $3,462,000 in 1996 to $1,968,000 in 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 posh 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
Bronx Newspapers decrease of $124,000 (14%), which was a result of changes in
sales management.
Salaries and outside labor costs increased $79,000 (1%), even as revenues
increased by 5%, as budget cuts phased in beginning in 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. The
Company believes that the changes made during 1996-97 will be more fully
reflected in improved operating results during fiscal 1997-98.
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 South Shore; $29,000 was used towards the
purchase of WYRE; 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
shareholder.
For the year ended November 30, 1996, net cash used by operations was
$1,627,000. These funds were provided from a two-year loan from a shareholder in
May 1996, a $675,000 increase in bank loans 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 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 May 1996 loan (discussed above) which is due
May 21, 1998 in order that it be repaid from the capital raised.
Page 12
<PAGE>
Management believes that the stock offering and operations of the Company
will generate positive cash flow for the fiscal year ending November 30, 1998.
Although there can be no assurance 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.
Discontinued Operations
The Company owned 90% of Manhattan File Publishing, Inc. ("MFPI"),
publisher of Manhattan File, a monthly (plus five 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 1996 attributable to
Manhattan File have been reclassified as discontinued operations.
Forward-looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speaks only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Factors
that may cause actual results to differ materially from those contemplated by
such forward- looking statements include, among others, competitive pressures in
the industry in which the Company is engaged, unanticipated fluctuations in
paper prices and general economic conditions. The Company has no obligation to
release publicly the result of any revisions that may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements listed on page F-1 are included in this Report
beginning on page F-2.
13
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Moore Stephens, P.C. (formerly named Mortensen & 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 interest would be served by retaining Coopers & Lybrand, L.L.P. The
decision to change auditors was approved by the Audit Committee of the Company's
Board of Directors. The report of Mortensen & 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
Moore Stephens, P.C. on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
Coopers & Lybrand L.L.P. has been engaged by the Company as its independent
auditors.
Page 14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of May 8, 1998, the Company's directors, executive officers and other
significant employees and their ages and positions are as follows:
<TABLE>
<CAPTION>
Name of Individual Age Position with Company and Subsidiaries
------------------ --- --------------------------------------
<S> <C> <C>
Gary Ackerman 55 Director of the Company
Thomas Allon 34 Executive Vice President of the Company
Robert Berkowitz 49 Controller of the Company
Carl Bernstein 53 Director of the Company
John Catsimatidis 49 Director of the Company
Mark Dickstein 39 Director of the Company
Jerry Finkelstein 82 Chairman of the Board and Director of the Company
Andrew J. Maloney 66 Director of the Company
John E. McConnaughy, Jr. 68 Director of the Company
Robert E. Nederlander 64 Director of the Company
Daniel Rattiner 58 President, Publisher, Editor and Director of DPI
Wilbur L. Ross, Jr. 60 Director and Chief Executive Officer of the Company
Michael Schenkler 52 Director and President of the Company and director
and officer of subsidiaries
Andrew J. Stein 52 Director of the Company
Sy Syms 71 Director of the Company
Arthur Tarlow 68 Director of the Company
Hillel Weinberger 44 Director of the Company
</TABLE>
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.
Thomas Allon was elected Executive Vice President of the Company in
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
Page 15
<PAGE>
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.
Carl Bernstein was elected a director of the Company in October 1996. For
more than five years, Mr. Bernstein has been a writer and journalist. During
this period 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 3,
1991. Mr. Catsimatidis is also 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 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 was elected a director of the Company in October 1996. Since
1986, Mr. Dickstein has been President of Dickstein Partners Inc., a private
investment firm. He is also a director of Carson Pirie Scott & Co. and Hill
Stores Company, leading retailing organizations.
Jerry Finkelstein has been a director of the Company 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.
Andrew J. Maloney has been a director of the Company since September 1993.
He is a partner at the New York law firm of Brown & Wood. 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 Law School.
John E. McConnaughy, Jr. was elected a director of the Company in October
1996. Mr. McConnaughy is Chairman and CEO of JEMC Corporation, a company
involved in investing. From 1969 to 1986, he served as Chairman and CEO of
Peabody International Corp. ("Peabody"). From 1981, when it was spun off from
Peabody, until his retirement in 1992, he served as Chairman and CEO of GEO
International Corporation ("GEO"). In October 1993, GEO filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. Mr.
McConnaughy is also a director of DeVlieg Bullard, Inc., Mego Financial Corp.,
Transact International, Inc., Pantapec International, Inc., Riddell Sports,
Inc., Enviropur Waste Refining and Technologies, Inc. and Wave Systems, Inc.
Robert E. Nederlander was elected a director of the Company in 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
theatres. Mr. Nederlander is also a director of Riddell Sports, Inc., Mego
Financial Corp., Mego Mortgage Corp., Allis Chalmers Corp. and HFS Inc.
Daniel Rattiner is Publisher and Editor of Dan's Papers, having held these
positions since he began the publication in 1960. He has also been President and
a director of DPI since its organization in October 1988.
Page 16
<PAGE>
Wilbur L. Ross, Jr. was elected a director of the Company in October 1996.
Since 1988, Mr. Ross has been Senior Managing Director of Rothschild Inc.,
Chairman of Rothschild Recovery Fund LLP and a director of Rothschild North
America Inc. Mr. Ross is also a director of Mego Financial Corp. and Syms Corp.
Michael Schenkler has been a director of the Company since March 1990,
became a Vice President in August 1990 and was elected President in December
1991. He has been President of the Queens Tribune since 1979 and is its
publisher. Prior to taking over the Queens Tribune full time 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 the Company's subsidiaries other than DPI
and NCNG, of which he is Vice President.
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 was elected a director of the Company in October 1996. He is
Chairman and Chief Executive Officer of Syms Corp., clothing retailers, 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 was elected a director of the Company in October 1996.
Since 1988, he has been Senior Vice President and Senior Portfolio Manager of
Loews/CNA Holdings. He is also a director of Applause, Inc., a leading producer
of licensed gift items.
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, McConnaughy,
Nederlander, Ross, Syms and Weinberger are the designees of the holders of the
$10 Convertible Preferred Stock to serve as directors of the Company and became
directors on October 28, 1996, the date of the closing of the sale of the $10
Convertible Preferred Stock. Sydney Gruson, a deceased former director, was also
a designee of the holders of the $10 Convertible Preferred Stock.
There are presently two vacancies on the board of directors due to the
death of Mr. Gruson on March 1, 1998 and the death of another former director,
Eric Breindel, on February 28, 1998.
Page 17
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and information furnished by the reporting
person, during the fiscal year ended November 30, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, except that John E. McConnaughy, a
director of the Company, failed to report the ownership of 5,900 shares of $10
Convertible Preferred Stock of the Company and 23,600 Common Stock Purchase
Warrants of the Company on his report on Form 3 as filed on November 11, 1996.
Mr. McConnaughy filed an amended Form 3 in May 1998 to include such securities.
Page 18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table shows compensation paid by the Company and its
subsidiaries to certain of its executive officers (including the chief executive
officer) for the fiscal years ended November 30, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Compensation
Long-Term
Annual Compensation Awards
Other
Annual Securities
Compensa- Underlying
Salary Bonus tion Options
Name and Principal Position Year ($) ($) ($) (#)
- -------------------------------------------- ----- ------- ------ --------- ----------
<S> <C> <C>
Wilbur L. Ross, Jr., Chief Executive Officer 1997 1 --- --- ---
1996 1 --- --- 200,000
Michael Schenkler, President and Chief Exec 1997 158,197 --- --- ---
utive Officer (1995-1996) of the Company and 1996 154,621 30,000 --- 10,000
officer of subsidiaries 1995 150,000 --- --- 10,000
Daniel Rattiner, Officer of Dan's Papers, Inc. 1997 133,770 81,000 --- ---
1996 130,869 110,235 15,000(1) ---
1995 127,813 61,169 15,000(1) ---
Jerry Finkelstein, Chairman of the Board of the 1997 195,000 --- --- ---
Company 1996 195,000 --- --- 10,000
1995 195,000 --- --- 360,000
Thomas Allon, Executive Vice President of the 1997 84,141 45,000 --- ---
Company and officer of subsidiaries 1996 82,341 45,000 --- ---
1995 80,885 45,000 --- ---
</TABLE>
- --------------------------------------
(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 is also 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 $4,000.
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1997)
<TABLE>
<CAPTION>
Number of securities underlying
unexercised options at fiscal year- Value of unexercised in-the-money
end (#) options at fiscal year-end ($)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C>
Wilbur L. Ross, Jr. 200,000 --- 0 ---
Michael Schenkler 142,500 --- 1,250 ---
Jerry Finkelstein 697,500 --- 1,250 ---
Daniel Rattiner 35,000 --- 0 ---
</TABLE>
Page 19
<PAGE>
Employment Contracts and Other 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. Mr.
Schenkler earns 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 terminating in 2007, as amended, as
compensation for his services to DPI, Daniel Rattiner earns a base salary from
DPI of $110,000 per year, adjusted for increases in the consumer price index,
plus a bonus in each fiscal year based on net profits (as defined) of DPI. Mr.
Rattiner may terminate his employment at any time after November 25, 2000. 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 employment agreement entered into by the Company and Jerry
Finkelstein as of August 20, 1993, and terminating on August 19, 2003, as
amended and restated, Mr. Finkelstein is employed as Chairman of the Board of
Directors of the Company ("Board") 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 paid to him or the legal representative of his estate
until the end of the term of the agreement.
Pursuant to the agreement regarding the sale of the $10 Convertible
Preferred Stock, Wilbur L. Ross, Jr. serves as Chief Executive Officer of the
Company and Chairman of the Executive Committee of the Board. In consideration
for the services rendered by him in such capacities, Mr. Ross is paid $1 per
year and was granted five-year options to purchase 200,000 shares of Common
Stock at $2.00 per share under the Company's Discretionary Option Plan.
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 1,500,000
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 is 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 10,000 shares
of Common Stock at the market price on the date of grant. The Non-Discretionary
Plan also provides that any person becoming a director within the six month
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<PAGE>
after any August 17 will be granted an option for 10,000 shares on the date he
or she becomes a director. The Non-Discretionary Option Plan was approved by the
shareholders of the Company on July 15, 1994. Grants under the Non-Discretionary
Option Plan were completed during the fiscal year ended November 30, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of
the Company's Common Stock, as of May 13, 1998, 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 tables in Item 10, and by all directors and officers of
the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership (1) Class
<S> <C> <C>
Gary Ackerman 386,644 (2) 4.7%
218-14 Northern Boulevard
Bayside, NY 11432
Thomas Allon 61,666 (3) *
174-15 Horace Harding
Expressway
Fresh Meadows, NY 11365
Carl Bernstein 5,000 (3) *
35 East 84th Street
New York, NY 10028
John Catsimatidis 55,000 (3) *
832 11th Avenue
New York, NY 10019
Mark Dickstein 185,000 (3)(4) 2.2%
120 East End Avenue
New York, NY 10028
Jerry Finkelstein 1,489,503 (3)(5) 16.7%
150 East 58th Street
33rd Floor
New York, NY 10158
Andrew J. Maloney 53,000 (3) *
1 World Trade Center
New York, NY 10001
John E. McConnaughy, Jr. 5,000 (3) *
637 Valley Road
New Canaan, CT 06840
</TABLE>
- -----------------------------
Continued on next page.
Page 21
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owner Ownership (1) Class
<S> <C> <C>
Robert E. Nederlander 118,000 (3)(4) 1.4%
570 Park Avenue
New York, NY 10022
Daniel Rattiner 168,308 (3)(6) 2.0%
26 Three Mile Harbor
Hog Creek Road
East Hampton, NY 11932
Wilbur L. Ross, Jr. 570,000 (3)(4)(7) 6.5%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 455,267 (3)(8) 5.4%
174-15 Horace Harding
Expressway
Fresh Meadows, NY 11365
Andrew J. Stein 180,000 (3) 2.2%
625 Madison Avenue
New York, NY 10022
Sy Syms 185,000 (3)(4) 2.2%
Syms Way
Secaucus, NJ 07094
Arthur Tarlow 79,716 (3) *
1505 Kellum Place
Mineola, NY 11501
Hillel Weinberger 221,000 (3)(4) 2.6%
667 Madison Avenue
New York, NY 10021
All Directors and 4,240,605 (3)(9) 39.5%
Executive Officers as
a Group
(17 persons)
2,672,230 (10) 30.2%
J. Morton Davis
D.H. Blair Holdings, Inc.
D.H. Blair Investment
Banking Corp.
44 Wall Street
New York, NY 10005
</TABLE>
- -------------------------------------------
* Less than one percent.
(1) 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.
- --------------------------------------------------
(Footnotes continued on next page)
Page 22
<PAGE>
(2) Includes 5,334 shares owned by Mr. Ackerman's children for whom Mr.
Ackerman is custodian.
(3) Includes the following numbers of shares purchasable upon the exercise
of presently exercisable options and warrants: Mr. Allon--61,666; Mr.
Bernstein--5,000; Mr. Catsimatidis--55,000; Mr. Dickstein--85,000; Mr.
Finkelstein--697,500; Mr. Maloney--53,000; Mr. McConnaughy--5,000; Mr.
Nederlander--45,000; Mr. Rattiner--35,000; Mr. Ross--365,000; Mr.
Schenkler--142,500; Mr. Stein--130,000; Mr. Syms--85,000; Mr. Tarlow--
67,500; Mr. Weinberger--101,000.
(4) Includes the following numbers of shares issuable upon conversion of $10
Convertible Preferred Stock: Mr. Dickstein--100,000; Mr.
Nederlander--50,000; Mr. Ross--200,000; Mr. Syms--100,000; Mr.
Weinberger--120,000.
(5) Includes (i) 29,834 shares owned by The Jerry Finkelstein Foundation,
Inc., of which Mr. Finkelstein is President, and (ii) 200,000 shares
owned by Mr. Finkelstein's wife.
(6) Includes (i) 500 shares owned by Mr. Rattiner's wife and (ii) 1,800
shares issuable upon conversion of the Company's 10% Preferred Stock.
(7) Does not include (a) 50,000 shares owned by Rothschild Inc., (b) 50,000
shares issuable upon conversion of $10 Convertible Preferred Stock owned
by Rothschild North America Inc. ("RNA") and 40,000 shares issuable upon
exercise of warrants owned by RNA, and (c) 300,000 shares issuable upon
exercise of warrants owned by the Rothschild Recovery Fund L.P. Mr. Ross
disclaims beneficial ownership of all of such shares.
(8) Includes 9,000 shares that are issuable upon conversion of the Company's
10% Preferred Stock owned by Mr. Schenkler's wife as custodian for two
minor children of which Mr. Schenkler disclaims beneficial ownership.
(9) Includes shares issuable upon exercise of the options referenced in
(3) above, conversion of the $10 Convertible Preferred Stock referenced
in (4) above and the 10% Preferred Stock referenced in (6) above, as
well as 22,501 shares issuable to Mr. Robert Berkowitz, Controller of
the Company, upon exercise of presently exercisable stock options.
(10) Includes (i) 1,867,615 shares of Common Stock and warrants to purchase
623,600 shares of Common Stock owned by D.H. Blair Investment Banking
Corp. ("Blair Investment"), a wholly-owned subsidiary of D.H. Blair
Holdings, Inc. ("Blair Holdings"), of which J. Morton Davis is a
shareholder and director, (ii) 61,915 shares of Common Stock owned by
Rivkalex Corporation ("Rivkalex"), a private corporation owned by
Rosalind Davidowitz, Mr. Davis's wife, (iii) 89,600 shares of Common
Stock owned by Rosalind Davidowitz and (iv) 29,500 shares of Common
Stock issuable upon exercise of 5,900 shares of $10 Convertible
Preferred Stock. Mr. Davis, Blair Holdings and Blair Investment
expressly disclaim beneficial ownership of all securities held by
Rivkalex and Rosalind Davidowitz.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. 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
1998 (plus a five-year option).
Page 23
<PAGE>
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. 50,000 shares of its Common Stock, valued at $2.00 per share.
On November 5, 1997, DPI and the Company entered into the RRF Loan
Agreement with 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% and
with a maturity date of December 31, 1998. 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, on or after February 28, 1998, 300,000 shares of
Common Stock of the Company at an initial exercise price of $2.25 per share.
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. ("Blair Investment"), a principal
stockholder of the Company. The loan is repayable on May 21, 1998 and bears
interest at the rate of 8 1/2% per annum payable quarterly. The loan is secured
by a security interest granted by the borrowers to Blair Investment on all of
their personal property and fixtures and by a pledge made by the Company to
Blair Investment of all of the outstanding common stock of Tribco and Access. As
additional consideration for the loan, the Company issued Blair Investment a
five-year warrant to purchase 200,000 shares of Common Stock at an initial
exercise price of $2.50 per share, subject to adjustment. Effective May 17,
1996, the Company entered into an agreement with Blair Investment pursuant to
which Blair Investment is to act as a non-exclusive financial advisor and
investment banker to the Company. As an inducement to Blair Investment's
providing such services, the Company issued Blair Investment a five-year warrant
to purchase 400,000 shares of Common Stock at an initial exercise price of $2.50
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.
Page 24
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document (1) Document
- ------- ----------- -------------- --------
<S> <C> <C>
3.1 Articles of Incorporation of the A 3.1
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 3.1.1
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 Articles of B 3.1.2
Incorporation of the Company, filed with the
Secretary of State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of J 3.1.3
Incorporation of the Company, filed with the
Secretary of State of Nevada on July 26, 1994.
3.2.1 By-Laws of the Company (as amended and J 3.2.1
restated).
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock B 4.2
Certificate.
4.2.1 Resolution of Board of Directors fixing B 4.2.1
the terms of the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the J 4.2.2
terms of the 8% Convertible Preferred Stock.
4.2.3 Resolution of the Board of Directors fixing the J 4.2.3
terms of the 12% Convertible Preferred Stock.
4.2.4 Certificate of Amendment of Certificate J 4.2.4
of Designation of 8% Convertible Preferred
Stock.
</TABLE>
- -------------------------------
(1) See Notes at end of Item 13.
Page 25
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ------------ ------------------------------------------- ---------------- -----------
<S> <C> <C>
4.2.5 Resolution of Board of Directors fixing the M 10.33
terms of the $10 Convertible Preferred Stock
(included as part of Exhibit 10.33).
4.7.1 Revised form of Warrant Agreement related J 4.7.1
to Class C Warrants and Class D Warrants.
4.9 Form of Class D Warrant. J 4.9
10.1.1 1987 Stock Option Plan, as amended. L 10.1.1
10.2.1 Discretionary Directors and Officers J 10.2.1
Stock Option Plan.
10.2.2 Non-Discretionary Directors Stock J 10.2.2
Option Plan.
10.4 Shareholders' Agreement, dated as of D 2.1
October 13, 1988, between Daniel Rattiner
and the Company.
10.4.1 Asset Purchase Agreement, dated as D 2.2
of October 13, 1988, between Dan's Papers,
Ltd. and DP Acquisition Corp.
10.4.3 Agreement of Lease, dated October D 2.4
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.
10.4.4 Letter dated November 22, 1996 from the N 10.4.4
Company to Daniel Rattiner regarding
exercise of option to purchase stock
of Dan's Papers, Inc.
10.4.5 Employment and Shareholders' Agreement *
dated as of November 25, 1997 between and among
Daniel Rattiner and the Company.
10.7.3.1 Employment Agreement, dated as of K 10.7.3.1
October 14, 1994, between Michael Schenkler and the Company.
</TABLE>
Page 26
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ----------- -------------------------------------------------- --------------- ----------
<S> <C> <C>
10.7.4.1 Amended and Restated Employment N 10.7.4.1
Agreement, dated October 28, 1996,
between Jerry Finkelstein and the Company.
10.11 Stock Option Agreement dated September J 10.11
1, 1993, between Jerry Finkelstein and
the Company.
10.13 Letter Agreement, dated June 15, 1990, between B 10.21
Dan's Papers Inc. and Dan's Papers, Ltd.
10.17 Lease for space at 174-15 Horace Harding B 10.25
Expressway, Fresh Meadows, New York.
10.26 Acquisition Agreement and Employment J 10.26
Agreement between Long Island News Group,
Inc. and Barry Manning and MB Publishing,
Inc. and Barry Manning and David Manning
and Long Island Community Newspaper Group,
Inc. and the Company.
10.28 Agreement dated May 17, 1996 between D.H. M 10.28
Blair Investment Banking Corp. ("Blair
Investment") and the Company.
10.29 Loan Agreement dated May 21, 1995 among M 10.29
Blair Investment, the Company, Tribco
Incorporated ("Tribco") and Access
Network Corp. ("Access").
10.30 $1,000,000 Promissory Note dated May 21, M 10.30
1996 issued by the Company, Tribco and
Access to the order of Blair Investment.
10.31 Warrant dated May 17, 1996, to purchase M 10.31
400,000 shares of the Company's Common Stock
issued by the Company to Blair Investment.
10.32 Warrant, dated May 21, 1996, to purchase M 10.32
200,000 shares of the Company's Common Stock
issued by the Company to Blair Investment.
</TABLE>
Page 27
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description 0 from Document Document
- ----------- -------------------------------------------------- --------------- ----------
<S> <C> <C> <C>
10.33 Form of Subscription Agreement made as of M 10.33
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.
10.34 Loan Agreement dated as of November 5, *
1997 by and between Rothschild Recovery
Fund L.P. and Dan's Papers, Inc. and
the Company.
10.35 Asset Purchase Agreement dated as of *
April 11, 1997 by and between M.B.C.
Incorporated and the Company.
10.36 Program Services Agreement dated as *
of April 11, 1997 by and between M.B.C.
Incorporated and the Company.
10.37 Stock Purchase Agreement dated as of *
November 25, 1997, by and between
Florence B. Schwartzberg and the
Company.
10.38 Employment Agreement dated as of *
November 25, 1997, by and between
Florence B. Schwartzberg and the
Company.
10.39 Agreement dated as of February 26, *
1998 by and between the Company
and Magazine Holding, Inc.
10.40 Shareholders Agreement dated as of *
December 22, 1997 by and between
the Company, The Washington Blade,
Inc. and New York Blade News, Inc.
11.1 Statement re computation of per share *
earnings.
16.2 Letter from Moore Stephens, P.C. dated O 16.2
March 4, 1997.
22 Subsidiaries of the Company. *
</TABLE>
Page 28
<PAGE>
<TABLE>
<CAPTION>
Incorporated Exhibit
Exhibit by Reference No. in
Number Description from Document Document
- ----------- -------------------------------------------------- --------------- ----------
<S> <C> <C>
27 Financial Data Schedule (filed electronically only) *
</TABLE>
- ---------------------------------------
Notes:
(1) The Commission file number assigned to the Company's Registration
Statement on Form S-18, filed with the Commission on May 29, 1986, was
33-6126. The Company's first registration of a class of equity
securities under the Securities Exchange Act of 1934 became effective
on February 21, 1990. The Commission file number assigned to the
Company at that time was 0-18299. The Commission file number assigned
to the Company's Registration Statement on Form S-1, as declared
effective by the Commission on September 19, 1990, was 33-35484. The
Commission file number assigned to the Company's Registration Statement
on Form S-1, as declared effective by the Commission on October 9,
1992, was 33-46467.
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.
D Current Report of the Company on Form 8-K relating to events occurring on
October 31, 1988.
J Registration Statement of the Company on Form S-1, No. 33-46467.
K Annual Report of the Company on Form 10-KSB for the year ended November 30,
1994.
L Annual Report of the Company on Form 10-KSB for the year ended November 30,
1995.
M Quarterly Report of the Company on Form 10-QSB for the quarter ended August
31, 1996.
N Annual Report of the Company on Form 10-KSB for the year ended November 30,
1996.
O Current Report of the Company on Form 8-K/A relating to event occurring on
February 3, 1997.
* Filed herewith.
(b) Reports on Form 8-K.
None
Page 29
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Report of Independent Accountants F-2
Consolidated Balance Sheet as of November 30, 1997 F-3 to F-4
Consolidated Statements of Operations for the years ended
November 30, 1997 and 1996 F-5
Consolidated Statements of Stockholders' Equity for the
years ended November 30, 1997 and 1996 F-6 to F-7
Consolidated Statements of Cash Flows for the years ended
November 30, 1997 and 1996 F-8 to F-9
Notes to Consolidated Financial Statements F-10 to F-23
F-1
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Report of Independent Accountants
To the Board of Directors and Stockholders of
News Communications, Inc.
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1997, and the related
consolidated statements 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 audit.
We conducted our audit 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 audit provides 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, 1997 and 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
May 15, 1998
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
As of November 30, 1997
Assets:
Current assets:
Cash $ 424,620
Accounts receivable - [less: allowance
for doubtful accounts of $849,530] 3,479,269
Due from related parties 27,613
Other 176,738
-----------
Total current assets 4,108,240
Investment in unconsolidated entities 72,242
Property and equipment - at cost - net 399,364
Other assets:
Goodwill - net 3,481,766
Other - net 81,267
-------------
Total other assets 3,563,033
-------------
$ 8,142,879
=============
See Notes to Consolidated Financial Statements
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Balance Sheet
As of November 30, 1997
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 626,610
Accrued expenses 1,166,573
Accrued payroll and payroll taxes 92,516
Note payable 900,000
Due to related party 1,136,021
Unearned revenue 137,652
-------------
Total current liabilities 4,059,372
Net liabilities of discontinued operations 53,908
Related party - long term debt 1,415,338
-------------
Total Liabilities 5,528,618
-------------
Commitments and contingencies
Minority interest 281,474
-------------
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 shares 200,340
authorized; $2,444,000 aggregate liquidation value
Common stock, $.01 par value; authorized 100,000,000
shares; 8,212,231 shares issued and outstanding 82,122
Paid-in capital - preferred stock 2,077,025
Paid-in-capital - common stock 14,431,905
Retained deficit (14,049,876)
--------------
2,741,516
Less: Treasury stock [151,000 common shares] - at cost 408,729
--------------
Total stockholders' equity 2,332,787
--------------
Total liabilities and stockholders' equity $ 8,142,879
==============
See Notes to Consolidated Financial Statements
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
For the years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------
<S> <C> <C>
Net revenues $ 17,523,952 $ 16,614,501
----------------------------------------------
Operating expenses:
Salaries, benefits and outside labor costs 8,880,694 8,801,931
Direct mechanical costs 5,683,638 6,175,727
General and administrative 2,702,444 2,674,163
Provision for doubtful accounts 1,013,904 1,360,057
Rent, occupancy and utilities 842,735 820,299
----------------------------------------------
Total operating expenses 19,123,415 19,832,177
Loss from operations (1,599,463) (3,217,676)
Other income (expense):
Interest expense (200,948) (177,471)
----------------------------------------------
Total other income (expense) (200,948) (177,471)
----------------------------------------------
Loss before income taxes and minority interest (1,800,411) (3,395,147)
Provision for income taxes - -
----------------------------------------------
Net loss before minority interest (1,800,411) (3,395,147)
Less: Minority interest in income of subsidiary 167,246 66,440
----------------------------------------------
Loss from continuing operations (1,967,657) (3,461,587)
Loss from discontinued operations (730,585) (419,841)
Gain (Loss) on disposal (255,973)
----------------------------------------------
Net loss $ (2,954,215) $ (3,881,428)
==============================================
Loss per common share:
Continuing Operations $ (.24) $ (.44)
Discontinued Operations $ (.12) $ (.05)
----------------------------------------------
Total $ (.36) $ (.49)
----------------------------------------------
Weighted average number of common shares outstanding $ 8,132,754 $ 7,991,997
==============================================
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
Preferred Paid-in Common Paid-in Stock-
Stock Pre- Capital Stock Capital Retained Treasury holders'
(Shares) ferred Preferred (Shares) Common Common Deficit Stock Equity
Stock Stock Stock Stock
-------- ------- ---------- -------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1995 449 $ 449 $ 519,873 7,957,665 $ 79,576 $13,723,456 $(7,108,447) $408,729 $ 6,806,178
Stock issued in connection - - - 9,750 98 19,402 - - 19,500
with exercise of C warrants
Stock issued in connection - - - 10,000 100 12,400 - - 12,500
with exercise of options
Issuance of $10 Convertible 20,000 200,000 1,800,000 - - - - - 2,000,000
Preferred Stock
Costs of raising capital - - (118,183) 50,000 500 99,500 - - (18,183)
Warrants issued in connection - - - - - 64,000 - - 64,000
with long term debt
Warrants issued in connection - - - - - 128,000 - - 128,000
with consulting services
Stock issued as preferred - - - 10,624 106 15,894 (16,000) - -
dividends
Dividend on preferred stock - - - - - - (41,360) - (41,360)
Net loss - - - - - - (3,881,428) - (3,881,428)
-------- ------- ---------- -------- -------- ----------- ----------- -------- -----------
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
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
Total
Preferred Paid-in Common Paid-in Stock-
Stock Pre- Capital Stock Capital Retained Treasury holders'
(Shares) ferred Preferred (Shares) Common Common Deficit Stock Equity
Stock Stock Stock Stock
-------- ------- ---------- -------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - - 90,545 906 140,515 - - 141,421
with exercise of C warrants
Stock issued in connection - - - 16,000 160 (160) - - -
with purchase of Nassau
Newspapers
Conversion of 8% Convertible (103) (103) (102,897) 49,047 490 102,510 - - -
Preferred Stock
Warrants issued in connection - - - - - 91,800 - - 91,800
with long term debt
Conversion of 10% Convertible (6) (6) (21,768) 10,800 108 21,666 - - -
Preferred Stock
Stock issued as preferred - - - 7,800 78 12,922 (13,000) - -
dividends
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
========= ======== ========== ========= ======= =========== ============= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
<S> <C> <C>
Operating activities of continuing operations
Net loss $ (2,954,215) $ (3,881,428)
-------------------------------------------
Adjustments to reconcile net loss to net cash (used for)
Loss from discontinued operations 986,558 419,841
Depreciation and amortization 447,462 497,774
Provision for doubtful accounts 1,013,904 1,370,224
Compensation recognized related to warrants issued - 128,000
Amortization of debt discount 39,138 17,333
Minority interest 167,246 66,440
Changes in assets and liabilities:
(Increase) decrease in:
Account receivable (1,227,954) (345,658)
Other current assets (26,614) (63,424)
Other assets 64,471 2,929
Related party receivable (13,613) 105,233
Increase (decrease) in:
Accounts payable and accrued expenses 395,509 (181,351)
Accrued payroll and payroll taxes (316,076) 83,591
Other current liabilities 15,000 122,653
Related party payable 91,000 30,506
-------------------------------------------
Total adjustments 1,636,031 2,254,091
-------------------------------------------
Net cash - operating activities of continuing operations (1,318,184) (1,627,337)
-------------------------------------------
Investing activities of continuing operations:
Purchase of South Shore Publishers, Inc. (421,500) -
Capital expenditures (102,658) (47,626)
Investment in unconsolidated entities ( 72,242) -
-------------------------------------------
Net cash - investing activities of continuing operations (596,400) (47,626)
-------------------------------------------
Financing activities of continuing operations:
Proceeds from preferred stock - 2,000,000
Proceeds from exercise of stock options 181,090 12,500
Costs of raising capital (39,670) (18,183)
Proceeds from exercise of warrants and underwriter option - 19,500
Principal payments on notes payable (275,000) (24,000)
Dividend on preferred stock (35,426) (41,360)
Proceeds from notes payable 1,500,000 1,675,000
-------------------------------------------
Net cash - financing activities of continuing operations 1,330,994 3,623,457
------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE>
NEWS COMMUNICATIONS, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
<S> <C> <C>
Net cash - operating activities of continuing operations forwarded: $ (1,318,184) $ (1,627,337)
Net cash - investing activities of continuing operations forwarded: (596,400) (47,626)
Net cash - financing activities of continuing operations forwarded: 1,330,994 3,623,457
Net cash used in discontinued operations (486,677) (508,081)
-----------------------------------------
Net increase (decrease) in cash (1,070,267) 1,440,413
Cash - beginning of year 1,494,887 54,474
----------------------------------------
Cash - end of year $ 424,620 $ 1,494,887
========================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 189,572 $ 130,969
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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
F-10
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
F-11
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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
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 note payable at November 30, 1997 consisted of a $900,000 loan
due on January 5, 1998 at the Bank's prime rate plus 2 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 a stated interest rate of 8.5 percent per annum. Interest is
payable quarterly commencing 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.
F-12
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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," 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
for instruments 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 October 31, 1998.
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 shareholders 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
===========
F-13
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
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.
F-14
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 Jean Jee v. News Communications, Inc., was instituted in
the Supreme Court, New York County, in January 1991. The complaint alleged
libel claims 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. In May 1998, the plaintiff voluntarily
discontinued the action with prejudice.
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 proceedings 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 had 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.
12. Preferred Stock:
Preferred Stock at November 30, 1997 consisted of the following:
F-15
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
10% non-voting convertible preferred stock, 1,250
shares authorized; 26 issued and outstanding, $500 per
share per annum cumulative dividends, $130,000 liquidation
value $ 26
8% convertible preferred stock, 500 shares authorized,
114 issued and outstanding, $80 per share per annum
cumulative dividends, $114,000 liquidation value 114
12% convertible preferred stock, 200 shares authorized,
200 shares issued and outstanding, $120 per share per annum
cumulative dividends, $200,000 liquidation value 200
$10 convertible preferred stock, 200,000 shares 200,000
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 1,800
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.
F-16
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 800,000 shares
of common stock at $2.00 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.
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 $2.00, and is subject to adjustments generally
for dilution or decline in the market price below $2.00.
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 shareholder 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.
13. Treasury Stock:
Treasury stock is shown at cost and consists of 151,000 shares of Common
Stock.
14. 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.
F-17
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 136,667 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
======= ========
(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 2,000,000 shares of Common
Stock to directors and officers of the Company and its subsidiaries which
F-18
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 10,000 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 500,000 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 year 2,120,500 1,760,500
Granted during the year - 360,000
----------- ----------
Outstanding - End of the year (1) 2,120,500 2,120,500
=========== ===========
(1) With an exercise price per share ranging from $1.25 to $2.69. The
weighted average exercise price at November 30, 1997 was $2.21 per share.
15. Stock Warrants
At November 30, 1997, the Company had 2,437,130 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 $2.00 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 Warrants - Each Class D Warrant, which entitles the
holder to purchase one share of the Company's Common Stock at $3.00 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 853,935 Redeemable
Class D Warrants.
F-19
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Non-Redeemable Warrants - At November 30, 1997 and 1996, the Company had
outstanding 1,885,000 and 1,585,000 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 $1.38 to $3.00 per share.
The warrants are all currently exercisable and expire on the following
dates:
Number of Warrants Expiration Date
85,000 October 1998
100,000 May 1999
600,000 May 2001
800,000 October 2001
300,000 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 shareholder of the Company, of which 200,000 were
issued in connection with a promissory note [See Note 5] and 400,000 were
issued as consideration for consulting services. The 800,000 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 shareholder of the Company in
connection with a promissory note [See Note 5].
16. 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 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-20
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
17. 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.
18. 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"
19. Acquisitions
On November 26, 1997 the Company acquired all of the outstanding stock of
South Shore 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.
F-21
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
20. 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 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.
21. Subsequent Events
In February 1998, the Company distributed 7,800 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 20,000 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 Market which became effective on February 23, 1998, and that
Nasdaq intended to delist the Company's securities from the Nasdaq SmallCap
market as of the close of business on March 16, 1998. The Company has
received a temporary exception to the new requirements and a temporary stay
F-22
<PAGE>
of delisting pending a hearing. The Company has submitted a written plan to
Nasdaq describing how the Company aims to achieve and maintain compliance
with the new requirements. Such plan contemplates a rights offering of
approximately 2,550,000 shares at $1.375 per share for total offering
proceeds of approximately $3,500,000. To the extent all or a portion of the
shares are not subscribed to, certain principal shareholders of the Company
have agreed to purchase any unsold shares. As of the date of this report
the Nasdaq hearing panel has not yet rendered a decision regarding the
Company's plan of compliance. If the Nasdaq hearing panel rejects the
Company's plan of compliance, the Company may seek an oral hearing of
Nasdaq's decision to delist the Company's securities. There can be no
assurance that the plan of compliance will be accepted by Nasdaq. If the
plan of compliance is rejected and the Company's securities are
subsequently delisted from the Nasdaq SmallCap Market, trading, if any, in
the Company's securities would thereafter be conducted on the OTC Bulletin
Board.
F-23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
Date: May 19, 1998 BY: /s/ Wilbur L. Ross, Jr.
------------------------
Wilbur L. Ross, Jr. Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- -------------------------------------- ----------
<S> <C> <C>
/s/ Wilbur L. Ross, Jr. Director and Chief Executive Officer May 19, 1998
- ----------------------------- (Principal Executive Officer)
(Wilbur L. Ross, Jr.)
- -----------------------------
(Jerry Finkelstein) Director
- -----------------------------
(Michael Schenkler) Director
/s/ Robert Berkowitz Controller (Principal Financial and May 19, 1998
- ------------------------------------ Accounting Officer)
(Robert Berkowitz)
/s/ Gary Ackerman Director May 19, 1998
- -----------------------------
(Gary Ackerman)
- -----------------------------
(Carl Bernstein) Director
/s/ John Catsimatidis Director May 19, 1998
- -----------------------------
(John Catsimatidis)
/s/ Mark Dickstein Director May 19, 1998
- -----------------------------
(Mark Dickstein)
/s/ Andrew J. Maloney Director May 19, 1998
- ---------------------------
(Andrew J. Maloney)
/s/ John E. McConnaughy, Jr. Director May 19, 1998
- -----------------------------
(John E. McConnaughy, Jr.)
/s/ Robert E. Nederlander Director May 19, 1998
- ------------------------------
(Robert E. Nederlander)
/s/ Andrew J. Stein Director May 19, 1998
- ------------------------------
(Andrew J. Stein)
/s/ Sys Syms Director May 19, 1998
- -----------------------------
(Sy Syms)
/s/ Arthur Tarlow Director May 19, 1998
- -----------------------------
(Arthur Tarlow)
/s/ Hillel Weinberger Director May 19, 1998
- -----------------------------
(Hillel Weinberger)
</TABLE>
<PAGE>
EMPLOYMENT AND SHAREHOLDER'S AGREEMENT
AGREEMENT dated as of November 25, 1997, between and among DANIEL
RATTINER ("Rattiner"), residing at 26 Three Mile Harbor, Hog Creek Road, East
Hampton, New York 11937 and NEWS COMMUNICATIONS, INC. ("NCI"), a Nevada
corporation having offices at 174-15 Horace Harding Expressway, Fresh Meadows,
New York, 11365, and Dan's Papers, Inc., A New York Corporation with offices at
2221 Montauk Highway, Bridgehampton, New York, 11932.
WHEREAS, Rattiner and NCI (the Shareholders") did make an agreement
dated October 13, 1988 that a corporation, to be known as DP Acquisition Corp.
(the "Company"), shall be formed and shall be organized and capitalized, and its
business conducted, in accordance with the provisions of that agreement. The
name DP Acquisition Corp. was then changed to Dan's Papers Inc.
IT WAS AGREED:
1. Organization. The Shareholders would cause the company to be
organized under the laws of the State of New York with an authorized
capitalization of 200 common shares, without par value ("Shares"). The
certificate of incorporation and by-laws of the Company shall be in the forms of
Exhibit A and B hereto, respectively. Upon its organization, the Company shall
become a party to this Agreement.
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<PAGE>
2. Capitalization
(a) Rattiner would be issued 10 Shares on the date the transactions
contemplated by the Asset Purchase Agreement referred to in paragraph 4 hereof
were closed, in consideration of his assignment to the Company of the editorial
content referred to in paragraph 21 hereof.
(b) NCI would subscribe for the purchase of 40 Shares for a total
purchase of $100,000, to be paid for and issued on or before the closing of the
Asset Purchase Agreement. NCI also agreed to make additional capital
contributions to the Company in such amounts as equal the payments required to
be made by the Company on and after the first anniversary of such closing,
pursuant to section 3.2 of the Asset Purchase Agreement.
(c) No further Shares would be issued without Rattiner's consent so
long as he remains a shareholder of the Company.
(d) NCI would loan the company at least $300,000, and such other
amounts as are properly determined by the Board of Directors to be needed, for
working capital purposes, provided that it would not be obligated to make such
loans at a rate of more than $100,000 per fiscal year. Any such loans would bear
interest at the actual borrowing rate paid by NCI to its institutional lenders.
If there was a default by the Company in making payments required under Section
3.2 of the Asset Purchase Agreement, all such working capital loans would be
forgiven and be deemed to be additional capital contributions to the Company.
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<PAGE>
3. Directors. Each of the Shareholders would vote his Shares to the
end that the Board of Directors would consist of three members, two of whom
would be designated by NCI and one of whom would be Rattiner or his designee.
4. Acquisition of Assets. Within 10 days after its organization, the
Company would enter into the Asset Purchase Agreement with Dan's Papers, Ltd. in
the form annexed hereto as Exhibit C ("Asset Purchase Agreement"). If Dan's
Papers, Ltd., for any reason, failed to enter into and close the Asset Purchase
Agreement, this agreement would be terminated ab initio, and all Shares that
have been issued would be cancelled and the consideration therefor returned to
the Shareholders without deduction.
Now having agreed to the above in an earlier agreement on October
13, 1988, and having had a nine year successful relationship, these parties do
hereby extend the term thereof, update, modify, amend and supercede said
agreements as follows:
5. Business of Company. The business of the Company shall be to
continue to operate the Acquired Business (as defined in the Asset Purchase
Agreement) in substantially the same manner as it has heretofore been operated
by Dan's Papers, Ltd., provided that this shall not prohibit the Company from
enlarging the scope of its business along similar lines.
6. Special Covenant. So long as Rattiner is in the employ of the
Company, without consent of Rattiner, the Company will not:
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<PAGE>
(a) change its corporate name other than to "Dan's Papers, Ltd."; or
(b) materially change the name, format or appearance of the
newspapers to be published by the Company as they exist on the date of the
closing of the transactions contemplated by the Asset Purchase agreement
("Existing Newspapers").
7. Employment of Rattiner
(a) Commencing on the date October 18, 1997, the company shall
employ Rattiner as Publisher and Editor, for a term of ten years, subject to
earlier termination as hereinafter set forth. In such capacities, Rattiner shall
have full editorial control of the news, editorial and feature content of the
front page and the immediately following three pages, free of advertising, of
the Existing Newspapers and of one column of any additional newspaper that may
be published by the Company. Notwithstanding the foregoing, the Existing
Newspapers shall be published, and shall have content, substantially similar to
the manner in which they have been published in the year preceding the date
hereof.
(b) During the term of his employment by the Company, Rattiner shall
devote his full time, attention and energies during business hours to the
performance of his duties hereunder and will not, during those hours without the
consent of the Company, be engaged in any other business activity.
8. Rattiner Compensation and Benefits.
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<PAGE>
At the end of five years Rattiner may take an option to reduce his
workload at Dan's Papers and take proportionately less compensation. But this
reduction in workload would not be considered a violation of the agreement of
this contract or an abridgement of the rest of the covenants of this contract.
(a) As compensation for his services as Publisher and Editor of the
Company, the Company shall pay Rattiner a base salary of $10,000 greater than
his base salary for the fiscal year beginning December 1, 1997. During the
second through tenth years of his term of employment, an amount equal to the
base salary for the first fiscal year of this contract multiplied by the
percentage increase, if any, in the Consumer Price Index, Urban Wage Earners and
Clerical Workers, New York - Northern New Jersey Metropolitan Area
(1982-1984=100) ("CPI") between the CPI for July 1997 and the CPI for the July
immediately preceding the employment year in question. Such salary shall be paid
weekly in equal installments during each year of employment.
(b) In addition to the compensation set forth in paragraph 8 (a),
beginning with the fiscal year ended November 30, 1996, for each fiscal year
during the term of his employment the Company shall pay Rattiner a bonus equal
to 10% of the "Net Profits" (as hereinafter defined) of the Company for such
fiscal year. If Rattiner's employment by the Company is terminated for reasons
other than for "proper cause" (as hereinafter defined) or his voluntary
resignation or retirement other than as of the end of a fiscal year, the amount
of his bonus for the fiscal year in which his employment is terminated shall be
prorated in proportion to the number of full calendar months during which he was
employed in such fiscal year. All bonuses under this paragraph (b) shall be paid
to Rattiner within 60 days after the Company's independent accountants have
finally determined the Company's earnings for the fiscal year in question. Any
payment later than such date shall accrue interest at a rate of 1% per month.
For purposes of this paragraph
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<PAGE>
(b), "Net Profits" shall mean the net income of the Company before income taxes,
as determined by the Company's accountants in accordance with generally accepted
accounting principles consistently applied except that (i) no amounts shall be
deducted for depreciation of property and equipment or interest expenses; or
amortization of good will or restrictive covenants or trade; (ii) income or
expense derived from nonrecurring or infrequent items shall not be taken into
account; (iii) no expense shall be charged for any prior year's bonus or present
year's bonus, services provided by any employee of NCI or any affiliate of NCI
other than the Company; (iv) the Company's allocable share of NCI's general,
administrative and other expenses, including fees of NCI's independent
accountants and counsel, shall be considered expenses, but not in excess of 2.0%
of the Company's gross revenues; and (v) payment of any bonus pursuant to this
paragraph and interest and imputed interest on such payments shall not be
considered expenses. The Company shall not incur any expenses which are solely
intended to reduce the amount of any bonus payable to Rattiner pursuant to this
paragraph (b) or otherwise adversely affect any of Rattiner's rights under this
Agreement and no other adjustments will be added or subtracted at any future
date during the life of the contract.
(c) During the terms of Rattiner's employment, the Company shall
provide to Rattiner:
(i) medical insurance benefits at least equal to those provided
to Rattiner by Dan's Papers, Ltd. on August 31, 1988;
(ii) a travel and entertainment allowance (not to exceed
$15,000 during any year of employment), payable upon submission of itemized
vouchers, this allowance to be increased or decreased annually as the CPI rate
rises or falls as defined in (8A).
page 6
<PAGE>
(iii) a new leased or purchased automobile every two years,
having a purchase price not in excess of $40,000. Operating and repair costs for
such automobile shall be paid by the Company; and the value of this automobile
to be increased or decreased annually as the CPI rate rises or falls as defined
in (8A).
(iv) The right to purchase from the Company trade sales
merchandise having a face value of up to $15,000. The purchase price shall be
70% of the face value and shall be taxable to Rattiner as a bonus. This right to
purchase shall be increased or decreased annually as the CPI rate rises or falls
as defined in (8A). All barter shall be subject to the approval of Wilbur Ross.
(v) A new leased portable computer every two years, having a
purchase price not in excess of $4000.
9. General Restriction Upon Rattiner Shares
Rattiner shall not, directly or indirectly, transfer or encumber any of his
Shares except to a trust for the benefit of his children or spouse or as
permitted by this agreement or with the consent of NCI.
10. Outside Offers.
(a) If Rattiner receives a bona fide written offer ("Outside Offer")
for all, but not less than all, of of the Shares owned by him ("Shares Offered
For Sale"), and wishes to accept the offer, he shall give notice of his desire
to transfer ("Transfer
page 7
<PAGE>
Notice") to the Company and to NCI. The Transfer Notice shall include a copy of
the Outside Offer. Thereafter, the Company and NCI shall have the option to
purchase the Shares Offered For Sale for the price and on the terms set forth in
paragraph 13 hereof. If the Company wants to exercise the option, it shall give
notice ("Counter Notice") to Rattiner within 30 days of the receipt of the
Transfer Notice. If the Company does not give Counter Notice within that period,
NCI shall have an additional period of 30 days in which to give Counter Notice
(such periods hereinafter collectively referred to as the "Option Notice
Period") to purchase the Shares Offered For Sale.
(b) If the Option Notice Period expires without the Company or NCI
giving Counter Notice, Rattiner shall be free, for a period of 90 days after the
expiration of the Option Notice Period, to transfer the Shares Offered For Sale
to the person or persons named in, and on the terms of, the Outside Offer. If
such a transfer is made, the Shares Offered For Sale shall continue to be
subject to the terms and conditions of this Agreement, except that the company
shall not be obligated to purchase the Shares Offered For Sale upon the death of
the new owner or to maintain insurance on the life of the new owner and the new
owner shall not be entitled to be employed by the Company or elected as an
officer or director. If no such transfer is made within the 90-day period, the
Shares Offered For Sale shall continue to be subject to the terms and conditions
of this Agreement.
11. Death or Permanent Disability of Rattiner.
(a) Upon the death or Permanent Disability (as hereinafter defined)
of Rattiner, the Company shall purchase, and Rattiner or his estate shall sell,
all of the Shares owned by Rattiner for the price and the terms set forth in
paragraph 13 hereof. If the Company is legally prohibited from purchasing any
portion of Rattiner's Shares by
page 8
<PAGE>
reason of the fact that its surplus is not sufficient to satisfy the
requirements of law, the Company and NCI shall take whatever lawful steps are
required or permitted to reduce the stated capital of the Company and thereby,
to the extent possible, to create legally available funds to enable the Company
to lawfully purchase the Shares, and the Company shall purchase as many of the
Shares as it may legally purchase and NCI shall purchase the balance.
(b) As used herein, the term "Permanent Disability" shall mean the
inability of Rattiner to render services to the Company pursuant to this
Agreement by reason of physical or mental incapacity or disability for a
continuous period of six consecutive months, and at the end of such six month
period there is no reasonable probability of Rattiner rendering services to the
Company pursuant to terms of this Agreement. The certification of such Permanent
Disability by a physician mutually selected by the Company and Rattiner as to
the existence of any such incapacity or disability shall be final and binding on
the parties. If the Company and Rattiner cannot agree upon such physician, a
physician shall be designated by the then acting president of the Suffolk County
Medical Society, and if for any reason said president shall fail or refuse to
designate any such physician, such physician shall, at the request of either
party, be designated by the American Arbitration Association.
12. NCI Option. NCI shall have the right, exercisable at any time on
or after the termination of Rattiner's employment pursuant to this Agreement, to
purchase Rattiner's Shares for the purchase price and on the terms set forth in
paragraph 13 hereof. NCI may exercise such option by delivering to Rattiner a
notice ("Exercise Notice") to the effect that it desires to exercise the option
granted it pursuant to this paragraph 12.
12A. Rattiner Option:
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<PAGE>
(a) Rattiner shall have the right, exercisable at any time, to
require NCI to purchase Rattiner's Shares for the purchase price and on the
terms set forth in paragraph 13 hereof. Rattiner may exercise such option by
delivering to NCI a notice ("Put Notice") to the effect that he desires to
exercise the option granted him pursuant to this paragraph 12A (a).
13. Purchase Price' Payment
(a) The purchase price of any Shares purchased by the Company or NCI
pursuant to paragraph 10 of this Agreement shall be the lesser of (i) the price
specified in the Outside Offer, or (ii) 20% of retained earnings, if any, of the
Company plus the greater of (A) $200,000 or (B) 20% of the gross collected
revenues of the Company, after the deduction of commissions paid to advertising
agencies, for the fiscal year last preceding the fiscal year in which the
Transfer Notice was given, computed under the annual statement for that fiscal
year prepared by the accountants then regularly employed by the Company.
(b) The purchase price of any Shares purchased pursuant to paragraph
11 of this Agreement shall be 20% of retained earnings, if any, of the Company
plus the greater of (i) $200,000 or (ii) 20% of the gross collected revenues of
the Company, after deduction of commissions paid to advertising agencies, for
the fiscal year last preceding the fiscal year in which death or Permanent
Disability shall have occurred, computed under the annual statement for that
fiscal year prepared by the accountants then regularly employed by the Company.
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<PAGE>
(c) The purchase price of Shares purchased by NCI pursuant to
paragraph 12 or paragraph 12A (a) of this Agreement shall be 20% of retained
earnings, if any, of the Company plus the greater of (i) $200,000 or (ii) 20% of
the gross collected revenues of the Company, after deductions of commissions
paid to advertising agencies, for the fiscal year last preceding the fiscal year
in which the Exercise Notice or Put Notice is delivered by NCI or Rattiner, as
the case may be, computed under the annual statement for that fiscal year
prepared by the accountants then regularly employed by the Company.
(d) The purchase price for any Shares purchased by the Company or
NCI pursuant to this Agreement shall be paid as follows:
(i) If the purchase price is pursuant to the terms of an
Outside Offer, payment shall be made in accordance with the terms of the Outside
Offer.
(ii) If the purchase is otherwise than pursuant to the terms of
an Outside Offer, the first $400,000 of the purchase price shall be paid in cash
or by certified check at the Closing (as hereinafter defined) and the balance
shall be paid, with interest, at prime plus one percent in two equal
installments on the first and second anniversaries of the Closing. Until the
purchase price is paid in full the stock will remain in escrow with a mutually
agreed escrow agent to be held as collateral for the unpaid balance due.
14. Closing.
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(a) The closing for the sales of any of Rattiner's Shares under this
Agreement shall be held at the principal office of the Company on the 60th day
following the giving of a Counter Notice, Exercise Notice or Put Notice, or on
the 60th day following the qualification of Rattiner's personal representative,
as the case may be. If that day is a Saturday, Sunday or holiday, the closing
shall be heard on the first business day following that day.
(b) If a personal representative of Rattiner's estate does not
qualify within 90 days after death, either of the Company or NCI may apply to a
court of appropriate jurisdiction to have a special or temporary personal
representative appointed to consummate the sale of the Shares owned by Rattiner.
For the purpose of this paragraph, the Company and NCI shall be deemed to be
persons interested in Rattiner's estate.
15. Insurance. The company may, but shall not be obligated to,
obtain and maintain life and disability "buyback" insurance on Rattiner, naming
itself as beneficiary of the policies. Rattiner shall cooperate with the Company
and the insurers in connection with the issuance of such policies.
16. Purchase of Insurance Policies on Withdrawal of Rattiner. If
Rattiner, during his lifetime, transfers all of his Shares pursuant to the
provisions of this Agreement, the Company shall transfer to him all transferable
insurance policies and he shall pay the Company the then cash surrender value
(if any) of the policies.
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<PAGE>
17. Termination of Rattiner Employment. Rattiner's employment
pursuant to paragraph 7 and compensation and other benefits pursuant to
paragraph 8 shall terminate upon the happening of any of the following:
(a) At any time after three years from the date hereof, upon
delivery by Rattiner to the Company of a notice stating that he voluntarily
resigns from the employ of the Company;
(b) The sale of his Shares other than pursuant to paragraph
12A;
(c) His death or Permanent Disability;
(d) Notice given to Rattiner by the Company that such
employment is terminated for proper cause. As used herein, "proper cause" shall
mean a determination by the Board of Directors that Rattiner has:
(i) (A) willfully and materially refused or failed to
carry out specific directions of the Board of Directors, which directions shall
be consistent with the provisions hereof including his status as Publisher and
Editor of the Company, or, (B) willfully refused or failed to perform a material
part of his duties hereunder;
(ii) Committed a material breach of the provisions of
this Agreement other than paragraph 7;
(iii) Acted fraudulently or dishonestly in his relations
with the Company;
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(iv) Committed larceny, embezzlement, conversion or any
other act involving the misappropriation of Company funds in the course of his
employment; or
(v) Been convicted of any crime involving an act of
moral turpitude.
18. Confidentiality.
(a) During the term of his employment with NCI and it's affiliates
and thereafter, Rattiner shall keep secret and retain in the strictest
confidence all confidential matters of NCI and its affiliates, including,
without limitation, trade "know how," secrets, customer lists, subscription drop
lists, pricing policies, operational methods, technical processes, formulae,
inventions and research projects, and other business affairs of NCI and its
affiliates, learned by him heretofore or hereafter, and not to disclose them to
anyone outside NCI and its affiliates except (i) in the course of performing his
duties hereunder, (ii) with NCI and its affiliates' express written consent;
(iii) to the extent that any such information is in the public domain other than
as a result of Rattiner's breach of any of his obligations hereunder; or (iv)
where required to be disclosed by court order, subpoena or other government
process. In the event that Rattiner shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, he
promptly, but in no event more than 48 hours after learning of such subpoena,
court order, or other government process, shall notify NCI and its affiliates
and, at NCI and its affiliates' expense, he shall: (A) take all reasonably
necessary steps requested by NCI and its affiliates to defend against the
enforcement of such subpoena, court order or other government process, shall
notify NCI and its affiliates and, at NCI and its affiliates expense, he shall:
(A) take all reasonably necessary steps
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requested by NCI and its affiliates to defend against the enforcement of such
subpoena, court order or other government process, and (B) permit NCI and its
affiliates to intervene and participate with counsel of its choice in any
proceeding relating to the enforcement thereof.
(b) Upon termination of his employment by NCI and its affiliates, or
at any time NCI and its affiliates may so request, Rattiner shall promptly
deliver to NCI and its affiliates all memoranda, notes, records, reports,
manuals, drawings, blueprints and other documents (and all copies thereof)
relating to NCI and its affiliate's business and all property associated
therewith, which he may then possess or have under his control. Material written
by Rattiner and printed or published by NCI and its affiliates may be retained
by Rattiner.
19. Non-Competition.
(a) During the term of this Agreement and during any applicable
"Non-Competition Period" (as hereinafter defined), without the prior written
permission of NCI and its affiliates, Rattiner shall not, directly or
indirectly, except on behalf of NCI and its affiliates:
(i) Own, manage, operate or control, or participate in the
ownership, management, operation or control of, or be connected with or have any
interest in, as an employee, consultant, advisor, agent, owner, partner,
co-venturer, principal, director, stockholder, lender or otherwise, any
"Competitive Business" (as hereinafter defined):
page 15
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(ii) Employ or retain, or cause any other person or entity to
employ or retain, any person who was employed or retained by NCI and its
affiliates at a salary of $15,000 or more per year at any time during the one
year period immediately prior thereto; or
(iii) Solicit, interfere with or endeavor to entice from NCI
and its affiliates any of its sources of supply, free lancers who have been
employed by the company within the last 12 months, customers or prospective
customers.
(b) Notwithstanding anything to the contrary contained herein,
nothing in this Agreement shall preclude Rattiner from investing his personal
assets in the securities of any corporation or other business entity which is
engaged in a Competitive Business if such securities are traded on a national
stock exchange or in the over-the-counter market and if such investment does not
result in his beneficially owning, at any time, more than 1% of the publicly
traded equity securities of such corporation or other business entity.
(c) The "Non-Competition Period" shall mean:
(i) in the event Rattiner voluntarily resigns and his
employment is terminated pursuant to paragraph 17(a), upon the termination of
his employment by the Company pursuant to paragraph 17(d)(i), or upon the sale
of Rattiner's Shares, at the option of the Company exercised by notice to
Rattiner, the 18 month period beginning on the date of such resignation,
terminated or sale; or
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(ii) in the event of the termination of Rattiner's employment
pursuant to paragraph 17 (d) (ii), (iii), (iv) or (v), the three year period
beginning on the date of such termination.
(d) It shall be a condition precedent to the Company's option to
elect a Non-Competition Period pursuant to paragraph 19(c) (i) that the Company
pay to Rattiner, within 60 days after his voluntary resignation, termination or
at the Closing upon the sale of his Shares, as the case may be, the sum of
$125,000. The Company shall notify Rattiner of its election of the
Non-Competition Period at the time it notifies Rattiner of its exercise of its
option that his employment is terminated pursuant to paragraph 17(d) (i) or
within 15 days after Rattiner has notified the Company of his voluntary
resignation or his intention to sell his Shares, as the case may be.
(e) "Competitive Business" shall mean any enterprise engaged in the
publication of newspapers based in the counties of Manhattan, Kings, Queens,
Nassau and Suffolk in the State of New York.
20. Remedies of the Company
(a) If Rattiner violates any covenant contained in paragraphs 18 or
19, the duration of any such covenant shall automatically be extended for a
period equal to the period during which Rattiner shall have been in violation of
such covenant.
(b) If Rattiner commits a breech, or threatens to commit a breach
of, or evidences an intention to breach, any provisions of paragraphs 18 or 19,
then:
page 17
<PAGE>
(i) the Company shall be entitled to seek an injunction
restraining any such violation or to have the provisions of this Agreement
specifically enforced in any other manner by any court having equity
jurisdiction, without the necessity of showing any actual damage or that
monetary damages would not provide an adequate remedy, it being acknowledged and
agreed by Rattiner that any such breach, threatened breach or intention to
breach will cause irreparable injury to the Company and that monetary damages
will not provide an adequate remedy for same;
(ii) the Company shall be entitled to require Rattiner to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by Rattiner as the result of any such breach, threatened breach of
intention to breach and Rattiner hereby agrees to account for and pay over the
Benefits to the Company.
Each of the rights and remedies enumerated in this paragraph 20 shall be
independent of the other, and shall be severely enforceable, and such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
21. Assignment of Editorial Content.
The editorial rights, for the written media, of all the writings
written by Dan Rattiner and published by Dan's Papers Inc. from the beginning of
his employment with that company until the termination of his employment with
that company shall belong to Dan's Papers, Inc., until his death, at which time
these rights revert to Mr. Rattiner's estate. Dan's Papers assigns the
non-written media rights (TV, audio, etc.) to Dan
page 18
<PAGE>
Rattiner. In addition, Dan's Papers Inc. extends to Mr. Rattiner the right,
after his retirement, to use his written material as long as it does not compete
with the existing publications of either Dan's Papers Inc. or NCI.
22. Arbitration. Any dispute hereunder, other than a dispute
involving the matters provided for in paragraphs 18, 19 and 20, which cannot be
resolved by the parties, shall be submitted (and any party may submit such
dispute) for arbitration in New York City in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect. Such
arbitration shall be conducted by a single arbitrator, who shall be a practicing
attorney admitted to practice law in the State of New York, with at least 15
full years of experience in the private practice of corporate and commercial
law. Each party shall pay the fees and expenses of counsel used by it and
Rattiner, on the one hand, and NCI and the Company, on the other, shall each pay
500% of the fees and expenses of the arbitrator and other expenses of
arbitration. Judgment may be obtained on the decision of the arbitrator so
rendered in any court having jurisdiction and may be enforced in accordance with
the law of the State of New York.
23. Endorsement on Share Certificates. As long as this Agreement
remains in effect, each Share certificate shall bear the following statement:
"The Shares represented by this certificate are held subject
to the terms of an Agreement dated October 13, 1988, made by
all the Shareholders and the Company, a copy of which is on
file at the office of the Company. They may not be
transferred except in accordance with that Agreement."
page 19
<PAGE>
24. Restriction on NCI Shares. NCI shall not sell any of the Shares
owned by it to a third party except in a transaction which provides for Rattiner
to elect to sell the Shares owned by him on the same terms and conditions.
25. Libel Insurance. If available at rates comparable to those paid
by other newspapers of similar size, the Company shall maintain libel insurance
consistent with its historic practice during all periods that Rattiner is
employed by the Company.
26. Books and Records. The Company's books and records, this
Agreement and all amendments thereto, and any notices or communications received
by the Company, shall be maintained at the office of the Company, and shall be
open to the inspection and examination of the Shareholders or their duly
authorized representatives during regular business hours at reasonable times.
27. New York Law to Govern. This Agreement shall be construed and
governed by the law of the State of New York. No waiver by any party of any
breach of this Agreement shall be construed as a waiver of any subsequent
breach.
28. Invalidity of Any Provision. If any provision of this Agreement
shall be held to be invalid or unenforceable, the invalidity or unenforceability
shall attach only to that provision and shall not render invalid or
unenforceable any other provisions of this Agreement.
29. Notices. All notices, consents, requests, demands and other
communications under this Agreement shall be in writing, and (a) shall be deemed
to have been duly given if personally delivered or if sent by certified or
registered mail, postage prepaid, addressed to each party at that party's
address as set forth on the first page, and
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<PAGE>
(b) shall be considered given as of the day of hand delivery, or, if mailed, as
of the first day after the day of mailing. Any party may change that party's
address by notice similarly given to the other parties. Copies of all
communications sent to Rattiner shall be similarly delivered to Field & Field,
P.C., 5A Foxwood Road, Great Neck, New York 11024 and copies of all
communications sent to NCI and the Company shall be similarly delivered to Mr.
Jerry Finkelstein, 812 Park Avenue, New York, New York 10021.
30. Headings. The paragraph headings are inserted only for
convenience and do not define, limit or describe the scope or intent of any
provision of this Agreement.
31. Successors and Assigns. This Agreement shall be binding upon,
and shall insure to the benefit of, the successor and assigns of the parties.
IN WITNESS WHEREOF, the parties have signed and delivered this
Agreement as of the date and year first above written.
/s/ Daniel Rattiner
---------------------
DANIEL RATTINER
NEWS COMMUNICATIONS, INC.
By: /s/ Wilbur Ross
------------------
Title: Chief Executive Officer
page 21
<PAGE>
DANS PAPERS, INC.
By: /s/ Daniel Rattiner
-------------------------
Title: President
----------------------
Date: 12/11/97
-----------------------
page 22
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of November 5, 1997 is made and entered into
by and between ROTHSCHILD RECOVERY FUND L.P. (together with its successors and
assigns "Lender"), a Delaware Limited Partnership whose address is 1251 Avenue
of the Americas, New York, New York, 10020 and DAN'S PAPERS, INC., ("Borrower")
a New York corporation whose address is 2221 Montauk Highway, Bridgehampton, New
York, 11932 and NEWS COMMUNICATIONS, INC. ("News") a Nevada corporation whose
address is 174-15 Horace Harding Expressway Fresh Meadows New York, the parent
of the Borrower.
WHEREAS, the Borrower desires to borrow from Lender the principal sum of
One Million Five Hundred Thousand Dollars ($1,500,000) (the "Loan"); and
WHEREAS, Lender is willing to make the Loan upon the terms and conditions
hereinafter set forth; and
WHEREAS, News is willing to guarantee (the "Guarantee") the Loan; and
WHEREAS, the parties desire to enter into this Loan Agreement to reflect
the terms and conditions of, and to describe their respective rights and
obligations with respect to, the Loan;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the parties hereto agree as follows:
1. The Loan. Lender agrees to make the Loan to the Borrower in the principal
amount of One Million Five Hundred Thousand Dollars ($1,500,000) on the terms
and conditions contained herein and as provided in the Note (as hereinafter
defined).
2. Loan Terms.
(a) The Loan shall be evidenced by a promissory note as such may be
amended, modified, extended or restated, or a promissory note issued as a
replacement or substitution therefore (the "Note") payable to Lender in
substantially the form attached hereto as Exhibit A.
(b) The Loan shall be payable in one installment of all outstanding
principal and unpaid, accrued interest on December 31, 1998 ("the Maturity
Date").
<PAGE>
(c) Interest shall accrue on the principal amount outstanding under the
Loan at the rate of nine and three-quarter percent (9.75%) per annum and shall
be payable monthly commencing on December 1, 1997 and on the Maturity Date or
the date of any other payment of principal under the Note. Interest shall be
calculated on a 365 day year basis and actual days elapsed from disbursement
date until paid.
(d) The entire amount of unpaid principal and accrued interest shall, from
and after the Maturity Date and from and after an "Event of Default" (as
hereinafter defined), bear interest at the rate equal to the lesser of (i)
twenty-four percent (24%) per annum and (ii) the maximum interest rate permitted
by law.
(e) The Borrower may at any time prepay in whole or in part the principal
sum, plus accrued interest on the amount so prepaid to date of payment, of the
Note, without premium or penalty. Unless otherwise agreed by Lender, any
prepayments shall be applied first to accrued interest and then to the unpaid
principal amount of the Loan.
(f) The Loan, and each and every modification, extension, renewal, or
refinancing thereof, and the performance of all covenants, duties and
obligations of the Borrower and the compliance by the Borrower with all
conditions, representations and warranties set forth in this Loan Agreement, the
other "Loan Documents" (as hereinafter defined) and all documents executed in
connection herewith, shall be secured by a security interest in all assets of
the Borrower pursuant to a General Security Agreement annexed hereto as Exhibit
B and by the Guarantee Agreement annexed hereto as Exhibit C.
(g) Simultaneously with the execution of this Loan Agreement, News shall
issue to Lender, a five-year warrant to purchase on or after February 28, 1998,
300,000 shares of common stock of News at an initial exercise price of $2.25 per
share pursuant to the Warrant (the "Warrant") annexed hereto as Exhibit D,
unless prior to that date the Lender shall instead elect to receive interest at
the rate of 10.75% per annum, retroactive to the initial date of the Loan.
(h) Lender shall not be required to make the Loan hereunder, unless and
until the following shall be satisfied:
1. The Loan Agreement, the Note, the General Security Agreement and
the Guarantee (collectively, the "Loan Documents") and the Warrant have been
duly executed and delivered to Lender and shall be in full force and effect in
accordance with their terms.
2. The Borrower and News shall have therefor complied with all of
the conditions, terms, covenants and agreements contained in the Loan Documents
and all documents executed in connection herewith, including the Warrant, and
all representations
<PAGE>
and warranties of the Borrower and News are true and correct as of the date of
the borrowing.
3. At the time of the borrowing hereunder, the Borrower shall
deliver to the Lender a certificate, dated the date of the borrowing, confirming
that no Event of Default (as hereinafter defined) or any event which upon notice
or passage of time or both would constitute an Event of Default shall have
occurred and be continuing at the time of such borrowing.
4. On or prior to the date of the borrowing hereunder, the Lender
shall have received from Borrower and News:
(x) A Certificate of an officer of each of Borrower and News
dated the date of such borrowing and certifying (i) that attached thereto is a
true and complete copy of the articles and by laws of Borrower and News,
respectively, in effect prior to the adoption of the resolution referred to in
the immediate following clause and at all times since adoption, and (ii) in the
case of the Borrower, that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Directors of Borrower authorizing the
execution, delivery and performance of the Loan Documents by the Borrower, and
in the case of News, that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Director of News authorizing the execution,
delivery and performance of the Loan Documents and the Warrant; and
(y) such other documents as the Lender may reasonably request.
(i) If any payment of principal, interest or any other amount due
hereunder is due upon a day which is not a day which the Lender is open for
business ("Business Day") then such payment plus interest on such payment
computed from the due date to the next succeeding Business Day shall be due on
the next succeeding Business Day.
3. Borrower's and News' Representations, Warranties and Covenants. The Borrower
and News represent, warrant and covenant to Lender that, as of the date hereof,
and as long as any amount hereunder or under the Note remains outstanding (and
with respect to the Warrant, until expiration or exercise of the Warrant):
(a) there is no provision of any contract, agreement, indenture or other
instrument to which the Borrower or News will be a party which would be
contravened or violated by any of the representations, warranties, convenants or
agreements made or actions to be taken hereunder or under the other Loan
Documents or the Warrant by the Borrower or News.
<PAGE>
(b) there is no action, suit, proceeding, arbitration or investigation
pending at law or in equity or before any governmental agency or instrumentality
or, to the knowledge of the Borrower or News threatened against or affecting the
Borrower or News or which, in any case, might materially adversely affect the
Borrower or News, or either of their respective operations, business, assets,
properties, condition (financial or otherwise) or ability to perform or
otherwise comply with their obligations to Lender. If, in the future, such
action, suit, proceeding, arbitration or investigation is pending or threatened,
the Borrower and News shall provide Lender with immediate notification and the
details thereof.
(c) each of the Borrower and News is a corporation duly organized and
validly existing under the law of the state of its incorporation. The Borrower
and News have the power and authority to conduct all of the activities conducted
by them and to own or lease all of the assets owned or leased by them and are
duly licensed or qualified to do business as foreign corporations in all
jurisdiction in which the nature of the business require them to be so licensed
or qualified. The Borrower and News are in all material respects in compliance
with all laws, regulations and ordinances applicable to them.
(d) the execution, delivery and performance by the Borrower and News of
the Loan Documents, and by News of the Warrant (i) do not require the approval
of any governmental authorities (ii) do not violate the Certificate of
Incorporation or bylaws of the Borrower or News and (iii) do not violate any
provisions of law, any writ, order or decision of any court or other
governmental authority, or any indenture, agreement or other instrument to which
the Borrower or News is a party or by which their properties may be bound or
affected. The Loan Documents, the Warrant and any other documents executed by
the Borrower or News in connection herewith are, or upon execution and delivery
will be, the legal, valid and binding obligations of the Borrower and News,
enforceable in accordance with their respective terms, and are not and will not
be, without Lender's prior written consent, subordinated in right of payment to
any other obligation of such Borrower or News.
(e) News and Borrower have obtained all necessary corporate and other
approvals for the execution and delivery of the Loan Documents and News had
obtained all necessary corporate and other approvals for the execution and
delivery of the Warrant. The Borrower and News have the power and authority to
execute the Loan Documents and the Warrant, as the case may be, and to
consummate the transactions contemplated hereby and thereby.
(f) no delinquency presently exists with respect to payment of any tax,
assessment or other governmental charge owing by Borrower or News. There are no
material unresolved questions or claims concerning any tax liability of Borrower
or News.
(g) insurance of the types and in the amounts customarily carried in lines
of business similar to those carried on by the Borrower and News is maintained
and kept in force by the Borrower and News.
<PAGE>
(h) there is no condition of existing default by the Borrower or News
under any agreement, lease, contract or other instrument which would have a
material adverse effect on the Borrower or News or either of their respective
operations, businesses, assets, properties, condition (financial or otherwise),
or ability to fulfill their obligations to Lender under the Loan Documents or,
in the case of News, the Warrant.
(i) the Borrower and News have no contingent or disputed liabilities or
unrealized or anticipated losses which in the aggregate are material, or any
material commitments of an unusual or burdensome character.
(j) there is no fact that materially adversely affects the ability of the
Borrower or News to perform its obligations to Lender which has not been set
forth herein.
(k) none of the Loan Documents or the Warrant, nor any certificate,
statement or other document furnished or to be furnished to the Lender in
connection with the transactions contemplated hereby or thereby contains or will
contain any untrue statement of material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
4. Covenants. Unless Lender otherwise agrees in writing, until payment in full
of the Loan and performance of all obligations under the Loan Documents, the
Borrower and News, as the case may be, shall:
(a) duly pay or cause to be paid the principal of and interest on the Note
on the dates, in the places and in the manner set forth therein, and perform and
observe all other obligations the Borrower and News under the Loan Documents,
the Warrant and any other instruments or documents executed in connection
herewith.
(b) maintain and preserve their respective existence, rights, privileges
and franchises in good standing under the laws of the state of their corporation
and such states in which they may decide to maintain their existence and
maintain their right to transact business in all other states where their
activities and ownership of assets are such that qualification to transact
business is necessary under laws of such states.
(c) keep and maintain full and accurate accounts and records of their
operations in accordance with generally accepted accounting principles
applicable to the businesses of the type in which they are engaged and
consistent with principles heretofore applied by them in preparation of their
financial statements.
(d) with respect to News, timely file all documents and reports to be
filed by it under Securities Exchange Act of 1934, as amended, and provide
copies of all such filings
<PAGE>
documents and reports to Lender immediately after such filings with Securities
and Exchange Commission or any other governmental or regulatory body.
(e) permit Lender to inspect the accounts and records of Borrower and News
at any time during normal business hours.
(f) comply in all material respects with all laws, regulations, rules and
orders of governmental authorities applicable to them or their operations,
business or property.
(g) duly pay and discharge, all wages, indebtedness, obligations,
assessments, governmental charges and taxes, real and personal, including
federal and state income taxes, levied upon or assessed against them or their
properties or income except to the extent such shall be contested in good faith
and by appropriate proceedings diligently conducted by them.
(h) execute and deliver to Lender such other and further instruments,
security agreements, documents and information and perform further acts as may
be reasonably required and requested by Lender in order to fully vest and
maintain in Lender the security interest or rights herein contemplated.
(i) promptly after learning thereof, notify Lender in writing of the
occurrence of (i) any Event of Default or any act, condition, or event that
would constitute an Event of Default upon notice, failure to cure, lapse of time
or all of the foregoing; (ii) any material adverse change in their respective
business, property, assets, operations or condition (financial or otherwise) or
(iii) the pendency or threat of any investigation or litigation or arbitration
and of any tax deficiency, tax determination or other proceeding before any
governmental body or official affecting them.
(j) not voluntarily create, suffer, or permit to be created any new or
additional liens against the "Collateral" (as such term is defined in the
General Security Agreement) except any lien created hereby. Borrower and News
shall not incur any indebtedness, except for trade payables incurred in the
ordinary course of business, without Lender's prior written consent.
(k) not, except with Lender's prior written consent (i) sell, lease,
transfer or otherwise dispose of two or more of the newspapers and/or other
publications or (ii) enter into any arrangement with any person with respect to
any such disposition.
5. Events of Default. If any of the events specified in this Section 5 shall
occur (herein individually referred to as an "Event of Default"):
(a) default in payment of principal or interest under the Note when due;
<PAGE>
(b) a default or breach by the Borrower or News of any obligation or any
representation, warranty, covenant or agreement, set forth in the Loan Documents
or the Warrant, or other documents signed by Borrower or News in connection with
the Loan or Guarantee which is not cured or cannot be cured by Borrower or News,
within ten (10) days after the Lender has given Borrower written notice of such
default;
(c) the institution by the Borrower or News of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
federal Bankruptcy Code, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official for all or any
substantial part of its property or the taking of any action by any Borrower or
News in furtherance of any such action;
(d) within sixty (60) days after the commencement of an action against the
Borrower or News seeking any bankruptcy, insolvency, reorganization, liquidation
or similar relief under any present or future statue, law or regulation: such
action shall not have been resolved in favor of the Borrower or News; all orders
or proceedings thereunder affecting the property of such Borrower shall not have
been stayed; the stay of any such order or proceeding shall thereafter be set
aside; or within sixty (60) days after the appointment without the consent or
acquiescence of the Borrower or News of any trustee or receiver for all or any
substantial part of such parties' property, such appointment shall not have been
vacated;
(e) any default of the Borrower or News under any indebtedness or other
obligations which aggregate at least $100,000 if such default is not cured by
the Borrower or News before the earlier of (x) ten (10) days after the Lender
has given the Borrower or News written notice of such default or (y) the obligee
of such indebtedness or other obligation has made demand or notified the
Borrower or News of any acceleration and in either case, any cure period has
lapsed; or
(f) the rendering of one or more judgments or orders against the Borrower
or News for the payment of money exceeding any applicable insurance coverage by
more than $100,000 in the aggregate, and either (x) enforcement proceedings
shall have been commenced by any creditor upon any such judgment or order, or
(y) there shall be any period of 30 consecutive days during which a stay of
enforcement of any such judgment or order, by reasons of a pending appeal or
otherwise, shall not be in effect; or
(g) any event of default under any other Loan Document;
<PAGE>
(h) the dissolution or liquidation of the Borrower or News, or the
Borrower or News or their respective directors or shareholders shall take action
approving or authorizing the dissolution or liquidation of Borrower or News as
the case maybe; or
(i) the Guarantee is disclaimed, invalid or its effectiveness is otherwise
vitiated;
then, with the exception of an Event of Default specified in clauses (c)
or (d) above, the Lender may, by notice to the Borrowers or News, declare any
outstanding indebtedness to Lender under the Note and this Loan Agreement and
the Guarantee, all interest thereon and all other amounts payable hereunder or
thereunder to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Borrower or News, whereupon the principal amount of the Note, all such
interest and all such amounts shall become and be immediately due and payable,
and exercise any and all of its other rights under applicable law.
Upon the occurrence of an Event of Default specified in clauses (c) or (d)
above, any outstanding indebtedness to Lender under the Note and this Loan
Agreement, all interest thereon and all other amounts payable hereunder or
thereunder shall thereupon and concurrently therewith become due and payable,
all without any action by the Lender, and without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived by the
Borrower and News, anything in this Loan Agreement or the Note to the contrary
notwithstanding.
In addition to it rights hereunder, Lender may also exercise any or all of it
rights contained in any other Loan Document.
6. Miscellaneous
(a) Any notice required, desired, or permitted to be given to the
Borrower, News or Lender hereunder shall be in writing and shall be delivered
personally, sent certified or registered United States mail, return receipt
requested or sent by overnight courier service addressed
Borrowers: Dan's Papers, Inc.
2221 Montauk Highway
Bridgehampton, New York 11932
News Michael Schenkler, President
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
<PAGE>
Lender: Mr. David Storper
Rothschild Recovery Fund L.P.
1251 Avenue of the Americas
New York, New York 10020
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service, one (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other parties.
(b) In the event any term or provision of the Loan Documents, the Warrant,
or any other instrument, document or agreement executed pursuant hereto shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by any authority having jurisdiction, such
determination shall not affect the validity, legality or enforceability of the
remaining terms and provisions of the Loan Documents, the Warrant or any such
other instrument, document or agreement, which shall be enforced as if the
unenforceable term or provision were deleted.
(c) No course of dealing on the part of Lender, its officers, directors,
employees, consultants or agents, nor any failure or delay by Lender with
respect to exercising any rights, remedy, power or privilege of Lender under the
Loan Documents, the Warrant, or any other instrument, document or instrument
executed and delivered in connection herewith at law or in equity shall operate
as a waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise or the exercise of any other right, remedy, power or
privilege. No waiver or consent shall be effective unless the same shall be in
writing and signed by Lender and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
notice to or demand on Borrower or News in any case shall entitle the Borrower
or News other or further notice or demand in similar or other circumstances.
(d) Enforcement of any rights of Lender under the Loan Documents shall not
affect the rights of Lender to enforce payment and to recover judgment for any
portion thereof remaining unpaid. The rights and remedies herein expressed are
cumulative and not exclusive of any rights or remedy that Lender shall otherwise
have.
(e) The Loan Documents, the Warrant and all instruments, documents or
agreements executed pursuant hereto and thereto shall be governed by construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflict of laws thereof.
<PAGE>
(f) Borrower and News may not assign any of their respective rights or
obligations under any of the Loan Documents or the Warrant, without the prior
written consent of Lender to any such assignment without such consent shall be
void. Lender may assign its rights and obligations under the Loan Documents or
the Warrant without the prior consent of the Borrower.
(g) This Loan Agreement shall be binding upon, and inure to the benefit
of, and be enforceable by the Borrower, News and the Lender, and their
respective successors and permitted assigns.
(h) This Loan Agreement contains the entire agreement between the
Borrower, News and the Lender with respect to the subject matter hereof, and
supersedes and cancels any prior agreements or understandings, whether oral or
written, among the parties hereto with respect to such subject matter. This Loan
Agreement may not be amended or modified except in a writing signed by the
Lender, the Borrower and News.
(i) All representations and warranties contained in the Loan Documents or
made in writing by or on behalf of Borrower or News in connection with the
transactions contemplated hereby shall survive the execution and delivery of the
Loan Documents, regardless of any investigation at any time made by Lender or on
its behalf. The Loan Agreement shall continue in full force and effect so long
as any amount borrowed, or expenses, fees (including legal fees), or interest
remain unpaid.
(j) This Loan Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one agreement. This Loan Agreement will be deemed to be binding agreement among
the parties hereto upon receipt by each party of fully executed copies of this
Agreement by mail, facsimile or otherwise.
(k) Lender is not a partner or a joint venturer with the Borrower or News
with respect to the transaction contemplated hereby or by the other Loan
Documents or the Warrant and the Lender shall not be deemed liable as such with
respect to any liability of the Borrower.
(l) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to the Loan Documents, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be head and determined in any such New York State court
or, to the extent permitted by law, in such federal court. Each of the parties
hereto agrees that a
<PAGE>
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Loan Agreement shall affect any right that any
party may otherwise have to bring any action or proceeding relating to the Loan
Documents in the courts of any jurisdiction. Each of the parties hereto
irrevocably and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to the
Loan Documents in any New York State or federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(m) Each of the Borrower, News and the Lender hereby irrevocably waives
all right to trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or otherwise) arising out of or relating to the Loan
Documents or the actions of the Lender in the negotiation, administration,
performance or enforcement thereof.
(n) The Borrower and News hereby agree not to raise or interpose any
defense, set-off or counterclaim of any kind or nature whatsoever which it may
have against the Lender in any action brought upon the Loan Documents or the
Warrant and the Borrower and News each acknowledges that they have no defense of
any kind or nature to the enforcement of the Loan Documents and the Warrant or
to the binding nature of the obligations represented hereby or thereby.
(o) The Borrower and News agree to pay all of Lender's legal fees and
expenses incurred in connection with the documentation, negotiation and the
execution of the Loan
<PAGE>
Documents and the Warrant, and all expenses incurred, including legal fees and
expenses, in collecting any of Borrower's or News' obligations hereunder or
thereunder.
ROTHSCHILD RECOVERY FUND L.P.
By:
---------------------------
Name:
Title:
DAN'S PAPERS, INC.
By:
-----------------------------
Name:
Title:
NEWS COMMUNICATIONS, INC.
By:
-----------------------------
Michael Schenkler
President
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$1,500,000
New York, New York
November 5, 1997
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED N THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THIS PROMISSORY NOTE UNDER THE SECURITIES ACT OF 1933 AND QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
Dan's Papers, Inc., a New York corporation whose address is 2221 Montauk
Highway, Bridgehampton, New York 11932, (as Borrower) for value received, hereby
promises to pay to the order of Rothschild Recovery Fund L.P. (the "Lender"), a
Delaware Limited Partnership, the sum of One Million Five Hundred Thousand
Dollars ($1,500,000), or such lesser amount as shall then equal the outstanding
principal amount hereof, on December 31, 1998 (such date, or such earlier date
upon which the principal and interest is due upon acceleration pursuant to
Section 5 of the "Loan Agreement" (as hereinafter defined) hereinafter referred
to as the "Due Date") and to pay interest from the date hereof on the unpaid
principal amount hereof at the rate set forth below, all on the terms and
conditions set forth herein. Payment for all amounts due hereunder shall be made
in lawful money of the United States of America by certified mail, return
receipt requested, to the address of the Lender or by wire transfer to an
account designated in writing by the Lender. The indebtedness evidenced by this
Note is further evidenced by a Loan Agreement, dated the date hereof, between
the Borrower, News Communications, Inc. (the "Guarantor") and the Lender (the
"Loan Agreement") and is secured as provided therein by a Guarantee Agreement
(the "Guarantee") dated the date hereof, executed by the Guarantor and by a
General Security Agreement ("Security Agreement") dated the date hereof,
executed by Borrower. The indebtedness is subject to acceleration upon the
occurrence of an Event of Default as set forth in the Loan Agreement. The Loan
Agreement, the Security Agreement and the Guarantee are incorporated by
reference herein. All terms used herein and not defined herein shall have the
meaning set forth in the Loan Agreement.
1. Interest. Interest shall accrue from the date hereof until all
outstanding principal and interest on this Note shall have been paid in full at
the rate of nine and three-quarters percent (9.75%) per annum on the unpaid
principal balance hereof and shall be payable monthly commencing on December 1,
1997 and on the Due Date or the date of any other payment of principal on the
Note. In the event that the principal amount of this Note is not paid in full on
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<PAGE>
the Due Date, interest at the rate equal to the lesser of (i) the maximum
legally permitted interest rate and (ii) twenty-four percent (24%) per annum
shall continue to accrue on the balance of any unpaid principal and accrued
interest from the Due Date until such balance is paid.
2. Prepayment. The Borrower may at any time prepay in whole or in part the
principal sum, plus accrued interest on the amount so prepaid to date of
payment, of this Note, without penalty or premium. All such prepayments shall be
applied in the manner set forth in the Loan Agreement.
3. Waiver of Presentation, Demand, Etc. All parties now or hereafter
liable with respect to this Note, whether the Borrower, guarantor, endorser or
any other person hereby expressly waive presentment, demand of payment, protest,
notice for demand of payment, protest and notice of non-payment, or any other
notice of any kind with respect thereto. No delay or failure on the part of the
Lender in the exercise of any right or remedy hereunder or under the Loan
Agreement, or at law or in equity, shall operate as a wavier thereof, and no
single or partial exercise by the Lender of any right or remedy hereunder or
under Loan Agreement shall preclude or estop another or further exercise or any
other right or remedy.
4. Defense, Set-Offs, Counterclaims. The Borrower hereby agrees not to
raise or interpose any defense, set-off or counterclaim of any kind or nature
whatsoever which it may have against the Lender in any action brought upon this
Note or the Loan Agreement or the other Loan Documents and the Borrower
acknowledges that it has no defense of any kind or nature to the enforcement of
this Note or the Loan Agreement or the other Loan Documents or to the binding
nature of the obligations represented hereby or thereby.
5. Amendments. No amendment, modification, alternation or change of any of
the provisions of this Note shall be effective unless in writing signed by the
Borrower and the Lender and only to the extent therein set forth.
6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
7. Time of the Essence. Time is of the essence with respect to this Note
and in case this Note is collected by law or through an attorney at law or under
advice therefrom, or any remedy is exercised under the Loan Agreement, the
Borrower agrees to pay all costs of collection or costs associated with the
exercise of any such remedy including reasonable attorneys' fees. The Lender
shall be under no duty to exercise any or all of the rights and remedies given
by this Note or the Loan Agreement and no party to this instrument shall be
discharged from the obligations or undertakings hereunder (a) should the Lender
release or agree not to sue any person against whom the party has, to the
knowledge of Lender, a right to recourse, or (b) should the Lender agree to
suspend the right to enforce this Note or its interest
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<PAGE>
in any collateral pledged to secure this Note against such person or otherwise
discharge such person.
8. Severability. In the event that any term or provision of this Note
shall be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by any authority having jurisdiction,
such determination shall not impair or otherwise affect the validity, legality
or enforceability of the remaining terms and provisions of this Note, which
shall be enforced as if the unenforceable term or provision were deleted.
IN WITNESS WHEREOF, the undersigned has caused this Note to be issued as
of this 5th day of November, 1997.
DAN'S PAPERS, INC.
By:
---------------------------
Name:
Title:
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<PAGE>
EXHIBIT B
GENERAL SECURITY AGREEMENT
GENERAL SECURITY AGREEMENT, dated as of November 5, 1997 between Dan's
Papers, Inc., incorporated under the laws of New York (the "Debtor"), and
Rothschild Recovery Fund L.P. (the "Secured Party");
W I T N E S S E T H:
WHEREAS, the Debtor and the Secured Party are parties to a Loan Agreement
(herein, as at any time amended, extended, restated, renewed or modified, the
"Loan Agreement") and conditions set forth therein, to lend to the Debtor an
aggregate principal amount of $1,500,000 and
WHEREAS, it is a condition to the extension of credit by the Secured Party
pursuant to the Loan Agreement that the Debtor enter into this General Security
Agreement and grant to the Secured Party the security interest provided for
herein;
NOW, THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:
Section 1. Terms. Unless otherwise defined herein, capitalized terms used
in this General Security Agreement shall have the meaning specified therefor in
the Loan Agreement. As used herein the following terms shall have the meanings
specified and shall include in the singular number the plural and in the plural
number the singular:
"Assigned Agreements" shall mean all contracts and agreements of the
Debtor.
"Collateral" means all of the Debtor's right, title and interest in and
under or arising out of each and all of the following:
All personal property and fixtures of the Debtor of any type or
description, wherever located and now existing or hereafter arising or acquired,
including but not limited to the following:
(i) all of the Debtor's goods including, without limitation:
(a) all inventory, including without limitation lighting and other
equipment held for lease, whether raw materials, in process or finished, all
material or equipment usable in processing the same and all documents of title
covering any inventory (all of the foregoing, "Inventory");
(b) all equipment (the "Equipment") employed in connection with the
Debtor's business, together with all present and future additions, attachments
and accessions thereto and all substitutions therefor and replacements thereof;
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<PAGE>
(ii) all of the Debtor's present and future accounts, accounts receivable
from affiliates, general intangibles, contracts and contract rights (herein
sometimes referred to as "Receivables"), including but not limited to the
Debtor's rights (including rights to payment) under all Assigned Agreements
together with
(a) all claims, rights, powers or privileges and remedies of the
Debtor relating thereto or arising in connection therewith including, without
limitation, all rights of the Debtor to make determinations, to exercise any
election (including, but not limited to, election of remedies) or option or to
give or receive any notice, consent, waiver or approval, together with full
power and authority to demand, receive, enforce, collect or receipt for any of
the foregoing or any property which is the subject of the Assigned Agreements,
to enforce or execute any checks, or other instruments or orders, to file any
claims and to take any action which (in the opinion of the Secured Party) may be
necessary or advisable in connection with any of the foregoing,
(b) all liens, security, guaranties, endorsements, warranties and
indemnities and all insurance and claims for insurance relating thereto or
arising in connection therewith,
(c) all rights to property forming the subject matter of the
Receivables including, without limitation, rights to stoppage in transit and
rights to returned or repossessed property,
(d) all writings relating thereto or arising in connection therewith
including without limitation, all notes, contracts, security agreements,
guaranties, chattel paper and other evidence of indebtedness or security, all
powers-of-attorney, all books, records, ledger cards and invoices, all credit
information, reports or memoranda and all evidence of filings or registrations
relating thereto,
(e) all catalogs, computer and automatic machinery software and
programs, and the like pertaining to operation by the Debtor in, on or about any
of its plants or warehouses, all sales data and other information relating to
sales or service of products now or hereafter manufactured on or about any of
its plants, and all accounting information pertaining to operations in, on or
about any of its plants, and all media in which or on which any of the
information or knowledge or data is stored or contained, and all computer
programs used for the compilation or printout of such information, knowledge,
records or data, and
(f) all accounts, contract rights, general intangibles and other
property rights of any nature whatsoever arising out of or in connection with
the foregoing, including without limitation, payments due and to become due,
whether as repayments, reimbursements, contractual obligations, indemnities,
damages or otherwise;
(iii) all other personal property of the Debtor of any nature whatsoever,
including, without limitation, all accounts, bank accounts, deposits, credit
balances, contract rights, inventory, general intangibles, goods, equipment,
instruments, chattel paper, machinery,
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<PAGE>
furniture, furnishings, fixtures, tools, supplies, appliances, plans and
drawings, together with all customer and supplier lists and records of the
business, and all property from time to time described in any financing
statement (UCC-1) signed by the Debtor naming the Lender as secured party; and
(iv) all additions, accessions, replacements, substitutions or
improvements and all products and proceeds including, without limitation,
proceeds of insurance, of any and all of the Collateral described in clauses (i)
through (iii) above.
"Instrument" shall have the meaning specified in Article 3 of the Uniform
Commercial Code, as in effect from time to time in the State of New York and
shall also include any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease and is of a type which is
in the ordinary course of business transferred by delivery with any necessary
endorsement or assignment.
"Receivables" has the meaning specified therefor in clause (ii) of the
definition of Collateral.
"Secured Obligations" means the principal of, and interest on, the Loan
and the Note and all other obligations of the Debtor, whether for fees, expenses
or otherwise, now existing or hereafter arising under this General Security
Agreement, the Loan Documents and any other document executed by Debtor in
connection with any of the foregoing.
Section 2. Security Interests. As security for the payment and performance
of all Secured Obligations the Debtor does hereby grant and assign to the
Secured Party a continuing security interest in all of the Collateral, whether
now existing or hereafter arising or acquired and wherever located.
Section 3. General Representations, Warranties and Covenants. The Debtor
represents, warrants and covenants, which representations, warranties and
covenants shall survive execution and delivery of this General Security
Agreement, as follows:
(a) This General Security Agreement is made with full recourse to the
Debtor and pursuant to and upon all the warranties, representations, covenants,
and agreements on the part of the Debtor contained herein, in the Loan Agreement
and otherwise made in writing in connection herewith or therewith.
(b) The Debtor is, and as to Collateral acquired from time to time after
the date hereof the Debtor will be, the owner of all the Collateral and for as
long as the Secured Obligations remain unpaid the Debtor will not permit any new
or additional lien or other encumbrance on the Collateral.
(c) So long as the Loan Agreement remains in effect or any of the Secured
Obligations of the Debtor remain unpaid, the Debtor will not execute and there
will not be on
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<PAGE>
file in any public office any new or additional financing statement (or similar
statement or instrument of registration under the law of any jurisdiction) or
statements relating to the Collateral, except financing statements filed or to
be filed in respect of and covering the security interest of the Secured Party
hereby granted and provided for.
(d) The chief executive office and chief place of business of the Debtor
is located at the address of the Debtor listed on the signature page hereof, and
the Debtor will not move its chief executive office and chief place of business
except to such new location as the Debtor may establish in accordance with the
last sentence of this Section 3(d). The originals of all documents (as well as
all duplicates thereof) evidencing all Receivables and all other contract rights
or accounts and other property of the Debtor and the only original books of
account and records of the Debtor relating thereto are, and will continue to be,
kept at such chief executive office or at such new location as the Debtor may
establish in accordance with the last sentence of this Section 3(d). The Debtor
shall establish no such new location until (i) it shall have given to the
Secured Party not less than 30 days' prior written notice of its intention so to
do, clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request, and (ii) with
respect to such new location, it shall have taken such action, satisfactory to
the Secured Party (including, without limitation, all action required by Section
7 hereof), to maintain the security interest of the Secured Party in the
Receivables intended to be granted at all times fully perfected and in full
force and effect.)
(e) Debtor has no Collateral located outside the State of New York.
(f) The name of the Debtor is as set forth on the signature page hereto
and the Debtor shall not change such name, conduct its business in any other
name or take title to the Collateral in any other name while this General
Security Agreement remains in effect. The Debtor has never had any name, or
conducted business under any name in any jurisdiction, other than its name set
forth on the signature page hereto, during the past six years.
(g) At the Debtor's own expense, the Debtor will: (i) without limiting the
provisions of the Loan Agreement, keep the Collateral fully insured at all times
with financially sound and responsible insurance carriers against loss or damage
by fire and other risks, casualties and contingencies and in such manner and to
the same extent that like properties are customarily so insured by other
entities engaged in the same or similar businesses similarly situated and keep
adequate insurance at all times against liability on account of damage to
persons and properties and under all applicable workmen's compensation laws, by
insurers and in amounts approved by the Secured Party, for the benefit of the
Debtor and the Secured Party, (ii) upon request by the Secured Party, promptly
deliver the insurance policies or certificates thereof to the Secured Party, and
(iii) keep the Collateral in good condition at all times (normal wear and tear
excepted) and maintain same in accordance with all manufacturer's specifications
and requirements. Upon any failure of the debtor to comply with its obligations
pursuant to this Section 3(g), the Secured Party may at its option, and without
affecting any of its other rights or remedies provided herein or as a secured
party
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<PAGE>
under the Uniform Commercial Code, procure the insurance protection it deems
necessary and/or cause repairs or modifications to be made to the Collateral and
the cost of either or both of which shall be a lien against the Collateral added
to the amount of the indebtedness secured hereby and payable on demand with
interest at a rate per annum equal to 15% per annum.
(h) The Debtor hereby assigns to the Secured Party all of Debtor's right,
title and interest in and to any and all moneys which may become due and payable
with respect to the Collateral under any policy insuring the Collateral,
including return of unearned premium, and shall cause any such insurance company
to make payment directly to the Secured Party for application as provided in the
Loan Agreement.
(i) The Debtor will not use the Collateral in violation of any statute or
ordinance or applicable insurance policy and will promptly pay all taxes and
assessments levied against the Collateral.
(j) The Debtor will not sell, transfer, change the registration, if any,
dispose of, attempt to dispose of, substantially modify or abandon a substantial
portion or all of the Collateral.
(k) The Debtor will not assert against the Secured Party any claim or
defense which the Debtor may have against any seller of the Collateral or any
part thereof or against any other person with respect to the Collateral or any
part thereof.
(l) The Debtor will indemnify and hold the Secured Party harmless from and
against any loss, liability, damage, costs and expenses whatsoever arising from
the Debtor's use, operation, ownership or possession of the Collateral or any
part thereof.
(m) The Debtor will not enter into any agreement that is inconsistent with
the Debtor's obligations under this General Security Agreement, without the
prior written consent of the Secured Party.
Section 4. Special Provisions Concerning Assigned Agreements. The Debtor
represents, warrants and agrees as follows:
(a) The Assigned Agreements constitute the legal, valid and binding
obligations of the Debtor and, to the best of its knowledge, the other parties
thereto, enforceable in accordance with their respective terms.
(b) The Debtor will faithfully abide by, perform and discharge each and
every obligation, covenant and agreement to be performed by the Debtor under the
Assigned Agreements.
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<PAGE>
(c) At the request of the Secured Party, and at the sole cost and expense
of the Debtor, the Debtor will enforce or secure the performance of each and
every obligation, covenant, condition and agreement contained in the Assigned
Agreements to be performed by the other parties thereto.
(d) The Debtor will not modify, amend or agree to vary any of the Assigned
Agreements in any material respect or otherwise act or fail to act in a manner
likely (directly or indirectly) to entitle any party thereto to claim that the
Debtor is in default under the terms thereof.
(e) The Debtor will not terminate or permit the termination of any
Assigned Agreement, except in accordance with its terms.
(f) Without the prior written consent of the Secured Party, the Debtor
will not waive or in any manner release or discharge any party to any Assigned
Agreement from any of the material obligations, covenants, conditions and
agreements to be performed by it under such Assigned Agreement including,
without limitation, the obligation to make all payments in the manner and at the
times and places specified.
(g) If the Secured Party so requests, the Debtor will hold any payments
received by it which are assigned and set over to the Secured Party by this
General Security Agreement for and on behalf of the Secured Party forthwith in
the same form in which they are received (together with any necessary
endorsement) for application in accordance with the terms and conditions of this
General Security Agreement and the Loan Agreement.
(h) The Debtor will appear in and defend every action or proceeding
arising under, growing out of or in any manner connected with the Assigned
Agreements or the obligations, duties or liabilities of the Debtor and any
assignee thereunder.
(i) Should the Debtor fail to make any payment or to do any act as herein
provided, the Secured Party may (but without obligation on the Secured Party's
part to do so and without notice to or demand on the Debtor and without
releasing the Debtor from any obligation hereunder) make or do the same in such
manner and to such extent as the Secured Party may deem necessary to protect the
security interests provided hereby, including specifically, without limiting the
general powers, the right to appear in and defend any action or proceeding
purporting to affect the security interests provided hereby and the Secured
Party may also perform and discharge each and every obligation, covenant and
agreement of the Debtor contained in any Assigned Agreement and, in exercising
any such powers, pay necessary costs and expenses, employ counsel and incur and
pay reasonable attorneys' fees.
(j) Upon the request of the Secured Party, the Debtor will send to the
Secured Party copies of all notices, documents and other papers furnished or
received by it with respect to any of the Assigned Agreements.
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<PAGE>
Section 5. Special Provisions Concerning Receivables.
(a) As of the time when each Receivable arises, the Debtor shall be deemed
to have warranted as to each such Receivable that such Receivable and all papers
and documents relating thereto are genuine and in all respects what they purport
to be, and that all papers and documents relating thereto:
(i) will be signed by the account debtor named therein (or such
account debtor's duly authorized agent) or otherwise be binding on the account
debtor;
(ii) will represent the genuine, legal, valid and binding obligation
of the account debtor evidencing indebtedness unpaid and owed by such account
debtor arising out of the performance of labor or services or the sale and
delivery of merchandise or both;
(iii) to the extent evidenced by writings, will be the only original
writings evidencing and embodying such obligation of the account debtor named
therein; and
(iv) will be in compliance and will conform with all applicable
federal, state and local laws (including applicable usury laws) and applicable
laws of any relevant foreign jurisdiction.
(b) The Debtor will keep and maintain at the Debtor's own cost and expense
satisfactory and complete records of the Receivables, including, but not limited
to, records of all payments received, all credits granted thereon, all
merchandise returned and all other dealings therewith, and the Debtor will make
the same available to the Secured Party, at the Debtor's own cost and expense,
at any and all reasonable times upon demand of the Secured Party. The Debtor
shall, at the Debtor's own cost and expense, deliver the Receivables (including,
without limitation, all documents evidencing the Receivables) and such books and
records to the Secured Party or to its representatives upon its demand at any
time after the occurrence of an Event of Default. If the Secured Party shall so
request, the Debtor shall legend, in form and manner satisfactory to the Secured
Party, the Receivables and other books, records and documents of the Debtor
evidencing or pertaining to the Receivables with an appropriate reference to the
fact that the Receivables have been assigned to the Secured Party and that the
Secured Party has a security interest therein.
(c) Except in the ordinary course of business prior to an Event of
Default, the Debtor will not rescind or cancel any indebtedness evidenced by any
Receivable or modify any term thereof or make any adjustment with respect
thereto, or extend or renew the same, or compromise or settle any dispute,
claim, suit or legal proceeding relating thereto, or sell any Receivable or
interest therein, without the prior written consent of the Secured Party.
(d) The Debtor will duly fulfill all obligations on its part to be
fulfilled under or in connection with the Receivables and will do nothing to
impair the rights of the Secured Party in the Receivables.
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<PAGE>
(e) The Debtor shall endeavor to collect or cause to be collected from the
account debtor named in each receivable, as and when due (including, without
limitation, Receivables which are delinquent, such Receivables to be collected
in accordance with generally accepted lawful collection procedures) any and all
amounts owing under or on account of such Receivable, and apply forthwith (on a
daily basis) upon receipt thereof all such amounts as are so collected to the
outstanding balance of such Receivable. The costs and expenses (including
attorney's fees) of collection, whether incurred by the Debtor or the Secured
Party, shall be borne by the Debtor.
(f) If any of the Receivables becomes evidenced by an Instrument the
Debtor will notify the Secured Party thereof, and upon request by the Secured
Party promptly deliver such Instrument to the Secured party appropriately
endorsed to the order of the Secured Party as further securities for the
satisfaction in full of the Secured Obligations.
Section 6. Special Provisions Concerning Equipment. The Debtor will do
nothing to impair the rights of the Secured Party in the Equipment. The Debtor
shall cause the Equipment to at all times constitute and remain personal
property and shall insure the Equipment with customary insurance. If the Debtor
shall fail to insure the Equipment to the Secured Party's satisfaction, the
Secured Party shall have the right (but shall be under no obligation) to procure
such insurance and the Debtor agrees to reimburse the Secured Party for all
costs and expenses of procuring such insurance, together with interest at a rate
per annum equal to 15% per annum. Subject to the terms of the Loan Agreement,
the Secured Party may apply any proceeds of such insurance when received by it
toward the payment of any of the Secured Obligations, whether or not the same
shall then be due. The Debtor retains all liability and responsibility in
connection with the Equipment and the liability of the Debtor to pay the Secured
Obligations shall in no way be affected or diminished by reason of the fact that
such Equipment may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Debtor.
Section 7. Financing Statements: Documentary Stamp Taxes.
(a) The Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Secured Party from time to time such
lists, descriptions and designations of Inventory, warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Secured Party deems
appropriate or advisable to perfect, preserve or protect its security interest
in the Collateral. The Debtor hereby constitutes the Secured Party its
attorney-in-fact to execute and file in the name and on behalf of the Debtor
such additional financing statements as the Secured Party may request, such acts
of such attorney being hereby ratified and confirmed. Such power, being coupled
with an interest, is irrevocable until the Secured Obligations are paid in full.
Further, to the extent permitted by applicable law, the Debtor authorizes the
Secured Party to file any such
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<PAGE>
financing statements without the signature of the Debtor. The Debtor will pay
all applicable filing fees and related expenses in connection with any such
financing statements.
(b) The Debtor agrees to procure, pay for, affix to any and all documents
and cancel any documentary tax stamps required by and in accordance with,
applicable law and the Debtor will indemnify and hold the Secured Party harmless
against any liability (including interest and penalties) in respect of such
documentary stamp taxes.
Section 8. Special Provisions Concerning Remedies and Sale. In addition to
any rights and remedies now or hereafter granted under applicable law and not by
way of limitation of any such rights and remedies, upon the occurrence of an
Event of Default the Secured Party shall have all of the rights and remedies of
a secured party under the Uniform Commercial Code as enacted in any applicable
jurisdiction in addition to the rights and remedies provided herein, in the Loan
Agreement and in any other agreement executed in connection with the Loan
Agreement. Without in any way limiting the foregoing, upon the giving of notice
to the Debtor of Secured Party's intent to pursue any one or all of the
following or any other remedies:
(a) The Secured Party shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as enacted in any applicable
jurisdiction in addition to the rights and remedies provided herein, in the Loan
Agreement and any other document whereby the Debtor has granted any lien to the
Secured Party. The Secured Party shall have the right, without further notice
to, or assent by, the Debtor, in the name of the Debtor or in the name of the
Secured Party or otherwise:
(i) to ask for, demand, collect, receive, compound and give
acquaintance for the Receivables or any part thereof;
(ii) to extend the time of payment of, compromise or settle for
cash, credit or otherwise, and upon any terms and conditions, any of the
Receivables;
(iii) to endorse the name of the Debtor on any checks, drafts or
other orders or instruments for the payment of moneys payable to the Debtor
which shall be issued in respect of any Receivable;
(iv) to file any claims, commence, maintain or discontinue any
actions, suits or other proceedings deemed by the Secured Party necessary or
advisable for the purpose of collecting or enforcing payment of any Receivable;
(v) to make test verifications of the Receivables or any portion
thereof;
(vi) to notify any or all account debtors under any or all of the
Receivables to make payment thereof directly to the Secured Party for the
account of the Secured Party and to require the Debtor to forthwith give similar
notice to the account debtors;
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(vii) to require the Debtor forthwith to account for and transmit to
the Secured Party in the same form as received all proceeds (other than physical
property) of collection of Receivables received by the Debtor and, until so
transmitted, to hold the same in trust for the Secured Party and not commingle
such proceeds with any other funds of the Debtor;
(viii) to take possession of any or all of the Collateral and, for
that purpose, to enter, with the aid and assistance of any person or persons and
with or without legal process, any premises where the Collateral, or any part
thereof, are, or may be, placed or assembled, and to remove any of such
Collateral;
(ix) to execute any instrument and do all other things necessary and
proper to protect and preserve and realize upon the Collateral and the other
rights contemplated hereby;
(x) upon notice to such effect, to require the Debtor to deliver, at
the Debtor's expense, any or all Collateral to the Secured Party at a place
designated by the Secured Party and after delivery thereof the Debtor shall have
no further claim to or interest in the Collateral; and
(xi) without obligation to resort to other security, at any time and
from time to time, to sell, re-sell, assign and deliver all or any of the
Collateral, in one or more parcels at the same or different times, and all
right, title and interest, claim and demand therein and right of redemption
thereof, at public or private sale, for cash, upon credit or for future
delivery, and at such price or prices and on such terms as the Secured Party may
determine, with the amounts realized from any such sale to be applied to the
Secured Obligations in the manner determined by the Secured Party.
The Debtor hereby agrees that all of the foregoing may be effected
without demand, advertisement or notice (except as otherwise provided herein or
as may be required by law), all of which (except as otherwise provided) are
hereby expressly waived, to the extent permitted by law. The Secured Party shall
not be obligated to do any of the acts hereinabove authorized, but in the event
that the Secured Party elects to do any such act, the Secured Party shall not be
responsible to the Debtor except for its gross negligence or willful misconduct.
(b) The Secured Party may take legal proceedings for the appointment of a
receiver or receivers (to which the Secured Party shall be entitled as a matter
of right) to take possession of the Collateral pending the sale thereof pursuant
either to the powers of sale granted by this General Security Agreement or to a
judgment, order or decree made in any judicial proceeding for the foreclosure or
involving the enforcement of this General Security Agreement. If, after the
exercise of any or all of such rights and remedies, any of the Secured
Obligations shall remain unpaid, the Debtor shall remain liable for any
deficiency. After termination of this General Security Agreement and the Loan
Agreement and the indefeasible payment in full of the Secured Obligations, any
proceeds of the Collateral received or held by the Secured Party shall be turned
over to the Debtor and the Collateral
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shall be reassigned to the Debtor by the Secured Party without recourse to the
Secured Party and without any representations, warranties or agreements of any
kind.
(c) Upon any sale of any of the Collateral, whether made under the power
of sale hereby given or under judgment, order or decree in any judicial
proceeding for the foreclosure or involving the enforcement of this General
Security Agreement:
(i) the Secured Party may, to the extent permitted by law, bid for
and purchase the property being sold, and upon compliance with the terms of sale
may hold, retain and possess and dispose of such property in its own absolute
right without further accountability, and may, in paying the purchase money
therefor, deliver the Note or claims for interest thereon and any other
instruments evidencing the Secured Obligations or agree to the satisfaction of
all or a portion of the Secured Obligations in lieu of cash in payment of the
amount which shall be payable thereon, and the Note and such instruments, in
case the amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Secured Party after being appropriately stamped to show
partial payment;
(ii) the Secured Party may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of assignment
and transfer of the property sold;
(iii) the Secured Party is hereby irrevocably appointed the true and
lawful attorney-in-fact of the debtor in its name and stead, to make all
necessary deeds, bills of sale and instruments of assignment and transfer of the
property thus sold and for such other purposes as are necessary or desirable to
effectuate the provisions (including, without limitation, this Section 8) of
this General Security Agreement, and for that purpose it may execute and deliver
all necessary deeds, bills of sale and instruments of assignment and transfer,
and may substitute one or more Persons with like power, the Debtor hereby
ratifying and confirming all that its said attorney, or such substitute or
substitutes, shall lawfully do by virtue hereof; but if so requested by the
Secured Party or by any purchaser, the Debtor shall ratify and confirm any such
sale or transfer by executing and delivering to the Secured Party or to such
purchaser all property, deeds, bills of sale, instruments or assignment and
transfer and releases as may be designated in any such request;
(iv) all right, title, interest, claim and demand whatsoever, either
at law or in equity or otherwise, of the Debtor of, in and to the property so
sold shall be divested; such sale shall be a perpetual bar both at law and in
equity against the Debtor, its successors and assigns, and against any and all
persons claiming or who may claim the property sold or any part thereof from,
through or under the Debtor, its successors or assigns;
(v) the receipt of the Secured Party or of the officer thereof
making such sale shall be a sufficient discharge to the purchaser or purchasers
at such sale for his or their purchase money, and such purchaser or purchasers,
and his or their assigns or personal representatives, shall not, after paying
such purchase money and receiving such receipt of the
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Secured Party or of such officer therefor, be obliged to see to the application
of such purchase money or be in any way answerable for any loss, misapplication
or nonapplication there; and
(vi) to the extent that it may lawfully do so, and subject to any
legal requirement that the Secured Party act in a commercially reasonable
manner, the Debtor agrees that it will not at any time insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage of, any
appraisement, valuation, stay, extension or redemption law, or any law
permitting it to direct the order in which the Collateral or any part thereof
shall be sold, now or at any time hereafter in force, which may delay, prevent
or otherwise affect the performance or enforcement of this General Security
Agreement, the Loan Documents, or any other agreement executed in connection
with the Loan Agreement, and the Debtor hereby expressly waives all benefit or
advantage of any such laws and covenants that it will not hinder, delay or
impede the execution of any power granted or delegated to the Secured Party in
this General Security Agreement, but will suffer and permit the execution of
every such power as though no such laws were in force. In the event of any sale
of Collateral pursuant to this Section, the Secured Party shall, at least 10
days before such sale, give the Debtor written, telegraphic or telex notice of
its intention to sell, except that, if the Secured Party shall determine in its
sole discretion that any of the Collateral threatens to decline speedily in
value, any such sale may be made upon 3 days' written, telegraphic or telex
notice to the Debtor.
Section 9. Application of Moneys.
(a) Except as otherwise provided herein or in the Loan Agreement, all
moneys which the Secured Party shall receive, in accordance with the provisions
hereof, shall be applied (to the extent thereof) in the following manner: First,
to the payment of all costs and expenses incurred in connection with the
administration and enforcement of, or the preservation of any rights under, this
General Security Agreement or any of the reasonable expenses and disbursements
of the Secured Party (including, without limitation, the fees and disbursements
of its counsel and agents); Second, to the payment of all Secured Obligations
arising out of the Loan Agreement and the Note and, if not therein provided, in
such order as the Secured Party may determine; and Third, to the payment of all
other Secured Obligations in such order as the Secured Party may determine.
(b) If after applying any amounts which the Secured Party has received in
respect of the Collateral any of the Secured Obligations remain unpaid, the
Debtor shall continue to be liable for any deficiency, together with interest.
Section 10. Fees and Expenses, etc. Any and all fees, costs and expenses
of whatever kind or nature, including but not limited to the reasonable
attorneys' fees and legal expenses incurred by the Secured Party in connection
with this General Security Agreement, the filing or recording of any documents
(including all taxes in connection therewith) in public offices, the payment or
discharge of any taxes, counsel fees, maintenance fees, fees and other costs
relating to the encumbrances or otherwise protecting, maintaining, preserving
the Collateral,
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or in defending or prosecuting any actions or proceedings arising out of or
related to the Collateral, shall be borne and paid by the Debtor on demand by
the Secured Party and until so paid shall be added to the principal amount of
the Secured Obligations and shall bear interest at the rate provided for in the
Loan Agreement. In addition, the Debtor will pay, and indemnify and hold the
Secured Party harmless from and against, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the Collateral,
including (without limitation) claims of patent or trademark infringement and
any claim of unfair competition or anti-trust violation.
Section 11. Miscellaneous.
(a) Any notice or demand upon the Debtor shall be deemed to have been
sufficiently given or served for all purposes thereof on the earlier of (i) 3
days after the date when deposited in the U.S. mails or (ii) when received (in
the case of such mailing), such mailing to be postage prepaid, by registered or
certified mail, return receipt requested, or when telegraphed, telecopied,
telexed or sent by messenger or by Federal Express (or similar overnight express
or courier service), to the Debtor at its address set forth below or at such
other address as the Debtor may designate in a writing delivered to the Secured
Party, provided that in the case where the Secured Party is required to give
only three days' notice of a proposed sale of the Collateral such notice shall
not be deemed given until delivered to the chief executive office of the Debtor
provided for herein. All notices to the Secured Party shall be deemed to have
been given when delivered by mail, telegraph, telecopy, telex, messenger or
Federal Express (or similar overnight express or courier service) to the Secured
Party at its address set forth below or at such other address as the Secured
Party may designate in a writing delivered to the Debtor.
Dan's Papers, Inc.
2221 Montauk Highway
Bridgehampton, New York 11932
Rothschild Recovery Fund L.P.
1251 Avenue of the Americas
New York, New York 10020
(b) No delay on the part of the Secured Party in exercising any of its
rights, remedies, powers and privileges hereunder or partial or single exercise
thereof, shall constitute a waiver thereof. None of the terms and conditions of
this General Security Agreement may be changed, waived, modified or varied in
any manner whatsoever unless in writing duly signed by the Debtor and the
Secured Party. No notice to or demand on the Debtor in any case shall entitle
the Debtor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of any of the rights of the Secured Party
to any other or further action in any circumstances without notice or demand.
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(c) The obligations of the Debtor hereunder shall remain in full force and
effect without regard to, and shall not be impaired by, (i) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or the like of the Debtor; (ii) any exercise or non-exercise, or any waiver of,
any right, remedy, power or privilege under or in respect of the Loan Documents,
this General Security Agreement, or any other agreement executed in connection
with any of the foregoing, the Secured Obligations or any security for any of
the Secured Obligations; or (iii) any amendment to or modification of any of the
foregoing; whether or not the Debtor shall have notice or knowledge of any of
the foregoing. The rights and remedies of the Secured Party herein provided are
cumulative and not exclusive of any rights or remedies which the Secured Party
would otherwise have.
(d) This General Security Agreement shall be binding upon the Debtor and
its successors and assigns and shall inure to the benefit of the Secured Party
and its successors and assigns, except that the Debtor may not transfer or
assign any of its obligations, rights or interest hereunder without the prior
written consent of the Secured Party any such purported assignment by the Debtor
shall be void and shall be deemed an Event of Default under the Loan Agreement.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this General Security Agreement.
(e) The descriptive headings of the several sections of this General
Security Agreement are inserted for conveniences only and shall not in any way
affect the meaning or construction of any provision of this General Security
Agreement.
(f) Any provision of this General Security Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) All rights, remedies and powers provided by this General Security
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and the provisions hereof are intended
to be subject to all applicable mandatory provisions of law that may be
controlling and to be limited to the extent necessary so that they will not
render this General Security Agreement unenforceable.
(h) This General Security Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of the conflicts of laws thereof.
(i) This General Security Agreement contains the entire agreement between
the Debtor and the Secured Party with respect to the subject matter hereof, and
supersedes and cancels any prior agreements or understanding, oral or written,
among the parties hereto with respect thereto. This General Security Agreement
may not be amended or modified except in a writing signed by the Secured Party
and the Debtor.
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IN WITNESS WHEREOF, the parties hereto have caused this General Security
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
Addresses DAN'S PAPERS, INC.
as Debtor
Dan's Paper's, Inc.
2221 Montauk Highway
Bridgehampton, New York 11932 By:
-----------------------------
ROTHSCHILD RECOVERY FUND L.P.
as Secured Party
1251 Avenue of the Americas
51st Floor
New York, New York 10020 By:
-----------------------------
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EXHIBIT C
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of November 5, 1997, is made by News
Communications, Inc. (the "Guarantor"), a Nevada Corporation whose address is
174-15 Horace Harding Expressway, Fresh Meadows, New York, for the benefit of
Rothschild Recovery Fund L.P. (the "Lender"), a Delaware Limited Partnership
whose address is 1251 Avenue of the Americas New York, New York.
WHEREAS, Dan's Papers, Inc. (the "Borrower"), a wholly-owned subsidiary of
the Guarantor desires to borrow from Lender the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000) (the "Loan"); and
WHEREAS, Lender is willing to make the Loan provided that the Guarantor
agrees to Guarantee the Loan;
WHEREAS, the Loan is evidenced by a promissory note as such may be
amended, modified, extended, restated or a promissory note issued as a
replacement or substitution therefore (the "Note") payable to Lender in
substantially the form attached hereto as Exhibit A;
WHEREAS, the Loan is also evidenced by a Loan Agreement (the "Loan
Agreement") dated the date hereof between the Borrower, Guarantor and Lender and
a General Security Agreement dated the date hereof between the Borrower and the
Lender;
NOW THEREFORE, in consideration of the covenants and agreements herein set
forth, the Guarantor agrees as follows:
1. Terms
Unless otherwise defined herein, capitalized terms used in the Guarantee
Agreement shall have the meaning specified therefor in the Loan Agreement.
2. The Guarantor
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As consideration for Lender agreeing to make the Loan to the Borrower, the
Guarantor hereby unconditionally and irrevocably guaranties the due and punctual
payment when due of the Loan (whether by required prepayment, declaration,
demand or otherwise) (including amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11
U. S. C. ss.362(a)) of the Borrower, including, without limitation, interest
which, but for the filing of a petition in bankruptcy, would accrue on the Note
whether or not such interest would be an allowable claim in such proceeding.
3. Terms of Guarantee
Guarantor agrees that the Note may be extended or renewed, and the Loan
repaid and reborrowed in whole or in part, without notice or notwithstanding any
extension, renewal or other alteration of any Note or repayment and reborrowing
of the Loan.
Guarantor waives presentation of, demand of, payment from and protest of
the Note and also waives notice of protest for nonpayment. The obligations of
the Guarantor under this Guarantee shall not be affected by, and the Guarantor
hereby waives its rights (to the extent permitted by law) in connection with:
(a) the failure of the Lender to assert any claim or demand or to
enforce any right or remedy against Borrower under the Note, Loan
Agreement or General Security Agreement,
(b) any extension or renewal of any provision of the Note or the
Loan Documents,
(c) any rescission, waiver, amendment or modification of any of the
terms or provisions of the Loan Documents or any instrument executed
pursuant hereto,
(d) the release of any of the security held by the Lender under the
Loan Documents,
(e) the failure of Lender to exercise any right or remedy against
any other guarantor of the Borrower,
(f) the Lender taking and holding security or Collateral for the
payment of the Loan or this Guarantee, any other guaranties of the
obligations or other liabilities of the Borrower, and any
exchanging, enforcing, waiving and releasing of any such security or
collateral,
(g) the Lender applying any such security or Collateral and
directing the order or manner of sale thereof as Lender in its
discretion may determine, or
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(h) the Lender settling, releasing, compromising, collecting or
otherwise liquidating the Note and any security or Collateral
therefor in any manner determined by the Lender.
Guarantor further agrees that this Guarantee constitutes a guarantee of
payment when due and not of collection and waives any right to require that any
resort be had by the Lender or any other person to any of the security held for
payment of the Loan.
The obligations of Guarantor under this Guarantee shall not be subject to
any reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceablility of the Note, discharge of Borrower from the Loan in a
bankruptcy or similar proceeding or otherwise. Without limiting the generality
of the foregoing, the obligations of Guarantor under this Guarantee shall not be
discharged or impaired or otherwise affected by the failure of the Lender to
assert any claim or demand or to enforce any remedy under this Guarantee
Agreement or the Loan Documents, by any waiver or modification of any provision
there of by any default, failure or delay, willful or otherwise, in the
performance of the obligations of Borrower or Guarantor, or by any other act or
thing or omission or delay to do any other act or thing that may or might in any
manner or to any extent vary the risk of Guarantor or would otherwise operate as
a discharge of Guarantor as a matter of law or equity.
Lender may, at its election, foreclose on any security held by one or more
judicial or non-judicial sales, whether or not every aspect of any such sale is
commercially reasonable, or exercise any other right or remedy Lender may have
against Borrower or any security without affecting or impairing in any way the
liability of the Guarantor hereunder except to the extent the Note has been
paid. Guarantor waives any defense arising out of such election by the Lender,
even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Guarantor against the
Borrower or any security.
Guarantor further agrees that, to the extent that the Borrower makes a
payment or payments to the Lender, or the Lender receives any proceeds of
Collateral, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or otherwise
required to be repaid to any other party, including, without limitation, under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment the obligation or part thereof which has
been paid, reduced or satisfied by such amount and this Guarantee shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred. Guarantor shall defend and
indemnify the Lender from and against any claim or
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loss hereunder (including reasonable attorneys' fees and expenses) or in the
defense of any action or suit relating to the foregoing matters.
Guarantor further agrees, in furtherance of the foregoing and not in
limitation of any other right that the Lender may have at law or in equity
against the Guarantor by virtue hereof, upon the failure of the Borrower to pay
the Loan when and as the same shall become due (whether by required prepayment,
declaration, demand or otherwise) that Guarantor will forthwith pay or cause to
be paid, in cash to the Lender an amount equal to the sum of the unpaid
principal amount of such Note and accrued and unpaid interest on such Note plus
any other amounts that may be due under the Loan Documents.
Until payment in full of the Note and all other amounts due under any of
the other Loan Documents, Guarantor hereby irrevocably waives any claim or other
rights which it may now or hereafter acquire against the Borrower that arise
from the existence, payment, performance or enforcement of the Guarantor's
obligations under this Guarantee Agreement or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, indemnification or any right to participate in any
claim or remedy of the Lender against the Borrower or any Collateral which the
Lender now has or hereafter acquires, whither or not such claim, remedy or right
arises in equity, or under contract, statute or common law, including without
limitation, the right to take or receive from the Borrower, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to Guarantor in violation of the preceding sentence and the Loan
shall both have been paid in full in cash, such amount shall be deemed to have
been paid to Guarantor for the benefit of, and held in trust for the benefit of,
Lenders, and shall forthwith be paid to the Lender for the benefit of Lender to
be applied (in case of cash) to, or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the obligations of
Guarantor in accordance with the terms of this Agreement or the other Loan
Documents.
4. Miscellaneous
(a) Any notice required, desired or permitted to be given to the Guarantor
or the Lender hereunder shall be in writing and shall be delivered personally,
sent certified or registered United States mail, return receipt requested or
sent by overnight courier service addressed to:
Guarantor: News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Attention: Mr. Michael Schenkler, President
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Lender: Rothschild Recovery Fund L. P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Mr. David H. Storper
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service, one (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other parties.
(b) In the event that any term or provision of this Guarantee Agreement
shall be finally determined to be superseded, invalid, illegal or otherwise
unenforceable pursuant to applicable law by any authority having jurisdiction,
such determination shall not affect the validity, legality or enforceability of
the remaining terms and provisions of this Guarantee Agreement.
(c) This Guarantee Agreement, shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts as of laws thereof.
(d) The Guarantor may not assign any of its obligations hereunder without
the prior written consent of Lender. Any such assignment without such consent
shall be void and shall constitute an Event of Default under the other Loan
Documents. Lender may assign its rights and obligations hereunder or under the
other Loan Documents without the prior consent of the Guarantor.
(e) This Guarantee Agreement shall be binding upon, and inure to the
benefit of, and be enforceable by the Borrower, the Guarantor and the Lender,
and their respective successors and permitted assigns.
(f) This Guarantee Agreement contains the entire agreement between the
Guarantor and the Lender with respect to the subject matter hereof, and
supersedes and cancels any prior agreement or understanding, oral or written
among the parties hereto with respect thereto. This Guarantee Agreement may not
be amended or modified except in a writing signed by the Lender.
(g) This Guarantee Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one agreement. This Guarantee Agreement will be deemed to be a
binding agreement among the parties hereto upon the receipt by each party of
fully executed copies of this Guarantee Agreement by mail, facsimile or
otherwise.
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(h) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to the Loan Documents, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Loan Agreement
shall affect any right that any party may otherwise have to bring any action or
proceeding relating to the Loan Documents in the courts of any jurisdiction.
Each of the parties hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to the Loan Documents in any New York State or
federal court. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(i) Each of the Borrower, News and the Lender hereby irrevocably waives
all right to trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or otherwise) arising out of or relating to the Loan
Documents or the actions of the Lender in the negotiation, administration,
performance or enforcement thereof.
(j) The Guarantor agrees to pay all of the Lender's legal fees and
expenses incurred in connection with the documentation, negotiation and the
execution of this Guarantee Agreement and all expenses incurred, including legal
fees and expenses, in collecting any of Guarantor's obligations hereunder or
thereunder.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee Agreement to be
executed and delivered by its duly authorized officer as of the date first above
written.
NEWS COMMUNICATIONS, INC.
As Guarantor
By:
---------------------------
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EXHIBIT D
NOTE: February 28, 1998 date amended to March 31, 1998 in this and other
related documents
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE HEREOF,
AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT
EXCEPT AS HEREIN PROVIDED
VOID AFTER 5:00 P.M. EASTERN TIME, DECEMBER 31, 2002
WARRANT
For the Purchase of
300,000 Shares of Common Stock
of
NEWS COMMUNICATIONS, INC.
(A Nevada Corporation)
1. Warrant.
THIS CERTIFIES THAT, in consideration of $10.00 and other good and
valuable consideration, duly paid by or on behalf of Rothschild Recovery Fund
L.P. ("Holder"), as registered owner of this Warrant, to News Communications,
Inc. ("Company"), Holder is entitled, at any time or from time to time at or
after February 28, 1998 ("Commencement Date"), and at or before 5:00 P.M.
Eastern Time, December 31, 2002 ("Expiration Date"), but not thereafter, to
subscribe for, purchase and receive, in whole or in part, up to three hundred
thousand (300,000) shares of Common Stock of the Company, $0.01 par value
("Common Stock"). If the Expiration Date is a day on which banking institutions
are authorized by law to close, then this Warrant may be exercised on the next
succeeding day which is not such a day in accordance with the terms herein.
During the period ending on the Expiration Date, the Company agrees not to take
any action that would terminate the Warrant. This Warrant is initially
exercisable at $2.25 per share of Common Stock purchased; provided, however,
that upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Warrant, including the exercise price and the number of
<PAGE>
shares of Common Stock to be received upon such exercise, shall be adjusted as
therein specified. The term "Exercise Price" shall mean the initial exercise
price or the adjusted exercise price, depending on the context, of a share of
Common Stock. The term "Securities" shall mean the shares of Common Stock
issuable upon exercise of this Warrant.
2. Exercise.
2.1 Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivery to the Company,
together with this Warrant and payment of the Exercise Price for the Securities
being purchased. If the subscription rights represented hereby shall not be
exercised at or before 5:00 P.M., Eastern time, on the Expiration Date, this
Warrant shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Each certificate for Securities purchased under this Warrant
shall bear a legend as follows unless such Securities have been registered under
the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act") or
applicable state law. The securities may not be offered for sale,
sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption
from registration under the Act and applicable state law."
2.3 Conversion Right.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price, the Holder shall have the right (but not the obligation) with
the Company's consent, to convert this Warrant, in whole or in part, into Common
Stock ("Conversion Right") as follows: upon exercise of the Conversion Right,
the Company shall deliver to the Holder (without payment by the Holder of any of
the Exercise Price) that number of shares of Common Stock equal to the quotient
obtained by dividing (x) the "Value" (as defined below) of the portion of the
Warrant being converted at the
<PAGE>
time the Conversion Right is exercised by (y) the Exercise Price. The "Value" of
the portion of the Warrant being converted shall equal the remainder derived
from subtracting (a) the Exercise Price multiplied by the number of shares of
Common Stock being converted from (b) the Market Price of the Common Stock
multiplied by the number of shares of Common Stock being converted. As used
herein, the term "Market Price" at any date shall be deemed to be the last
reported sale price of the Common Stock on such date, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the Nasdaq National Market or SmallCap Market,
or, if applicable, the OTC Bulletin Board, or if the Common Stock is not listed
or admitted to trading on any of the foregoing markets, or similar organization,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
2.3.2 Exercise of Conversion Right. The Conversion Right may be
exercised by the Holder, with the Company's consent, on any business day on or
after the Commencement Date and not later than the Expiration Date by delivering
the Warrant with a duly executed exercise form attached hereto with the
conversion section completed to the Company, exercising the Conversion Right and
specifying the total number of shares of Common Stock the Holder will purchase
pursuant to such conversion.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Warrant, by its
acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or pursuant to
exemptions from, applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Warrant and payment of
all transfer taxes, if any, payable in connection therewith. The company shall
immediately transfer this Warrant on
<PAGE>
the books of the Company and shall execute and deliver a new Warrant or Warrants
of like tenor to the appropriate assignee(s) expressly evidencing the right to
purchase the aggregate number of shares of Common Stock purchasable hereunder or
such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Warrant and the
Securities underlying this Warrant shall not be transferred unless and until (1)
the Company has received the opinion of counsel for the Holder that such
securities may he sold pursuant to an exemption from registration under the Act,
and applicable state law, the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Securities has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. New Warrants to be issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3
hereof, this Warrant may be exercised or assigned in whole or in part. In the
event of the exercise or assignment hereof in part only, upon surrender of this
Warrant for cancellation, together with the duly executed exercise or assignment
form and funds sufficient to pay an Exercise Price and/or transfer tax, the
Company shall cause to be delivered to the Holder without charge a new Warrant
of like tenor to this Warrant in the name of the Holder evidencing the right of
the Holder to purchase the aggregate number of shares of Common Stock and
Warrants purchasable hereunder as to which this Warrant has not been exercised
or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant and of
reasonably satisfactory indemnification, the Company shall execute and deliver a
new Warrant of like tenor and date. Any such new Warrant executed and delivered
as a result of such loss, theft, mutilation or destruction shall constitute a
substitute contractual obligation on the part of the Company.
<PAGE>
5. Registration Rights.
5.1 "Piggy-Back" Registration.
5.1.1 Grant of Right. The Holders of this Warrant shall have the
right for a period of seven years from the Commencement Date to include all or
any part of this Warrant and the shares of Common Stock underlying this Warrant
(collectively, the "Registrable Securities") as part of any registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or
any equivalent form) provided, however, that if, in the written opinion of the
Company's managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s) will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable Securities
required to be so registered but such Registrable Securities shall not be sold
by the Holders until 180 days after the registration statement for such offering
has become effective or such date as the company shall consent to and provided
further that, if any securities are registered for sale on behalf of other
stockholders in such offering and such stockholders have not agreed to defer
such sale until the expiration of such 180 day period, the number of securities
to be sold by all stockholders in such public offering during such 180 day
period shall be apportioned pro rata among all such selling stockholders,
including all holders of the Registrable Securities, according to the total
amount of securities of the Company owned by said selling stockholders,
including all holders of the Registrable Securities.
5.1.2 Terms. The Company shall bear all fees and expenses attendant
to registering the Registrable Securities, but the Holders shall pay any and all
underwriting commissions and 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 a proposed registration, the Company shall
furnish the then Holders of outstanding Registrable Securities with not less
than thirty days written notice prior to the proposed date of filing of such
registration statement. Such
<PAGE>
notice to the Holders shall continue to be given for each registration statement
filed by the Company until such time as all of the Registrable Securities have
been sold by the Holder. The holders of the Registrable Securities shall
exercise the "piggy-back" rights provided for herein by giving written notice,
within twenty days of the receipt of the Company's notice of its intention to
file a registration statement. The Company shall cause any registration
statement filed pursuant to the above "piggyback" rights to remain effective for
at least nine months from the date that the Holders of the Registrable
Securities are first given the opportunity to sell all of such securities.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the Holder(s) of
the Registrable Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
agrees to indemnify the Underwriter. The Holder(s) of the Registrable Securities
to be sold pursuant to such registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, against all
loss, claim, damage, expense or liability (including all reasonable attorneys'
fees and other expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information furnished by or
on behalf of such Holders, or their successors or assigns, in writing, for
specific inclusion in such registration statement to the same extent and with
the same effect as the Underwriter agrees to indemnify the Company.
5.2.2 Exercise of Warrants. Nothing contained in this Warrant shall
be construed as requiring the Holder(s) to exercise their Warrants prior to or
after the initial filing of any registration statement or the effectiveness
thereof.
<PAGE>
5.2.2 Documents Delivered to Holders. The Company shall furnish to
each Holder participating in any of the foregoing offerings and to each
Underwriter of any such offering, if any, a signed counterpart, addressed to
such Holder or Underwriter, of (i)an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under any underwriting agreement related thereto), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and, if
such registration includes an underwritten public offering, a letter dated the
date of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities. The Company shall also deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
to the managing underwriter copies of all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of shares of Common Stock underlying this Warrant shall be
subject to adjustment from time to time as hereinafter set forth:
<PAGE>
6.1.1 Stock Dividends-Recapitalization, Reclassification, Split-Ups.
If, after the date hereof, and subject to the provisions of Section 6.3 below,
the number of outstanding shares of Common Stock is increased by a stock
dividend on the Common Stock payable in shares of Common Stock or by a split-up,
recapitalization or reclassification of shares of Common Stock or other similar
event, then, on the effective date thereof, the number of shares of Common Stock
issuable on exercise of this Warrant shall be increased in proportion to such
increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and subject
to the provisions of Section 6.3, the number of outstanding shares of Common
Stock is decreased by a consolidation, combination or reclassification of shares
of Common Stock or other similar event, then, upon the effective date thereof,
the number of shares of Common Stock issuable on exercise of this Warrant shall
be decreased in proportion to such decrease in outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of shares
of Common Stock purchasable upon the exercise of this Warrant is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In case of
any reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6.1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirely or
substantially as an entirely in connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the
<PAGE>
expiration of the right of exercise of this Warrant) to receive upon the
exercise hereof, for the same aggregate Exercise Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any
such sale or other transfer, by a Holder of the number of shares of Common Stock
of the Company obtainable upon exercise of this Warrant immediately prior to
such event; and if any reclassification also results in a change in shares of
Common Stock covered by Sections 6.1.1 or 6.1.2, then such adjustment shall be
made pursuant to Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The
provisions of this Section 6.1.4 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
6.1.5 Changes in Form of Warrant. This form of Warrant need not be
changed because of any change pursuant to this Section, and Warrants issued
after such change may state the same Exercise Price and the same number of
shares of Common Stock and Warrants as are stated in the Warrants initially
issued pursuant to this Agreement. The acceptance by any Holder of the issuance
of new Warrants reflecting a required or permissive change shall not be deemed
to waive any rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of this Warrant, nor shall it be required to issue scrip or pay cash in
lieu of any fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up or down to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of it authorized shares of Common Stock, solely for the purpose of
issuance upon exercise of this Warrant, such number of shares of Common Stock or
other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefore, all shares of Common Stock and
other securities issuable upon such exercise shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Warrants shall be
<PAGE>
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges (or, if applicable on
Nasdaq) on which the Common Stock is then listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holders the right to vote or consent or to receive notice as
a stockholder for the election of directors or any other matter, or as shaving
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the events
described in Section 8.2 shall occur, then, in one or more of said events, the
Company shall give written notice of such event at least fifteen days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
conversion or exchange of securities or subscription rights, or entitled to vote
on such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of the closing of the transfer books, as
the case may be.
8 8.2 Events Requiring Notice. The Company shall be required to give
the notice described in this Section 8 upon one or more of the following events:
(i) if the Company shall take a record for the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books for the Company, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business shall be
proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after
an event requiring a change in the Exercise Price pursuant to Section 6 hereof,
send notice to the Holders of
<PAGE>
such event and change ("Price Notice"). The Price Notice shall describe the
event causing the change and the method of calculating same and shall be
certified as being true and accurate by the Company's President and Chief
Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt to the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of this Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.2 Entire Agreement. This Warrant (together with other agreements and
documents being delivered pursuant to or in connection with this Warrant)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
9.3 Binding Effect. This Warrant shall inure solely to the benefit of and
shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable rights, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.4 Governing Law; Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that nay action, proceeding or claim against it
<PAGE>
arising out of, or relating in any way to this Warrant shall be brought and
enforced in the courts of the State of New York, or of the United States of
America for the Southern District of New York, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives
any objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum. Any process or summons to be served upon the Company may be
served by transmitting a copy thereof by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 98 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the Company in any action, proceeding or claim. The
Company agrees that the prevailing party(ies) in any such action, shall be
entitled to recover from the other party(ies) all of it reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
9.5 Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Warrant or any provision hereof or the right of the Company or any Holder
to thereafter enforce each and every provision of this Warrant. No waiver of any
breach, non-compliance or non-fulfillment of any of the provisions of this
Warrant shall be effective unless set forth in a written instrument executed by
the party or parties against whom or which enforcement of such waiver is sought,
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
9.6 Execution in Counterparts. This Warrant may be executed in one or more
counterparts, and by the different parties hereto in separate counterpart, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the 5th day of November, 1997.
NEWS COMMUNICATIONS, INC.
By:
---------------------------
Name: Michael Schenkler
Title: President
<PAGE>
Form to be used to exercise Warrant:
NEWS COMMUNICATIONS, INC.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Date:___________________, 19____
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____ shares of Common Stock of News Communications, Inc. and
hererby makes payment of $____________ (at the rate of $________ per share of
Common Stock) in payment of the Exercise Price pursuant thereto. Please issue
the Common Stock as to which this Warrant is exercised in accordance with the
instructions given below.
or
The undersigned hereby elects irrevocably to convert its right to purchase
____________ shares of Common Stock to purchase _________ shares of Common Stock
purchasable under the within Warrant into _______ shares of Common Stock of News
Communications, Inc. (Based on a "Market Price" of $________ per share of Common
Stock). Please issue the Common Stock in accordance with the instructions given
below.
------------------------------------
Signature
- -------------------------------
Signature Guaranteed
NOTICE: The signature to this form must correspond with the names as
written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ______________________________________________________________
(Print in Block Letters)
Address ______________________________________________________________
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement has been made and entered into as of this
11th day of April, 1997 by and between M.B.C., Incorporation, a Maryland
Corporation ("Seller"), and News Communications Inc., A New York Corporation
("Buyer").
WHEREAS, Seller is the owner and operator of the Station WYRE-AM, 810 KHz,
licensed to Annapolis, Maryland ("Station"), pursuant to valid license issued by
the Federal Communications Commission ("FCC"); and
WHEREAS, Buyer desires to acquire the business of the Station as a
going concern and all of the real and personal property, assets and rights used,
useful or intended to be used, in the business and operations of the Station and
to secure a transfer or an assignment of the license and other authorizations
issued by the FCC for the operation of the Station ("FCC Licensee"), and Seller
desires to sell, assign, transfer and convey the same to Buyer; and
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Asset Purchase Agreement,
("Agreement"), the parties, intending to be legally bound, agree as follows:
1. Definitions. Unless otherwise stated in this Agreement, the
following terms shall have the following meanings:
a. Assignment Application refers to an application which
Seller and Buyer will jointly file with the FCC requesting its written consent
to the assignment of the FCC Licenses from Seller to Buyer.
i. Assignment Application Fee: Refers to those fees
required to be paid to the FCC for the filing and processing of the Assignment
Application, and in this matter for which the Seller and Buyer shall each pay
one-half.
b. Closing Date (or Closing) for the sale of business of the
Station as a going concern and consummation of the other transactions
contemplated in this Agreement shall be within ten (10) business days after FCC
Consent, as defined hereafter. In the absence of the mutual agreement of Seller
and Buyer to the contrary, the Closing shall take place commencing at 10:00
a.m., local time at 112 Main Street, Annapolis, MD, or
1
<PAGE>
at such other convenient time or place to be mutually agreed upon by Seller and
Buyer.
c. FCC. Refers to the Federal Communication Commission.
d. FCC Consent refers to an order of the FCC which is not
subject to further administrative or judicial review, consenting to the
assignment of the FCC Licenses issued for the operation of the Station from
Seller to Buyer. By written mutual agreement, the parties may choose not to
await the passage of any time for administrative or judicial appeal, and thereby
may deem "FCC Consent" effective for purposes of this Agreement upon the initial
FCC approval of such assignment.
2. Assets Sold and Purchased. Seller, on the Closing Date, will
sell, transfer, convey, assign and deliver to Buyer, good and marketable title,
free and clear of any liens, encumbrances, restrictions or violations of any
kind or type, all of the assets, business and rights of Seller, used or useful
in the operation of the Station (collectively "Purchased Assets"). Without
limiting the generality of the foregoing, there shall be included the following
as the same relate to the Station and the business thereof:
a. The business of the Station as a going concern, including
all rights, title and interest in and to the call letters WYRE-AM;
b. The FCC License and all other licenses, permits and
authorizations, if any, issued by the FCC or any other regulatory agency for the
operation of the Station, including those listed and described in Exhibit A
attached hereto;
c. All of the broadcast, production, studio and transmitting
equipment and systems (including all audio and tape equipment both electronic
and mechanical), and all of the machinery, equipment, tools, vehicles,
furniture and furnishings, and office equipment (and the inventories of supplies
and spare parts relating to each of the foregoing) and described in Exhibit B,
except those used solely by WRNR-FM, (collectively, the "General Equipment").
d. All right, title and interest of Seller in the leases,
contracts, agreements and commitments (excluding any and all contracts or
agreements, expressed or implied, regarding matters of employment) entered into
in the ordinary course of business of the Station,
2
<PAGE>
and listed and described on Exhibit C hereto, and any renewals or extensions
thereof, and those personal property leases and other contracts, agreements and
commitments entered into by Seller in connection with the operations of the
Station from the date hereto to the Closing Date (collectively the "Contracts"),
subject to Buyer's approval. Notwithstanding anything written to the contrary,
Buyer agrees and acknowledges that a tower is not included in the assets
purchased. Further, the Seller is entering into a land lease with the city of
Annapolis for the purpose of building a tower and the said lease is not included
in the sale of the assets. However, Seller agrees to provide Buyer, at
settlement with a lease for a minimum term of Twenty (20) years at Five Hundred
Dollars ($500.00) per month, the first Ten (10) years and One Thousand Dollars
($1,000.00) per month the second Ten (10) years. Said lease will also contain a
provision for the Leasee to have the right to cancel the lease at any time by
paying a penality of one years rent as liquidated damages.
e. All right, title and interest of Seller in the trade names,
trademarks, service marks, logos, copyrights and patents and all similar
intellectual property rights (including applications and licenses therefor),
together with the goodwill associated therewith (collectively, "Proprietary
Rights");
f. All right, title and interest of Seller in all broadcast,
news, feature and syndication rights, programs, program rights and other
broadcast materials, as well as any tapes associated therewith which have not
expired in accordance with their respective terms as of the Closing Date, and
any and all similar rights acquired by the Station after the date hereof and
before the Closing Date (collectively, "Broadcast Rights"): except Buyer agrees
and acknowledges that the music library of the station is not included in the
assets being sold.
g. All intangible assets, including the computer software,
magnetic media, electronic data processing files, systems and programs, business
lists, sales and operating plans and trade secrets, (collectively, "Intangible
Assets").
h. The rights to any and all slogans, jingles, promotions,
contests, themes and other promotional rights, including
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materials incorporating or using the same, (collectively, Promotional
Rights");
i. Files and records relating to the operation of the
Stations, including schematics, technical information and engineering data,
programming information, copies of books of account, employment records,
customer lists and files, purchase and sales records and correspondence, copies
of advertising records, files and literature, and FCC logs, files and records;
j. Any and all easements, rights-of-way, permits and consents,
if any, relating to or used in the business and operation of the Station.
k. The rights to any and all utility deposits, other deposits
and prepaid expenses made to third parties in connection with the operations of
the Station; provided, however, as between Buyer and Seller, there shall be an
adjustment pursuant to Paragraph 16.
3. Possession and Control. Subject to the Program Services Agreement
executed herewith between Seller and Buyer, between the date of this Agreement
and the Closing Date, Buyer shall not control the operation of the Station, but
such operations shall be the responsibility of Seller. Buyer shall, however, be
entitled to reasonable inspection of the premises and assets. It is further
understood and agreed that, effective on the Closing Date and thereafter, Seller
shall have no control over, nor right to intervene or participate in, the
operations of Stations, except in the event of default.
4. PURCHASE PRICE AND METHOD OF PAYMENT. The total purchase price of
the assets to be conveyed hereunder shall be the sum of Two Hundred and Sixty
Eight Thousand Five Hundred Dollars ($268,500) to be paid as follows:
4.1 Deposit. Upon Execution hereof, Buyer shall deposit Twenty
Five Thousand Dollars ($25,000) as initial deposit. Buyer shall be willing to
have Seller use said deposit at its sole discretion. Richard H. Winn will
personally guarantee the return of the deposit by M.B.C. Inc. in the event the
FCC turns down the Assignment of the license to the Buyer, unless such denial is
a result of actions, or omissions by the Buyer, his agents, or the result of the
Buyer not meeting the qualifications required
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under Section 7.1 of this Agreement, or is not otherwise in default under this
Agreement.
4.2 Payment at Closing. On the closing Date, Buyer shall pay
the total purchase price to Seller of Two Hundred and Sixty Eight Thousand Five
Hundred Dollars ($268,500). Seller acknowledges receipt of Twenty Five Thousand
Dollars ($25,000) of the purchase price from the non-refundable, deposit made at
the execution of this Agreement. The balance of the purchase price of Two
Hundred and Forty Three Thousand Five Hundred Dollars ($243,500) shall be paid
by the Buyer to the Seller at the closing in cash by wire transfer of federal
funds or by cashier's check.
5. ACCOUNTS RECEIVABLE. On the Closing Date, Seller shall provide
Buyer with a list of its accounts receivable which are to be retained by Seller.
5.1 Collecting Accounts Receivable. Seller shall be
responsible for the billing and collecting of its accounts receivable. In the
event any of Seller's payments on account of the accounts receivable are
delivered to Buyer. Buyer shall immediately transmit said payment to the Seller
c/o Richard Winn or Jake Einstein M.B.C., Inc., 112 Main Street, Annapolis, MD
21401 or such other location as Richard Winn shall, in writing, designate.
6. SELLER'S REPRESENTATIONS FIND WARRANTIES. Seller represents and
warrants that:
6.1 Licenses and Authorizations. Exhibit A contains a complete
list of Commission authorizations which Seller holds with respect to the
Station. The Station's License and the other authorizations listed in Exhibit A,
or extensions or renewals thereof, are in full force and effect. Without
limiting the generality of the foregoing, the Station's Licenses are valid for a
full term ending October 1, 2002 and are subject to no restrictions or
conditions; all ownership reports, employment reports, and other documents
required to be filed by Seller with the Commission with respect to the Station
have been filed and such items as are required to be placed in the Station's
local public records file have been placed in such file. All such reports and
documents are correct in
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all material respect. At Closing, Seller shall, deliver the Station Public
file to Buyer.
6.2 Title to Personal Property. On the Closing Date, Seller
will have good and marketable title to all of the personal property to be
conveyed pursuant to this Agreement, free and clear of all liens, pledges and
encumbrances whatsoever. The assets, together with all improvements,
replacements and additions thereto from the date hereof to the Closing Date,
constitute all of the tangible personal property used or useful in the operation
of the Station or necessary to operate the Station in accordance with the
Station's License.
6.3. Condition of Personal Property. The assets, except as
specifically stated herein, are serviceable in good operating condition and
repair, reasonable wear and tear excepted. The Station's transmitting and studio
equipment are operating in accordance with the standards of good engineering
practice and the terms and conditions of the Station's licenses, all underlying
construction permits, and the rules, regulations, and policies of the
Commission. All broadcast equipment is type-approved or type-accepted where
such type-approval or type-acceptance is required. None of the assets to be
conveyed have been materially adversely affected in any way as a result of fire,
explosion, earthquake, accident, flood, rain, drought, riot, or public enemy.
Within thirty (30) days of the date hereof, Seller shall permit an engineer or
representative selected by Buyer and paid for by Buyer to inspect and approve
the personal property to be conveyed hereunder.
6.4. Disposal of Assets. Between the date hereof and the
Closing Date, Seller will not sell or agree to sell or otherwise dispose of the
assets which are the subject of this Agreement other than in the ordinary course
of business and only if such assets are replaced, prior to the Closing Date, by
other assets of equal or greater worth and utility.
6.5. Contracts, Agreements, and Leases. The contracts,
agreements, and leases to be assigned to Buyer under this Agreement and listed
in Exhibit C are freely assignable, or, if consent of the other contracting
party to the assignment is required, such consent will be secured at Sellers
sole expense prior to the Closing Date. Those contracts, leases, and agreements
whose stated duration extends beyond the Closing Date will, at Closing, be in
full force and effect and unimpaired
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by any acts or omissions of Seller or its employees or agents. Said contracts,
agreements, and leases will not be modified without Buyer's written consent.
6.6. Employees. There are no material controversies pending or
threatened between the Seller and any of the Station's employees, except for
those suits, actions or litigation listed in Exhibit D, and Seller is not
aware of any facts which could reasonably result in any such controversy. Seller
has no written pension profit sharing, stock option, bonus, termination day or
other employees benefit plan, practice, agreement, or understanding. Seller will
deliver to Buyer an accurate list of all persons currently employed by the
Station as of the date of this Agreement. Buyer has no obligation to hire any of
Seller's employees.
6.7. No Breach. The execution and performance of this
Agreement will not violate any order, rule, judgment or decree to which Seller
is subject or breach any contract, or agreement to which Seller is a party or by
which Seller is bound.
6.8. Litigation. With the exception of the litigation
described in Exhibit D, there is no litigation, action, suit, or other
proceeding pending which may give rise to any claim against any of the assets to
be conveyed or adversely affect Seller's ability to perform in accordance with
the terms of this Agreement, and Seller is not aware of any facts which could
reasonably result in any such proceeding.
6.9. Administrative Violations. Subject to the Program
Services Agreement, If Seller receives an administrative or other order relating
to any violation of the rules and regulations of the Commission, or of any other
federal, state or local regulatory body, including rules regarding the
employment of labor and equal employment opportunity, it will promptly notify
Buyer of such order and use its best efforts to remove or correct such
violations and will be responsible for the cost of removing same, including the
payment of any fines or back pay that may be assessed for any such violation,
and Seller shall indemnify and hold Buyer harmless with respect to any and all
such violations occurring prior to the Closing Date. As of the date hereof,
Seller is not aware of any such violations any pending investigations concerning
such violations, or of any facts which could reasonably result in such
violations. In the event Seller is
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required to cure any violations on the licenses, and as a result the FCC does
not issue FCC consent in time to close by December 31, 1997, then said closing
shall be postponed for a period of time on a one-for-one day ratio for each day
needed to cure, but in no event beyond March 31, 1998. If Closing has not
occurred by March 31, 1998 and Buyer is not in default under this Agreement or
the Program Services Agreement, this Agreement shall become null and void and
Buyer and Seller will have no further liability to each other.
6.10. Taxes. Seller has, or by the Closing Date will have paid
and discharged all taxes, assessments, excises and other levies relative to the
assets being sold which, if due and not paid, would interfere with Buyer's full
enjoyment of the assets, facilities, licenses or other items conveyed hereunder,
excepting such taxes, assessments, and other levies which will not be due until
after the Closing Date and which are to be prorated between Seller and Buyer
pursuant to the provisions of Paragraph 16.
6.11. Accounts Payable. At the Closing Date, all accounts
payable of Seller will be paid.
6.12. Operations Prior to Closing. Between the date hereof and
the Closing Date, the Station shall be operated in the normal and usual manner
in accordance with rules, regulations, and policies of the Commission, and the
Stations' business shall be conducted only in the ordinary course. No increase
shall be made in the compensation payable or to become payable to any employee
or agent of the Station other than in the ordinary course of business consistent
with Seller's past practice. No employment contract shall be entered into or
modified by Seller or on behalf of the Station unless agreed to by Buyer. No
other contract or lease shall be entered into by Seller on behalf of the Station
in excess of Five Thousand Dollars ($5,000) without consent of Buyer except the
land lease with the city of Annapolis for the purpose of building a tower and
the sale of said leasehold to a third party which are excluded from this
contract and for which no consent is necessary.
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6.13. Adverse Developments. Seller shall promptly notify Buyer
of any materially adverse developments with respect to the business or
operations of the Stations.
6.14. Access. Seller will give Buyer and representatives of
Buyer reasonable access during normal business hours throughout the period prior
to the Closing Date to the properties, titles, contracts, books, records and
affairs of Seller. After the closing, Buyer and Seller shall each have
reasonable access to such records of Seller and Buyer for purposes of completing
its bookkeeping and other accounting procedures, and any other purpose for which
such access is reasonably necessary and proper.
6.15. Organization Existence and Power. Seller is a Maryland
Corporation, duly organized, validly existing, and in good standing under the
laws of the State of Maryland and it has full power under its bylaws and all
applicable laws to carry on its business as now being conducted and to enter
into and to perform this Agreement.
6.16. Corporation Authorization. The execution and delivery of
this Agreement has been duly authorized by a majority of the Board of Directors
and the holders of over 2/3 majority vote of the outstanding shares of stock as
evidenced by M.B.C. Incorporated's Corporate Authority Resolution. This
Agreement will be duly executed and delivered to Buyer and constitutes a legal,
valid and binding agreement and is enforceable in accordance with its terms.
6.17. Environmental Matters. To the best of Seller's knowledge
after due inquiry, Seller has not violated and is not in violation of, and the
business and operations of the Station do not violate, any applicable federal,
state or local law, rule, regulation, decree or order relating to air, water or
noise pollution, employee health and safety, or the production, storage,
labeling, transportation or disposition of waste or hazardous or toxic
substances (collectively, "Environmental Laws') and Seller has not and to the
best of Seller's knowledge no other person has stored, disposed of or released
any chemical or hazardous substances, including any "Hazardous Substances",
"Pollutants" or "Contaminants" (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended),
asbestos, petroleum products or polychlorinated biphenyls
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(collectively, the "Hazardous Materials") on, beneath or about any of the owned
properties of Seller and Seller knows of no condition relating to or resulting
to or resulting from the release or discharge into the soil, surface waters,
ground waters, drinking water supplies, navigable waters, land, surface or
subsurface strata, ambient air or any other environmental medium which has
resulted in any damage, loss, cost, expense, claim, demand, order of liability
to or against Seller or Buyer by any governmental authority or other third party
relating to or resulting from the ownership, use or operation of the Stations or
the Station Assets, or otherwise related to any real property owned by Seller,
irrespective of the cause of such condition and Seller has not received any
notice from any governmental authority or private or public entity advising
Seller that it is potentially responsible for response costs with respect to a
release or threatened release of any Hazardous Material; nor has Seller received
any notice of violation of any Environmental Law, regulation, decree or order
relating to the ownership, use of operation of the Stations or the Stations'
Assets.
6.18 The representations and warranties of Seller in this Agreement
shall be true and correct as of the Closing Date as if made on and as of the
Closing Date.
7. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants to Seller that:
7.1. Licensee Qualifications. Buyer believes there is no fact
which would, under present law, including the Communications Act of 1934, as
amended, and the present rules and regulations of the Commission, disqualify
Buyer from being the assignee of the Stations' Licenses or the owner and
operator of the Stations, and Buyer will not take any action that Buyer knows,
or has reason to know, would result in such disqualification. Buyer possesses
all of the request qualifications to become a licensee of the Station and knows
of no reason why the FCC should not find the Buyer fully qualified to hold the
license of the Station and Buyer has the financial resources, assurances and
capabilities to consummate and fully perform this agreement in accordance with
its terms. Should Buyer become aware of any such fact it will so inform Seller
and will use its best efforts to remove any such disqualification.
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7.2. Corporation Existence and Power. On the Closing Date,
Buyer shall be a Corporation, duly organized, validly existing, and in good
standing under the laws of the State of Maryland and it shall have full power
under its corporate charter, bylaws, and all applicable laws to carry on its
business and to enter into and to perform the terms and covenants of this
Agreement.
7.3 No Breach. The execution and performance of this Agreement
will not violate any order, rule, judgment or decree to which Buyer is subject
or breach any contract or agreement to which Buyer is a party or by which Buyer
is bound.
7.4. Litigation. There is no action, suit, investigation or
other proceeding pending or threatened which may adversely affect Buyer's
ability to perform in accordance with the terms of this Agreement, and Buyer is
not aware of any facts which could reasonably result in any such proceeding.
7.5 Disclosure. No representation or warranty made by Buyer
set forth herein or in any exhibit hereto or schedule referred to herein, or in
any certified or other document delivered or to be delivered in connection with
the transaction contemplated by this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make the statement not misleading.
7.6 The representations and warranties of Buyer in this
Agreement shall be true and correct as of the Closing Date as if made on and as
of the Closing Date.
8. SELLER'S INDEMNIFICATION. Seller undertakes and agrees to hold
harmless Buyer and its successors and assigns against any and all losses, costs,
liabilities, claims, obligations and expenses, including reasonable attorney's
fees, incurred or assumed by Buyer arising from breach, misrepresentation, or
other violation by Seller of any of the covenants, warranties or representations
contained in this Agreement and for and against any liabilities of Seller or
liens, charges, or encumbrances of any property to be conveyed hereunder. Seller
further undertakes and agrees to indemnify and bold harmless Buyer and its
successors and assigns against any and all liabilities of Seller arising out of
its operations of Station prior to closing, and/or under the
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contracts, leases, and agreements assigned to Buyer hereunder. The foregoing
indemnity is intended by the Seller to cover all acts, suits, proceedings,
claims, demands, assessments, and adjustments with respect to any and all of the
specific matters in this indemnity set forth and shall be without limitation as
to amount. In the event that any claim is asserted against Buyer, that, if
established, would entitle Buyer to indemnification hereunder, the Buyer shall
promptly give Seller written notice of such claim. Within twenty (20) days
thereafter, Seller shall inform Buyer in writing whether Seller will defend such
claim. Should Seller elect not to defend, Buyer may defend such claim. In either
event, Seller shall be liable for the costs of such defense. This provisions of
this Section 8 shall survive Closing for a period of six months. Buyer shall not
be entitled to indemnification hereunder, except to extend that the aggregate
amount of such claims exceeds Twenty Thousand Dollars ($20,000).
9. BUYER'S INDEMNIFICATION. Buyer undertakes and agrees to hold
harmless Seller against any and all losses, costs, liabilities, claims,
obligations and expenses, including reasonable attorney's fees, incurred or
assumed by Seller arising from breach, misrepresentation, or other violation
by Buyer of any of the covenants, warranties and representations contained in
this Agreement and for and against any liabilities of Buyer. Buyer further
undertakes and agrees to indemnify and hold Seller harmless against any and
all liabilities arising as to its acts or omissions occurring after closing and
in connection with the operation of the Station under the contracts, leases, and
agreements assumed by Buyer hereunder. The foregoing indemnity is intended by
the Buyer to cover all acts, suits, proceedings, claims, demands, assessments,
and adjustments with respect to any and all of the specific matters in this
Indemnity set forth and shall be without limitation as to the amount. In the
event that an claim is asserted against Seller, that, if established, would
entitle Seller to indemnification hereunder, the Seller shall promptly give the
Buyer written notice of such claim. Within twenty (20) days thereafter, Buyer
shall inform Seller in writing whether Buyer will defend such claim. Should
Buyer elect not to defend, Seller may defend such claim. In either event, Buyer
shall be liable for the costs of such defense. This
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provisions of this Section 9 shall survive Closing for a period of six months,
Seller shall not be entitled to indemnification hereunder, except to extend that
the aggregate amount of such claims exceeds Twenty Thousand Dollars ($20,000).
10. APPLICATION FOR COMMISSION CONSENT. Within ten (10) business
days from the date of this Agreement, Seller and Buyer shall have joined in an
application or amendment of application to be filed with the Commission
requesting its written consent to the assignment of the Station's License from
Seller to Buyer, and they will diligently take all steps necessary or desirable
and proper expeditiously to prosecute such application or applications and to
obtain the Commission's determination that grant of the application or
applications will serve the public interest, convenience and necessity. The
failure of either party to timely file or diligently prosecute its portion of
the assignment application (s) as required by this Paragraph shall be deemed a
material breach of this Agreement.
11. CONTROL OF STATION. This Agreement shall not be consummated
until after the Commission has given its written consent thereto, and between
the date of this Agreement and the Closing Date, Buyer shall not directly or
indirectly control, supervise, direct, the operation of the Station. Such
operation shall be the sole responsibility of Seller. Subject, however, to the
provisions of the Program Services Agreement executed simultaneously herewith
between Seller and Buyer.
12. TERMINATION.
12.1. Absence of Commission Consent. If a Final Order granting
the application (s) described in Paragraph 10 is not secured before March 31,
1998, this Agreement may be terminated at the option of either party upon ten
(10) days written notice to other party, provided, however, that the terminating
party may not terminate this Agreement if it is in default under this Agreement
or if a delay in any decision or determination by the Commission respecting said
application (s) has been caused or materially contributed to by any failure on
the terminating party to promptly furnish, file or make available information
within its control or caused by the willful furnishing by the terminating party
of incorrect, inaccurate or incomplete information to the Commission, or caused
by any action taken by the terminating party for the purpose of delaying any
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decision or determination respecting said application(s) and such actions shall
be deemed a default under this Agreement. For purposes of this Agreement, "Final
Order" means a written action or order issued by the FCC setting forth the FCC
Consent which is not reserved, stayed, enjoined, set aside, annulled, or
suspended and with respect to which action or order no timely-filed request for
administrative or judicial review or stay is pending, and as to which the time
for filing any such request, or for the FCC to set aside the action or order on
its own motion, has expired.
13. CONDITIONS TO BUYER'S OBLIGATION. The obligation of Buyer
to Consummate this Agreement is subject to the satisfaction of each of the
following conditions, any of which the Buyer has the option to waive.
13.1. Commission Consent. The Commission shall have given its
consent to the transaction contemplate hereby, such consent shall have become a
Final Order, and such consent shall be in full force and effect on the Closing
Date.
13.2. Validity of Licenses. On the Closing Date, Seller shall
be the owner and holder of the Station's License to the extent that such license
can be owned or held by Seller under the Communications Act of 1934, as amended,
and the Stations' License shall be valid for a full license term ending October
1, 2002 and shall not be subject to any restrictions or conditions.
13.3. Condition of Stations. There shall have been no material
change subsequent to the date of this Agreement in the condition of the assets
to be conveyed hereunder except for changes in the ordinary course of the radio
business or normal wear and tear, subject however, to the Program Services
Agreement simultaneously entered into by Buyer and Seller.
13.4. Third Party Consents. Seller shall have obtained all
necessary third party consents to the assignment of all the contracts, leases,
and agreements listed in Exhibit B if necessary, such that Buyer will enjoy all
of the rights and privileges of Seller under those contracts, leases, and
agreements subject only to the same obligations and binding on Seller thereunder
pursuant to the present terms thereof. Buyer agrees to assist Seller in
obtaining third party consents to the extent reasonably deemed necessary by
Seller.
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13.5. Representations and Warranties. The representations and
warranties of Seller to Buyer shall be true, complete, and correct in all
material respects as of the Closing Date.
13.6. Delivery of Assets. At the closing, Seller shall deliver
or cause to be delivered to Buyer all the assets described in Paragraph 1.
14. CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of
Seller to consummate this Agreement is subject to the satisfaction of each of
the following conditions:
14.1. Commission Consent. the Commission shall have given its
consent to the Assignment contemplated hereby, such consent shall have become a
Final Order, and such consent shall be in full force and effect on the Closing
Date.
14.2. Representations and Warranties. The representations and
warranties of Buyer to Seller shall be true, complete, and correct in all
material respects as of the Closing Date.
14.3. Payments. Buyer shall deliver the purchase price as
provided in Paragraph 4.
14.4. Closing Documents. Buyer and Seller shall deliver all
the closing documents specified in Paragraph 15 and all other required
documents, all of which documents shall be duly executed.
15. CLOSING DOCUMENTS. On the Closing Date at the closing place,
(a) Seller shall deliver to Buyer:.
(i) An assignment transferring all of the interests of
Seller in and to the Station's License, and all
other licenses, permits and authorizations issued
by any other regulatory agencies which are issued
or useful in the operation of the Stations;
(ii) A bill of sale conveying to Buyer all of the
fixed and tangible
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personal assets to be acquired by Buyer in a form
usual and customary in the State of Maryland and
reasonably satisfactory to Buyer's counsel;
(iii) One or more assignments assigning to Buyer all of
the leases, contracts, and other agreements to
be assigned to Buyer hereunder;
(iv) An assignment of Seller's accounts;
(v) An Assignment conveying the
intangible assets to be assigned to
Buyer hereunder;
(vi) All other closing documents
reasonably requested.
(vii) Station's Public File
(b) Buyer shall deliver to Seller:
(i) The purchase price as set forth in
Paragraph 4;
(ii) One or more agreements, reasonably satisfactory to
Seller's counsel, by which Buyer assumes and
agrees to perform all of the obligations of Seller
accruing on and after the Closing Date under the
contracts, leases and other agreements to be
assigned to Buyer hereunder.
The parties shall also execute such other documents and perform such other
acts, before and after closing, as may be necessary for the implementation and
consummation of this Agreement.
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16. ADJUSTMENT AT SETTLEMENT.
16.1 ADJUSTMENTS. Subject to the provisions of the Program
Services Agreement between Buyer and Seller, the operation of the Station and
the income and expenses attributable thereto up to the close of business on the
day before the Closing Date shall be for the account of Seller and thereafter
for the account of Buyer. Expenses including, but not limited to, such items as
power and utilities charges, time sales agreements, taxes, insurance premiums,
frequency discounts, fees, (if any), and wages, sales commissions, payroll taxes
and vacation pay and other fringe benefits of employees of Seller who enter
into the employment of Buyer shall be prorated between Seller and Buyer, and all
other income and expenses attributable to the ownership and operation of the
Station. This proration shall be made and paid, on the Closing Date, as
adjustments to the Purchase Price. Prepaid and unused portions of Trade
Agreements shall be adjusted as of the Closing Date. Security deposits and other
prepaid items shall be accounted for and adjusted as of the closing date.
16.2 Governmental filing or Grant Fees. All filing or
grant fees imposed by the FCC shall be split equally between Seller and Buyer.
In the event the parties choose to use the same attorney to file the FCC
application then the legal fees should be divided equally between them.
17. CONDITIONS. If any event should occur, either within or without
the knowledge or control of any party hereto, which would prevent fulfillment of
the conditions upon the obligations of any party hereto or consummation of the
transactions contemplated by this Agreement, the parties hereto will use their
reasonable best offers to cure same as expeditiously as possible.
18. COOPERATION. The parties hereto shall cooperate fully with each
other in preparing filing, prosecuting, and taking any other actions necessary
with respect to, any applications, requests, or actions which are or may be
necessary to obtain the consent of any governmental instrumentality, or any
third party to, or are or may be necessary or helpful in order to accomplish the
transactions contemplated by this Agreement.
19. REMEDIES.
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19.1 Seller's Remedies. Buyer recognizes that Seller's
property to be sold hereunder cannot be readily obtained on the open market and
that Seller will be irreparably injured if this Agreement is not specifically
enforced. Therefore, in the event that Buyer does not perform or settle under
this Agreement Seller may institute any action specifically to enforce Buyer's
performance under this Agreement, provided that Seller is not in material
default of this Agreement. The parties agree that this remedy shall be in
addition to any other relief to which the Seller might otherwise be entitled for
Buyer's failure to consummate this Agreement.
19.2 Buyer's Remedies. Seller agrees that the assets and
authorizations contracted to be conveyed hereunder cannot be readily obtained on
the open Market and that Buyer will be irreparably injured if this Agreement is
not specifically enforced. Therefore, in the event that Seller does not perform
or settle under this Agreement, Buyer may institute any action specifically to
enforce Seller's performance under this Agreement, provided that Buyer is not in
material default of this Agreement. The remedy described in this Paragraph shall
be in addition to any other remedies that Buyer might otherwise be entitled to
pursue.
20. DAMAGE. Subject to the provisions of the Program Services
Agreement, the risk of natural loss or damage to the fixed and tangible assets
to be sold to Buyer hereunder shall be upon Seller at times prior to closing,
reasonable wear and tear expected. In the event of such loss or damage, Seller
shall promptly notify Buyer thereof and repair, replace or restore any such
property to its former condition as soon as possible after its loss and prior to
the Closing Date. Sellers will use proceeds of its insurance policies to acquire
assets of equal age and value, in the event of loss or damage.
21. EXPENSES. Except as otherwise provided herein, all expenses
involved in the preparation and consummation of this Agreement shall be borne by
the party incurring same. Any Commission filing or grant fees for the
application (s) required by this Agreement shall be shared equally by Seller and
Buyer. Seller and Buyers shall share the recording costs for bills of sale and
other instruments of transfer and all stamp taxes. Buyer shall pay for the
sales taxes.
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22. ASSIGNABILITY. Buyer may freely assign its rights and
obligations hereunder to a corporation, limited partnership, or other business
association owned by the Buyer or its shareholders provided, however, that such
assignment shall neither necessitate any postponement of the date for filing the
assignment application described in Paragraph 10 nor unreasonably delay
Commission processing of that application nor relieve Buyer of its obligations
under this Agreement. Neither Buyer nor Seller may make any other assignment of
its rights and obligations hereunder without the prior written consent of the
other.
23. BROKERAGE. Seller and Buyer represent and warrant to each other
that there are no finders, consultants or brokers involved in this transaction.
24. NOTICES. All necessary notices, demands and requests required or
permitted to be given under the provisions of this Agreement shall be in writing
and shall be sent by certified or registered mail, postage prepaid or nationally
recognized recognized courier service, addressed as follows;
(a) If to Seller: Jake Einstein
8412 Bells Mill Road
Potomac, MD 20854
with copy to: Richard Winn
1451 Prizer Road
Pottstown, PA 19465
with copy to: Jim Fox
13 Cliffdweller court
Owens Mills, MD 21117
(b) If to Buyer: Wilbur L. Ross, Jr.
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
with copy to: Edward Miller
75 Barton Drive
Ann Arbor, Michigan 48105
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25. ENTIRE AGREEMENT. This Agreement supersedes any prior agreements
between the parties and contains all of the terms agreed upon with respect to
the subject matter hereof. This agreement may not be altered or amended except
by an instrument in writing signed by the party against whom enforcement of any
such charge is sought.
26. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signature of each such counterpart
were on the same instrument.
27. HEADINGS. The headings of the paragraphs of this Agreement are
for convenience only and in no way modify, interpret or construe the meaning of
specific provision of the Agreement.
28. EXHIBITS. The Exhibits to this Agreement are a material part
hereof.
29. CHOICE OF LAWS. This Agreement is to be construed and governed
by the laws of the State of Maryland.
30. TIME IS OF THE ESSENCE. The parties agree that time is of the
essence with respect to the performance of each and every obligation as set
forth herein.
31. Severability. If any provision contained in this Agreement is
held to be invalid, illegal or unenforceable in any respect by any court or
other authority, then such provision shall be deemed limited to the extent that
such court or other authority deems it reasonable and enforceable, and so
limited shall remain in full force and effect. In the event that such court or
other authority shall deem any such provision wholly unenforceable, this shall
not affect any other provision hereof, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had not been
contained herein unless the invalidity or unenforceability of such provision or
provisions causes the terms of this Agreement to conflict with the underlying
business agreement of the parties as reflected in the Agreement as written.
MBC INCORPORATED NEWS COMMUNICATIONS, INC.
By: /s/ [ILLEGIBLE] By: /s/ Wilbur L. Ross Jr.
---------------------- -----------------------------
Wilbur L Ross, Jr.
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EXHIBIT A
LICENSES AND AUTHORIZATIONS
AM Broadcast Station License
Station WYRE-AM 810 KHz
BPLST-910215MD, expires October 1, 2002 - STL for AM call sign WME-839
BZ-910815AA, expires October 1, 2002 - WYRE-AM
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PROGRAM SERVICES AGREEMENT
This Program Services Agreement ("Agreement"), is made and entered into as
of this 11th day of April, 1997 by and between M.B.C., Inc., a Maryland
Corporation ("the Licensee"), and News Communications Inc., a New York
Corporation ("the Programmer"). It is agreed by the parties hereto that the
effective date of this agreement is and shall be April 1st, 1997.
WHEREAS, Licensee owns and operates a standard Broadcast Radio Station
WYRE 810 AM, Annapolis, Maryland (the "Station") pursuant to licenses issued by
the Federal Communications Commission (the "FCC"); and
WHEREAS, Programmer desires to produce radio programs in conformity with
this Agreement and all rules, regulations, and policies of the FCC and provide
those programs ("the Programming") to Licensee for broadcast on the station and
Programmer desires to avail itself of substantially all of the Station's
broadcast time; and
WHEREAS, the Licensee desires to accept the programs produced by
Programmer and to make broadcasting time on the Station available to Programmer
on terms and conditions which conform to FCC rules, regulations, and policies
and to this Agreement; and
WHEREAS, Licensee and Programmer have entered into an agreement the
("Asset Purchase Agreement") of even date for purchase of the assets of the
Station:
NOW THEREFORE, in consideration of the above recitals and mutual promises
and covenants contained herein, the parties, intending to be legally bound,
agree as follows:
1. PROGRAMMING AGREEMENT. Licensee agrees to make broadcasting
transmission facilities available to Programmer and to broadcast on the Station,
or cause to be broadcast, for any portion or all daily broadcast hours per day,
seven days per week, Programmer's programs. Provided, however, that Programmer
shall have no obligation to provide station programming at any time during the
first three months of the term of this Agreement in which case the Licensee
shall broadcast such other programming it deems acceptable. Licensee represents
that it will maintain a studio during the term of this Agreement in accordance
with the Rules of the Federal Communications Commission ("FCC"). During the
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term hereof, the Programmer shall deliver at its own cost the programming to the
Licensee's transmitter site.
2 TERM. This Agreement shall commence on the date hereof and, unless
sooner terminated or canceled in accordance with the terms hereof, shall
continue for an initial term of one year or until closing under the Asset
Purchase Agreement simultaneously entered into by the Licensee and the
Programmer. This Agreement may be terminated by either party within fifteen (15)
days notice in the event the Asset Purchase Agreement is canceled, unless
terminating party is in default of the Asset Purchase Agreement.
3 CONSIDERATION.
(a) Commencing from the date of this Agreement, as
consideration for the air time made available hereunder, Programmer shall make
monthly payments to Licensee by check on or before the Tenth (10th) day of the
calendar month for which payment is due. Such payment shall be Three Thousand
Five Hundred Dollars ($3,500) per month. In the event that payment is not
received by Licensee within twenty (20) days of the due date and Programmer is
not otherwise exercising its right to withhold all or a portion of such payment
as provided in this Agreement, a two (2) percent late fee shall be added to the
amount due. If the payment due and payable with respect to any month (including
the late fee if applicable) is not received by the 10th day of the calendar
month following the month in which such payment was due, then Programmers shall
have ten (10) days to cure after receiving written notice before Licensee may
declare the entire consideration for the unexpired portion of the current term
immediately due and payable in full and/or may terminate this agreement.
(b) Notwithstanding anything written to the contrary and;
Commencing from the date of this Agreement, as additional consideration for the
air time made available and other considerations hereunder, Programmer and
Licensee agree that Licensee, for a period of three (3) months, will produce
programming when programming is not produced and supplied by Programmer, sell
advertising for said programming, whether the programming is supplied by the
Programmer or Licensee, bill and collect on said sales of advertising, handle
all the daily operation and maintenance of the station, pay all employees,
maintain all equipment, studio, tower, transmitter, studio equipment, pay all
insurance and insurance deductibles on claims, federal,
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state and local taxes, rents and utilities at the station and transmitter sites
and any other costs of operation. At the end of each month for this three (3)
month period, Licensee shall bill Programmer for any deficit difference between
the collected income from sales of advertising together with any other income
and the total costs and expenses as a result of the operation and maintenance of
the station. But in any event said bill shall not exceed Twenty Five Hundred
Dollars ($2,500) per month and shall be due and payable within Ten (10) days of
such billing. Within Ten (10) days of receiving a request from Programmer,
Licensee shall supply Programmer with a statement of profit and loss for the
month billed, however, such request shall in no way delay the payment of said
bill. If payment is not received within a Ten (10) day period, after billing the
above mentioned deficit, then the Programmer shall have Ten (10) days to cure
after receiving written notice of default before Licensee may declare the entire
consideration for the unexpired portion of the current term, together with an
estimated deficit for the remaining portion of the current term based on the
past performance deficit averaged over the previous twelve months, immediately
due and payable in full and/or may terminate this agreement. If the difference
for any month of the total income, expenses and costs above mentioned is a
profit, then such amount will be credited on the next payments due by Programmer
to Licensee. If settlement occurs under the Asset Purchase Agreement
simultaneously entered into by the parties, an adjustment will be made by the
parties to reflect money due either party at settlement. It is the intention of
the parties that the Licensee shall receive this maximum payment of Twenty Five
Hundred Dollars ($2,500) per month for the first three months of this Agreement
in addition to the Thirty Five Hundred Dollar (3,500) monthly payment as
consideration for the above mentioned services in Section 3(a).
(c) Following the initial three (3) month period, Programmer
shall be responsible to produce Programming, sell advertising for said
programming, bill and collect on sales of its advertising, handle all the daily
operation and maintenance of the station, pay all employees, maintain all
equipment, studio, transmitter, studio equipment, pay all insurance and
insurance deductibles on claims, taxes, rent and utilities at the station and
transmitter sites, and any other costs of operation. Programmer, after the
initial three (3) month period, shall incur and receive all profits and losses
from the operation of the station and will have no further obligation to pay
Licensee any consideration for any deficit
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of operations and only be obligated to pay the consideration for air time of
Thirty Five Hundred Dollars ($3,500) per month in accordance with the provisions
of Section 3(a) and subject to the provisions of Section 7.2 of this Agreement.
4 ACCOUNTS RECEIVABLE. Licensee will be responsible for collecting the
accounts receivable for the revenue generated on the Station up to the date of
this Agreement for its account and after the date of this Agreement for the
Programmer. For purposes of this Agreement, any income and expenses incurred
prior to midnight of the date above will be credited to the licensee and any
income and expenses incurred after midnight of the date above will be credited
to the programmer.
5 PROGRAMMING AND OPERATING STANDARDS AND PRACTICES.
5.1 Licensee's Programing. Licensee shall present programming responsive
to the needs of the Station's community of License. The Licensee may set aside
time as it may require (up to eight hours per broadcast week) for the broadcast
of its own regularly scheduled news, public affairs, and other programming
required by the FCC without abatement of any consideration due Licensee.
5.2 Compliance with Standards. All programming delivered by Programmer and
broadcast by Licensee during the term of this Agreement shall be in accordance
with applicable statutes and FCC requirements. Licensee reserves the right to
refuse to broadcast any Programming containing matter which the Licensee
reasonably believes in its sole discretion is not in the public interest or
public image of the Station or may be violative of any right of any third party,
or which may constitute a "personal attack" as that term is and has been defined
by the FCC or which Licensee reasonably determines in it's sole discretion is
indecent or obscene, without any reduction or offset in the payments due
Licensee under this Agreement.
5.3 Political Broadcasts. Programmer shall maintain and deliver to
Licensee all records and information required by the FCC to be placed in the
public inspection file of the Station pertaining to the broadcast of political
programming and advertisements, in accordance with the provisions of Sections
73.1940 and 73.3526 of the FCC's rules and agrees to broadcast programming
addressing political issues or controversial subjects of public importance, in
accordance with the provisions of Section 73.1212 of the FCC's rules. Programmer
shall consult with Licensee and adhere to all
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applicable statutes and the rules, regulations and policies of the FCC, as
announced from time to time, with respect to the carriage of political
advertisements and programming (including, without limitation, the rights of
candidates, "equal time" and the carriage of contrasting points of view as
mandated by any "fairness" rule with respect to such "issue--oriented"
advertising or programming as may be broadcast) and the charges permitted
therefor. Programmer shall provide to Licensee such documentation relating to
such programming as Licensee shall reasonably request.
5.4 Handling of Communications. Licensee and Programmer shall receive and
promptly respond to all mail, cables, telegrams or telephone calls directed to
each other at the Station or elsewhere in connection with the Programming
provided by Programmer or any other matter relevant to Licensee's or
Programmer's responsibilities hereunder, and provide copies of all such
correspondence to each other. Programmer shall notify Licensee of any telephone
calls directed to the Licensee or its employees. Licensee shall, however,
maintain a telephone line exclusively for the use of Station, so that the public
will have available a telephone line on which to call concerning the Station.
Programmer shall promptly advise Licensee of any public or FCC complaint or
inquiry known to Programmer concerning the Programming, and shall provide
Licensee with copies of any letters to Programmer from the public, including
complaints concerning such Programming.
5.5 Preemption. Licensee may, from time to time, preempt portions of the
Programming to broadcast emergency information or programs it deems would better
serve the public interest, and may refuse to broadcast any program or
announcement of Programmer should Licensee deem such program or announcement to
be contrary to the public interest as set forth in Section 5. Programmer shall
be notified, unless such advance notice is impossible or impractical, at least
one week in advance of any preemption of any of the Programming for the purpose
of broadcasting programs Licensee deems necessary to serve the public interest.
In the event of any such preemption, except for Licensee's rights under
Paragraph 5.1, Programmer shall be entitled to deduct from the Monthly Payment
for the month in which such preemption occurs an amount calculated on a prorata
basis of time available to Programmer for that month. Licensee represents that
preemption shall only occur to the extent Licensee deems necessary to carry out
its obligations as an FCC licensee, and expressly agrees that its right of
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preemption shall not be exercised in an arbitrary manner or for the
commercial advantage of Licensee or others.
5.6 Rights in Programs. All right, title and interest in and to the
Programming, and the right to authorize the use of the Programming in any manner
and in any media whatsoever, shall be and remain vested at all times solely in
Programmer.
5.7 "Payola" and "Plugola". Programmer agrees that it will take steps
reasonably designed to assure that neither it nor its employees or agents will
accept any gift, gratuity or other consideration, directly or indirectly, from
any person or company for the playing of records, the presentation of any
programming or the broadcast of any commercial announcement over the Station
without such broadcast being announced as sponsored. Programmer will, on the
anniversary of the Commencement Date and each year thereafter during the term of
the Agreement, execute and deliver to Licensee an affidavit of the type commonly
used in the broadcasting industry evidencing Programmer's compliance herewith.
5.8 Ancillary Broadcast Rights. Licensee shall neither use nor permit any
third party to use the Station's subcarriers during the term of this Agreement
without Programmer's prior written consent. Programmer may transmit material
over subcarriers and retain any revenue therefrom without additional
compensation to Licensee. If Licensee obtains any digital broadcasting rights as
a result of its ownership of the Station, Programmer shall be entitled, at no
additional charge, to take advantage of all revenue potential and technical
improvements associated with such digital broadcasting rights. Programmer will
reimburse Licensee for any reasonable incremental operating cost as a result of
Programmer's use of subcarriers or digital broadcasting rights.
5.9 Access to Programmer Materials. Licensee, solely for the purpose of
ensuring Programmer's compliance with the law, FCC rules, and Stations policies,
shall be entitled to review on a confidential basis any programming material
relating to the Stations broadcasts as it may reasonably request. Programmer
shall, upon Licensee's reasonable request, advise and consult with Licensee
about the programs that Programmer intends to broadcast on the Stations.
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5.10 Advertising and Programming. After the initial three (3) month period
of this Agreement, programmer shall be entitled to all revenue from the sale of
advertising or program time on the Station. Programmer does not assume any
obligation of Licensee after the Commencement Date. Programmer will advise
Licensee in writing of its lowest unit charge for political advertising, and
Licensee shall not do anything that would lower Programmer's lowest unit charge.
Programmer does not, pursuant to this Agreement, assume any obligations of
Licensee under any contract entered into by Licensee. Notwithstanding anything
written to the contrary, Programmer agrees, as long as the studios and offices
are located at 112 Main Street, to run six commercials a day spread equally over
"day parts" "for Buddy's", in addition to the common area expenses, in exchange
for the use of the office space.
5.11 Compliance with Laws. At all times during the term of this Agreement,
Programmer and Licensee shall comply in all respects with all applicable
federal, state and local laws, rules and regulations.
6. RESPONSIBILITY FOR EMPLOYEES AND EXPENSES.
6.1 Programmer's Employees. Programmer shall employ and be responsible for
the payment of salaries, taxes, insurance and all other costs related to all
personnel used in the production of the Programming. Programmer will not incur
any liability on account of Licensee's employees in connection with the
transactions contemplated by this Agreement subject however to the provisions of
Section 7.2 and 3(b) of this Agreement.
6.2 Licensee's Employees.
6.2.1 Licensee shall employ and be responsible for the
payment of salaries, taxes, insurance and all other costs related to the
personnel necessary to fulfill its obligations and the broadcast transmission of
Programmer's Programming including, but not necessarily limited to a General
Manager and one other person. Whenever on the Station's premises, all personnel
of either the Licensee or the Programmer shall be subject to the supervision and
the direction of Licensee's General Manger and/or Chief Operator.
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6.8 Employee's Liability. Licensee will not incur any liability on account
of Programmer's employees in connection with the transactions contemplated by
this Agreement including, without limitation, any liability on account of
salaries and compensation, unemployment insurance contributions, termination
payments, accrued sick leave or accrued vacation.
7. EXPENSES
7.1 Programmer's Expenses. Programmer shall pay for all costs associated
with the production and delivery of the Programming, including but not limited
to, all ASCAP, BMI, SESAC and other copyright fees.
7.2 Operating Expenses. Subject to the provisions of this subsection,
Licensee shall be responsible for the payment of all fees and expenses relating
to maintaining the transmitting capability of the Station, including, without
limitation, maintenance of the tower, transmitter and studio equipment, and
relating to fulfilling its obligations as an FCC licensee. Programmer shall
reimburse Licensee for its non-capital ordinary and customary expenses incurred
in the operation and maintenance of the station, including but not limited to
maintenance of the tower, tower rent, transmitter and studio equipment,
insurance, insurance deductibles on claims, federal, state and local taxes, and
rents and utilities at the Station's studio and transmitter sites (the
"Operating Expenses"). It is agreed by the parties that the salaries of the
Licensee's General Manager and Chief Operation Manager shall not be part of this
reimbursement and shall remain the responsibility of the Licensee. Licensee
shall bill Programmer for such expenses as they are incurred by delivery of a
statement of reasonable detail with back-up invoices, payment for which shall be
due within ten (10) days of such billing (or, alternatively, Programmer may make
such expense payment directly to the third parties to whom such payments are
due). If payment is not received within the ten (10) day period, after billing
expenses, then Programmer shall have ten (10) days to cure after receiving
written notice of default before Licensee may declare the entire consideration
for the unexpired portion of the current term immediately due and payable in
full and/or may terminate this Agreement. Licensee will consult with Programmer
before undertaking any maintenance work that will require reimbursement by
Programmer in an amount in excess of Two Thousand Dollars ($2,000.00) unless
such advance notice is impossible or impractical.
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8. OPERATION OF STATION. Notwithstanding any provision of this Agreement
to the contrary, Licensee shall retain full authority and power with respect to
the operation of the Station during the term of this Agreement. The parties
agree and acknowledge that Licensee's continued control. of the Station is an
essential element of the continuing validity of and legality of this Agreement.
Licensee shall retain full authority and control over the policies, programming
and operations of the Station, including, without limitation, the decision
whether to preempt Programming in accordance with Section 5 hereof. Licensee
shall have full responsibility to effectuate compliance with the Communications
Act and with FCC rules, regulations and policies.
9. PROGRAMER'S ACCESS TO STATION FACILITIES. Licensee grants Programmer
access to use all of the Station's studio and office space and other facilities
("Station Facilities") and all equipment and furnishings contained therein
("Station Equipment" Exhibit B) in the production and broadcasting of the
Programming and sales and administration relating thereto, in accordance with
the terms set forth in this Section 9. Programmer shall not remove from the
Station Facilities or modify any Station Equipment in the Station Facilities
owned by or leased to Licensee without Licensee's prior written consent, such
consent shall not be unreasonable withheld. Licensee shall not authorize the use
of the Station Facilities to any other party during the term of this Program
Services Agreement; and Programmer' s use of the Station Facilities shall be
exclusive except for licensee's right to use such facilities for production of
programming for which Licensee is responsible as set forth on Exhibit A and
Section 5 of this Agreement and other services mentioned in Section 2 of this
Agreement. Programmer agrees to indemnify and reimburse Licensee for any loss,
damage or theft, reasonable wear and tear excluded, during the term of this
agreement. Programmer agrees to replace any such equipment with equipment of
equal or greater worth and utility.
10. AUTHORIZATION TO USE INTELLECTUAL PROPERTY. Licensee authorizes
Programmer the exclusive right to use (or, to the extent Licensee does not hold
exclusive rights, the non-exclusive right to use) all intellectual property
owned by or licensed to Licensee and used in the operation of the Station
(including, but not limited to, logos, jingles and promotional materials).
Programmer shall own
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all trademarks, service marks, trade names, character, .formats, logos and
positioning statements which it develops for the Programming during the term of
this Agreement, and Licensee may not make use of any such materials without the
consent of Programmer.
11. SPECIAL EVENTS. Licensee reserves the right in its discretion, and
without liability, to preempt any of the broadcasts of the programs referred to
herein, and to use part or all of the time contracted for herein by Programmer
for broadcast of special events of public importance. In all such cases Licensee
will use its best efforts to give programmer reasonable notice of its intention
to preempt such broadcast or broadcasts, and in the even of such preemption,
Programmer shall receive a payment credit for the broadcasts so omitted on a
prorata basis.
12. BROADCAST INTERRUPTION. Any failure or impairment of facilities or
any delay or interruption in broadcasting programs, or failure at any time to
furnish facilities, in whole or in part, for broadcasting, due to acts of God,
strikes or threats thereof or force majeure or due to causes beyond the control
of Licensee, shall not constitute a breach of this Agreement and Licensee will
not be liable to Programmer.
If interruptions due to equipment failure or malfunction cause the
station broadcast operation to be interrupted for more than a total of eight
hours per day for seven or more days (whether or not consecutive) during one
month, then the amount payable to Licensee for that month pursuant to Section
3(a) shall be prorated and credited for time missed unless termination or
interruption of broadcast is due to acts of the programmer. Notwithstanding the
foregoing, Licensee has the right to take the transmitter down and interrupt all
broadcasting for up to four hours per week, once weekly, for regular maintenance
without waiver of any of amounts due from Programmer pursuant to Section 3(a)
hereof.
The prorata reduction of the payment hereunder shall approximate as
closely as possible the revenues from the time slots preempted -- e.g., the
parties should estimate the anticipated revenues from the sales of the times
preempted and divide such estimate by the total estimated revenues for the month
and the resulting percentage shall be the percentage reduction for the month.
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13. COMPLIANCE WITH LAW. Programmer agrees that throughout the term of
this Agreement it will comply with all laws and regulations applicable in the
conduct of Licensee' s business.
14. INDEMNIFICATION.
14.1 Indemnification Rights. Each party will indemnify and hold harmless
the other party, and the directors, officers, employees, agents and affiliates
of such other party, from and against any and all liability, including without
limitation reasonable attorneys' fees arising out of or incident to (i) any
breach by such of a representation, warranty or covenant made herein, (ii) the
programming produced or furnished by such party hereunder, or (iii) the conduct
of such party, its employees, contractors or agents in performing its or their
obligations hereunder. Without limiting the generality of the foregoing, each
party will indemnify and hold harmless the other party, and the directors,
officers, employees, agents and affiliates of such other party, from and against
any and all liability for libel, slander, infringement of trademarks, trade
names, or program titles, violation of privacy rights, and infringement of
copyrights and priorietary rights resulting from the programming produced or
furnished by it hereunder. The parties' obligations resulting from the
programming produced or furnished by it hereunder shall survive any termination
or expiration of this Agreement.
14.2 Procedures. The party seeking indemnification under this Section
("Indemnitee") shall give the party from whom it seeks indemnification
("Indemnitor") prompt notice, of the assertion of any such claim. The right to
Indemnification under this Agreement shall not be affected by any failure to
give or any delay in giving such notice unless, and then only to the extent
that, the rights and remedies of the party to whom such notice was to have been
given shall have been prejudiced. The Indemnitor shall assume the defense of any
indemnification claim provided, however, that if the Indemnitor fails, within a
reasonable time after receipt of written notice of such claim, to assume the
defense, compromise, and settlement of such claim, the Indemnitee shall (upon
notifying the Indemnitor of its election to do so) have the right to undertake
the defense, compromise, and settlement of such claim on behalf and for the
account and risk of the Indemnitor (it being understood and agreed that the
Indemnitor shall thereafter
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not be entitled to assume the defense of such claim). The Indemnitor shall not
settle or compromise (i) any claim or consent to the entry of any judgment that
does not include as an unconditional term thereof the grant by claimant or
plaintiff to the Indemnitee of a release from any and all liability in respect
therefor, or (ii) any claim in any manner, or consent to the entry of any
judgment, that could reasonably be expected to have a material adverse effect on
the Indemnitee. If upon presentation of a claim for indemnity hereunder the
Indemnitor does not agree that all, or part, of such claim is subject to the
indemnification obligations imposed upon it pursuant to this Agreement, it shall
promptly so notify the Indemnitee. Thereupon, the parties shall attempt to
resolve their dispute, including where appropriate, reaching an agreement as to
that portion of the claim, if any, which both concede is subject to
indemnification. To the extent that the parties are unable to reach some
compromise, either party may unilaterally submit the matter for determination by
a court of competent jurisdiction.
15. EVENTS OF DEFAULT. The following shall, after the expiration of the
applicable cure periods, constitute Events of Default under the Agreement:
15.1 Non-Payment. Programmer's failure to timely pay the consideration
provided for in Section 3 and 7 hereof;
15.2 Default in Covenants. Programmer shall default in the material
observance or performance of any material covenant, condition or agreement
contained herein;
15.3 Breach of Representation. Any material representation or warranty
herein made by Programmer or Licensee, shall prove to have been false or
misleading in any material respect as of the time made or furnished.
15.4 Cure Periods. An Event of Default, other than for failure to
broadcast shall not be deemed to have occurred until 10 business days after
Licensee has provided Programmer with written notice specifying the event or
events that if not cured would constitute an Event of Default and specifying the
actions necessary to cure within such period. With the exception of
non-payment, this period may be extended for a reasonable period of time if the
Programmer is acting in good faith to cure and such delay is not materially
adverse to Licensee.
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15.5 Termination Upon Default. In the Event of the occurrence of an
uncured Event of Default, Licensee shall be under no further obligation to make
available to Programmer any further broadcast time or broadcast transmission
facilities and Licensee may declare the entire consideration for the unexpired
portion of the current term immediately due and payable in full.
15.6 Liabilities Upon Termination. In the event of termination of this
Program Services Agreement, Programmer shall be responsible for all liabilities,
debts and obligations of Programmer accrued from the purchase of air time and
transmission facilities including, without limitation, accounts payable, barter
agreements and unaired advertisements but not for Licensee's federal and local
tax liabilities associated with Programmer's payment to Licensee as provided for
herein. In the event of the above mentioned termination, if Programmer does not
pay promptly all liabilities, debts, accounts payable and payroll, then Licensee
may in addition to its other remedies attach the accounts receivable to make
such payments.
16. REPRESENTATION. Both Licensee and Programmer represent that they are
legally qualified, empowered, and able to enter into this Agreement.
17. MISCELLANEOUS.
17.1 Modification and Waiver. No modification or waiver of any provision
of this agreement shall in any event be effective unless the same shall be in
writing signed by the party against whom the waiver is sought to be enforced,
and then such a waiver and consent shall be effective only in the specific
instance and for the purpose for which given.
17.2 No waiver; Remedies Cumulative. No failure or delay on the part of
Licensee or Programmer in exercising any right or power hereunder shall operate
as waiver thereof, nor any single or partial exercise of any such right or
power. The rights and remedies of Licensee and Programmer herein provided are
cumulative and are not exclusive of any rights or remedies which they may
otherwise have.
17.3 Construction. This Agreement shall be constructed in accordance with
the laws of the State of Maryland without reference to conflict of laws
principles, and the obligations of the parties hereto are subject to all
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federal, state or municipal laws or regulations now or hereafter in force and to
the regulations of FCC and all other governmental bodies or authorities
presently or hereafter duly constituted. Any litigation seeking to enforce any
provision of, or based on any right arising out of this Agreement shall be
brought in a court of the State of Maryland that has jurisdiction. The parties
agree that this court shall be the exclusive forum for all such actions, and
hereby waive any objection to venue in those courts based on the doctrine of
forum non conveniens or otherwise.
17.4 Headings. The headings contained in this Agreement are included for
convenience only and no such heading shall in any way alter the meaning of any
provision.
17.5 Exclusive Purchase. During the term of this Agreement, Programmer
has the right to purchase all of the assets used or useful in the business of
the Station pursuant to the terms and conditions of the Asset Purchase
Agreement, signed by the parties.
17.6 Sale to Programmer. Closing of any Sale to Programmer pursuant to
this Section 17 will be on the terms and conditions contained in the Asset
Purchase Agreement and on such date as required by the Agreement. If the Sale to
Programmer has not closed pursuant to the terms and conditions of the Asset
Purchase Agreement the Licensee shall be free to sell the Station to any third
party and this agreement shall become null and void. However, notwithstanding
anything written to the contrary, a default by the Programmer in the Asset
Purchase Agreement or this Agreement will constitute a default in the other
Agreement.
17.7 Attorney's Fees. If either party initiates any litigation against
the other involving this Agreement, the prevailing party in such action shall be
entitled to receive reimbursement from the other party for all reasonable
attorneys' fees and other costs and expenses incurred by the prevailing party in
respect of the litigation, including any appeal, and such reimbursement may be
included in the judgment or final order issued in that proceeding.
17.8 Time is of the Essence. The parties agree that time is of the
essence with respect to the performance of each and every obligation as set
forth herein.
17.9 Entire Agreement. This Agreement and the Attachments hereto
embody the entire agreement and
14
<PAGE>
understanding of the parties and supersede any and all prior agreements,
arrangement, and understandings relating to matters provided for herein, except
the above mentioned Asset Purchase Agreement. No amendment, waiver of compliance
with any provision or condition hereof, or consent pursuant to this Agreement
will be effective unless evidenced by an instrument in writing signed by the
parties.
17.10 Governing Law. The obligations of Licensee and Programmer are
subject to applicable federal, state and local law, rules and regulations,
including, but not limited to, the communications Act of 1934, as amended, and
the Rules and Regulations of the FCC.
17.11 Successors and Assigns; Exclusive Dealings. Programmer may not
assign this Agreement to a third party without prior written consent of
Licensee. Such consent shall not unreasonably be withheld. Such third party must
be legally, technically and financially qualified and agree in writing to adhere
to all terms of this agreement and the Guidelines attached hereto. This
Agreement shall be binding upon and insure to the benefit of the parties and
their respective successors and assigns. For so long as this Agreement remains
in effect and Programmer is not in default, neither Licensee nor. any party
acting as Licensee's agent shall directly or indirectly solicit or initiate any
offer from, or conduct any negotiations with, or provide any information to any
person (other than Programmer) concerning the acquisition of the Station.
17.12 Counterpart Signatures. This Agreement may be signed in one or
more counterparts.
17.13 Notices. All notices, requests, demands, and other communications
pertaining to this Agreement shall be in writing and shall be deemed duly given
when delivered personally (which shall include delivery by Federal Express or
other nationally recognized, reputable overnight courier service that issues a
receipt or other confirmation of delivery) to the party for whom such
communication is intended, or two (2) business days after the date mailed by
certified or registered U.S. mail, return receipt requested, postage prepaid,
addressed as follows:
15
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If the notice is to Programmer:
Wilbur L. Ross, Jr.
New Communications Inc.
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
with a copy to:
Edward Miller
75 Barton Drive
Ann Arbor, Michigan 48105
if the notice is to Licensee:
Jake Einstein
M.B.C., Inc.
112 Main Street
Annapolis, MD 21401
with copies to:
Richard Winn
1451 Prizer Road
Pottstown, PA 19465
Jim Fox
13 Cliffdweller Court
Owens Mill, MD 21117
Kenny Kendell
139 River Oaks Circle
Baltimore, MD 21208
Either party may change its address for notices by notice to such effect
to the other party.
17.14 Severability. If any provision contained in this Agreement is held
to be invalid, illegal or unenforceable in any respect by any court or other
authority, then such provision shall. be deemed limited to the extent that such
court or other authority deems it reasonable and enforceable, and so limited
shall remain in full force and effect. In the event that such court or other
authority shall deem any such provision wholly unenforceable, this shall not
affect any other provision hereof, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision or provisions had not been
contained herein unless the invalidity or unenforceability of such provision or
provisions causes the
16
<PAGE>
terms of this Agreement to conflict with the underlying business agreement of
the parties as reflected in the Agreement as written.
17.15 No Joint Venture. The parties agree that nothing herein shall
constitute a joint venture between them. The parties acknowledge that call
letters, trademarks and other intellectual property shall at all time .remain
the property of the respective parties and that neither party shall obtain any
ownership interest in the other party's intellectual property by virtue of this
Agreement.
17.16 Regulatory Changes. In the event of any order or decree of an
administrative agency or court of competent jurisdiction, including without
limitation any material change or clarification in FCC rules, policies, or
precedent, that would cause any provision of this Agreement to be invalid or
violate any applicable law, and such order or decree has become effective and
has not been stayed, the parties will use their respective best efforts and
negotiate in good faith to modify this Agreement to the minimum extent necessary
so as to comply with such order decree without material economic detriment to
either party, and this Agreement, as so modified, shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Programmer: News Communications, Inc.
/s/
------------------------------------------
By: /s/ Wilbur L. Ross, Jr.
------------------------------------------
Wilbur L. Ross, Jr.
Licensee: M.B.C., Inc.
By: /s/ Jake Einstein
------------------------------------------
17
<PAGE>
EXHIBIT A
GUIDELINES
Programmer agrees to cooperate with Licensee in the broadcasting of
programs of the highest possible standard of excellence and of this purpose to
observe the following regulation in the preparation, writing and broadcasting of
its programs.
1. Respectful of Faiths. The subject of religion and references to
particular faiths, tenents, and customs shall be treated with respect at all
times.
2. Controversial Issues. Any discussion of controversial issues of public
importance shall comply with current FCC rules and policies.
3. No Plugola or Payola. The mention of any business activity of "plug" for
any commercial, professional, or other related endeavor, except where contained
in an actual commercial message of a sponsor, is prohibited.
4. No Lotteries. Announcements giving any information about lotteries or
games prohibited by federal or state law or regulation are prohibited.
5. Election Procedure. At least 90 days before the start of any primary or
regular election campaign, Programmer will clear with Licensee's general manager
the rate Programmer will charge for the time to be sold to candidates for public
office and to make certain that the rate charged conforms to the applicable law
and Station policy. Programmer shall be responsible for ensuring that
advertising time is made available to political candidates and is billed in
accordance with the Communications Act of 1934, as amended, and the rules and
policies of the FCC.
6. Required Announcements. Programmer shall broadcast (i) and announcement
in a form satisfactory to Licensee at the beginning of each hour to identify the
Station, (ii) an announcement at the beginning and end of each program day to
indicate that program time has been purchased by Programmer, and (iii) any other
announcement that may be required by law, regulation, or Station policy.
18
<PAGE>
EXHIBIT B
GENERAL EQUIPMENT
-----------------
<TABLE>
<CAPTION>
Item Name/Model for AM Station
- ------------------------------
<S> <C> <C> <C>
1 Computer System (Remote Control) 5yrs 1800.00
1 Epson LX-80 Printer (Remote Control) 5yrs 600.00
1 Radio Systems DAIC Dist. Amps. 5yrs 2125.00
Equipment Location: AM Studio
-----------------------------
1 Set of Studio Furniture 18yrs 0
1 Carver TX-10 Tuner 5yrs 300.00
Radio Systems Monitor Amp. 16yrs 0
1 Radio Systems RS-12 Audio Console 5yrs 6795.00
1 Belar RFA-2 RF Amp. 5yrs 690.00
1 Gates Modulation Monitor 28yrs 0
1 TFT 760 EBS System 18yrs
1 Senheiser MD421 13yrs 450.00
2 Denon DN-950FA CD Cart Decks 5yrs 3000.00
2 ITC SP-Series Cart Deck Players 18yrs
ITC Cart Deck Recorder 18yrs
1 Gentner SP II-5 Phone Hybrid 5yrs 900.00
1 Ampex ATR 1000 Reel Deck 23yrs 0
2 Tascam 22-2 Reel Deck 5yrs 900.00
2 Tecnics SL-1200MK2 Turntables 13yrs
2 Bose lnteraudio Studio Monitor Spkrs. 8yrs
1 Technics RS-B605 Cassette Deck 5yrs 250.00
1 Technics RS-TR265 Cassette Deck
1 Video Monitor (Remote Control System)
With Keyboard
Equipment Location: New Studio AM
---------------------------------
1 Collins/Autogram Audio Console 23yrs
1 ITC RP-Series Rec. Cart Deck 18yrs
2 JBL Control I Plus Monitor Speakers 5yrs 250.00
1 Tascam 22-2 Reel-Reel Deck 5yrs 1000.00
1 Tascam 32 Reel-Reel Deck 13yrs
1 Tecnics RS-TR212 Cassette Deck 5yrs 260.00
1 Symetrix 528 Voice (mic) Processor 4yrs 650.00
1 Radio Systems DA16 Dist. Amp. 5yrs 425.00
1 Digital Editing Compuuter System 4yrs 2000.00
</TABLE>
19
<PAGE>
Equipment Location: Lounge AM
-----------------------------
<TABLE>
<CAPTION>
Qty. Item Name/Model Age New Value
- ---- --------------- --- ---------
<S> <C> <C> <C>
1 Martin STL-10 STL Transmitter 9yrs 3500.00
1 CRL APP-400 AM Audio Pre-processor 13yrs
75 1ft. 1/2" Heliax for STL antenna 5yrs 375.00
Parabolic STL Dish Antenna 9yrs
Equipment Location: AM Transmitter Site (Silopanna Rd.)
-------------------------------------------------------
1 Nautel Amfet P400 AM Transmitter 5yrs
1 Gates BS-IH(1kw) AM Transmitter 28yrs
1 CRL PRC-450 Audio Processor 9mos. 1800.00
1 CRL SEP400A Audio Processor 18yrs
1 Belar AMM-2B AM Mod. Monitor 5yrs 1390.00
1 Burke ARC16 Remote Control System 5yrs 2995.00
2 Merti R-l0 STL Receiver 9yrs 3500.00
1 Parabolic STL Dish Antenna 9yrs
</TABLE>
Engineering
Equipment for repair or parts - AM
1 Tascam 22-2 Reel to Reel Recorder/player
1 ITC SP Series Cart Bulk Eraser
Assorted other equipment - AM
1 - Peavey CD Mix 7032
1 - Crown Power Base Amp.
2 - Impact Mobile Monitor Speakers
20
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of November 25, 1997, by and
between Florence B. Schwartzberg, an individual with an address at 373 Island
Avenue, Woodmere, New York 11598 (the "Seller") and News Communications, Inc., a
Nevada corporation, with an address at 174-15 Horace Harding Expressway, Fresh
Meadows, New York 11365 (the "Purchaser").
RECITALS
1. The Seller owns an aggregate of ten (10) shares (the "Shares") of
Common Stock, no par value, of South Shore Publishers, Inc. (the "Company"), a
corporation engaged in the business of publishing a weekly newspaper (the
"Business").
2. The Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, all of the Shares, upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1.
PURCHASE AND SALE
Section 1.1. Sale of the Shares. Simultaneously with the execution
and delivery of this Agreement, the Seller shall sell, transfer and assign to
the Purchaser, and the Purchaser shall acquire from the Seller, all of the
Shares, free and clear of all claims, liens, security interests, pledges,
charges, restrictions or other encumbrances ("Liens"), and the Seller shall
deliver to the Purchaser certificates representing the Shares, duly endorsed or
accompanied by stock powers duly endorsed in blank.
<PAGE>
Section 1.2. Purchase Price; Adjustment.
(a) The aggregate purchase price for the Shares is $422,000 (the "Purchase
Price"). The Purchase Price shall be paid by the Purchaser to the Seller, on the
Closing Date, by certified check or wire transfer to an account designated by
the Seller, minus the Escrow Amount (as defined below).
(b) On the Closing Date, the Purchaser shall deposit with Rivkin, Radler &
Kremer, as escrow agent, a portion of the Purchase Price in the amount of
$42,200 (the "Escrow Amount") for purposes of satisfying the Working Capital
Shortfall (as defined below), if applicable, and the Indemnification
obligations, if applicable, of the Seller pursuant to Section 8.1 hereof. The
Escrow Amount shall be held in escrow and released pursuant to the terms of the
Escrow Agreement annexed hereto as Exhibit A.
(c) As soon as practicable, but in no event later than thirty (30)
calendar days following the Closing Date, the Purchaser shall prepare and
deliver to the Seller a calculation of the Net Working Capital (as hereinafter
defined) of the Company as of the Closing Date (the "Closing Date Net Working
Capital") prepared in accordance with generally accepted accounting principles
("GAAP") on a basis consistent with the Company's past accounting practices and
procedures. The Purchaser will provide the Seller with access to all workpapers,
records and personnel reasonably necessary for the Seller to review the Closing
Date Net Working Capital. If, as soon as reasonably practical following the
Purchaser's delivery of the Closing Date Net Working Capital (but in no event
later than 60 calendar days following the Closing Date), the Seller shall have
any disagreement with respect thereto, the Seller will give written notice to
the Purchaser within the 60 calendar-day period, specifying such disagreement
and the Seller's basis therefor. The failure by the Seller to express her
disagreement within the 60 calendar-day period
2
<PAGE>
will constitute the Seller's acceptance of the Closing Date Net Working Capital
as determined by the Seller and the Closing Date Net Working Capital shall
constitute the "Final Net Working Capital". If the Purchaser and the Seller are
unable to resolve any disagreement between them within 15 calendar days after
the giving of notice of such disagreement, the items in dispute (collectively,
the "Disputed Items") will promptly be referred for determination to an
accounting firm to be selected, jointly, by the Purchaser and the Seller (the
"Accountants"). The Accountants shall, within 30 calendar days of the date on
which a Disputed Item has been referred to them for determination, (a) make a
determination only as to each of the Disputed Items and shall have no authority
to review and make a determination with respect to any item which has not been
submitted by the parties hereto for determination by the Accountants and (b)
based on the items not in dispute and on the Accountants' determination of the
Disputed Items, calculate the resultant Net Working Capital (the "Final Net
Working Capital"), which determination and calculation will be (i) in writing,
(ii) promptly furnished to each of the parties hereto after the Disputed Items
have been referred to the Accountants (but in any event within 30 calendar
days), (iii) made in accordance with this Agreement and (iv) conclusive and
binding upon each of the parties hereto. In connection with their determination
of the Disputed Items, the Accountants will be entitled to review the
workpapers, trial balances and similar materials and any books and records
related thereto. The fees and expenses of the Accountants will be shared equally
by the Purchaser and the Seller. For purposes hereof, "Net Working Capital"
shall mean: the cash and accounts receivables and prepaid expenses of the
Company, less the accounts payable and accrued expenses of the Company (only to
the extent such accounts payable and accrued expenses have not otherwise been
paid by, or reserved for the account of, the Seller), existing as of the Closing
Date determined in accordance with GAAP consistently applied in
3
<PAGE>
accordance with the Company's past practices. For the avoidance of doubt, but
without limiting the prior sentence, the liabilities and payables set forth on
Schedule 1.2 hereto, have been paid by, or reserved for the account of, the
Seller and, accordingly, are excluded from the calculation of the Final Net
Working Capital.
(d) If the Final Net Working Capital is less than $58,569 (the "June 30th
Working Capital"), then the Purchase Price shall be reduced at the rate of one
dollar for each dollar that the Final Net Working Capital is less than the June
30th Working Capital (the "Working Capital Shortfall"). The Shortfall, if any,
shall be paid by the Seller to the Purchaser by wire transfer or certified check
within thirty (30) business days of the determination of the Final Net Working
Capital. If the Final Net Working Capital is more than the June 30th Working
Capital (the "Working Capital Excess"), then the Purchase Price shall be
increased at the rate of one dollar for each dollar that the Final Net Working
Capital is more than the June 30th Working Capital. The Excess, if any, shall be
paid by the Purchaser to the Seller by wire transfer or certified check within
thirty (30) business days of the determination of the Final Net Working Capital.
Section 1.3. Closing Date. The closing (the "Closing") of the
transactions contemplated hereby shall be held at the offices of Rivkin, Radler
& Kremer, counsel to the Seller, on or before November 15, 1997, or as otherwise
extended by written agreement of the parties (the "Closing Date").
ARTICLE 2.
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as follows:
Section 2.1. Authorization; Organization; Standing. The Seller has
the legal capacity to enter into this Agreement and each other agreement
contemplated to be executed by
4
<PAGE>
the Seller in connection herewith (the "Seller Related Agreements") and to carry
out the transactions contemplated hereby and thereby and this Agreement and each
of the Seller Related Agreements. This Agreement and each of the Seller Related
Agreement has been duly executed by Seller and constitutes the valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
terms, except as enforceability may be limited by the Bankruptcy Code or other
laws affecting creditors' rights generally and except as the application of
equitable principles may limit the right of specific performance. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New York. The Company has the corporate power and authority
to own and lease its properties and to carry on its business as now conducted.
The Company is duly qualified, admitted or otherwise authorized to transact
business, and is in good standing, in each jurisdiction which the conduct or
nature of the Company's business requires it to be so qualified, admitted or
otherwise authorized, except where the failure to be so qualified would not have
a material adverse effect on the business, properties, financial condition,
results of operations or prospects of the Company (a "Material Adverse Effect").
Section 2.2. Capitalization; Options or Other Rights. The Company
has authorized capital stock consisting of two hundred (200) shares of Common
Stock, no par value, of which ten (10) shares are issued and outstanding. All of
the issued and outstanding Shares have been duly authorized and are validly
issued and are fully paid and non-assessable. There are no commitments, plans or
arrangements of the Company to repurchase, redeem, issue or sell, and no
outstanding options, warrants, convertible securities or other rights calling
for the issuance of, or exchangeable for, additional shares of the capital stock
of the Company. The Shares are not the subject of any voting trust agreement or
other agreement relating to the voting thereof or
5
<PAGE>
restricting in any way the sale or transfer thereof. The Shares are owned by the
Seller, free and clear of any and all Liens. Upon the payment of the Purchase
Price to the Seller at the Closing, the Seller will convey good and marketable
title to the Shares to the Purchaser, free and clear of all Liens.
Section 2.3. Subsidiaries. The Company has no subsidiaries. The
Company does not own any shares of, or have any equity interest in, any
corporation, partnership, joint venture, association or other business
organization.
Section 2.4. Contravention; Consents and Approvals.
(a) Except as set forth on Schedule 2.4(a) hereto, the execution and
delivery of this Agreement by the Seller does not, and the consummation of the
transactions contemplated hereby by the Seller will not, require any filing,
action, notice, authorization, consent or approval of any person, entity or
governmental body (the "Seller Consents").
(b) Except as set forth on Schedule 2.4(a), and subject to obtaining the
Seller Consents, the execution, delivery and performance of this Agreement by
the Seller and the consummation of the transactions contemplated hereby by the
Seller will not (A) result in a breach of the terms or conditions of, or
constitute a default under or violate or give any third party the right to
accelerate any obligation under (1) any provision of any material law,
regulation or ordinance applicable to the Business, (2) the Certificate of
Incorporation or By-laws of the Company, (3) any material agreement, lease,
mortgage, note, bond, indenture, or other instrument or undertaking to which the
Company or the Seller is bound, or (4) any judgment, order, writ, injunction or
decree of any court, administrative agency or governmental body; or (B) result
in the creation or imposition of any Lien upon the property, assets or business
of the Company or the Seller.
6
<PAGE>
Section 2.5. Financial Statements. Schedule 2.5 hereto contains the
unaudited balance sheets of the Company for the twelve month period ending
December 31, 1996, the four month period ending April 30, 1997 and the six month
period ending June 30, 1997 (the "Interim Financial Statement"), and the related
statements of operations and stockholders' equity in the Company for the periods
then ended (collectively the "Financial Statements"). Except as described on
Schedule 2.5, the Financial Statements have been prepared from and in accordance
with the books and records of the Company, in accordance with past custom and
practice and present fairly the financial condition and results of operations of
the Company in all material respects as of the dates and for the periods
indicated.
7
<PAGE>
Section 2.6. Real and Personal Property; Liens.
(a) The Company does not own any real property.
(b) Subject to Section 2.6(c) hereof, and except as provided in Schedule
2.6(c) hereto, the Company has good, valid and marketable title to, or valid and
enforceable leasehold interests in, all property and assets, whether personal or
mixed, tangible or intangible, owned or used by the Company in the operation of
the Business (collectively, the "Personal Property") (except Personal Property
disposed of in the ordinary course of business consistent with past custom and
practice between the date hereof and the Closing Date). All of the Personal
Property that is tangible is in all material respects in good condition and
repair, ordinary wear and tear excepted and is adequate to permit the Company to
conduct its business in substantially the same manner as heretofore conducted.
(c) The Personal Property is not subject to any Lien, except (1) those set
forth in Schedule 2.6(c) or, (2) Liens for taxes not yet due and payable
(collectively, "Permitted Liens").
Section 2.7. Liabilities. The Company has no liability,
indebtedness, claim or obligation, matured or unmatured, contingent or otherwise
(collectively, "Liabilities") other than: (a) Liabilities disclosed or provided
for in the Financial Statements; (b) Liabilities disclosed in this Agreement and
the Schedules referred to in this Agreement and Liabilities not required to be
disclosed therein by reason of term or amount or other qualifications contained
in the representations and warranties of this Agreement; (c) Liabilities arising
in connection with the Contracts (as hereinafter defined) (none of which arise
from defaults thereunder or breaches thereof by the Company prior to the
Closing); and (d) Liabilities incurred in the ordinary course of the Business
consistent with past custom and practice between June 30, 1997 and the Closing
8
<PAGE>
Date which, individually or in the aggregate, would not have a Material Adverse
Effect.
Section 2.8. Occurrences after June 30, 1997. Since June 30, 1997,
through the date hereof, except as set forth in Schedule 2.8 hereto, except as
may be set forth in the Financial Statements, and except for changes in the
ordinary course of business consistent with past custom and practice and changes
in the industry or market in which the Company operates generally, there has
been no change in the financial condition, the Personal Property, results of
operations or business of the Company, which has materially adversely affected
the financial condition, Personal Property, results of operations, business or
prospects of the Company. Without limiting the foregoing, since June 30, 1997,
except as set forth in Schedule 2.8 hereto or in the Financial Statements, or as
otherwise described in this Agreement or the Schedules hereto, the Company has
not: (a) incurred, guaranteed, assumed or become subject to any liabilities,
except liabilities incurred in the ordinary course of business consistent with
past custom and practice; (b) mortgaged, pledged or subjected to Liens, other
than Permitted Liens, any of the Personal Property; (c) sold or transferred any
of the Personal Property except in the ordinary course of business consistent
with past custom and practice; (d) engaged in any transactions not in the
ordinary course of business consistent with past custom and practice; (e)
granted or promised to grant any increase in the wages, salary, compensation,
bonuses or benefits payable by it to any of its employees; (f) increased, or
agreed to increase, any benefits payable under, or amended or entered into any
severance agreements, employment agreements or Benefit Plans, except as required
pursuant to such policies, agreements or Benefit Plans; (g) made or authorized
any change in its Certificate of Incorporation or by-laws; (h) declared, set
aside or paid any dividend or made or agreed to make any other distribution or
payment in respect of its capital shares or redeemed, purchased any of its
capital shares or issued, or committed to issue, any shares of stock
9
<PAGE>
or other equity securities or obligations or securities convertible into or
exchangeable for shares of capital stock or other equity securities; (i) made
commitments or agreements for capital expenditures except such as may be
involved in ordinary repair, maintenance or replacement of its assets; or (j)
entered into any agreement to effectuate any of the foregoing.
Section 2.9. Tax Matters. Except as set forth on Schedule 2.9, the
Company has timely filed when due all tax returns that it was required to file
on or before the Closing Date, all of which tax returns were true, correct and
complete in all material respects. Except as set forth on Schedule 2.9, all
taxes, including, but not limited to, any federal, state, local, or foreign
income, payroll, employment, franchise, withholding, social security,
unemployment and sales taxes, of the Company required to be filed and paid,
pursuant to such tax returns, which have become due at any time on or prior to
and including the Closing Date have been, or will on the Closing Date be, duly
paid. Except as set forth on Schedule 2.9, there are no tax audits or
investigations pending or, to the knowledge of the Seller, threatened with
respect to the Company. No person currently holds, with respect to tax returns
filed, powers of attorney from the Company. Except as set forth on Schedule 2.9,
no issues have been raised by the relevant taxing authority in connection with
the examination of any tax returns of the Company and the Company has not waived
any statute of limitations with respect to any taxes.
Section 2.10. Insurance. Schedule 2.10 hereto sets forth a summary
description of all insurance policies currently maintained with respect to the
Company. Such policies of insurance are valid and enforceable in accordance with
their terms against the Company, and to the best of the Seller' knowledge, are
valid and enforceable in accordance with their terms against any other party
thereto and are in full force and effect. The Company has taken no action or
omitted to take any action that has resulted in a material breach of such
policies of insurance.
10
<PAGE>
The Company has not received any written notice from any insurance carrier
issuing such policies that there will hereafter be a cancellation or a
non-renewal of any existing policies.
Section 2.11. Accounts Receivable. Except as set forth on Schedule
2.11 hereto, the accounts receivable of the Company as set forth on the Interim
Financial Statements or arising since the date thereof are valid and genuine;
have arisen solely out of bona fide sales and performance of services and other
business transactions in the ordinary course of business consistent with past
practice, and are not subject to defenses, set-offs or counterclaims and, to the
Seller's knowledge, are fully collectible in the ordinary course of business
without resort to legal proceedings, net of the reserve set forth on Schedule
2.11 hereto. Notwithstanding the foregoing, any accounts receivable with respect
to which an adjustment has been made for purposes of determining the Final Net
Working Capital shall be excluded from the representation set forth herein.
Section 2.12. Intellectual Property. Schedule 2.12 hereto sets forth
a complete list of all patents, trademarks, service marks, trade dress, trade
names and corporate names owned or used by the Company in the operation of the
Business and all registrations, applications and renewals for any of the
foregoing (collectively, the "Intellectual Property"). Except as set forth in
Schedule 2.12 hereto, the Company is the sole and exclusive owner of the
Intellectual Property, free and clear of any Lien (other than Permitted Liens).
The Seller is not aware of any facts which indicate a likelihood of any
infringement or misappropriation by any third party with respect to the
Intellectual Property. To the Seller's knowledge, the use of the Intellectual
Property by the Company does not infringe on the rights of any person. There is
no pending or, to the knowledge of the Seller, threatened claim, that the
Company is infringing on any patents, trademarks, service marks, trade dress,
trade names or other proprietary rights of a third party.
11
<PAGE>
Section 2.13. Litigation. Except as set forth on Schedule 2.13,
there are no legal, administrative, arbitration or other proceeding or
governmental investigation pending or, to the knowledge of the Seller,
threatened against the Company or the Seller with respect to the Company. Except
as set forth in Schedule 2.13 hereto, the Company is not subject to, nor is
there outstanding, any judgment, award, order, writ, injunction or decree of any
court, administrative agency, governmental body or arbitration tribunal with
respect to the Company. The Company is not in default of any judgment, award,
order, writ, injunction or decree set forth on Schedule 2.13 hereto.
Section 2.14. Employee Compensation. Schedule 2.14 hereto contains a
true and complete list of all persons employed by the Company, as in effect on
the date hereof, together with a statement as to the full amount of
compensation, commissions or bonuses currently payable to, or on behalf of, each
such person for services rendered during the current year.
Section 2.15. Employee Benefit Plans. Schedule 2.15 hereto sets
forth a list of each retirement or deferred compensation plan, incentive
compensation plans, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance or hospitalization
program or other fringe benefit arrangements for any employee, director
consultant or agent, whether pursuant to contract, arrangement, custom or
informal understanding which is maintained, administered or contributed to by
the Company. Such benefit plans are hereinafter collectively referred to as the
"Benefit Plans." Each Benefit Plan is in compliance in all material respects
with, and has always been operated in all material respects in accordance with,
its terms and the requirements of all applicable law. All contributions,
premiums or payments required to be made with respect to any Benefit Plan have
been made on or before their due dates. No employee of the Company will become
entitled to any bonus,
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retirement, severance, job security or similar benefit as a result of the
transactions contemplated by this Agreement.
Section 2.16. Labor Matters. The Company does not have any
agreement, commitment or understanding, whether formal or informal, with any
union representing workers of the Company The Company has not suffered any
strike, slowdown, picketing or work stoppage by any union or other group of
employees affecting the business of the Company. No collective bargaining agent
has been certified to the Company as a representative of any of the employees of
the Company, and to the Seller's knowledge, no representation campaign or
election is now in progress with respect to any of the employees of the Company.
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Section 2.17. Agreements and Other Rights.
(a) Schedule 2.17 hereto sets forth all material contracts, agreements and
commitments of the Company, including, but not limited to (collectively, the
"Contracts"): (1) agreements for the purchase, sale, leasing or mortgage of real
property; (2) notes, debentures, letters of credit, loan agreements or other
contracts or commitments for the borrowing or lending of money or guarantees,
pledges or undertakings of the indebtedness of any other person; (3) agreements
for the purchase, rental or leasing by the Company of materials, supplies,
services, machinery or equipment; (4) agreements with customers and subscribers;
(5) agreements with advertisers; (6) agreements for any capital expenditure or
leasehold improvement in excess of $5,000; (7) agreements which contain any
covenant on the part of the Company not to compete in a certain geographic area,
during a certain time period, in a certain business or otherwise restricts the
use of confidential information by the Company or any such person; (8)
agreements with any present employee, agent or consultant; or (9) any other
agreement that is material to the Company.
(b) All Contracts are in full force and effect and constitute the valid
and binding obligations of the Company enforceable in accordance with their
respective terms against the Company. As to the Contracts, except as disclosed
in the Schedules to this Agreement, (1) neither the Company nor, to the Sellers'
knowledge, any other party thereunder is in default or breach in any material
respect under the terms thereof, and (2) except as set forth on Schedule 2.17,
and subject to obtaining the Seller Consents, no event, act or omission has or,
as a result of the consummation of the transactions contemplated hereby, will
occur which (with or without notice, lapse of time or the happening or
occurrence of any other event) would result in a default thereunder, give cause
for termination thereof or permit the acceleration of any obligation
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thereunder.
Section 2.18. Compliance with Laws. The licenses and permits set
forth in Schedule 2.18 hereto are the only licenses and permits which
individually or in the aggregate are necessary or required in the conduct of the
business of the Company as currently conducted by the Company, except for such
licenses and permits the failure to obtain have not resulted in a material
adverse effect on the business of the Company and all of such listed licenses
and permits are in full force and effect on the date hereof. The Company has not
received notice, and, to the knowledge of the Seller, there is no reason to
believe, that any appropriate authority intends to cancel, terminate or amend
any of such licenses or permits or that valid grounds for such cancellation or
termination currently exist. The Company is not in violation of any material
law, rule or regulation applicable to the Business, including, but not limited
to laws relating to employment and employment practices, occupational safety and
health laws and regulations and laws relating to pollution or protection of the
environment, and laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes (collectively, "Laws"),
except such violations that would not, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth on Schedule 2.18, since 1990,
neither the Company nor the Seller has received any notification of any asserted
failure by the Company to comply with any Laws or Permits applicable to the
operation of the Business nor are any claims pending against the Company with
respect to a violation of any Laws.
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Section 2.19. Finders' Fee. There is no investment banker, broker,
finder or other intermediary which has been retained by, or is authorized to act
on behalf of, the Seller or the Company who is or might be entitled to any fee
or commission from the Company or the Seller upon the consummation of the
transactions contemplated by this Agreement.
Section 2.20. Bank Accounts; Officer and Directors. Schedule 2.20
sets forth the name and location of each bank in which the Company has an
account, lock box or safe deposit and the number of each such account or box and
those persons authorized to sign thereon. Schedule 2.20 sets forth a list of all
corporate officers and directors of the Company.
Section 2.21. Transactions with Certain Persons. Except as set forth
on Schedule 2.21 annexed hereto, no officer, director or employee of the Company
or any member of any such person's immediate family (an "Affiliated Person") is
presently a party to any transaction with the Company, including without
limitation any contract, agreement or other arrangement (i) providing for
furnishing of services by, (ii) providing for the rental or real or personal
property from, or (iii) otherwise requiring payments to (in each case other than
for services as officers, directors or employees of the Company) any such
person, or corporation, partnership or other entity in which any such person has
a substantial interest (more than 5% of the outstanding equity securities) as a
shareholder, or is an officer, director, trustee or general partner.
Section 2.22. Corporate Documents. Annexed hereto as Schedule 2.22
are true, correct and complete copies of the Certificate of Incorporation and
By-laws of the Company, as amended.
Section 2.23. Full Disclosure. No representation or warranty of
Seller contained in this Agreement contains an untrue statement of material fact
or omits to state a material fact required to be stated therein to make the
statement, in the context in which made, not materially
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false or misleading.
Section 2.24. Seller's Knowledge. Whenever the phrase "the Seller's
knowledge", "to the best of the Seller's knowledge" or similar phrase is used
herein, it shall mean the actual knowledge of Florence B. Schwartzberg which she
would have had after due inquiry of the responsible officers and employees of
the Company and its counsel and accountants..
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller as follows:
Section 3.1. Authorization; Organization; Standing. The Purchaser
has the power and authority to enter into this Agreement and each other
agreement contemplated to be executed by the Purchaser in connection herewith,
as applicable (the "Purchaser Related Agreements") and to carry out the
transactions contemplated hereby and thereby and this Agreement and each of the
Purchaser Related Agreements constitutes the legal, valid and binding obligation
of the Purchaser, enforceable in accordance with its terms. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. The Purchaser has the corporate power and authority to
own and lease its properties and to carry on its business as now conducted. The
execution, delivery and performance by the Purchaser of this Agreement and each
of the Purchaser Related Agreements and the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Purchaser.
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Section 3.2. Contravention; Consents and Approvals.
(a) The execution and delivery of this Agreement by the Purchaser does
not, and the consummation of the transactions contemplated hereby by the
Purchaser will not, require any filing, action, notice, authorization, consent
or approval of any person, entity or governmental body.
(b) The execution, delivery and performance of this Agreement by the
Purchaser and the consummation of the transactions contemplated hereby by the
Purchaser will not (A) result in a breach of the terms or conditions of, or
constitute a default under or violate or give any third party the right to
accelerate any obligation under (1) any provision of any material law,
regulation or ordinance applicable to the Purchaser, (2) the Certificate of
Incorporation or By-laws of the Purchaser, (3) any material agreement, lease,
mortgage, note, bond, indenture, or other instrument or undertaking to which the
Purchaser is bound, or (4) any judgment, order, writ, injunction or decree of
any court, administrative agency or governmental body; or (B) result in the
creation or imposition of any Lien upon the property, assets or business of the
Purchaser, except, in any case, for such breaches, defaults, violations or Liens
which will not have a material adverse impact on the property, assets and
business of the Purchaser or on the ability of the Purchaser to consummate the
transactions contemplated hereby.
Section 3.3. Purchase for Investment. The Purchaser is acquiring the
Shares for investment and not with a view to the sale or distribution thereof in
violation of the Securities Act of 1933, as amended, or any other Federal or
State securities laws.
Section 3.4. Financing. The Purchaser has the funds required to pay
the Purchase Price and to consummate the transactions contemplated hereby.
Section 3.5. Finders' Fee. There is no investment banker, broker,
finder or other
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intermediary which has been retained by, or is authorized to act on behalf of,
the Purchaser or any affiliates who might be entitled to any fee or commission
from the Purchaser or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
ARTICLE 4.
COVENANTS OF THE SELLER
The Seller covenants and agrees that:
Section 4.1. Non-Competition. The Seller agrees that for a period of
three (3) years after the Closing, the Seller shall not, directly or indirectly,
herself or as the agent of any partnership, or as an agent, stockholder or
investor (except as not more than 2% of the outstanding stock of any corporation
whose stock is publicly traded) of any corporation, (i) engage in or be
connected in any manner with any business or activity located within Nassau
County, which is engaged in the business of publishing a weekly newspaper,
except that, notwithstanding the foregoing, Seller shall be permitted to submit
and publish writings and columns in any such weekly newspaper; provided, that
the Seller first gives the Company the option to publish any such writings and
columns, and the Company does not (within 5 days of the Seller's submission of
such column to the Company), elect to publish such writings. If the Company
elects to publish such columns, and does not actually publish such columns,
within one month of its election, then the Seller is free to submit such column
to any other entity, or (ii) solicit, interfere with or endeavor to entice away
from the Purchaser or its affiliates any customers or any person, firm, company
or corporation dealing with the Purchaser or its affiliates, or interfere with
or entice away any employee of the Purchaser or its affiliates.
Section 4.2. Consents. The Seller will use her best efforts to cause
the Company to obtain all consents, approvals and waivers of third parties or
authorities set forth in
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Schedule 2.4(a) hereto required to be obtained pursuant to this Agreement on or
prior to the Closing.
Section 4.3. Taxes. It is understood and agreed that all liabilities
with respect to taxes and income arising out of the operation of the business of
the Company for all periods through the Closing Date shall be for the account of
the Seller and all liabilities with respect to taxes and income arising out of
the operation of the business of the Company from and after the Closing Date
shall be for the account of the Purchaser. The parties shall file such returns
and taxes as are applicable in accordance with the foregoing. In addition, the
Seller agrees to use her best efforts, following the Closing Date, to obtain the
appropriate documentation, to the extent available, to indicate that the tax
liens set forth on Schedule 2.9 hereto have been satisfied, other than the Tax
Liabilities (as defined in Section 8.1 hereof).
ARTICLE 5.
COVENANTS OF THE PURCHASER
Section 5.1. Books and Records. Until the expiration of six years
from the Closing Date (and, if at the expiration thereof any judicial proceeding
is in progress, for such longer period as such judicial proceeding is in
progress) with respect to books and records of the Company, the Purchaser will,
and will cause the Company to, (i) retain and, as the Seller may reasonably
request, permit the Seller at her expense during normal business hours to
inspect and copy, all books and records of the Company that relate to the period
prior to the Closing Date, and (ii) assist in arranging discussions with
officers, directors, employees and agents of the Company on matters that relate
to the Company with respect to periods prior to the Closing Date.
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ARTICLE 6.
DELIVERIES BY THE SELLER
On the date hereof, the Seller shall deliver the following items to the
Purchaser, each of which shall be in form and substance reasonably satisfactory
to the Purchaser:
Section 6.1. Delivery of Stock Certificates. The Seller shall have
delivered to the Purchaser certificates representing the Shares, duly endorsed
for transfer by delivery, or accompanied by stock powers duly endorsed in blank.
Section 6.2. Resignations. The Seller shall have delivered to the
Purchaser the resignations, effective as of the Closing Date, of each of the
directors of the Company, and each corporate officer of the Company.
Section 6.3. Escrow Agreement. The Seller shall have delivered to
the Purchaser the Escrow Agreement, annexed hereto as Exhibit A, duly executed
by the Seller and the Escrow Agent.
Section 6.4. Good Standing; Corporate Records. The Seller shall have
delivered to the Purchaser a Certificate of Good Standing, with respect to the
Company, from the Secretary of State of the State of New York and the corporate
books and records, including the stock book and stock book ledger of the Company
existing on the Closing Date.
Section 6.5. Shareholder Loans. The loans to the Company set forth
on Schedule 2.21 hereto shall have been paid in full and the Purchaser shall
have been provided with satisfactory evidence thereof.
Section 6.6. Outstanding Tax Liabilities. The outstanding tax
liabilities of the Company listed on Schedule 2.9 shall have been paid in full
or deducted from the Purchase Price on the Closing Date, and the Purchaser
provided with satisfactory evidence thereof.
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Section 6.7. Secretary's Certificate. The Seller shall have
delivered to Purchaser a Secretary's Certificate of the Company certifying as to
the true and correct nature of the Certificate of Incorporation and By-Laws of
the Company.
ARTICLE 7.
DELIVERIES BY THE PURCHASER
On the date hereof, the Purchaser shall deliver the following to the
Seller, each of which shall be in form and substance reasonably satisfactory to
the Seller:
Section 7.1. Payment. Payment of the Purchase Price shall have been
made as provided in Section 1.2 hereof.
Section 7.2. Escrow Agreement. The Purchaser shall have delivered to
the Seller the Escrow Agreement annexed hereto as Exhibit A duly executed by the
Purchaser and the Escrow Agent.
Section 7.3. Consents. The Seller Consents, and all other consents
necessary to consummate the transactions contemplated hereby, shall have been
obtained.
Section 7.4. Secretary's Certificate. The Seller, shall have
received a certificate duly executed by the Secretary of the Purchaser,
certifying as to the resolutions adopted by the board of directors of the
Purchaser approving the execution of this Agreement and the consummation of the
transactions contemplated hereby, together with copies of such resolutions.
ARTICLE 8.
INDEMNIFICATION
Section 8.1. Seller's Indemnification. The Seller hereby agrees to
indemnify and hold harmless the Purchaser and its affiliates, successors and
assigns, officers and directors, from and against any liabilities or
obligations, damages, losses, claims, encumbrances, costs or expenses (including
reasonable attorneys' fees) of any nature, whether absolute, contingent or
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otherwise (any or all of the foregoing herein referred to as a "Loss" or the
"Losses") to the extent that a Loss arises out of or is based upon (i) any
breach of any of the representations and warranties made by the Seller in this
Agreement or the Seller Related Agreements; (ii) any breach of any covenants or
agreements made by the Seller in this Agreement or the Seller Related
Agreements; (iii) subject to the next two sentences of this Section 8.1, any
claims of any taxing authorities against the Company in respect of tax
liabilities (including interest and penalties thereon) relating to all periods
ending on or prior to the Closing Date, (iv) any claims in respect of those
matters set forth on Schedule 2.13, provided, that for those matters for which a
reserve or expense has been established or included on the Financial Statements,
or in the calculation of the Closing Date Net Working Capital, only claims in
excess of such reserve or expense item, and (v) any claims of any Affiliated
Person with respect to any contract, agreement or arrangement entered into prior
to the Closing Date. Notwithstanding Section 8.1 (iii) above, it is agreed that
the Purchase Price has been reduced in an amount equal to the outstanding tax
liabilities of the Company set forth on Schedule 1.2 hereto (the "Tax
Liabilities"). Accordingly, any and all Losses and liabilities arising out of or
based upon the Tax Liabilities, up to the amount set forth on Schedule 1.2, are
for the sole account, liability and obligation of the Purchaser and the Company,
shall not be deemed Losses of the Purchaser or the Company and the Seller shall
have no liability or obligations with respect thereto, whether under this
Section 8.1 or otherwise.
Section 8.2. Purchaser's Indemnity. The Purchaser hereby agrees to
indemnify and hold harmless the Seller and her affiliates, successors, assigns,
representatives and heirs from and against any Loss to the extent that such Loss
arises out of or is based upon (i) any breach of any of the representations and
warranties made by the Purchaser in this Agreement or the
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Purchaser Related Documents; or (ii) any breach of any of the covenants or
agreements made by the Purchaser in this Agreement or the Purchaser Related
Agreements; or (iii) any claims of any taxing authorities in respect of tax
liabilities (including interest and penalties thereon) relating to all periods
ending after the Closing Date; or (iv) any claims arising in connection with the
Tax Liabilities, up to the amount set forth on Schedule 1.2; and (v) all
liabilities and obligations arising out of the operation of the business of the
Company (except to the extent such liability or obligation arises out of an item
for which the Purchaser is entitled to be indemnified for hereunder).
Section 8.3. Tax Benefit/Insurance Proceeds. Indemnification with
respect to a Loss shall be net of the tax benefit to the person asserting a
right to indemnification under this Article 8 (the "Indemnitee"), or any company
joining in a consolidated tax return with the Indemnitee, but after giving
effect to any tax which shall be required to be paid on such indemnification
payment by the Indemnitee or the entity receiving such payment attributable to a
Loss. Indemnitee's determination of the net tax benefit shall not be subject to
dispute or challenge absent manifest error. In addition, in determining the
amount of Loss for which an Indemnitee is entitled, the Loss shall be reduced by
any insurance proceeds which are paid to such Indemnitee with respect to the
Loss for which indemnification is sought. If the Seller pays the Purchaser a
payment which satisfied the Seller's obligations under this Article 8 with
regard to a Loss for which the Purchaser was entitled to indemnification in
accordance with Section 8.1 and, after such payment by the Seller, the Purchaser
receives insurance proceeds in payment of the same Loss, the Purchaser will
reimburse the Seller for the amount the Seller has paid up to, but not
exceeding, the insurance proceeds received.
Section 8.4. Notice. Notice of any matter which may give rise to
such claim
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shall be given in writing by the Indemnitee to the person against whom
indemnification is sought (the "Indemnitor") promptly after such matter has been
asserted against Indemnitee. Such notice shall state that the Indemnitor is
required to indemnify the Indemnitee for a Loss and shall specify the relevant
details thereof. The Indemnitee's failure to give prompt notice of a claim shall
not constitute a defense (in part or in whole) to any claim for indemnification
for such party, except and only to the extent that such failure shall result in
material prejudice to the indemnifying party.
Section 8.5. Procedural Matters. The Indemnitor shall have the right
to settle and to defend, through counsel reasonably satisfactory to the
Indemnitee, at the Indemnitor's expense, any action which may be brought in
connection with all indemnifiable matters subject to this Article 8 (a "Third
Party Action") by providing Indemnitee with written notice thereof. The defense
by Indemnitor of any such action shall not be deemed a waiver by the Indemnitor
of its right to assert a dispute with respect to the responsibility of the
Indemnitor with respect to the Loss in question. The Indemnitee shall not have
the right to settle or compromise any claim against the Indemnitee without the
prior written consent of the Indemnitor unless the Indemnitor has elected not to
defend such claim in which event the Indemnitee shall have the right to assume
the defense of such claim in such manner as it deems appropriate, at the
Indemnitor's expense; provided, however, that any such settlement or compromise,
as a condition precedent thereto, must include a release of the Indemnitor in
form and substance satisfactory to such Indemnitor from such claim. No
Indemnitee shall pay or voluntarily permit the determination of any liability
which is subject to any such action while the Indemnitor is negotiating the
settlement thereof or contesting the matter, except with the prior written
consent of the Indemnitor, which consent shall not be unreasonably withheld.
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Section 8.6. Limitation on Indemnification. Notwithstanding anything
else to the contrary contained herein, the Purchaser shall not be entitled to
assert any claim for indemnification contained in Section 8.1 unless and until
such time as the Losses, in the aggregate, exceed $25,000, at which time the
Seller shall indemnify the Purchaser only for those Losses which exceed $25,000;
it being understood and agreed that the Seller shall have no liability to the
Purchaser with respect to the first $25,000 of Losses and that such are for the
sole account of the Purchaser. In addition, the total indemnification to which
the Purchaser shall be entitled under this Agreement shall be limited to an
amount, in the aggregate, not to exceed the Purchase Price, as adjusted pursuant
to Section 1.2(c) hereof.
Section 8.7. Survival. The representations and warranties of the
parties contained in this Agreement (and the obligations of the parties hereto
to indemnify the other with respect thereto) will survive the Closing until
August 27, 1998; provided, however, that the representations and warranties
contained in Section 2.9 shall survive until expiration of the statute of
limitations applicable to the matters covered thereby (after giving effect to
any waiver, mitigation or extension thereof) and the representations and
warranties contained in Section 2.2 shall survive the Closing for a period of
six years and the representations and warranties contained in Sections 2.19 and
3.5 shall survive the Closing indefinitely. Notwithstanding the preceding
sentence, any representation or warranty in respect of which indemnification may
be sought will survive the time at which it would otherwise terminate if written
notice of such indemnification claim shall have been made prior to such
termination date.
Section 8.8. Exclusive Remedy. Subject to Article 9 hereof, the
parties hereto acknowledge and agree that the indemnity provided in this Article
8 shall be the sole and exclusive remedy of the parties for any breach of this
Agreement, provided, however, that the
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foregoing shall not be deemed to waive any claims any party may assert against
the other arising out of fraud.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to conflicts of law).
Section 9.2. Headings and Captions The headings and captions
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
Section 9.3. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one and the same instrument.
Section 9.4. Entire Agreement. This Agreement including all Exhibits
and Schedules hereto and thereto, constitutes the entire understanding among the
parties with respect to the subject matter hereof, superseding all negotiations,
prior discussions, in each case, whether oral or written, preliminary
agreements, representations or warranties or projections made prior to the date
hereof.
Section 9.5. Separability. If any section, subsection or provision
is held invalid, the remainder of this Agreement and the application of such
section, subsection or provision to persons or circumstances other than those to
which it is held invalid shall not be affected thereby.
Section 9.6. Notices All notices, consents or other communications
required or permitted to be given by any party hereunder shall be in writing and
shall be given by delivery,
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telecopy transmission or by overnight courier, postage prepaid, as follows: if
to the Seller, to the address set forth on page one annexed hereto, with a copy
to Rivkin, Radler & Kremer, EAB Plaza, Uniondale, New York, 11556, Attn: Jill
Rosen Nikoloff, Esq., and if to the Purchaser, to its address set forth on page
one hereto, with a copy to Jones Day, Reavis & Pogue, 599 Lexington Avenue, New
York, New York 10022, Attn: Marc Kirschner, Esq., or at such other address or
telecopy number as any party may from time to time specify to the other parties
hereto. Any notice, consent or other communication required or permitted to be
given hereunder shall be deemed to have been given (i) on the next day following
delivery with an overnight courier, (ii) on the date of personal delivery, or
(iii) on the date of telecopy (provided the appropriate answer back is received)
thereof, as the case may be.
Section 9.7. Costs. Except as otherwise set forth herein, each party
will pay its own costs and expenses involved in carrying out the transactions
contemplated by this Agreement.
Section 9.8. Amendment; Assignment. This Agreement may not be
amended or assigned except by an instrument in writing signed by all of the
parties hereto.
Section 9.9. Disclosure on Schedules. For purposes of this
Agreement, a disclosure by any party hereto of any fact on any Schedule shall be
deemed a disclosure on every Schedule of any party hereto to the extent such
disclosure properly could have been made thereon but was not made.
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Section 9.10. Arbitration.
(a) Each and every controversy or claim arising out of or relating to this
Agreement, and any document executed in connection herewith, shall be settled by
arbitration in accordance with the rules of the American Arbitration Association
(the "AAA"), in Nassau County, New York and judgment upon the award rendered in
such arbitration shall be final and binding upon the parties and may be
confirmed in any court having jurisdiction thereof. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement in
accordance with the rules of the AAA. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statutes of limitations. The award of the arbitrator
shall be in writing and it shall specify in detail the issues submitted to
arbitration and the award of the arbitrator with respect to each of the issues
so submitted. The award pursuant to such arbitration will be final, binding and
conclusive. The arbitration shall be conducted by one arbitrator selected in
accordance with the rules of the AAA.
(b) Counsel to the Purchaser and the Seller and in connection with the
negotiation of and consummation of the transactions under this Agreement shall
be entitled to represent their respective party in any and all proceedings under
this Section or in any other proceeding (collectively, "Proceedings"). The
Purchaser and the Seller, respectively, waive the right and agree they shall not
seek to disqualify any such counsel in any such Proceedings for any reason,
including but not limited to the fact that such counsel or any member thereof
may be a witness in any such Proceedings or possess or have learned of
information of a confidential or financial nature of the party whose interests
are adverse to the party represented by such counsel in any such Proceedings.
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Section 9.11. Construction. Any court or arbitrator interpreting or
construing this Agreement shall not apply a presumption that any provision shall
be more strictly construed against the party who prepared it.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
/s/ Florence B. Schwartzberg
---------------------------------
Florence B. Schwartzberg
NEWS COMMUNICATIONS, INC.
By: /s/ Wilbur L. Ross, Jr.
------------------------------
Name: Wilbur L. Ross, Jr.
----------------------------
Title: Chief Executive Officer
---------------------------
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Exhibit A
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of November ___, 1997, by and among
Florence Schwartzberg (the "Seller"), News Communications, Inc. (the "Buyer")
and Rivkin, Radler & Kremer (the "Escrow Agent").
R E C I T A L S:
1. The Seller and the Buyer have entered into a Stock Purchase
Agreement, dated the date hereof (the "Purchase Agreement"), providing for the
sale by the Seller and the purchase by the Buyer of all of the issued and
outstanding stock (the "Shares") of South Shore Publishers, Inc., all as set
forth in the Purchase Agreement.
2. The Purchase Agreement requires the sum of $42,200 to be
delivered to the Escrow Agent in connection with certain claims that may arise
under Sections 1.2(c) and 8.1 thereof.
3. The parties hereto wish to appoint the Escrow Agent, and the
Escrow Agent has agreed to act, as a depository and administrator of the escrow
funds, all upon the terms, conditions and provisions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Deposit of Funds. On the date hereof, the Buyer has deposited the
sum of $42,200 (the "Escrow Funds") with the Escrow Agent and the Escrow Agent
acknowledges receipt of the Escrow Funds.
2. Handling of Escrow Funds. The Escrow Agent shall hold the Escrow
Funds in a segregated, interest-bearing bank account, in the name of the Escrow
Agent, as escrow agent (the Escrow Funds, including all interest earned thereon,
being collectively, the "Escrow Amount").
3. Term. The Escrow Amount shall be held, maintained, invested and
paid in accordance with the terms of this Escrow Agreement for a period of one
year (i.e., 365 calendar days) from, but excluding, the date hereof (the "Escrow
Period"), subject to the further provisions of this Escrow Agreement.
4. Release of Escrow Amount to the Buyer. From time to time prior to
the expiration of the Escrow Period, the Buyer shall have the right to make a
claim against the Escrow Amount, by delivering a written demand, specifying the
precise dollar amount of the claim (a "claim") and the basis therefor under
Sections 1.2(c) or 8.1 of the Purchase Agreement,
<PAGE>
to the Escrow Agent, with a copy of such claim being delivered simultaneously to
the Seller. The Escrow Agent shall deliver to the Buyer the portion of the
Escrow Amount which is equal to the amount of such claim at the expiration of a
period of ten "business days" (as defined below) following, but excluding, the
day on which the Escrow Agent receives such demand unless, during such ten
business day period, the Escrow Agent receives written notice from the Seller
stating the objection of the Seller to all or a portion of such claim (a
"dispute") and specifying the precise dollar amount which is in dispute (the
"disputed amount"), with such notice being given simultaneously to the Buyer. If
the Escrow Agent receives notice of a dispute in accordance with the foregoing
provisions, the Escrow Agent shall not disburse any of the Escrow Funds which
are the subject of any such dispute to the Buyer or the Seller until the dispute
has been settled in the manner set forth in Section 7 below. For purposes
hereof, the term "business days" means any day on which commercial banks are not
authorized or required to close in New York City.
5. Release of Escrow Amount to the Seller. Upon the expiration of
the Escrow Period and from time to time thereafter (i.e., until the entire
Escrow Amount has been disbursed or deposited in accordance with the provisions
hereof), the Escrow Agent shall make payment to the Seller of that portion of
the Escrow Amount which is not the subject of a "pending" claim or dispute
(i.e., a claim which is not the subject of a dispute or a dispute that has not
been settled in the manner set forth in Section 7 below).
6. Compliance with Purchase Agreement.
The Seller acknowledges and agrees that the Buyer has the right to
make a claim upon the Escrow Amount, provided that the Buyer complies with the
terms and conditions of this Escrow Agreement and with the terms, conditions and
limitations of Article 8 of the Purchase Agreement.
7. Settlement of Disputes. Any dispute that may arise under this
Escrow Agreement shall be settled either by mutual agreement of the Buyer and
the Seller (evidenced by appropriate instructions in writing to the Escrow
Agent, signed by such parties) or by a Final Order (as hereinafter defined), and
the Escrow Agent shall only be obligated to disburse the disputed amount to the
Buyer or the Seller, as the case may be, in accordance with the explicit written
instructions contained in any such agreement or Final Order, as the case may be.
The Escrow Agent shall be under no duty whatsoever to institute or defend any
such proceedings.
8. Concerning the Escrow Agent.
(a) The Escrow Agent may resign and be discharged from its
duties hereunder at any time by giving notice of such resignation to the Buyer
and the Seller specifying a date when such resignation shall take effect. Upon
such notice, a successor escrow agent shall be appointed with the written
consent of the Buyer and the Seller, such successor escrow agent to become
escrow agent hereunder upon the resignation date specified in such notice and
upon the delivery by the Escrow Agent to such successor of the Escrow Amount
then held by the Escrow Agent hereunder. If the Buyer and the Seller are unable
to agree upon a successor
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<PAGE>
escrow agent within thirty days after such notice, the Escrow Agent shall
deposit the Escrow Amount then held by the Escrow Agent hereunder in the Supreme
Court of the State of New York, County of Nassau, and it shall thereby be
discharged of its duties and responsibilities hereunder, the parties hereto
hereby consenting and submitting to the personal jurisdiction of such court and
agreeing to waive all rights to contest such jurisdiction in connection with any
such action by the Escrow Agent or any matter arising out of this Escrow
Agreement or in connection herewith. The Escrow Agent shall continue to serve
until its successor executes this Escrow Agreement, accepts the escrow and
receives the Escrow Amount or until it shall deposit the Escrow Amount into
Court as provided above. The Buyer and the Seller shall have the right at any
time to substitute a new escrow agent by giving written notice thereof, duly
executed by each, to the Escrow Agent or the escrow agent then acting.
(b) The Escrow Agent undertakes to perform such duties as are
specifically set forth herein and may conclusively rely, and shall be protected
in acting or refraining from acting, on any written notice, instrument, or
signature believed by it to be genuine and believed by it to have been signed or
presented by the proper party or parties duly authorized to do so. The Escrow
Agent shall have no responsibility for the contents of any writing contemplated
herein and may rely without any liability upon the contents thereof. The Escrow
Agent is authorized, in its sole discretion, to disregard any and all notices or
directions given by either the Seller or the Buyer or by any other person, firm
or corporation, except (i) such notices, directions, certifications or
instructions as are specifically provided for herein and (ii) a Final Order (as
defined herein). If any property subject hereto is at any time attached,
garnished or levied upon under a Final Order, or if the payment, assignment,
transfer, conveyance or delivery of any such property shall be stayed or
enjoined by a Final Order, or if a Final Order shall be made or entered
affecting such property or any part thereof, then, in any of such events, the
Escrow Agent is authorized, in its sole discretion, to rely upon and comply with
any such Final Order. The term "Final Order" as used herein shall mean any
order, writ, judgment or decree of any court or arbitration proceeding in
accordance with Section 10.10 of the Purchase Agreement which the Escrow Agent
determines, in its sole discretion, is not subject to further review or appeal
and is binding upon the Escrow Agent. In the event that the Escrow Agent shall
be uncertain as to its duties, obligations or responsibilities hereunder, or
shall receive instructions from the Buyer or the Seller which, in the sole
judgment of the Escrow Agent, are vague or in conflict with any of the
provisions of this Escrow Agreement, it shall be entitled to maintain the Escrow
Amount in escrow in accordance with the provisions hereof and to decline to take
any further actions until the Escrow Agent receives joint written instructions
from the Buyer and the Seller or a Final Order directing the disbursement of all
or any portion of such Escrow Amount, in which case the Escrow Agent shall then
make such disbursement in accordance with such directions or Final Order.
(c) The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and believed by it to be authorized hereby or
within the rights or powers conferred upon it hereunder, nor for action taken or
omitted by it in good faith, and in accordance with advice of counsel (which
counsel may be of the Escrow Agent's own choosing), and shall not be liable for
any mistake of fact or error of judgment or for any acts or omissions of any
kind unless caused by its willful misconduct or gross negligence.
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<PAGE>
(d) Each party hereto agrees to indemnify the Escrow Agent and
hold it harmless from and against any claim made against the Escrow Agent by
reason of its acting or failing to act in connection with any of the
transactions contemplated hereby and against any loss, liability, cost or
expense, including reasonable attorneys' fees and other reasonable expenses of
defending itself against any claim of liability it may sustain in carrying out
the terms of this Escrow Agreement (which may include the services of the
partners and associates of the Escrow Agent billed at their customary rates),
except such claims successfully asserted against the Escrow Agent which are
based upon its bad faith or willful misconduct.
(e) Any payments of interest or income from the Escrow Funds
shall be subject to withholding regulations then in force with respect to
Federal taxes. The parties hereto will provide the Escrow Agent with appropriate
W-9 forms for tax identification purposes. It is understood that the Escrow
Agent shall be responsible for income reporting only with respect to income
earned on investment of the Escrow Funds and is not responsible for any other
reporting. The provisions of this Section (e), as well as Sections (c) and (d)
above and (f) below, shall survive any termination of this Escrow Agreement or
the resignation of the Escrow Agent.
(f) The Escrow Agent shall have no liability in respect of or
duty to inquire into the terms and conditions of the Purchase Agreement or any
other document or agreement executed in connection therewith, its duties under
this Escrow Agreement being understood to be purely ministerial in nature.
Furthermore, the Escrow Agent shall be permitted to consult with counsel of its
choice (which may include consultation with partners and associates of the
Escrow Agent) and shall not be liable for any action taken, suffered or omitted
by it in good faith in accordance with the advice of such counsel.
(g) The Escrow Agent shall not be bound by any modification,
amendment, termination, cancellation or recision of this Escrow Agreement,
unless the same shall be in writing and signed by the parties hereto, including
the Escrow Agent.
(h) The Buyer acknowledges that the Escrow Agent serves as
counsel to the Seller and consents to the Escrow Agent continuing to do so with
respect to all matters, including, but not limited to, the Purchase Agreement.
(i) Except as provided elsewhere herein to the contrary, all
expenses incurred by the Escrow Agent, including the time of its attorneys in
connection with the discharge of its services as Escrow Agent or otherwise, and
all disbursements, in any event incurred following the date hereof, shall be
borne one-half by the Buyer and one-half by the Seller, in an amount not to
exceed $2,500 in the aggregate.
9. Miscellaneous.
(a) This Escrow Agreement and any action in connection
herewith shall be construed by and governed in accordance with the laws of the
State of New York (without regard to its conflicts of laws rules).
(b) This Escrow Agreement shall be binding upon and shall
inure
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<PAGE>
to the benefit of the successors and assigns of the parties hereto.
(c) This Escrow Agreement may be executed in one or more
counterparts, but all such counterparts shall constitute one and the same
instrument.
(d) Section headings contained in this Escrow Agreement have
been inserted for reference purposes only and shall not be construed as part of
this Escrow Agreement.
(e) All capitalized terms used herein and not defined herein
shall have the meaning assigned to them in the Purchase Agreement.
(f) This Escrow Agreement constitutes the entire agreement and
understanding between the parties with respect to its subject matter and it may
and it may only be modified, amended, terminated, cancelled or rescinded
pursuant to a written agreement signed by all of the parties hereto (including
the Escrow Agent).
(g) All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally or sent by registered
mail or certified mail, postage prepaid, to the appropriate address as set forth
below. Notices to the Seller shall be addressed to:
Florence Schwartzberg
373 Island Avenue
Woodmere, New York 11598
with a copy to:
Rivkin, Radler & Kremer
EAB Plaza
Uniondale, New York 11556-0111
Attention: Jill Rosen Nikoloff, Esq.
or at such other address and to the attention of such other person as the Seller
may designate by written notice to the Buyer.
Notices to the Buyer shall be addressed to:
News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Attention: President
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<PAGE>
with a copy to:
Jones Day Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Marc Kirschner, Esq.
or at such other address and to the attention of such other person as the Buyer
may designate by written notice to the Seller.
Notice to the Escrow Agent shall be addressed to:
Rivkin, Radler & Kremer
EAB Plaza
Uniondale, New York 11556-0111
Attention: Jill Rosen Nikoloff, Esq.
or at such other address and to the attention of such other person as the Escrow
Agent may designate by written notice to the other parties. Except as provided
elsewhere herein to the contrary, any notice shall be deemed to have been served
or given as of the date such notice is personally delivered or five business
days after it is properly mailed hereunder.
(h) The parties hereto agree that all legal expenses incurred
by all parties in connection with a litigated dispute as to disbursement of the
Escrow Amount shall be borne by the party or parties against which the case is
decided.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed and delivered on the date first above written.
NEWS COMMUNICATIONS, NC.
- ----------------------------------
RIVKIN, RADLER & KREMER By: /s/ Wilbur L. Ross, Jr.
----------------------------------
Name: Wilbur L. Ross, Jr.
Title: Chief Executive Officer
-------------------------------------
Florence Schwartzberg
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the ____ day of November, 1997, by and between South
Shore Publisher's, Inc. (the "Company") and Florence B. Schwartzberg (the
"Employee").
RECITALS
1. Simultaneously with the execution hereof, the Employee has sold to News
Communications, Inc. and News Communications, Inc. has purchased from the
Employee, all of the issued outstanding stock of the Company owned by the
Employee.
2. The Company wishes to continue to have the services and expertise of
the Employee available to the Company upon the terms and conditions set forth in
this Agreement for the purpose of continuing the operation of the weekly
newspaper publishing business conducted by the Company (the "Business").
3. The Employee is willing to make her services available to the Company
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is mutually agreed as follows:
1. Employment.
<PAGE>
(a) The Company hereby agrees to employ the Employee, effective as of the
date hereof, as Publisher of the weekly newspaper currently published by the
Company and known as the "South Shore Record" (the "Newspaper"). The Employee
hereby accepts such employment, effective as of the date hereof on the terms and
conditions set forth herein. The Employee's duties as Publisher shall be limited
to coordination and overseeing the weekly publication of the Newspaper, in a
manner consistent with the past practices of the Company which shall include the
following duties: determining what advertisements are included in each issue,
the design and layout of the Newspaper, determining editorials, and drafting,
editing and supervising add copies and articles. The Company shall make
available to the Employee, personnel and resources, consistent with past
practice, in order to enable the Employee to perform her duties hereunder. It is
understood and agreed that the Employee is no longer an officer, director or
stockholder of the Company and, accordingly, shall not be required to coordinate
or oversee the day-to-day operations of the Business, except as specifically set
forth herein.
(b) The term of employment of the Employee by the Company under this
Agreement shall commence on the date hereof and shall continue for a period of
one (1) year (the "Employment Period"), unless earlier terminated as provided in
Section 4 hereof. The Employment Period may be extended, for such additional
period of time following the expiration of the Employment Period as the Employee
and the Company shall mutually agree to.
2. In performing his duties, the Employee shall report to and be subject
to the direction of the President of the Company. In performing her duties
hereunder, the Employee shall not be subject to any definitive time restriction
but will devote such time in performing her duties hereunder as shall be
consistent with the past practices of Employee in order to properly carry-out
her duties hereunder.
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<PAGE>
3. Compensation.
(a) Base Salary. For the performance of all duties, responsibilities and
services by the Employee hereunder during the Employment Period, the Company
shall pay to the Employee, and the Employee agrees to accept, a base salary (the
"Base Salary") at an annual rate of $45,000, payable in accordance with the
Company's normal payroll practices.
(b) Participation in Benefit Plans. The Employee shall be entitled to
participate in and receive benefits under all medical plans or other employee
insurance or benefit plans and arrangements that are made available to executive
employees of the Company, generally. Without limiting the foregoing, during the
Employment Period, the Company shall provide the Employee, at the Company's sole
expense, with medical coverage for the Employee and her dependents, under the
policies maintained by the Company immediately prior to the date hereof,
including, but not limited to Medicare coverage, or alternative policies,
provided such alternate policies provide coverage that is no less favorable to
the Employee and her dependents and do not result in any gap in coverage
otherwise available to the Employee and her dependents.
(c) Expenses. During the Employment Period, the Employee shall be entitled
to receive reimbursement for all ordinary and necessary business expenses
reasonably incurred by her in accordance with Company policy consistent with
past practices in performing services hereunder, provided that the Employee
provides the Company with written documentation, satisfactory to the Company,
evidencing such expenses.
(d) Vacations and Holidays. The Employee shall be entitled to 3 weeks of
paid vacation in each twelve (12) month period. The Employee shall have the
holidays and sick days as determined by the Company's policies in effect on the
date hereof.
4. Termination.
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<PAGE>
(a) Death. The Employee's employment hereunder shall terminate upon her
death.
(b) Termination Resulting from Disability. If the Employee becomes
disabled during her employment hereunder so that she is unable substantially to
perform her services by attending to her duties hereunder (i) for a period of
three (3) consecutive months, or (ii) for an aggregate of ninety (90) days
within any period of twelve consecutive months, then the Board of Directors may
provide Employee with a Notice of Termination within ten (10) days after the
expiration of the applicable time period.
(c) Cause. The Company may terminate the Employee's employment hereunder
for "Cause." For the purposes of this Agreement, the Company shall have "Cause"
to terminate the Employee's employment hereunder upon (i) the repeated failure
by the Employee to perform her duties hereunder in any material respect or if
Employee engages in willful misconduct or is grossly negligent in the
performance of her duties hereunder and that is not cured by the Employee within
ten (10) days following written notice of same from the Company to the Employee,
or (ii) the conviction of the Employee of a felony (or a plea of nolo contendere
with respect thereto) or other conviction involving dishonesty, or (iii)
Employee engaging in an act of theft, fraud or other similar unlawful conduct,
against the Company.
(d) Notice of Termination. If the Employee's employment hereunder is
terminated pursuant to Section 4(b) or (c) hereof, the Company shall give the
Employee written notice of termination (the "Notice of Termination"). Any Notice
of Termination delivered by the Company pursuant to Section 4(b) or (c) hereof
shall indicate the applicable termination provision in this Agreement relied
upon to provide a basis for termination of the Employee's employment.
(e) Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by her death, the date of her death, (ii) if
the Employee's employment
4
<PAGE>
is terminated pursuant to Section 4(b) hereof, thirty (30) days after the date
the Notice of Termination is given, and (iii) if the Employee's employment is
terminated pursuant to Section 4(c) hereof, immediately following the giving of
the Notice of Termination.
5. Compensation Upon Termination.
(a) If the Employee's employment shall be terminated by reason of her
death, the Company shall pay to such person as the Employee's shall have
previously designated, in a notice filed with the Company, or, if no such person
shall have been designated, to her estate, her full Base Salary through the
applicable Date of Termination at the rate in effect on the date of death and,
following such payments, the Company shall have no further obligations to such
designated person or the Employee's estate, as the case may be, under this
Agreement.
(b) During any period that the Employee is unable to perform her duties
hereunder as a result of the Employee's Disability, the Company shall continue
to pay the Employee her Base Salary until the applicable Date of Termination.
From and after the applicable Date of Termination, if the Employee is terminated
pursuant to Section 4(b) hereof, the Company shall no longer be obligated to pay
the Employee any further Base Salary under this Agreement, provided, however,
that the foregoing shall have no effect upon any benefits due the Employee under
any disability plan of the Company then in effect.
(c) If the Employee's employment shall be terminated pursuant to Section
4(c), the Company shall pay the Employee her full Base Salary through the
applicable Date of Termination and, following such payments, the Company shall
have no further obligation to the Employee under this Agreement.
(d) If the Employee's employment shall be terminated by the Company for
any other reasons, the Company shall pay the Employee her full Base Salary
through the end of the
5
<PAGE>
Employment Period as if the Employee's employment had not been terminated, in a
lump sum, within five (5) days following written notice of such termination to
the Employee.
(e) If the Employee voluntarily resigns, all of the obligations of the
Company to the Employee pursuant to this Agreement or otherwise shall
immediately cease; provided, however, that, without limiting any other rights or
remedies available to the Employee under this Agreement or otherwise, if the
Employee voluntarily resigns as a result of a material breach by the Company of
its obligations under this Agreement, then the Company shall pay the Employee
her full Base Salary though the end of the Employment Period, as if the Employee
had not resigned, in a lump sum, within five (5) days following written notice
of such termination to the Employee.
6. Assignment; Successors. This Agreement may not be assigned by either
party hereto without the proper consent of the other party. This Agreement and
all rights of the Employee hereunder shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
7. Confidential Information; Non-Competition.
6
<PAGE>
(a) From and after the date hereof, except as may otherwise be required,
in the opinion of counsel to the Employee, to be disclosed pursuant to
applicable Federal, state or local laws, the Employee shall not communicate or
make available to anyone other than the Company and its affiliates and their
respective directors and officers any trade secret or other proprietary or
confidential information with respect to the Company or its affiliates,
including, but not limited to, any of the present products, services, designs or
styles, inventions, improvements, know-how, processes, customers, suppliers,
methods of operation, marketing or distribution, systems, procedures, policies
or methods of manufacture of the Company or its affiliates; provided, however,
that "confidential information" shall not include any information known
generally to the public (other than as a result of unauthorized disclosure by
the Employee) or which becomes available to the Employee on a non-confidential
basis from a source other than the Company provided such source is not bound by
a confidentiality agreement with the Company. Upon request by the Company, the
Employee agrees to deliver promptly to the Company upon termination of her
services for the Company, or at any time thereafter as the Company may request,
all Company memoranda, notes, records, reports, manuals, drawings, designs,
computer files in any media and other documents (and all copies thereof)
containing such confidential information and all property of the Company or any
affiliate associated therewith, which he may then possess or have under his
control.
(b) The Employee expressly agrees that upon any breach or violation of the
provisions of this Section 7(a), the Company shall be entitled, as a matter of
right, in addition to any other rights or remedies it may have, to temporary
and/or permanent injunctive relief in any court of competent jurisdiction and
such damages as are provided at law or in equity. The Employee hereby
acknowledges and agrees that the covenants contained in this Section 7(a) are
reasonable
7
<PAGE>
and fully necessary for the protection of the legitimate interests of the
Company and, at the same time, are neither harsh nor oppressive to the rights or
interests of the Employee nor will such restrictions prevent the Employee from
earning a livelihood. In the event that any court of competent jurisdiction
determines that the restrictions provided for in this Section 7(a) are
unreasonable or otherwise unenforceable, the invalidity or unenforceability of
any of such restrictions shall not affect any of the remaining provisions of
this Agreement (including, without limitation, the remaining provisions of this
Section 7(a) not found to be unreasonable or otherwise unenforceable).
8. Arbitration.
(a) Each and every controversy or claim arising out of or relating to this
Agreement, and any document executed in connection herewith, shall be settled by
arbitration in accordance with the rules of the American Arbitration Association
("AAA"), in Nassau County, New York and judgment upon the award rendered in such
arbitration shall be final and binding upon the parties and may be confirmed in
any court having jurisdiction thereof. Notice of the demand for arbitration
shall be filed in writing with the other party to this Agreement in accordance
with the rules of the AAA. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statutes of limitations. The award of the arbitrator shall be in writing and it
shall specify in detail the issues submitted to arbitration and the award of the
arbitrator with respect to each of the issues so submitted. The award pursuant
to such arbitration will be final, binding and conclusive. The arbitration shall
be conducted by one arbitrator selected in accordance with the rules of the AAA.
(b) Counsel to the Company and the Employee and in connection with the
negotiation
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<PAGE>
of and consummation of the transactions under this Agreement shall be entitled
to represent their respective party in any and all proceedings under this
Section or in any other proceeding (collectively, "Proceedings"). The Company
and the Employee, respectively, waive the right and agree they shall not seek to
disqualify any such counsel in any such Proceedings for any reason, including
but not limited to the fact that such counsel or any member thereof may be a
witness in any such Proceedings or possess or have learned of information of a
confidential or financial nature of the party whose interests are adverse to the
party represented by such counsel in any such Proceedings.
9. Notices. Any notice, request, instruction or other document to be given
hereunder by any party hereto to any other party shall be in writing and
delivered personally, sent by registered or certified mail, postage prepaid.
If to the Employee:
Florence B. Schwartzberg
373 Island Avenue
Woodmere, New York 11598
with a copy to:
Rivkin, Radler & Kremer
EAB Plaza
Uniondale, New York 11556
Attn: Jill Rosen Nikoloff, Esq.
If to the Company:
South Shore Publishers, Inc.
c/o News Communications, Inc.
174-15 Horace Harding Expressway
Fresh Meadows, New York 11365
Attn: President
with a copy to:
Jones Day, Reavis & Pogue
9
<PAGE>
599 Lexington Avenue
New York, New York 10022
Attn: Marc Kirschner, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party. Any notice which is addressed and mailed in the manner
herein provided shall be conclusively presumed to have been given to the party
to whom it is addressed at the close of business, local time of the recipient,
forty-eight hours after the day it is so placed in the mail.
10. Entire Agreement. This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements, written or oral, between them as to such subject matter.
This Agreement may not be amended, nor may any provision hereof be modified or
waived, except by an instrument in writing duly signed by the party to be
charged.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York, without regard to the conflicts of law rules thereof.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
14. Waivers. No waiver by either party of any breach or non-performance of
any
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<PAGE>
provision or obligation of this Agreement shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision of this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
SOUTH SHORE PUBLISHERS, INC.
By:
-----------------------------
Name:
Title:
---------------------------------
Florence B. Schwartzberg
12
<PAGE>
AGREEMENT made as of this 26th day of February, 1998, by and between News
Communications., a New York corporation with offices at 174-15 Horace Harding
Expressway, Fresh Meadows, New York ("Seller") and Magazine Holding, Inc., a
Delaware corporation with offices at Suite 1905, 630 Fifth Avenue, New York, New
York ("Purchaser").
WHEREAS, Seller owns 90% of the issued and outstanding voting common stock
of Manhattan File Publishing Corp. ("Manhattan File") and Purchaser owns 10% of
the issued and outstanding common shares of Manhattan File; and
WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to
acquire 80% of the issued and outstanding voting common stock of Manhattan File
("Seller's Stock") from Seller.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Closing
Simultaneously with the execution hereof Seller shall convey to
Purchaser and Purchaser shall acquire Seller's Stock represented by a stock
certificate or certificates delivered at 1251 Avenue of the Americas, New York,
New York, representing Seller's Stock free and clear of all liens and
encumbrances, and Purchaser shall deliver in exchange therefore a check in the
amount of $100 payable to Seller. Seller shall simultaneously deliver to
Purchaser the Manhattan File minute book, stock book and ledger, and seal.
2. Affirmative Covenants of Seller
Seller covenants and agrees that:
<PAGE>
(a) All withholding taxes, i.e., Federal, State, City, Social Security, as
well as Medicare and Disability obligations, of Manhattan File, have been paid
to the date hereof or appropriate provision has been made for payment thereof
when due and will be paid by Seller.
(b) All employees of Manhattan File have been terminated as of the
closing.
(c) All utility, telephone and lease obligations relating to the business
and leased office space of Manhattan File have been made or provision for their
payment has been made through February 28, 1998 and will be paid by Seller.
(d) All commercial rent tax due under (c) above has been paid.
(e) Seller shall execute and deliver to Purchaser all necessary
instruments and documents required to transfer ownership and control of the
business of Manhattan File to Purchaser as provided herein, including the
delivery of a letter to Chase Manhattan Bank changing the signatories on the
Manhattan File Bank account.
3. Seller's Representations and Warranties.
Seller represents and warrants to Purchaser as follows:
(a) To the best of Seller's knowledge, there is no outstanding litigation
pending or, to Seller's knowledge, threatened against Manhattan File except as
related to the collection of receivables.
(b) To the best of Seller's knowledge, the payables have been properly set
forth in all respects on Appendix B and Seller knows of no other payables
contingent or otherwise.
<PAGE>
4. Receivables and Payables.
Purchaser agrees to use its best efforts to collect all outstanding
receivables totaling as of February 18, 1998, an aggregate of $550,000 as set
forth on Appendix A. Reasonable costs incurred in collection efforts may be
charged by Purchaser. Seller agrees that Purchaser may apply any proceeds
received from the collection of receivables toward the payment of outstanding
payables which on February 18, 1998 totaled an aggregate of $300,000 as detailed
in Appendix B. Seller agrees that any amounts received as a result of litigation
currently pending to collect various of the receivables shall be applied, after
the payment of applicable reasonable attorney's fees, towards the payment of
payables.
5. Indenture
Purchaser herewith grants Seller a lien and indenture with respect
to any amount of receivables hereinafter collected by Purchaser to the extent
such receivables may exceed by any amount the outstanding payables, and
Purchaser herewith grants to Seller a lien and preferred right of indenture with
respect to any such excess collected receivables. Purchaser shall promptly pay
over to Seller any such excess collected receivables. Upon Seller's request,
Purchaser shall provide Seller with a monthly report of the status of the
collection of outstanding receivables.
6. Mutual Covenants
The parties agree to cooperate with one another in good faith in
order to effectuate a harmonious and positive transition of ownership in all of
their dealings with media, personnel, financial institutions, etc.
<PAGE>
7. Governing Law: Disputes
This Agreement shall be governed by the laws of the State of New
York. In the event of any dispute arising out of this Agreement, the parties
agree to submit such dispute for resolution to arbitration before the American
Arbitration Association in New York City and each party will bear its respective
costs thereof.
8. No Obligations
Except as otherwise provided in this Agreement, Seller shall have no
further obligations to Purchaser or Manhattan File with respect to any
liabilities or obligations of Manhattan File.
9. The Agreement dated as of January 12, 1993 between News Communications
and Cristina Greeven is herewith cancelled and made null and void in all
respects, and neither party hereto shall have any obligation to the other
thereunder.
10. Buyer shall obtain prior approval from Seller in the event of a sale
of any shares of Manhattan File to a publisher operating in the Hamptons.
11. Buyer acknowledges that Seller produces publications in New York City
and in the Hamptons and will continue to do so and will not be limited in the
scope of its activities except that Seller will not use the trademark or name
Manhattan File.
12. To the extent that Seller has any records or documents on the
Manhattan File premises and will afford Seller reasonable opportunity to
retrieve these within one month from the date hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in their respective names as of the day and year first above written.
Attest: NEWS COMMUNICATIONS, INC.
___________________ /s/ Wilbur L. Ross, Jr.
----------------------------
Chief Executive Officer
Attest: MAGAZINE HOLDINGS, INC.
___________________ By: Cristina Greeven
----------------------------
President
<PAGE>
Final Execution Copy
SHAREHOLDERS AGREEMENT
AGREEMENT, dated as of the 22nd day of December, 1997, by and among
NEWS COMMUNICATIONS, INC. (hereinafter referred to as "NCI"), THE WASHINGTON
BLADE, INC. (hereinafter referred to as "TWB") and NEW YORK BLADE NEWS, INC.
(hereinafter referred to as the "CORPORATION"), with its principal place of
business located at 242 West 30th Street, New York, New York 10001. NCI and TWB
are sometimes collectively referred to herein as the "Shareholders."
W I T N E S S E T H :
WHEREAS, NCI and TWB are currently the only shareholders of the
CORPORATION; and
WHEREAS, the parties hereto desire to provide for the continuity,
management and control of the CORPORATION, as well as to make provisions for the
contingency of any of the parties, or holders of majority interests in such
parties, hereto dying or withdrawing from the CORPORATION.
NOW, THEREFORE, IN CONSIDERATION OF THE COVE NANTS HEREINAFTER
CONTAINED AND THE SUM OF ONE ($1) DOLLAR AND OTHER GOOD AND VALUABLE
CONSIDERATION BY EACH OF THE PARTIES TO THE OTHER PAID, THE RECEIPT
OF WHICH IS HEREBY ACKNOWLEDGED, IT IS HEREBY MUTUALLY COVENANTED
AND AGREED BY THE RESPECTIVE PARTIES HERETO, AS FOLLOWS:
<PAGE>
Section 1. Prior Agreements. Any and all prior shareholders
agreements or memoranda of understanding, heretofore entered into or whether
drafted and unsigned, relating to the CORPORATION, are herewith cancelled,
terminated, made null and void and shall be of no further force and effect.
Section 2. General Corporate Matters. The CORPORATION has been
organized under the laws of the State of New York, as a subchapter C
corporation, bearing the name New York Blade News, Inc., with its principal
office in the City of New York and State of New York, and has been organized to
provide:
(a) The duration of the CORPORATION is to be perpetual.
(b) The authorized capital stock of the CORPORATION is Two
Hundred (200) shares of common stock, without par value ("Common Stock").
Section 3. Share Ownership. Upon the execution of this Agreement,
NCI shall hold 50% of the issued and outstanding shares of Common Stock for a
cash contribution to the initial operating capital of the CORPORATION of
$100,000 and TWB shall hold 50% of the issued and outstanding shares of Common
Stock for a cash contribution to the initial operating capital of the
CORPORATION of $100,000 (NCI and TWB are sometimes collectively referred to
herein as the "Original Shareholders").
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When the shares representing the 50% interests of each shareholder
are issued, they shall be fully paid and non-assessable and in respect of which
the holder thereof shall not be liable for any further payments or assessments.
Section 4. Operation of the CORPORATION. With respect to the
operation of the CORPORATION, the parties agree as follows:
(a) Outside investors (other than the Original Shareholders)
in the CORPORATION, shall (pursuant to a private placement) contribute $300,000
cash (in the aggregate) for an issue of preferred stock of the CORPORATION, with
an annual dividend rate of 6%; plus, the opportunity to convert their preferred
stock to an issue of non-voting common stock of the CORPORATION, not to exceed,
in aggregate, 25% of the issued and outstanding common stock of the CORPORATION.
After three (3) years from the date of issuance of such preferred stock, the
CORPORATION shall have the option to call the preferred stock for repayment in
full or conversion to non-voting stock.
(b) At no charge, NCI will make available to the CORPORATION
space and production people and TWB will provide national copy and govern
editorial and layout, also at no charge to the CORPORATION.
(c) At no charge, NCI will furnish to the CORPORATION
distribution of New York Blade News to every logical place that is covered by
NCI and will arrange for supplemental distribution on the most cost effective
basis possible. At no charge, TWB will furnish to the CORPORATION computers and
related equipment needed to carry out the editorial, classified ad, and general
management functions.
(d) The initial press run will be 50,000 copies of a 40 or 48
page paper.
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(e) The paper will be distributed free throughout the key
areas of Manhattan, as well as other sites in the New York area deemed necessary
by mutual agreement of the Original Shareholders. Printing will be Thursday
night for Friday distribution.
(f) To reduce newsprint costs, NCI will arrange for the
CORPORATION to receive the same favorable costs from the Bergen Record as the
other NCI papers.
(g) The CORPORATION will install, by the time of its first
issue, at least 75 street boxes in Manhattan, as well as 150 distribution racks.
(h) To reduce initial payroll costs, TWB shall contribute (at
its sole expense) two of its key employees to the CORPORATION to serve as
interim Senior Editor and Group Manager, for a period of not less than three (3)
months.
(j) The CORPORATION shall supply local copy, sales and
advertising for the newspaper.
Section 5. Employment. Simultaneously with the execution hereof, the
CORPORATION shall hire, engage and employ each of the individuals listed below
in the following capacities:
Don Michaels, President and Chief Executive Officer -
Responsibilities include total authority over editorial and design contents and
other authority as directed by the Board of Directors of the CORPORATION;
Mark Sullivan, interim Senior Editor.
James Lamont, interim General Manager.
Section 6. Restriction on Transferability. None of the parties
hereto shall sell, encumber or otherwise dispose of any of its shares of Common
Stock in the CORPORATION
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<PAGE>
("Shares"), including, without limitation, to any other shareholder of the
CORPORATION, without first offering all of his or her Shares for purchase by the
Original Shareholders at the value set forth in Section 8 hereof.
(a) Any transfer of Shares in contravention of this Agreement
shall be null and void, and the transferee shall not be entitled to any voting,
dividend or other right with respect to such Shares.
(b) A shareholder of the CORPORATION ("Shareholder") desiring
to dispose of all of his or her Shares (the "Offering Shareholder") shall first
offer to sell such Shares to the remaining Original Shareholders in proportion
to their respective Proportionate Interest (as hereinafter defined) at the price
set forth in Section 8 hereof and upon the terms and conditions set forth in
Section 9 hereof. The Original Shareholders shall have 90 days from the date of
receipt of the offer from the Offering Shareholder within which to accept all or
part of such offer. If the Original Shareholders elect to accept all or part of
the Shares offered, it shall so signify by written notice to the Offering
Shareholder, with copies thereof to all of the other Shareholders and the
CORPORATION. If either of the Original Shareholders does not have sufficient
surplus to purchase such Shares and/or fails or declines to accept such offer
within 90 days, then the Offering Shareholder shall offer to sell such Shares at
the same price per share and upon the same terms and conditions to the
CORPORATION. The CORPORATION shall have 90 days from the date of receipt of the
offer from the Offering Shareholder within which to accept all or part of such
offer. If the CORPORATION elects to accept all or part of the Shares offered, it
shall so signify by written notice to the Offering Shareholder, with copies
thereof to all of the other Shareholders, if any. If the CORPORATION fails or
declines to accept such offer within such 90 day period, then a succeeding offer
or offers of such
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<PAGE>
unaccepted Shares, at the same price and upon the same terms as were offered to
the CORPORATION and upon the terms and conditions hereinafter set forth, shall
thereafter be deemed to have been made to the other shareholders. All parties
being made offers hereunder shall sometimes collectively be referred to in this
Agreement as "Offerees." Each successive offer hereunder shall be made
immediately upon the expiration of the effective period of all prior offers.
Each Offeree shall have a period of 90 days after the receipt of each such offer
within which to elect to accept each such offer, which election may be all or
any part of the Shares so offered.
(c) In the event that any or all of the Shares offered
pursuant to the provisions of this Section 6 are not accepted for purchase by
the Offerees during the respective offering periods provided herein, the
Offering Shareholder shall have the right to sell or exchange all of such Shares
free from the restrictions of this Agreement in a bona fide arms-length
transaction, for a period of 120 days from the date that the offer to the last
Offeree expires hereunder; provided, however, that any such sale shall not be
made at a price which is less than and/or upon more favorable terms than those
at which such Shares were offered to the Offerees. At the end of the 120 day
period, the Offering Shareholder shall notify the other Shareholders in writing
of the sale, transfer, assignment, pledge, encumbrance or other disposition of
such Shares, if any, during such period in bona fide transactions. All of such
Shares which remain owned by such Offering Shareholder shall again become
subject to all of the restrictions and provisions of this Agreement, and any
Shares owned by the Offering Shareholder at such time which during such period
have been pledged or hypothecated or have otherwise been encumbered shall again
become subject to the restrictions and provisions hereof
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<PAGE>
immediately upon the release of such Shares from such pledge, hypothecation or
other encumbrance.
(d) In the event that a Shareholder or the CORPORATION or a
third party elects to purchase the Shares of another Shareholder pursuant to
this Section 6, the purchase price of the Shares sold shall be the value of such
Shares, as determined pursuant to the provisions of Section 8 hereof, and shall
be paid pursuant to the terms and conditions set forth in Section 9 hereof.
The Shares sold shall be delivered at the closing in the
following manner: certificates representing such Shares shall be endorsed in
blank, with signatures guaranteed, and further accompanied by the requisite
stock transfer tax stamps; and in the case of purchase from a legal
representative, a certified copy of the authorization and an affidavit to the
effect that all legacies, debts, claims and taxes have been paid or are amply
provided for and other applicable estate tax waivers and releases of tax liens
have been obtained.
(e) All of the provisions of this Agreement shall apply to all
of the Shares now owned or which may be issued or transferred hereafter to a
Shareholder in consequence of any additional issuance, purchase, exchange or
reclassification of Shares, corporate reorganization, or any other form or
recapitalization, consolidation, merger, share split, share dividend or which
are acquired by a Shareholder in any other manner.
(f) As used herein, the term "Proportionate Interest" of an
Offeree with respect to a particular offer shall mean that number of Shares
which bears the same ratio to the total number of Shares so offered as the
number of Shares then owned by such Offeree who is entitled to receive the
particular offer bears to the total number of Shares then owned by all Offerees
who are entitled to receive such offer.
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<PAGE>
(g) Notwithstanding anything to the contrary contained in this
Agreement, the Board of Directors shall have the final authority to approve any
sale of Shares to any party. The Board shall be empowered to ask for and obtain
information and documentation from any prospective Shareholder about such
prospective Shareholder's character, background, affiliations and the like in
order to form an independent judgement as to the fitness of such prospective
Shareholder to become a Shareholder. The Board shall determine if, when, at what
price and upon what terms and conditions the Shares may be offered for sale in a
public offering.
Section 7. Corporate Surplus. It is agreed that in effectuating the
purchase by the CORPORATION of the Shares of any of the Shareholders, pursuant
to Section 6:
(a) The entire available surplus of the CORPORATION shall be
used to purchase all or so much of the Shares owned by the withdrawing
Shareholder as is possible.
(b) The CORPORATION and the remaining Shareholders shall
promptly take all steps necessary to reduce the capital stock of the CORPORATION
to the extent necessary for the purchase of any balance of Shares unpurchased.
(c) In the event that after the application of the surplus by
the CORPORATION all or any part of the Shares of the withdrawing Shareholder is
outstanding, the remaining Shareholders may purchase said outstanding Shares as
is more fully set forth in Section 6 hereof.
Section 8. Valuation of Shares.
Purchase Price By Appraisal.
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<PAGE>
(a) The purchase price to be paid for each of the Shares of a
Shareholder (the "Selling Shareholder") sold pursuant to Section 6 hereof shall
be the amount determined by an independent appraisal as of the last day (the
"Valuation Date") of the month in which the applicable sale event occurs, in
accordance with the procedures hereafter set forth. Upon the sale event, the
Selling Shareholder and the CORPORATION shall select an investment banking firm
or other financial expert with experience in the valuation of newspaper
companies to appraise the market value of the Shares to be sold by the Selling
Shareholder. Such firm or party shall be referred to herein as an "Appraiser."
As soon as practicable thereafter such Appraiser shall appraise the market value
of the Shares to be sold by the Selling Shareholder.
(b) If the CORPORATION and the Selling Shareholder cannot agree on
the choice of an Appraiser, both the CORPORATION and the Selling Shareholder
shall each name an Appraiser. As soon as practicable thereafter, but in no event
more than ninety (90) days after the Valuation Date, such Appraisers shall then
each independently determine the market value of the Shares to be sold by the
Selling Shareholder. The CORPORATION'S auditors will cooperate fully with the
Appraisers or Appraiser, as the case may be, including but not limited to
providing them with balance sheet and profit and loss information (which need
not be audited) as of the Valuation Date. If the higher of such appraisals does
not exceed the lower by more than 15% of the lower value, the average of such
two amounts shall represent the appraised value of the Shares to be sold. If the
higher of such appraisals exceeds the lower by at least 15% of the lower value,
the two Appraisers shall within five (5) days of the last such appraisal,
appoint a third Appraiser, and such third Appraiser shall as soon as practicable
determine the value of the Shares to be sold by the Selling Shareholder. The
determination of such value by the third Appraiser shall control notwithstanding
any previous determinations made by the other
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<PAGE>
two Appraisers. The value of the Shares to be sold as determined under this
Section 8 shall be referred to the "Appraisal Value".
Section 9. Purchase Price for Shares. Each Selling Shareholder shall
receive 50% of the value of the Shares to be sold by cash at the closing. The
manner of payment for the balance of such purchase price for such Shares shall
be determined by the Board of Directors of the Corporation. In the event that
the Board of Directors determines to pay such balance over time, the following
installment term shall be utilized:
(a) 50% of the remaining balance one year after the first
payment set forth above.
(b) The balance one year after the second payment set forth in
Section 9(a).
(c) Simultaneously with the payment of the first installment,
the purchaser shall deliver to the withdrawing Shareholder or its legal
representatives two promissory notes representing the amounts of each of the
remaining installments, bearing interest at the rate of 10% per annum from the
date thereof. Said promissory notes shall provide that prepayment of all or any
part thereof may be made at any time with interest to the date of prepayment,
without penalty, and that a default in the payment of any note, which default is
not cured within 30 days, shall cause the remaining unpaid notes to become due
and payable forthwith.
(d) Simultaneously with the payment to the withdrawing
Shareholder of the first installment of the purchase price, as hereinabove
provided, the withdrawing Shareholder or its legal representatives, shall
endorse in blank and deliver the Shares to the then attorneys of the
CORPORATION, together with all necessary instruments of transfer and the
necessary
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<PAGE>
tax stamps affixed, to be held by such attorneys in escrow, pending payment of
the full purchase price. Upon any proof being furnished to said attorneys of
payment of the full purchase price, said certificates for Shares shall be
delivered to the purchaser. In the event of the default in the making of any
such payments, after 10 days notice by registered mail to all parties, said
attorneys shall redeliver said Shares of Common Stock to the withdrawing
Shareholder, or its legal representatives who may retain any monies paid
pursuant hereto as liquidated damages, actual damages being impossible or
difficult of ascertainment, and who may thereupon exercise all rights as a
Shareholder pursuant to this Agreement, which shall be valid and effective as
though no offer had been made or accepted, and all the parties shall be bound to
all of the terms, conditions and covenants hereof, including, but not limited
to, the employment and salary provi sions, or, in the alternative, the selling
party may demand and enforce the collection of the balance then remaining due.
Section 10. Dissolution, Bankruptcy, Etc. For the purposes of this
Agreement, the dissolution of or the filing of a Petition in Bankruptcy against
the Shareholder, whether voluntary or involuntary, levy of execution under a
judgment against such Shareholder, or the making of an assignment for the
benefit of creditors by such Shareholder, unless dismissed, withdrawn,
satisfied, released or cured within 60 days by such Shareholder, shall be
equivalent to an offer of sale of Shares and in such case, all of the provisions
of this Agreement shall apply, as though such Shareholder made a voluntary offer
to sell its Shares in the CORPORATION.
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<PAGE>
Section 11. Dissolution. Each of the Shareholders expressly agrees
that in the event of dissolution of the CORPORATION, it will execute and cause
to be filed with the Secretary of State of the State of New York, a Certificate
of Dissolution pursuant to the provisions of the New York Business Corporation
Law and otherwise take all necessary steps and execute all necessary documents
in order to effectuate the termination of the affairs and business of the
CORPORATION with all convenient speed.
Section 12. Loans. In the event of a sale of Shares by virtue of the
provisions of the Agreement:
Any loans or debentures payable by the CORPORATION to the
selling party or by the selling party to the CORPORATION, as of the date of
calculation, whether or not then due, shall be paid and discharged by the
CORPORATION or the selling party, as the case may be, in three equal
installments, the first to be payable 30 days after the first payment applicable
to such sale, the second 30 days thereafter and the third, 30 days after the
second.
Section 13. Directors. The Shareholders herein shall move for the
election of the following initial directors and shall continue to vote for such
directors during the term of this Agreement:
Wilbur Ross
Don Michaels
In the event of the death, permanent disability, removal or
resignation of Mr. Ross, NCI shall select a replacement for Mr. Ross and each of
the Shareholders shall move and vote for the election of such replacement
director. In the event of the death, permanent
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<PAGE>
disability, removal or resignation of Mr. Michaels, TWB shall select a
replacement for Mr. Michaels and each of the Shareholders shall move and vote
for the election of such replacement director.
Section 14. Officers. The Shareholders agree to cause the election
of the following persons as officers of this CORPORATION and they further agree
that they will so instruct the directors and in the event any of such directors
fails or refuses to elect such person, they will cause the removal of such
director or directors:
President and Chief Executive Officer: Don Michaels
Treasurer: Wilbur Ross
Secretary: Herman Badillo
Section 15. Actions Requiring Agreement of the Shareholders.
(a) During the term of this Agreement, the following actions by the
CORPORATION shall require an affirmative shareholder vote of all of the
outstanding Shares:
(1) Additional Shares. The authorization, issuance or sale of
any shares (including treasury shares) of any class of capital stock
of the CORPORATION, or the authorization, issuance or sale of any
securities convertible into, or options with respect to, warrants to
purchase or rights to subscribe to, any shares of any class of
capital stock of the CORPORATION.
(2) Stock Redemptions. The redemption, retirement, purchase or
other acquisition by the CORPORATION of any shares of its capital
stock, which the
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CORPORATION is not expressly permitted or required to purchase
pursuant to other provisions of this Agreement, or of any rights,
options, warrants or convertible debt entitling the class of the
holders thereof to purchase shares of any class of the capital stock
of the CORPORATION.
(3) Amendments. The adoption or approval of an amendment to
the Certificate of Incorporation of the CORPORATION or By-Laws of
the CORPORATION which would conflict with any provision of this
Agreement.
(4) Reorganizations. The adoption or approval of a plan of
merger, consolidation, exchange or reclassification of shares of
capital stock, or any other form of reorganization or
recapitalization.
(5) Liabilities. The incurrence or assumption of any liability
for money borrowed which singly or in the aggregate exceeds
$100,000, including, without limitation, notes, debentures, loans,
letters of credits, financing or credit agreements, agreements or
commitments for future loans, credit or financing or any other
instrument or contract for money borrowed, and the guarantee of any
obligation of any person, firm or corporation.
(6) Assets. The purchase or other acquisition, or the sale,
lease, exchange or other disposition, of the CORPORATION's assets
other than in the ordinary course of business.
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(7) Loans. The lending or advancing of credit to any person,
firm or corporation in an amount which singly or in the aggregate
exceeds $10,000, except the extension of credit to customers in the
ordinary course of business where such extension is not for more
than 90 days beyond the date payment would ordinarily be due from
such customers without such extension.
(8) Liens. The creation or assumption of any mortgage, pledge,
security interest or other encumbrance on the CORPORATION's assets
which singly or in the aggregate exceeds $100,000.
(9) Dissolution or Bankruptcy. The CORPORATION's (i) admission
in writing of its inability to pay its debts as they mature; (ii)
assignment for the benefit of creditors; (iii) application for or
consent to the appointment of any receiver, trustee or similar
officer for the CORPORATION or for all or any substantial part of
its property or not taking action to cause the discharge of such
appointment made upon the application of another party; or (iv)
institution or consent to the institution (by petition, application,
answer, consent or otherwise) of any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to the CORPORATION under
the law of any jurisdiction.
Section 16. Corporate Funds. All cash, checks and instruments for
the payment of monies are to be deposited in the CORPORATION's bank account or
bank accounts as may
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be selected by the Board of Directors of the CORPORATION. All checks drawn upon
the said bank account or bank accounts shall be signed by such person or persons
as the Board of Directors of the CORPORATION may from time to time direct.
Section 17. Termination. This Agreement shall terminate and the
CORPORATION shall be dissolved upon the occurrence of any of the following:
(a) The written agreement of all of the Shareholders to
terminate the CORPORATION,
(b) Bankruptcy, receivership, assignment for the benefit of
creditors or dissolution of the CORPORATION, or
(c) The withdrawal from the CORPORATION or the death or
permanent disability of all but one of the holders of majority interest in the
companies party hereto.
Section 18. Legend. All certificates for the Shares of the capital
stock issued by the CORPORATION and owned by the undersigned, shall be endorsed
with the following legend:
"Ownership and transfer of the shares of stock represented by this
certificate are subject to an Agreement between the stockholders
dated as of ____, 1997, a copy of which is on file with the
Secretary of the CORPORATION. All purchasers of the shares of stock
represented by this Certificate shall be deemed to have agreed to
and shall be bound by the provisions of said Agreement."
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Section 19. Notice. All notices referred to in this Agreement
required to be sent or given to any of the parties shall be sent by certified or
registered mail, return receipt requested, to the other parties and to the
CORPORATION at its last known address, or such other address as may hereafter be
given by written notice in accordance with the provisions of this paragraph.
Section 20. Counterparts. This Agreement may and shall be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
Section 21. Binding Effect. The terms, covenants and conditions
herein contained shall be binding upon the parties hereto, their successors,
heirs, legal representatives and assigns.
Section 22. Construction. Whenever the sense of this Agreement so
requires, the masculine gender shall be deemed to include the feminine gender or
neuter, and the plural, the singular and vice versa.
Section 23. Entire Agreement. This instrument contains the entire
Agreement among the parties, and the same shall not be modified, changed,
altered, terminated or cancelled except by an instrument in writing, executed by
all of the parties hereto.
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Section 24. Governing Law. The Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to the
contracts wholly negotiated, executed and to be performed in such State.
Section 25. Resolution of Disputes.
(a) All disputes, claims and controversies arising under or
pursuant to this Agreement shall be settled by arbitration by the American
Arbitration Association (the "AAA") sitting in New York, New York, pursuant to
the rules of the AAA then obtaining. The decision of the AAA shall be final and
binding on the parties hereto and judgment thereon may be entered in any court
of competent jurisdiction.
(b) Any dispute resulting in a deadlock on the Board of
Directors shall be resolved by submission of such dispute to Endispute, Inc.,
the alternative dispute resolution CORPORATION ("ADR"). The ADR's decision of
the dispute shall be final and binding on the Board of Directors.
-18-
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and seals the
day, month and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Wilbur L. Ross, Jr.
-------------------------------
Title: Chief Executive Officer
----------------------------
THE WASHINGTON BLADE, INC.
By: /s/ Donald J. Michaels
-------------------------------
Title: President
----------------------------
NEW YORK BLADE NEWS, INC.
By: /s/ Donald J. Michaels
-------------------------------
Title: President
----------------------------
<PAGE>
-19-
NEWS COMMUNICATIONS, INC.
- -------------------------------------------------------------------------------
EXHIBIT 11
- -------------------------------------------------------------------------------
November 30,
------------
1 9 9 7 1 9 9 6
------- -------
Fully Diluted:
Average Shares Outstanding Disregarding
Dilutive Convertible Preferred Stock 7,991,997 8,132,754
Assuming Conversion at beginning of
Year of:
10% Convertible Preferred Stock 2,000,000 2,000,000
10% Convertible Prefered Stock 57,600 57,600
8% Convertible Preferred Stock 103,333 103,333
12% Convertible Preferred Stock 95,238 95,238
---------- ----------
Shares Outstanding 10,248,168 10,388,925
---------- ----------
Income [Loss] Available to Common
Stockholders for Fully Diluted
Calculations $ (3,881,428) $(2,954,215)
------------- ------------
Per Share Amount:
Net Income [Loss] $ (.38) $(.28)
------ ------
This calculation is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although it is contrary to paragraph 48 of APB No. 15 because
it produces an antidilutive result.
<PAGE>
EXHIBIT 22
Subsidiaries of the Company
All of the following subsidiaries of the Small Business Issuer are New York
corporations and wholly-owned, except as indicated otherwise:
Access Network Corp.
Dan's Papers Inc.*
Manhattan Publishing Corp.
Media Venture Group, Inc.
Parkchester Publishing Co. Inc.
Tribco Incorporated
Nassau Community Newspaper Group, Inc.
Capitol Hill Publishing, Inc.
Brooklyn Newspaper Publishing, Inc.
West Side Newspaper Corp.
South Shore Publishers, Inc.
- ------------------
* = 80%-owned.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of News Communications, Inc. as of November 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 424,620
<SECURITIES> 0
<RECEIVABLES> 4,328,799
<ALLOWANCES> 849,530
<INVENTORY> 0
<CURRENT-ASSETS> 4,108,240
<PP&E> 953,845
<DEPRECIATION> 399,364
<TOTAL-ASSETS> 8,142,879
<CURRENT-LIABILITIES> 4,059,372
<BONDS> 0
<COMMON> 82,122
0
200,340
<OTHER-SE> 2,050,325
<TOTAL-LIABILITY-AND-EQUITY> 8,142,879
<SALES> 17,523,952
<TOTAL-REVENUES> 17,523,952
<CGS> 0
<TOTAL-COSTS> 19,123,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (200,948)
<INCOME-PRETAX> (1,800,411)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,967,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,954,215)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
