<PAGE>
As filed with the Securities and Exchange Commission on January 5, 1999
Registration No. 333-67407
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON
FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
-----------------------
NEWS COMMUNICATIONS, INC.
(Name of Small Business Issuer in its charter)
<TABLE>
<S> <C> <C>
NEVADA 2711 13-3346991
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation
or Organization)
</TABLE>
-----------------------
174-15 HORACE HARDING EXPRESSWAY
FRESH MEADOWS, NEW YORK 11365
(718) 357-3380
(Address and telephone number of principal executive offices and principal place
of business)
MICHAEL SCHENKLER
PRESIDENT
NEWS COMMUNICATIONS, INC.
174-15 Horace Harding Expressway
FRESH MEADOWS, NEW YORK 11365
(718) 357-3380
(Name, address and telephone number of agent for service)
COPIES TO:
Paul J. Pollock, Esq.
PIPER & MARBURY L.L.P.
1251 AVENUE OF THE AMERICAS
NEW YORK, NY 10020
(212) 835-6000
FAX NO.: (212) 835-6001
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_] ___________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 464(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering.
[_] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_] ___________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
NEWS COMMUNICATIONS, INC.
3,833,333 Shares of Common Stock
_________________
News Communications, Inc. is granting at no cost to you, as a holder of
common stock or $10 convertible preferred stock in the company, a non-
transferable right to purchase shares of the company's common stock. You will be
entitled to purchase a minimum of one share of the company's common stock; and a
maximum of two shares of common stock (based on availability) for every share
owned as of December ___, 1998 at a price of $1.50 per share. We are selling up
to 3,833,333 shares of common stock in this rights offering. If shares remain
unsold after the rights offering, Wilbur L. Ross, Jr., Melvin I. Weiss and J.
Morton Davis will purchase any remaining unsold shares pursuant to a standby
agreement.
The principal market for trading of the common stock is the Nasdaq SmallCap
Stock Market." Due to a temporary exception to certain requirements of Nasdaq
for continued listing that was granted by Nasdaq, our trading symbol will be
"NCOMC" until February 14, 1998. After such date, the shares will be listed
under the company's normal trading symbol "NCOM." The last reported sale price
of the common stock on the Nasdaq SmallCap Stock Market on January 4, 1999 was
$1.31 per share.
_________________
Investment in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of the prospectus. Any representation to the
contrary is a criminal offense.
_________________
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Offering price to the public................... $ 1.50 $5,750,000
Proceeds to the company........................ $1.4625 $5,606,250
</TABLE>
The proceeds to the company are net of a financial advisory fee to the
Messrs. Ross, Weiss and Davis equal to 2.5% of the exercise price on 3,833,333
shares sold in the offering and before deducting the offering expenses we will
pay, estimated to be $141,500.
_________________
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
THE DATE OF THIS PROSPECTUS IS JANUARY , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
RISK FACTORS.............................................................. 5
THE OFFERING.............................................................. 11
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 14
USE OF PROCEEDS........................................................... 15
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY........................... 15
CAPITALIZATION............................................................ 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................. 18
BUSINESS.................................................................. 24
MANAGEMENT................................................................ 31
SUMMARY COMPENSATION TABLE................................................ 36
AGGREGATE YEAR-END OPTION VALUES.......................................... 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................................... 40
DESCRIPTION OF SECURITIES................................................. 43
INDEMNIFICATION AND INDEMNITY............................................. 45
SHARES ELIGIBLE FOR FUTURE SALE........................................... 46
LEGAL MATTERS............................................................. 47
EXPERTS................................................................... 47
CHANGE IN ACCOUNTANTS..................................................... 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements. Unless we say otherwise, the
statements in this prospectus (a) assume an exercise price of $1.50 per share,
and (b) give effect to a one-for-three reverse split of the common stock that
became effective on January __, 1999.
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis or Plan of
Operations" and "Business" are forward-looking. They include statements
concerning strategy, liquidity and capital expenditures, debt levels and the
ability to obtain financing, service debt, competitive pressures in the
newspaper business, legal proceedings and regulatory matters and general
economic conditions. Actual results may differ materially from those suggested
by the forward-looking statements for various reasons, including those discussed
under "Risk Factors."
THE COMPANY
News Communications, Inc. publishes and distributes community oriented
newspapers and targeted audience publications. The publications serve specific
geographic communities and, in most instances, are distributed free of charge to
selected residences and businesses in those communities. Each publication
focuses on the lifestyle, culture, arts, entertainment, politics and social
issues of particular interest to the communities it serves. The principal
source of our revenues (92% for the fiscal year ended November 30, 1997, 89% for
the fiscal year ended November 30, 1996 and 92% for the nine months ended August
31, 1998) is the sale of advertising space in our publications.
The following table sets forth selected information relating to our
portfolio of print publications as of November 13, 1998.
Publication Community Served
- ----------- ----------------
MANHATTAN SPIRIT, THE BLADE, CHELSEA-
CLINTON News*, and WESTSIDER*...........West Side of Manhattan, NYC
OUR TOWN...................................Upper East Side of Manhattan, NYC
DAN'S PAPERS and MONTAUK PIONEER...........Eastern Long Island, New York
QUEENS TRIBUNE, WESTERN QUEENS TRIBUNE,
and BAYSIDE TRIB AT HOME................Borough of Queens, NYC
RIVERDALE REVIEW AND BRONX PRESS REVIEW*...Riverdale section of the Bronx, NYC
<PAGE>
LONG ISLAND LIFESTYLES, LONG ISLAND MARKET, THE SOUTH
SHORE RECORD* (FIVE TOWNS), LYNBROOK USA*,
MALVERN COMMUNITY TIMES*, ROCKVILLE CENTRE NEWS
& OWL*, OCEANSIDE BEACON*, BALDWIN CITIZENS*, EAST
ROCKAWAY OBSERVER*, VALLEY STREAM MAILLEADER*,
THE INDEPENDENT VOICE OF LONG BEACH*, OCEANSIDE
AND ISLAND PARK*, ELMONT LIFE, FRANKLIN SQUARE
LIFE and WEST HEMPSTEAD LIFE.....Nassau County, New York
THE HILL........................... (Weekly paper devoted to coverage of US
Congress)
BROOKLYN SKYLINE....................Borough of Brooklyn, NYC
* Paid circulation newspapers
News Communications has developed a regional group of publications in the
greater New York City metropolitan area. We believe this strategy has been
attractive to advertisers seeking a broad New York metropolitan area audience.
We also believe the company can take advantage of economies of scale,
combination of operations and other synergies not available to individual
publications. We intend to purchase more publications and seek other growth
opportunities in the New York region. We also plan to expand to other areas as
resources permit such as New Jersey, Connecticut, Massachusetts and resort
communities throughout the United States. Our executive offices are located at
174-15 Horace Harding Expressway, Fresh Meadows, New York 11365, and our
telephone number is (718) 357-3380.
THE OFFERING
Description of the Rights Offered All holders of common stock or convertible
preferred stock on December 18, 1998 will
receive a right to purchase a minimum of 1
share and a maximum of 2 shares (based on
availability) of common stock for every share
owned. This means that, after each holder who
exercised his right to purchase any shares in
this offering has received one share, each
holder who exercised his right to receive 2
shares shall receive one additional share for
each share owned, provided that the number of
shares remaining in the offering is
sufficient. If the number of shares remaining
is insufficient, each holder shall receive a
pro rata portion of the remaining shares
based upon the number of shares owned by such
holder, subject to upward adjustment to avoid
the issuance of fractional shares.
The Exercise Price of the Rights The exercise and purchase price will be
$1.50 per share.
When You Can Exercise Your Rights The rights will only exercisable from the
period beginning on ____________, 1999 and
ending on
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<PAGE>
February __, 1999 at 5:00 p.m., New York
City time.
How Your Rights Will be Evidenced Each shareholder will receive a certificate
representing the non-transferable right.
Shares should be ready for delivery on or
about February 14, 1999, against payment in
immediately available funds.
Obligations of Wilbur L. Ross, Jr.
Melvin I. Weiss and J. Morton
Davis Messrs. Ross, Weiss and Davis, or
their designees, will purchase, at the
exercise price, any shares offered in the
rights offering that have not been purchased
through the exercise of the rights and have
not otherwise been sold by February __,
1999, in the following percentages:
Mr. Ross 15%
Mr. Weiss 35%
Mr. Davis 50%
As a result, they may be deemed underwriters
for purposes of the Securities Act.
Number of shares of common stock
Offered in the Rights Offering 3,833,333 shares.
Common Stock to be Outstanding
After the Rights Offering 6,569,125 shares. For an explanation of
certain shares not included in this amount,
see "Capitalization."
Use of Proceeds Working capital and other general corporate
purposes, including possible acquisitions
and investments in other businesses. See
"Use of Proceeds" for a brief discussion on
how the company intends to use the proceeds
from this offering.
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information is taken from our Consolidated
Financial Statements included elsewhere in this prospectus and should be read
along with the Consolidated Financial Statements and the related Notes.
In the table titled Balance Sheet Data, the information contained in the
(a) "Pro Forma" column includes refinancing of the company's long-term debt, (b)
"Pro Forma As Adjusted" column includes the sale of 3,833,333 shares of common
stock at a price of $1.50 per share as a result of this offering and our receipt
of the proceeds and (c) "Total Assets" row includes goodwill of $3,271,629.
Income Statement Data:
<TABLE>
<CAPTION>
Year ended November 30, Nine Months Ended August 31,
----------------------- ----------------------------
1996 1997 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenue................................ $16,614,501 $17,523,952 $13,051,666 $13,654,111
Operating Expenses......................... $19,123,415 $19,832,177 $13,433,226 $13,996,299
Interest Expense........................... $ (177,471) $ (200,948) $ (143,101) $ (240,173)
Net Income (Loss) Available to Common
Stockholders.............................. $(3,881,428) $(2,954,215) $ (872,829) $ (742,361)
Net Income (Loss) per Share of
Common Stock.............................. $ (1.47) $ (1.08) $ (.33) $ (.27)
Average Number of shares................... 2,663,999 2,710,918 2,650,884 2,730,378
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
August 31, 1998
---------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
<S> <C> <C> <C>
Total Assets $ 7,988,416 $7,988,416 $13,453,166
Long-Term Debt $ 0 $2,500,000 $ 2,500,00
Working Capital $(1,913,553) $ 586,447 $ 6,051,197
Stockholders' Equity $ 1,766,646 $1,766,646 $ 7,231,396
</TABLE>
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<PAGE>
RISK FACTORS
The securities we are offering involve a high degree of risk, including,
the risks described below. You should carefully consider the following risk
factors which affect the business of the company and this offering before
investing in the securities.
INSUFFICIENT REVENUES TO SATISFY OUR ONGOING EXPENSES OF OPERATION
Due to our history of losses, we cannot assure you that we will ever be
profitable. Our revenues have not been sufficient to satisfy our ongoing
expenses of operation. We had net losses of $2,954,215 and $3,881,428 for the
fiscal years ended November 30, 1997 and 1996, respectively, and $742,361 for
the nine months ended August 31, 1998. As of August 31, 1998, our accumulated
deficit was $14,816,018. See "Management's Discussion and Analysis or Plan of
Operations" for a more detailed discussion of the company's losses, sources of
funds for operations and other financial information.
DEPENDENCE UPON ADVERTISING REVENUES
A change in the overall economy or economic conditions affecting our
advertisers in our publishing schedules and discount programs would have a
significant negative impact on advertising revenues, particularly if any lost
advertisers could not be replaced. This is due to the fact that advertising
revenues made up nearly 92% of our revenues in fiscal 1997, and we do not have
long-term contracts with our advertisers, so any advertiser can terminate at any
time. In addition, our publishing schedules and advertising discount programs
affect the amount of advertising revenues.
If we do not compete successfully for advertisers and readers, if our
advertising revenues are negatively impacted by the overall economy or economic
conditions affecting our advertisers, then our financial condition will be
negatively affected as well. Competition for advertising dollars is primarily
based on advertising rates, the nature and scope of readership, reader response
to advertisers' products and services and the effectiveness of sales
efforts.
LIKELIHOOD OF THE COMPANY'S SUCCESS
We cannot be sure that our existing publications will keep or increase
their present level of acceptance to advertisers. Our likelihood of success
must be considered in light of the difficulties in growing and maintaining the
readership interest necessary to attract and hold advertisers, our principal
source of revenue. Even if they attain greater acceptance, that does not mean
we will be able to recover our development and acquisition costs or become
profitable on an ongoing basis.
FLUCTUATIONS IN PAPER COSTS
Paper is the principal raw material for our publishing operations. Paper
is provided by our contract printers. We utilize three different printers in
the New York metropolitan area and monitor the paper markets with them. Even
though we believe that we purchase paper and
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<PAGE>
printing very effectively and that our long-term relationships in the industry
should allow us to continue to do so, we cannot be sure the price of paper will
not increase, or that we will be able to recover any paper cost increases by
increasing advertising or subscription rates. Any substantial cost increase in
paper will have a significant negative affect on the results of operations. See
"Management's Discussion and Analysis or Plan of Operations" for additional
discussion regarding costs of operations.
CONTROL BY HOLDERS OF $10 CONVERTIBLE PREFERRED STOCK
So long as at least 100,000 shares of $10 convertible preferred stock are
outstanding, the holders of this class of stock have the right to nominate and
elect half of the directors that make up our Board of Directors. They also have
the right to approve any sale of all or substantially all of our assets or a
merger or other similar transaction which we propose to undertake. As a result
of these rights, the holders of the $10 convertible preferred stock and the
directors they elect are able to prevent us from undertaking any action or
entering into any agreement with which they do not agree even if such action or
agreement may be beneficial to the company or to the holders of other classes of
our securities.
CONTROL BY CERTAIN AFFILIATES OF THE COMPANY
Wilbur L. Ross, Melvin I. Weiss and J. Morton Davis beneficially own more
than 50% of the company's outstanding common stock on a fully-diluted basis.
Their percentage ownership will increase if all of the rights are not exercised
by our current shareholders by virtue of their commitment to purchase any
unsubscribed rights. Accordingly, even after the number of shares of $10
convertible preferred stock fall below 100,000, Messrs. Ross, Weiss and Davis,
if they were to act together, will be able to control our business and
affairs.
DISPROPORTIONATE VOTING RIGHTS OF THE $10 CONVERTIBLE PREFERRED STOCK
The disproportionate voting rights between the $10 convertible preferred
stock and the common stock could have an adverse effect on the market price of
the common stock. Such disproportionate voting rights may make the company a
less attractive target for a takeover than it otherwise might be, or render more
difficult or discourage a merger proposal, a tender offer or a proxy contest,
even if such actions were favored by holders of our common stock. Such
disproportionate voting rights may also deprive holders of the common stock of
an opportunity to sell their shares at a premium over then prevailing market
prices for the common stock.
COMPETITION IN THE NEWSPAPER BUSINESS
Many of our competitors have a competitive advantage over us by virtue of
their longer standing market positions and better name recognition, as well as
greater marketing and financial resources. The newspaper business is extremely
competitive, and our publications compete for advertising dollars directly with
other newspapers and magazines which are distributed without charge in the areas
in which we distribute our publications. Our publications also compete with
paid circulation newspapers and magazines which are sold in
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<PAGE>
the areas in which our publications are distributed, as well as with other
advertising media such as radio and television.
DEPENDENCE UPON CURRENT KEY PERSONNEL FOR OUR SUCCESS
If any officers or the following key personnel cease employment with us
before we find qualified replacements, it might have a significant negative
impact on our publications and overall business. Our success is dependent upon
the personal efforts and abilities of our executive officers, including Jerry
Finkelstein, Chairman of the Board, Wilbur L. Ross, Chief Executive Officer, and
Michael Schenkler, President. We are also dependent upon certain key personnel
who are publishers and/or editors of our publications. These key personnel
include Dan Rattiner, the publisher and editor of Dan's Papers, Thomas Allon,
the publisher and editor-in-chief of Manhattan Spirit and Our Town and Marty
Tolchin, the publisher and editor-in-chief of The Hill. We do not maintain key-
man life insurance on any of our employees.
DETERMINATION OF OFFERING PRICE, POSSIBLE VOLATILITY OF STOCK PRICE
The offering price of the shares was based upon the current market price of
our common stock and does not necessarily reflect the price at which our shares
may be sold in the public market during or after the offering. The public
markets, in general, have from time to time experienced extreme price and volume
fluctuations, which have in many cases been unrelated to the operating
performance of particular companies, and the market for stocks of companies with
smaller amounts of capital like ours can be subject to greater price volatility
than the stock market in general. In addition, factors such as new products by
our competitors or other companies, potential litigation, and strategic
alliances may have a significant impact on the market price of the common stock.
See "Price Range of Common Stock and Dividend Policy" for a summary of the high
and low closing bid prices of the common stock for each fiscal quarter in the
past three years.
REQUIREMENTS FOR CONTINUED QUOTATION OF OUR COMMON STOCK ON THE NASDAQ SMALLCAP
MARKET
The company's common stock is listed on The Nasdaq Smallcap Stock Market.
In August 1997, the Nasdaq Stock Market, Inc. adopted new requirements that we
must meet for continued listing of our common stock:
On July 29, 1998, following an expedited written hearing before a Nasdaq
Listing Qualifications Panel, a determination was made that News Communications
had failed to meet the minimum net tangible asset requirement and the minimum
market capitalization requirement under NASD Marketplace Rule 4310(c)(2). As a
result, Nasdaq decided that our shares would be delisted from The Nasdaq
Smallcap Stock Market.
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<PAGE>
After a hearing was held before Nasdaq staff on October 1, 1998, we were
subsequently advised by Nasdaq that we may continue to list our common stock on
The Nasdaq Smallcap Stock Market despite our failure to meet Nasdaq's minimum
net tangible asset requirement and minimum market capitalization requirement,
provided that we follow through with our plan to regain compliance with these
requirements on or before February 15, 1998. This plan includes:
. effecting a 1-for-3 reverse stock split to raise the closing bid price
of our common stock above $1.00 per share. This occurred on January
, 1999; and
. raising capital through this offering.
Immediately after the reverse split, the closing bid price must meet or
exceed $1.00 per share for a minimum of ten consecutive trading days. In
addition, we must make a public filing with the SEC and Nasdaq evidencing the
completion of this offering and achieving net tangible assets of $3,000,000.
Although we are in the process of completing the proposed plan to regain
compliance with the requirements for continued listing, we cannot be sure that
the closing bid price of the shares will meet or exceed $1.00 per share for ten
days after the reverse split and, therefore, that the shares will remain listed
on The Nasdaq Smallcap Stock Market. If our securities are excluded from The
Nasdaq Smallcap Stock Market, it may negatively affect the prices of the
securities and your ability to sell them.
Even if our shares continue to be listed on The Nasdaq SmallCap Stock
Market, we cannot be certain that we will be able to continue to satisfy the
requirements for maintaining a Nasdaq listing after this offering.
EFFECT OF DELISTING FROM THE NASDAQ SMALLCAP MARKET; PENNY STOCK RULES
In the event that our shares are delisted, we anticipate that they will
continue to be traded on the Nasdaq's Electronic Bulletin Board. In that event,
trading in our shares would be covered by "penny stock" rules promulgated for
non-Nasdaq and non-exchange listed securities. Under these rules, any
broker/dealer who recommends our shares to persons other than prior customers
and investors meeting certain financial requirements, must, prior to sale, make
a special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction. Securities are exempt from
these rules if the market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market.
If our shares become subject to the regulations on penny stocks, the price
and ability to sell our shares would be severely affected because the shares
could only be sold in compliance with the penny stock rules. We cannot be sure
that our securities will not be subject to the penny stock regulations or other
regulations that would negatively affect the market for our securities.
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<PAGE>
POTENTIAL DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES;
REGISTRATION RIGHTS
As of the date of this prospectus, there were outstanding various options,
warrants and shares of preferred stock which, if exercised or converted by the
holders, entitle them to purchase up to 1,579,926 shares of common stock at
exercise or conversion prices ranging from $3.75 to $9.38 per share.
The exercise or conversion of any of such securities will most likely occur
at a time when the company's stock price exceeds the conversion or exercise
price. This would decrease the value of the company's common stock. The
existence of these securities could have a negative impact on the terms we could
negotiate for additional financing. In addition, some holders of common stock,
preferred stock, options and warrants have registration rights with respect to
the securities. Registration rights enable these securityholders to register for
sale their shares of common stock and the shares of common stock underlying
their preferred stock, options and warrants. As a result, these shares of common
stock become freely tradable. These registration rights could be a substantial
future expense and could negatively affect any future equity or debt financing,
because such rights often deter underwriters from agreeing to perform an
offering due to decreased compensation for the underwriters. Also, the sale of
these shares held by or issuable to persons holding registration rights could
have a negative effect on the market price of our shares as a result of their
dilutive effect.
POTENTIAL DEPRESSIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE PURSUANT TO RULE
144
Approximately 50,000 shares of our common stock, upon conversion of the $10
convertible preferred stock series 2, are "restricted" securities as that term
is defined in Rule 144 under the Securities Act. Of the restricted shares, none
have been held for over one year. Possible or actual sales of restricted common
stock by current stockholders of the company under Rule 144 or otherwise may in
the future decrease the price of our shares in any market which exists or which
may develop. See "Shares Eligible for Future Sale" for information on
additional shares eligible and an explanation of Rule 144.
POTENTIAL DILUTIVE EFFECT OF AUTHORIZED AND UNISSUED SHARES OF COMMON STOCK AND
PREFERRED STOCK.
We are authorized to issue 100,000,000 shares of common stock, of
which
. 2,735,791 shares are presently outstanding,
. 447,259 are reserved for issuance upon conversion of outstanding
preferred stock, and
. 1,132,667 shares are reserved for issuance upon exercise of currently
outstanding options and warrants.
The balance of the authorized common stock will be issuable in the
discretion of the Board, and will not require stockholder approval. Although
the Board currently has no plans to issue any unissued shares except in payment
of dividends on the 10% preferred stock,
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<PAGE>
the issuance of any new shares would have the effect of diluting the interests
of our existing stockholders.
We are also authorized to issue 500,000 shares of "blank check" preferred
stock, of which 26 shares designated 10% non-voting convertible preferred
stock, 114 shares designated 8% convertible preferred stock, 200 shares
designated 12% convertible preferred stock, 220,000 shares designated $10
convertible preferred stock are issued and outstanding. Blank check preferred
stock is preferred stock that may be issued from time to time in such classes or
series and with such terms, rights and preferences as the Board of Directors may
choose. The balance of the authorized preferred stock may be issued in our
discretion by the Board, without stockholder approval, with dividend,
liquidation, conversion, voting or other rights which could negatively affect
the voting power or other rights of owners of our common stock or other series
of preferred stock. In the event of issuance, the preferred stock could be
used, under certain circumstances, as a way to discourage, delay or prevent a
change in control of News Communications, Inc. which in turn could discourage
bids for us and prevent stockholders from receiving the maximum value for their
shares. See "Description of Securities" for a discussion of the terms, rights
and preferences of our currently outstanding securities.
BROAD DISCRETION IN APPLICATION OF PROCEEDS BY MANAGEMENT; POTENTIAL USE OF
PORTION OF NET PROCEEDS FOR UNSPECIFIED ACQUISITIONS.
All proceeds of this offering will not be allocated for specific purposes
but will be used for working capital and general corporate purposes. With such
broad discretion in how to use the money, there is increased risk that the Board
of Directors will fail to apply it effectively. In addition, although we have
no agreement, arrangement or understanding with respect to the purchase of any
other business, should an opportunity arise, the Board of Directors will have
the power to approve such acquisition without the consent of our stockholders.
This means that stockholders will have no voice with regard to the future
operations of the company and are subject solely to the business judgment of
management.
LIMITS ON HOW AND WHEN DIVIDENDS CAN BE PAID
We have never paid any dividends on our common stock and do not believe we
will pay any dividends on the common stock in the near future. Provisions of
the outstanding series of preferred stock also restrict our ability to pay
dividends on the common stock. Applicable provisions of Nevada corporate law
affect our ability to declare and pay dividends and could significantly limit,
or even prohibit, our ability to pay dividends in the future. Specifically,
Nevada corporate law prohibits us to pay dividends if it would prevent us from
paying our customary debts in running our Business as they become due. Also,
payment of dividends would be prohibited if it would cause the total of our
assets to be less than the amount required, to pay, upon dissolution of the
company, all amounts owed to stockholders with superior rights to those
stockholders receiving the dividend.
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<PAGE>
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue arose from computer programs which were written using
two digits rather than four to define the applicable year. For example, date-
sensitive software may recognize a date using "00" as the Year 1900 rather than
the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations in our systems and/or in the
systems of our suppliers including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
We have determined that our accounting system is the only
operating program that is not Year 2000 compliant. Management believes that the
estimated costs to modify or replace this system before the Year 2000 are not
significant. In addition, certain of our advertisers have informed us that they
do not anticipate problems in their business operations due to Year 2000
compliance issues. However, we are currently unable to determine the extent to
which Year 2000 issues will affect our other advertisers, or the extent to which
we would be vulnerable to their failure to fix any of their Year 2000 problems.
See "Management's Discussion and Analysis or Plan of Operation Impact of Year
2000 Compliance" for detailed information on the company's risks regarding and
contingency plans for year 2000 issues.
THE OFFERING
WHY WE ARE SELLING SHARES THROUGH A RIGHTS OFFERING
Although the rights offering is essentially a public offering directed to
the company's stockholders, we believe that the rights offering provides several
advantages over a traditional public offering. The offering gives us the
opportunity to offer our common stock to investors who, as the company's
stockholders, already have some knowledge of our business, and to distribute the
securities to a more stable stockholder base.
We determined the exercise price based upon our current market price.
WHAT YOU CAN DO WITH YOUR RIGHTS
You may purchase a minimum of 1 share for every share owned and up to 2
shares (if available) for every share owned on the basis of each right you
receive. If more than 3,833,333 shares are subscribed for, stockholders who
have exercised their right to purchase more than one share will have their
subscription reduced proportionately. You may not exercise rights for fewer
than 10 shares in an account. If you hold shares in multiple accounts, you must
meet the minimum purchase requirement for each account. You may, however,
consolidate your rights into one account. You should consult with your regular
investment advisor and carefully consider your alternatives. See "Prospectus
Summary - The Offering Description of the Rights Offered" for further
explanation on purchasing 1 or 2 shares.
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<PAGE>
WHEN YOU CAN EXERCISE YOUR RIGHTS
You can exercise your rights at any time during the period beginning on
January __, 1999 and ending at 5:00 p.m., New York City time, on
February __, 1999. After that date, you will not be able to exercise your
right, and it will be worthless, regardless of when you sent your right to the
transfer agent for exercise.
THE SHARES MAY NOT BE REGISTERED IN THE STATE WHERE YOU LIVE
You may reside in a jurisdiction in which the shares offered are not
registered or may not be qualified for issuance or sale under the state
securities laws. In that case, we cannot issue shares of common stock to you
unless the shares could be registered or otherwise qualified for sale in the
jurisdiction to which you move, unless an exemption from such registration or
qualification exists in such jurisdiction. We cannot be sure you will be able
to legally exercise your right to purchase the shares.
HOW YOU CAN EXERCISE YOUR RIGHTS
You may exercise your rights by completing and signing the election to
purchase form that appears at the end of each rights certificate. You must
send the completed and signed form, along with payment in full of the exercise
price for all shares that you wish to purchase to Continental Stock Transfer &
Trust Company. We will not honor any exercise of rights received by Continental
Stock Transfer & Trust Company after , 1998.
We will, however, accept your exercise if Continental Stock Transfer &
Trust Company has received full payment of the exercise price for shares, and
has received a letter or telegraphic notice from a bank, trust company or member
firm of the New York Stock Exchange or the American Stock Exchange setting forth
your name, address and taxpayer identification number or Social Security Number,
the number of shares you wish to purchase, and guaranteeing that a properly
completed and signed election to purchase form will be delivered to Continental
Stock Transfer & Trust Company by the date stated above
We suggest, for your protection, that you deliver your election to purchase
form and payment to Continental Stock Transfer & Trust Company by overnight or
express mail courier or by hand delivery. If you mail your rights, we suggest
that you use registered mail. If you wish to exercise your rights, you should
deliver them and payment for the exercise price as follows:
Continental Stock Transfer & Trust
Company
2 Broadway
New York, New York 10004
You must pay the exercise price in U.S. dollars by check or money order
payable to the "News Communications, Inc. Escrow Account." Continental Stock
Transfer & Trust
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Company will issue certificates to you representing the common stock purchased
through the exercise of rights by February __, 1999. Until that date,
Continental Stock Transfer & Trust Company will act as escrow agent and,
therefore, will hold all funds received in payment of the exercise price in
escrow and will not deliver any funds to us until the shares have been issued.
If you are a broker or depository who holds our shares for the account of
others and you receive rights certificates for the account of more than one
beneficial owner, you should provide copies of this prospectus to the beneficial
owners. You should also carry out their intentions as to the exercise or
transfer of their rights.
We will decide all questions as to the validity, form, eligibility
(including times of receipt, beneficial ownership and compliance with minimum
exercise provisions), and the acceptance of subscription forms and the exercise
price will be determined by us. We will not accept any alternative, conditional
or contingent subscriptions. We reserve the absolute right to reject any
subscriptions not properly submitted. In addition, we may reject any
subscription if the acceptance of the subscription would be unlawful. We also
may waive any irregularities (or conditions) in the subscription of shares of
common stock, and our interpretations of the terms (and conditions) of the
rights offering shall be final and binding.
If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than February __, 1999. We are not
obligated to give you notification of defects in your subscription. We will not
consider an exercise to be made until all defects have been cured or waived. If
your exercise is rejected, your payment of the exercise price will be promptly
returned by March __, 1999.
WHAT HAPPENS TO THE UNSUBSCRIBED SHARES
To the extent that any unsubscribed shares remain unsold after the rights
offering, Wilbur L. Ross, Jr., Melvin I. Weiss and J. Morton Davis, or their
designees, will purchase these shares in proportion to their current ownership
interest in the company, at the exercise price. Messrs. Ross, Weiss and Davis
must purchase these shares no later than February 14, 1999.
We intend to supplement the prospectus after the rights exercise period is
over to set forth the results of the rights offering, and the number of
unsubscribed shares purchased, if any.
WHAT HAPPENS IF THE RIGHTS OFFERING IS CANCELED
Messrs. Ross, Weiss and Davis have the right to cancel the rights offering
if certain conditions are not satisfied or if certain circumstances exist prior
to the closing date of the offering. If you exercise rights and the rights
offering is canceled, Continental Stock Transfer & Trust Company will promptly
return to you, without interest, any payment received in respect of the exercise
price, and you will not receive any of our shares.
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Trades in the when-issued shares of common stock in the market would be canceled
if the offering is not consummated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general summary of the material federal income tax
consequences of the rights offering is based upon the advice of Piper & Marbury
L.L.P., counsel to News Communications, Inc. It does not discuss all of the
federal income tax consequences which may affect a particular investor, nor does
it describe state, local, foreign or other tax consequences. HOLDERS OF COMMON
STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX TREATMENT TO THEM
OF THE RIGHTS OFFERING.
RECEIPT OF RIGHTS. Except as described below under "Payment of Dividends
With Respect to preferred stock," holders of common stock will not recognize
taxable income upon the receipt of rights in the offering. A holder's basis in
common stock with respect to which rights are distributed will be allocated
between the common stock and the rights in proportion to relative fair market
values. However, if the fair market value of the rights at the time they are
received is less than 15 percent of the fair market value of the common stock,
then no portion of the holder's basis in the common stock will be allocated to
the rights unless the holder so elects. Holders of common stock should consult
their own tax advisors concerning whether and how to make such an election.
Since the rights will not be transferable, it may be difficult to establish
the fair market value of the rights and, as a result, the allocation of basis
between the common stock and the rights.
A holder's holding period in rights received with respect to common stock
will include his holding period for the common stock with respect to which such
rights were distributed.
PAYMENT OF DIVIDENDS WITH RESPECT TO PREFERRED STOCK. If the company were
to pay any dividends with respect to the
. 8% preferred stock,
. 10% preferred stock,
. 12% preferred stock, or
. $10 convertible preferred stock
within 36 months of the distribution of rights, or if it were to pay such a
dividend at any time and such dividend were deemed to be pursuant to a plan
which includes the distribution of rights, the distribution of rights could be
treated as a taxable dividend to the extent of the fair market value of the
rights. However, it would be so treated only to the extent the company has
accumulated earnings and profits as of the date of the rights distribution or
current earnings and profits for the year which includes the rights
distribution.
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<PAGE>
News Communications, Inc. believes that (a) the rights are not likely to
have significant value, and (b) the company will not have accumulated earnings
and profits as of the date of the rights distribution or current earnings and
profits for the year which includes such date. Therefore, even if the rights
distribution were treated as a taxable distribution, it is not anticipated that
the tax consequences to holders of common stock would differ significantly from
those described above.
EXERCISE OF RIGHTS. No taxable income will be recognized upon the purchase
of common stock pursuant to the exercise of a right. A holder who acquires
common stock upon such exercise will have a basis in the common stock equal to
the sum of (a) his basis, if any, in the rights which are exercised (determined
as discussed above), and (b) the exercise price paid. The holder's holding
period for the common stock acquired upon exercise of a right will begin on the
date of exercise, and will not include his holding period for the right.
LAPSE OF RIGHTS. If a right lapses without having been exercised, the
holder will recognize a loss equal to his basis, if any, in the right. Such
loss will be capital loss (assuming the common stock would have been a capital
asset in the holder's hands), and will be long-term or short-term depending upon
whether the holder's holding period in the lapsed rights (which, as discussed
above, will include his holding period for the common stock with respect to
which the rights were received) is more than one year.
USE OF PROCEEDS
The net proceeds to be received by News Communications upon consummation of
the offering are estimated to be approximately $5,606,250. Such amounts will be
used for working capital and other general corporate purposes as and when
received. A portion of such proceeds may be used in the future for additional
acquisitions of or investments in other businesses, both related or non-related
to our newspaper business. Such investments could include controlling or non-
controlling or minority interests. We are in the process of identifying
appropriate candidates for acquisitions. Until utilized, the net proceeds of
this offering will be invested in short-term United States Government
securities, certificates of deposit, money market funds and other short-term or
long-term interest-bearing investments and investment grade common equities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our shares trade on The Nasdaq SmallCap Stock Market under the temporary
trading symbol "NCOMC". Assuming that the company is in compliance with the
requirements for continued listing at consummation, our trading symbol will be
NCOM. The following table sets forth, for the periods indicated, the range of
high and low closing bid quotations as reported by Nasdaq. The bid quotations
set forth above reflect inter-dealer prices, without retail markup, mark-down or
commission and may not necessarily represent actual transactions.
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<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ended November 30, 1996
First Quarter.............................. $9.75 $7.14
Second Quarter............................. 8.43 6.39
Third Quarter.............................. 7.50 4.89
Fourth Quarter............................. 7.68 3.00
Fiscal Year Ended November 30, 1997
First Quarter.............................. $8.64 $5.91
Second Quarter............................. 7.50 5.25
Third Quarter.............................. 6.75 4.89
Fourth Quarter............................. 7.32 4.50
Fiscal Year Ended November 30, 1998
First Quarter.............................. $5.85 $3.42
Second Quarter............................. 4.68 3.60
Third Quarter.............................. 3.96 2.52
Fourth Quarter............................. 3.28 1.22
</TABLE>
On January 4, 1999, the last reported sales price for the common stock on
The Nasdaq SmallCap Stock Market was $1.31 per share. At November 11, 1998, the
company had 936 stockholders of record. The company estimates there are
approximately 2,100 beneficial owners of its common stock.
We have never paid cash dividends on our common stock and do not expect to
pay such dividends in the foreseeable future. We currently intend to retain any
future earnings for use in our business. The payment of any future dividends on
our common stock will be determined by the Board in light of the conditions then
existing, including our financial condition and requirements, future prospects,
restrictions in future financing agreements, business conditions and other
factors deemed relevant by the Board.
Dividends on the 10% preferred stock are payable annually in an amount of
$500 per share of 10% preferred stock, in cash or in shares of common stock
having a fair market value of $500, payable on September 19th of each year.
Dividends on the 10% preferred stock may be paid in shares of common stock to
the extent News Communications has sufficient authorized but unissued common
stock even if we have sufficient assets or net profits to pay such dividends in
cash. It is anticipated that any permitted dividends will, at least in the
foreseeable future, continue to be paid in common stock. See "Description of
Securities" and "Consolidated Financial Statements" for more information
regarding the company's securities and any dividends it has paid.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the company (a) at
August 31, 1998 adjusted for the one for three reverse stock split; and (b) as
adjusted to give effect to the issuance of 3,833,333 shares of common stock upon
completion of the offering (if required), and the application of the estimated
net proceeds therefrom.
The information contained in the "As Adjusted" column assumes that no
proceeds of offering will be used to retire debt.
The 6,619,458 shares of common stock outstanding as adjusted excludes up to
. 122,223 shares issuable upon the exercise of stock options
granted and that may be granted under the company's 1987 Stock
Option Plan,
. 500,000 shares issuable upon the exercise of options granted and
that may be granted under the company's Discretionary Directors
and Officers Stock Option Plan,
. 166,667 shares issuable upon the exercise of options granted
under the company's Non-discretionary Directors Stock Option
Plan,
. 437,296 shares issuable upon conversion of outstanding shares of
various series of preferred stock, and
. 54,048 shares issuable upon the exercise of other outstanding
warrants and options.
<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
<S> <C> <C>
Long-term Debt $ 0 $ 0
Stockholders' Equity:
Preferred Stock, $1.00 par value, 500,000 shares authorized
10% Convertible Preferred Stock, 1,250 shares
authorized, 26 outstanding and as adjusted $ 26 $ 26
8% Convertible Preferred Stock, 500 shares authorized,
114 outstanding and as adjusted 114 114
12% Convertible Preferred Stock, 200 shares authorized
and outstanding and as adjusted 200 200
$10 Convertible Preferred Stock, 220,000 shares authorized,
and outstanding and as adjusted 220,000 220,000
Paid-in Capital Preferred Stock 2,257,025 2,257,025
Common Stock, $.01 par value, 100,000,000 shares
authorized, 2,786,124 issued, 6,619,458 as adjusted 27,861 66,194
Paid-in Capital Common Stock 14,486,167 19,912,584
(Deficit) (14,816,018) (14,816,018)
------------ ------------
Totals $ 2,175,375 $ 7,640,125
Less: Treasury Stock, 50,333 shares actual and as
adjusted (408,729) (408,729)
------------ ------------
Total Stockholders' equity $ 1,699,898 $ 7,164,648
============ ============
</TABLE>
_______________________
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of News Communications'
results of operations and financial condition. The discussion should be read in
conjunction with our audited consolidated financial statements and notes
thereto.
RESULTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1997 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1998
The company reduced its net loss for the nine months by $130,000 (15%) from
($872,000) in 1997 to ($742,000) in 1998. Operating loss before interest
expense and equity in loss of unconsolidated subsidiary decreased by $40,000
(10%) from ($382,000) in 1997 to ($342,000) in 1998. This decrease is primarily
from increased profit at The Hill, which was a result of its strong increase in
revenues, offset by an increased loss at Nassau Newspapers. Nassau Newspapers
is in a transitional year due to management change and has included replacing
marginally profitable third-party printing and distribution revenues with new
revenues while absorbing the acquisition of the South Shore Record. The
increase in interest expense of $97,000 (68%) from $143,000 in 1997 to $240,000
in 1998 was a result of the loan from an affiliate of a principal stockholder
and officer being outstanding in 1998.
Total revenues for the company were $13,654,000 for the nine months of
1998, an increase of almost $602,000 (5%) from $13,052,000 in 1997, while
advertising rates remained level. The increase in revenues was attributable
primarily to The Hill, where increased sales effort and new sales management
resulted in an increase of $866,000 (64%), and Dan's Papers, where
capitalization on the continued growth of the market in the Hamptons resort area
of Long Island and its positioning as one of the advertising standards on Long
Island's east end resulted in an increase of $148,000 (5%). These increases were
offset by decreases at the Manhattan newspapers (Our Town, Manhattan Spirit and
Chelsea Clinton/Westsider) of $521,000 (16%). Management has responded to these
decreases by reducing payroll and production costs. During the fourth quarter a
new sales manager was brought in and along with other changes in the sales staff
the Company expects to substantially increase revenues at the Manhattan
newspapers. Decreased non-advertising revenues at the Nassau Newspapers was
offset by increased revenues from the South Shore Record.
Salaries and outside labor costs increased $541,000 (8%) primarily as a
result of commissions on increased revenues and additional salaries incurred
with the acquisition of the South Shore Record.
Management has undertaken a number of steps to reverse the losses incurred
over the past years. In February 1998 the Company disposed of its Manhattan
File subsidiary, which had been continually incurring losses. There were also
changes in sales management and staff at The Hill, which also had been incurring
losses since its start-up in the fourth quarter of 1994, resulting in a turn to
profitability at that subsidiary. The
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<PAGE>
company has also installed new management at Nassau Newspapers where, along the
synergies from the acquisition of the South Shore Record, it is expected that
there will be a turn towards profitability.
FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996
1997 was a transitional year for News Communications. New management,
which came to the company during the last quarter of fiscal 1996, completed its
first full year of operation. Its objectives included increasing revenues,
implementing cost cutting measures and focusing on the publications which have
impacted the bottom line most negatively. New sales management and a new sales
team have resulted in a turnaround to profitability at The Hill. We decided to
discontinue the money losing operations at Manhattan File and have sold all but
a 10% interest in that subsidiary. Completing the transition of Brooklyn
Skyline to a newspaper from a shopper, which is a publication with advertising
but little editorial content, the introduction of four-color printing and
bolstering the sales force has resulted in increasing revenues. A new publisher
was installed at the Nassau Newspapers and the South Shore Record was acquired
to provide Nassau with access to the high income demographic market of the "Five
Towns." The potential additional revenues expected from the acquisition of the
South Shore Record have not yet been realized during the current period, and the
additional costs, primarily salaries, have not felt the effects of any
synergies, thus resulting in a negative impact on the bottom line.
We increased our revenues 5% ($909,000) from $16,615,000 in fiscal 1996 to
$17,524,000 in fiscal 1997 while advertising rates remained level, and loss from
continuing operations decreased by 43% ($1,494,000) from a loss of $3,462,000 in
fiscal 1996 to $1,968,000 in fiscal 1997.
The increase in revenues was attributable primarily to:
. The Hill, where the effect of its high quality editorial content
combined with a circulation audit and a change in sales
management and staff resulted in an increase of revenues of
$936,000 (71%);
. Brooklyn Skyline, where its increased acceptance as a newspaper
and as an advertising force in the community along with its 1996
expansion into a fifth zone helped increase revenues $221,000
(18%); and
. Dan's Papers where its continuing capitalization on an ever
increasing market in the Long Island affluent resort area, the
Hamptons, and an increased sales effort combined to increase
revenues $374,000 (10%).
These revenue gains were offset in part by Queens Tribune's decrease of
$531,000 (16%), of which $200,000 related to a softening of the advertising
market in Queens and $331,000 related to the discontinuance of various low
profit margin print and distribution jobs; and the Bronx Newspapers decrease of
$124,000 (14%), which was a result of changes in sales management.
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<PAGE>
Salaries and outside labor costs increased $79,000 (1%), even as revenues
increased by 5%, as budget cuts phased in the beginning of 1996 took their full
effect.
Direct mechanical costs decreased $492,000 (8%) primarily as a result of
the decrease and stabilization of newsprint prices, coupled with the
renegotiation of printing contracts. In addition, the reduction in outside
printing and distribution jobs, which had high direct mechanical costs
associated with them, were offset by lower cost advertising sales helping to
keep direct mechanical costs down. We believe that the changes made during
1996-97 will be more fully reflected in improved operating results during fiscal
1997-98.
DISCONTINUED OPERATIONS
News Communications owned 90% of Manhattan File Publishing, Inc. ("MFPI"),
publisher of Manhattan File, a monthly (plus special issues annually), 4-color,
perfect bound, glossy magazine, until February 1998, when the company sold 80%
of MFPI to an employee. The company now owns 10% of MFPI and the employee owns
90% of MFPI. All financial results for 1997 and 1996 attributable to Manhattan
File have been reclassified as discontinued operations.
EFFECTS OF INFLATION
The company does not believe that inflation has had a significant impact on
its financial position or results of operations in the past three years.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1998 the company had a shortage of current assets over
current liabilities in the amount of approximately $1,914,000. During the
quarter ended February 28, 1998, the company repaid $100,000 of loans from Chase
Manhattan Bank, N.A. from cash on hand at the beginning of the year. In October
1998, the bank presented the demand loans for payment. The company repaid
$50,000 of the bank loans, and payment of the balance of $750,000 is payable on
demand. The company anticipates obtaining an additional extension until the
completion of the stock rights offering. Current obligations will be met from
operating cash flow. During the nine months ended August 31, 1998, the company
paid $337,000 of expenses on behalf of its unconsolidated subsidiaries. This was
recorded as an additional investment and was reduced by losses of $160,000. The
unconsolidated subsidiaries are start-up companies, and the company made these
investments as part of its plan to promote their growth in an effort to attain
profitability.
At November 30, 1997, the company had an excess of current assets over
current liabilities of approximately $49,000. Net cash used by continuing
operations was $1,318,000. During the year ended November 30, 1997, the company
repaid $275,000 of the bank loans (an additional $100,000 was repaid in December
1997); $421,000 was used to purchase The South Shore Record; and $101,000 was
invested in or advanced to the Blade. The funds were provided from cash on hand
at the beginning of the year and from a $1,500,000 one-year loan in November
1997 from an affiliate of an officer and stockholder.
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<PAGE>
For the year ended November 30, 1997, net cash used by operations was
$1,318,184 and cash used for investing activities was $596,400. These funds
were provided by $141,421 from the exercise of warrants, $1,500,000 from loans
and $1,494,887 from cash on hand at the beginning of the year.
At November 30, 1996, the company had an excess of current assets over
current liabilities in the amount of approximately $2,146,000. Net cash used by
operations was $2,133,000. The funds were provided from a $1,000,000 two-year
loan from its largest stockholder in May 1996, a $675,000 increase in a bank
loan and from the issuance of $2,000,000 in $10 convertible preferred stock in
October 1996. Approximately $500,000 of the proceeds was used to reduce the
company's accounts payable through November 30, 1996. In February 1997, the
company repaid $275,000 of the bank loans. The company presently has no
material commitment for capital expenditures.
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), the company is offering its existing stockholders the right to
purchase additional shares of its common stock. The gross proceeds of the
offering would be approximately $5,750,000.
Management believes that News Communications will generate positive cash
flow for the fiscal year ending November 30, 1998. Although there can be no
assurances to this effect, management is confident that it has available a
variety of funding sources, such as the private placement of preferred stock and
third party loans, to meet the company's future cash needs.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We have appointed two officers of the company to develop a comprehensive
Year 2000 plan with the goal of completing updates to key systems by December
31, 1999. We have assessed the scope of our risks related to problems our
computer systems may have in processing date information related to the Year
2000 and believe such risks are not significant.
We have identified all of our significant internal software applications
which contain source codes that may be unable to appropriately interpret the
year 2000 and have already begun to modify or replace those applications. We
have determined that our employee payroll system is Year 2000 compliant. Our
accounting system is the only operating program that is not Year 2000 compliant,
but due to software that we have recently purchased, the company believes that
it will be compliant by June 1999. Management has spent less than $1,000 to
render our payroll system compliant, and estimates that it will spend a maximum
of $5,000 to modify our accounting system. Should our accounting system prove
not to be Year 2000 compliant, the risk to the company would be the
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<PAGE>
inability to electronically bill our advertisers and keep track of their
payments. The company is prepared to hire additional personnel on a temporary
basis to perform our accounting work manually. Performing accounting services
manually may be less accurate and more time-consuming than performing such
functions by computer. This may result in slower entries of accounts receivable
and payable to the company and slower billing of our advertisers. We are unable
to determine the expense to the company that these additional employees will
create.
In addition, we have inquired of certain of our advertisers about their
progress in identifying and addressing problems relating to the Year 2000.
Several of our advertisers have informed us that they do not anticipate problems
in their business operations due to Year 2000 compliance issues, and others have
informed us that they have not yet addressed this issue. We are currently
unable to determine the extent to which Year 2000 issues will affect our
advertisers, or the extent to which we would be vulnerable to their failure to
remedy any such problems. However, we anticipate that at least some of our
traditional advertisers will not be Year 2000 compliant when the time comes,
which will result in their inability to pay us in a timely manner. We are
prepared to focus our time and effort on monitoring those accounts, providing
assistance if possible and finding alternate advertisers if absolutely
necessary. Although we do not expect this to occur, the worst case scenario is
that this contingency plan may cause us to incur additional expense, and we may
not be able to assist advertisers with their year 2000 problems and, therefore,
we may not succeed in generating sufficient advertising revenue to publish some
of our publications.
NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS No. 128")
which provides for the calculation of "basic" and "diluted" earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of shares of common stock outstanding for the period. Diluted
earnings per share reflects, in periods in which they have a dilutive effect,
the effect of shares of common stock issuable upon exercise of stock options.
The assumed exercise of various warrants and options would have been anti-
dilutive and therefore, was not considered in the computation of diluted
earnings per share for November 30, 1997 and August 31, 1998. As required by
this Statement, all periods presented have been restated to comply with the
provisions of SFAS No. 128.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and
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distributions to owners. Among other disclosures, SFAS No. 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
does not anticipate that SFAS Nos. 130 will have a material effect on the
company's financial position, results of operations or financial statement
disclosures.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
No. 131") which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 establishes standards for the way public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments
as components of a company about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The company
does not anticipate that SFAS No. 131 will have a material effect on the
company's financial position, results of operations or financial statement
disclosures.
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BUSINESS
News Communications is a Nevada corporation formed in 1986. It has been
primarily engaged, through various wholly-owned and partly-owned subsidiaries,
in the publication and distribution of advertiser supported, community oriented
newspapers and related targeted audience publications. The community newspapers
are directed at specific geographic communities and, for the most part, are
distributed free of charge to selected residences and business establishments in
those communities. Each publication focuses on the lifestyle, culture, arts,
entertainment, politics and social issues of particular interest to the group of
communities at which it is directed. Some of the papers publish different
editions (with variations in editorial content and advertising) which are
distributed to each community in the targeted group. The principal source of
the company's revenues (92% for the fiscal year ended November 30, 1997, 89% for
the fiscal year ended November 30, 1996 and 92% for the nine months ended August
31, 1998) is the sale of advertising space in its publications.
As used herein, unless the context requires otherwise, the term "company"
refers to News Communications, Inc. together with its subsidiaries:
<TABLE>
<CAPTION>
Publisher Publication
--------- -----------
<S> <C>
Access Network Corp. ("Access")........MANHATTAN SPIRIT (formerly called the West
Side Spirit)
Tribco Incorporated ("Tribco")..........THE QUEENS TRIBUNE published in nine editions
including THE WESTERN QUEENS TRIBUNE and
BAYSIDE TRIB AT HOME
Dan's Papers Inc. ("DPI")...............DAN'S PAPERS and MONTAUK PIONEER
Manhattan Publishing Corp...............OUR TOWN
Parkchester Publishing Co. Inc..........BRONX PRESS REVIEW and RIVERDALE REVIEW
(the "Bronx Newspapers")
Nassau Community Newspaper
Group, Inc. ("NCNG")..................LYNBROOK USA, MALVERNE TIMES, ROCKVILLE CENTER
NEWS & OWL, VALLEY STREAM MAILEADER, INDEPENDENT
VOICE OF LONG BEACH, OCEANSIDE & ISLAND PARK,
ROCKVILLE CENTRE-OCEANSIDE BEACON, BALDWIN CITIZEN,
EAST ROCKAWAY OBSERVER, ELMONT LIFE, FRANKLIN
SQUARE LIFE, WEST HEMPSTEAD LIFE and LONG ISLAND
LIFESTYLES
South Shore Publishers, Inc.............SOUTH SHORE RECORD (With NCNG, the "Nassau
Newspapers")
Capital Hill Publishing, Inc.
("Capital Hill")......................THE HILL
Brooklyn Newspaper Publishing, Inc......BROOKLYN SKYLINE
West Side Newspapers Corp...............CHELSEA-CLINTON NEWS and WESTSIDER
</TABLE>
All of the subsidiaries are wholly-owned except DPI, which is 80% owned by the
company.
MANHATTAN SPIRIT
The Manhattan Spirit is a weekly free circulation newspaper founded in 1985
which focuses on the lifestyle, culture, arts, entertainment, politics and
social issues of interest to the West Side and lower Manhattan. Editors and
support staff of Access, together with a variety of contributing free-lance
writers and columnists, write and edit all material for each weekly issue of the
Manhattan Spirit and perform all composition, layout, and typesetting work.
Printing is performed by outside contractors. In addition, the Manhattan Spirit
offers graphics and printing services to its customers.
The Manhattan Spirit has won many awards, including, New York State Bar
Association awards for excellence in journalism. Various national and
international magazines have reprinted articles from the Manhattan Spirit,
including Glamour Magazine and Cosmopolitan International. Editorial content
includes columns by well-known columnists in
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the fields of food and wine, movies and social advice. Other columnists and
writers focus on finance, theater and topics of community interest.
The Manhattan Spirit is published in a 4-color tabloid format. It is
distributed each Thursday and Friday by independent contractors in bulk to
locations throughout Manhattan. The principal places of distribution are
lobbies of luxury apartment buildings, restaurants, banks, supermarkets and
various other business establishments, as well as in sidewalk distribution
boxes.
OUR TOWN
Our Town, is a 27-year-old weekly publication distributed in a single
edition predominantly on the Upper East Side of Manhattan. Our Town was
acquired by the company in May 1991. Almost all of its income derives from
display and classified advertising.
Our Town is published in a 4-color tabloid format. Delivery is made by
independent contractors to apartment house lobbies, banks, supermarkets and
sidewalk distribution boxes.
DAN'S PAPERS
Dan's Papers focuses on the lifestyle, culture, arts, entertainment,
politics and social issues of interest to the resort areas of the South and
North Forks of Eastern Long Island, New York, particularly the wealthy Hamptons
resort area. Its articles and columns include humor, news, celebrity profiles,
reviews of art gallery shows, restaurants, concerts, nightclubs and movies,
social satire, editorial cartoons and local environmental and political issues,
as well as a special section on real estate. Dan's Papers is published in
tabloid format (with a glossy cover for approximately 17 summer and 9 other
issues) on a weekly basis. It is distributed each week to locations on Eastern
Long Island, including art galleries, gift shops, supermarkets, newspaper and
card shops, restaurants and boutiques. There is also weekly distribution in
Manhattan
DPI also publishes the Montauk Pioneer, which has been designated by the
Montauk Village Association as the official newspaper of the community of
Montauk, New York.
QUEENS TRIBUNE
The Queens Tribune, started in 1970, publishes twelve free circulation
editions and one paid-circulation edition weekly community newspapers serving
areas in Queens County in New York City. Included in such editions are three
editions of the Western Queens Tribune, plus the Bayside Trib at Home, which
covers the news, events and lifestyles in the community of Bayside, Queens.
The format of The Queens Tribune is a tabloid with four-color front and
additional pages. Editorial content focuses on local, borough-wide and
occasionally city-wide political and social issues. Features include community
news and activities of the week, crime reports, restaurant reviews and similar
matters of interest to the targeted circulation area. Substantially all of the
articles and columns are written by Tribco's editors and support staff. The
Queens Tribune has won numerous awards for journalistic excellence, including
this year's New York
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Press Association's coveted first place award for community leadership. Delivery
is made by independent contractors to heavy traffic locations, such as banks,
supermarkets, and sidewalk distribution boxes. Printing, graphics, consulting,
distribution, flyer and insert revenue are significant sources of income to The
Queens Tribune operation (D/B/A Multimedia) providing approximately 12% of its
revenues in the fiscal year ended November 30, 1997.
THE BRONX NEWSPAPERS
Parkchester Publishing Co., Inc. is the publisher of the Bronx Press
Review, a 54 year old paper which took on a Bronx-wide identity to fill a vacuum
left by the absorption of the daily Bronx Home News by the New York Post in the
late 1940s. It is a tabloid paper with a 4-color front and back page. The
Bronx Press Review has been designated by the New York City Council as the
official newspaper of Bronx County for the publication of the Concurrent
Resolutions of the Legislature.
In the last quarter of 1993, the company started the Riverdale Review,
which serves the affluent Riverdale section of the Bronx. The Riverdale Review
is a community weekly covering the news, events, people and lifestyles of the
Riverdale community. It is distributed free of charge throughout the affluent
northwest Bronx community which it serves. Approximately 19,000 copies are
distributed door-to-door to private homes, in bulk to the lobbies and mailrooms
of the 175 apartment buildings in the section, and through street distribution
boxes and other bulk distribution to high traffic businesses and religious and
educational institutions.
THE NASSAU NEWSPAPERS
The company's Nassau Community Newspaper Group, Inc. publishes eight Nassau
Newspapers. Each of the Nassau Newspapers serves a community in Nassau County,
New York, a suburban county adjacent to Queens County in New York City. The
oldest of the Nassau Newspapers has been in continuous publication for 89 years.
The group averages over 51 years of continuous weekly publication per paper.
Each of the Nassau Newspapers, other than Elmont Life, Franklin Square Life and
West Hempstead Life, has been designated as the official newspaper of its
community. The company has expanded into six additional Nassau County
communities with a shopper-type publication called the Long Island Market.
In 1995, the company developed a new publication, Long Island Lifestyles,
which serves as a second section to all of its Nassau publications and is also
distributed by itself in heavily trafficked areas. This new publication offers
moderately priced advertising to the central and south Nassau marketplace.
The company introduced Elmont Life and Franklin Square Life in 1996 and
West Hempstead Life in 1997. Also in 1997, the company acquired the South Shore
Record, a 33-year old mailed subscription newspaper serving the affluent "five-
towns" area of Nassau County.
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BROOKLYN SKYLINE
The Brooklyn Skyline is a five year old weekly published in five editions
which are distributed door-to-door in Brooklyn's southern tier. Originally a
tabloid shopper-type publication, the company is in the on-going process of
converting the Brooklyn Skyline to a community newspaper to complement its other
publications. The introduction of "Koch at the Movies," the News Communication
Telephone Poll and the company's citywide political page "NYConfidential" in
addition to local news coverage by Brooklyn reporters distinguish the Brooklyn
Skyline from its major competition, The Marketeer, an established door-to-door
shopper. In addition to its established display sales effort, the company has
introduced a classified advertising section. Additional revenue is also
generated by the occasional sale or distribution of circulars to accompany the
door-to-door distribution of Brooklyn Skyline. It is printed on newsprint with
the use of spot color and is distributed by crews supervised and trained by the
company.
CHELSEA-CLINTON NEWS AND WESTSIDER
The Chelsea-Clinton News and Westsider are the only paid circulation weekly
newspapers on the West Side of Manhattan. The Westsider, a 25-year-old
community newspaper, covers the area from 59th to 125th Streets from Riverside
Drive to Central Park West. The Chelsea-Clinton News, a 56 year-old community
newspaper, covers the area from 14th-59th Streets from 5th Avenue to 11th
Avenue. These two publications rely on revenue from display advertising,
classified advertising, subscriptions, newsstand sales and legal advertising.
THE HILL
In September 1994, the company began the publication of The Hill, a weekly
newspaper devoted to the coverage of the United States Congress. The paper,
which offers comprehensive coverage of every aspect of Congress and life on
Capitol Hill, is distributed free of charge to members of Congress and their
staffs, governmental agencies, law firms, lobbying organizations and others.
The Hill derives the largest portion of its revenue from the sale of display
advertising to companies wishing to influence the decisions of Congress.
Additional revenues come from classified advertising, local retail advertising,
subscriptions and the sale of the paper outside of the Capitol area. The Hill
is operated out of its own offices in Washington, D.C. It is printed on
newsprint in black ink and process four color. It is primarily distributed to
Congressional office buildings and government agencies as well as to select
retail locations, hotels and street boxes. The company also has a five day a
week morning show The Hill Reporter, which is carried in the Washington, D.C.
area pursuant to a Program Services Agreement with radio station WYRE-AM.
THE NEW YORK BLADE NEWS
In a joint venture that began in the summer of 1997, the company joined
with the Washington Blade, a large and respected gay and lesbian weekly
newspaper, to publish The New York Blade News, a weekly, 4-color tabloid
newspaper that debuted in 1997. The paper, which is distributed by independent
contractors to more than 800 locations in the New York metropolitan area that
are frequented by New York's gay and lesbian community, derives its
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revenue from the sales of display and classified advertising and personal
advertisements. The New York Blade News, which is distributed each Friday
throughout Manhattan and areas of Brooklyn, the Bronx, Queens, Staten Island as
well as Long Island and New Jersey, is operated out of its own offices in New
York City but shares production and distribution staff with Our Town, Manhattan
Spirit, Westsider and Chelsea-Clinton News.
PRINTING AND PRODUCTION
The printing of each of the company's publications is presently done by
independent printing shops. The company sends to the printer completely
composed, laid-out, typeset pages for photo-offset reproduction. In each case,
the printer is able to provide all of the necessary materials (i.e., paper, ink,
etc.) for printing, and bills the company for its services and materials used.
The company believes that it obtains its printing services at competitive
prices, and if, for any reason, the arrangements that it has with any of its
printers should terminate, management believes that similarly favorable
arrangements could be had with several other printing shops in or around New
York City.
ADVERTISERS AND READERS; MARKETING ACTIVITIES
Most of the company's publications are weeklies primarily distributed free
of charge to their readers. The Bronx Press Review, nine of the Nassau
Newspapers, Westsider and Chelsea-Clinton News and one edition of The Queens
Tribune are paid circulation publications. The primary source of the company's
revenue is through the sale of advertising space in the publications, although
several of the weekly publications also offer graphics and printing services to
outside service purchasers, including several school publications. The
advertising revenues of each of the company's publications are derived from a
wide variety of businesses and individuals reflecting the varied opportunities,
tastes and demands of the residents of each of the targeted distribution areas.
Currently, at least 85% of the advertising space in the company's publications
which have been in existence at least six months represents multiple insertion
advertising (where an advertising client runs an advertisement in two or more
issues of a publication). This percentage has remained fairly stable for the
company's publications over the last five years. On a year-to-year basis, the
company estimates that, over the last four fiscal years, approximately two-
thirds of its display advertising revenues have been from advertisers who were
advertisers in the prior year. No one advertiser represents more than 5% of the
company's advertising revenues. Classified advertising has been a growing area
of revenues for the weekly publications.
The company employs sales representatives who are paid through incentive-
based compensation packages. The company has commenced supplementing the sales
activities of the individual publications with centralized group sales
activities seeking advertisers for all or a combination of the company's
publications. Management believes such a program is particularly attractive to
advertisers who seek audiences throughout the greater New York metropolitan
area, such as chain store and franchise operations.
COMPETITION
The company competes directly for advertising revenues with newspapers and
magazines which are sold to readers or are distributed free, as well as other
advertising media.
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The company does not significantly compete, however, with other publishers of
newspapers or magazines for paid circulation revenues as most of its
publications are distributed free of charge to its readers.
Those newspapers and magazines competing with the Manhattan Spirit and Our
Town for advertising and targeted at Manhattan or parts thereof include, among
others, The Resident, New York Press, New York Observer and The Village Voice.
In order to compete with the lower advertising rates of smaller publications in
the Manhattan Spirit's market area, the company utilizes a split zone program
whereby advertisers may purchase space in only half of the Manhattan Spirit's
copies at an appropriately reduced rate. During the months from May through
September, Dan's Papers serves the same market as Hampton Magazine, a free
circulation publication. Dan's Papers is aimed at the same market as the East
Hampton Star and the Southampton Press, which are sold to readers and the free
weekly The Independent. The Montauk Pioneer is the only paper that serves
Montauk. The Queens Tribune competes with many publications, including Newsday
and the free circulation publications Queens Chronicle and Queens Courier. The
Bronx Press Review competes against community newspapers such as the Bronx Times
Reporter and the Bronx News.
The Riverdale Review is the only saturation circulation, free distribution
newspaper serving that affluent community. The Riverdale Press, a paid
circulation weekly, has a smaller circulation.
In addition to Newsday, a daily newspaper, the Nassau Newspapers have
several other weekly competitors in the south-west section of the county. These
include the South Shore Tribune, a free circulation newspaper, a group of paid
circulation newspapers published by Richner Publications, and Pennysaver/This
Week and Shoppers Guide, two free circulation shopper publications.
Although there is no competition for subscriptions or legal revenue because
there are no other paid circulation weeklies on the West Side, the Chelsea-
Clinton News and Westsider do compete for display and classified advertising
with other free weeklies on the West Side, including the Manhattan Spirit and
The Resident.
The Brooklyn Skyline is one of a number of free distribution papers in
Brooklyn. The Marketeer, an established door-to-door shopper, is its primary
competitor.
The Hill, which is the largest circulation paper on Capitol Hill, services
the same market as Roll Call, a paid circulation that delivers twice weekly and
has been in publication nearly 50 years.
There are numerous other publications distributed in the company's
circulation areas, some of which have resources substantially greater than those
of the company, which compete for advertising against the company's
publications. Management of the company believes the company's publications are
competitive because the company can offer customers the ability to focus its
advertisements on a specific market, thereby giving the customer a chance to
control costs by narrowing its advertising scope. Management believes that,
over the years of
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publication, the company's newspapers have developed a favorable reputation and
following. The company also believes it can compete favorably by offering
advertisers the opportunity to choose from a menu of the company's publications,
by offering advertisers more favorable rates as the number of publications
increases and by affording advertisers the ability to pinpoint a specific group
or geographic area or combination thereof. The major barrier to the entry of new
competitive publications is the need for sufficient capital to start up and
continue operations until a sufficient advertising base is created.
EMPLOYEES
As of November 1, 1998, the company had 242 full-time and 43 part-time
employees, of whom 53 were editorial; 88 were engaged as display and classified
advertising sales personnel; 78 were engaged in production; and 66 were engaged
in administrative and clerical activities. The company also maintains a roster
of free-lance contractors. Management considers its relations with the
company's employees to be satisfactory. None of its employees are represented
by a union.
SEASONALITY
Dan's Papers and the Montauk Pioneer, which are resort area newspapers,
have significant seasonal variations in revenues. This seasonality may cause
operating results to vary significantly from quarter to quarter, with the third
fiscal quarter being the most significant in terms of revenues and income. The
Hill's revenues also vary throughout the year depending on whether or not
Congress is in session.
PROPERTIES
The company and its subsidiaries operate out of seven separate locations.
The Manhattan Spirit, Our Town, Chelsea-Clinton News and the Westsider share
7,000 square foot premises at 242 West 30th Street, New York, New York, under a
lease which commenced in 1995 and terminates in January 2001, at an annual
rental of $52,000 for the first year, increasing over the term to $75,380 in the
last year.
DPI leases 1,910 square feet of office space in a building on Montauk
Highway, Bridgehampton, New York, at an annual rate of $38,200 (plus cost-of-
living increases) for a term of ten years terminating in October 2008. Pursuant
to the lease, the company has agreed to an increased rental amount if the owner
expands the building. The company has an option to renew its lease for an
additional five-year term and commencing November 2008. See "Certain
Transactions" for information regarding DPI's lease of this space from Mr.
Daniel Rattiner, DPI's President, Publisher, Editor and director.
Tribco has a ten year lease, which commenced on November 1, 1990, to rent
approximately 8,000 square feet of office space and space for publication of the
Queens Tribune in Fresh Meadows, New York, for annual base rents ranging from
$88,000 to $128,000. The lease is renewable for five years at a $152,000 base
annual rent. These premises also serve as the company's executive and financial
offices.
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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
feet of office space at 2102 Utica Avenue, Brooklyn, New York, commencing
February 1998, at an annual rental of $38,400, increasing over the term to
$46,675 in the last year.
The company believes that its present space is adequate for current
purposes and offers moderate expansion possibilities.
LEGAL PROCEEDINGS
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.
------------------------------------------------------
and Media Venture Group, Inc. et al. was instituted in September 1996 in the
- ------------------------------------
United States District Court for the District of Columbia in which the
plaintiff, a former salesperson for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million plus back pay, front pay and
other relief. The case was tried to a jury and resulted in an adverse
determination of liability to the company and the other defendants in the amount
of $100,000, plus fees and costs resulting in approximately $150,000.
The company intends to pay this amount.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The company's directors, executive officers and other significant employees
and their ages and positions are as follows:
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<TABLE>
<CAPTION>
Name of Individual Age Position with company and Subsidiaries
- ------------------ --- --------------------------------------
<S> <C> <C>
Jerry Finkelstein (3) 82 Chairman of the Board and Director of the company
Wilbur L. Ross, Jr. (3) 60 Director and Chief Executive Officer of the company
Michael Schenkler (3) 52 Director and President of the company and director
and officer of subsidiaries
Gary Ackerman 55 Director of the company
Carl Bernstein 53 Director of the company
John Catsimatidis (1) 49 Director of the company
Mark Dickstein 39 Director of the company
Andrew J. Maloney 66 Director of the company
Robert E. Nederlander (2) 64 Director of the company
Andrew J. Stein 52 Director of the company
Sy Syms 71 Director of the company
Arthur Tarlow (1)(2) 68 Director of the company
Hillel Weinberger 44 Director of the company
Thomas Allon 34 Executive Vice President of the company
Robert Berkowitz 49 Chief Financial Officer and Controller of the
company
Daniel Rattiner 58 President, Publisher, Editor and Director of Dan's Papers Inc.
Marty Tolchin 70 President, Publisher, and Editor of The Hill.
</TABLE>
________________
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Executive Committee
JERRY FINKELSTEIN has been a director of News Communications since December
1987 and became Chairman of the Board in August 1993. He served as publisher of
The New York Law Journal from 1960 to 1984. Mr. Finkelstein was Chairman of the
Board of Struthers Wells Corporation for more than five years prior to November
1993, when he resigned. Struthers Wells Corporation filed for protection under
Chapter XI of the United States Bankruptcy Code in February 1994. Mr.
Finkelstein is a former member of the Board of Directors of Rockefeller Center,
Inc., Chicago Milwaukee Corporation, Chicago Milwaukee Railroad Corporation and
TPI Enterprise, Inc. (formerly Telecom Plus International Inc.), a
communications company. He is also a former Commissioner of the Port Authority
of New York and New Jersey.
WILBUR L. ROSS, JR. was elected a director of News Communications in
October 1996. Since 1988, Mr. Ross has been Senior Managing Director of
Rothschild Inc. Mr. Ross is also a director of Mego Financial Corp., a premier
developer of timeshare properties, and Syms Corp., a clothing retailer.
MICHAEL SCHENKLER has been a director of News Communications since March
1990, and has served as President since December 1991. He has been President of
The Queens Tribune since 1979 and is its publisher. Prior to taking over the
Queens Tribune in 1982, Mr. Schenkler spent 15 years as an educator employed by
the Board of Education of New York City, where he served as a teacher, assistant
principal and principal. Mr. Schenkler is
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President of all of News Communications' subsidiaries other than DPI and NCNG,
of which he is Vice President.
GARY ACKERMAN has been a director of the company since March 1990. He has
served in the United States House of Representatives as a Representative from
New York since March 1983. From 1979 until 1983, Mr. Ackerman was a member of
the New York State Senate. From 1970 to 1979, Mr. Ackerman was the founder,
editor and publisher of The Queens Tribune.
CARL BERNSTEIN has been a director of the company since October 1996. Mr.
Bernstein is a noted author and journalist. He has been a Contributing Editor
to Time Magazine and is presently a Contributing Editor to Vanity Fair. Mr.
Bernstein was the co-author, with Robert Woodward, of "All the President's Men"
and "The Final Days." His most recent publications are "Loyalties: A Son's
Memoir," published by Simon & Schuster, and, as co-author, "His Holiness: Pope
John Paul II and The Hidden History of Our Times," published by Doubleday.
JOHN CATSIMATIDIS has been a director of the company since December, 1991.
Mr. Catsimatidis is the Chairman of Red Apple Group, Inc., a holding company for
supermarket chains in New York. Since July 1988, Mr. Catsimatidis has served as
Chairman of the Board and director of Sloan's Supermarkets, Inc., an American
Stock Exchange listed company, which owns and operates supermarkets. Mr.
Catsimatidis is also currently the Chairman of the Board, Chief Executive
Officer and director of United Refining Company, a refiner and retailer of
petroleum products.
MARK DICKSTEIN has been a director of the company since October 1996.
Since 1986, Mr. Dickstein has been President of Dickstein Partners Inc., a
private investment firm. He is also a director of Hill Stores Company, a
leading retailing organization, Leslie Fay Company, Inc., a women's apparel
manufacturer and Marvel Enterprises Inc., an entertainment-based marketing and
licensing company.
ANDREW J. MALONEY has been a director of the company since September 1993.
He is a partner at the New York law firm of Kramer, Levin, Naftalis & Frankel
LLP. From 1986 until December 1992, Mr. Maloney was United States Attorney for
the Eastern District of New York. Mr. Maloney is a graduate of the United States
Military Academy at West Point and Fordham University School of Law.
ROBERT E. NEDERLANDER has been a director of the company since October
1996. Since 1981, he has been President of Nederlander Organization, Inc., the
owner and/or operator of one of the world's largest chains of legitimate
theaters. Mr. Nederlander is also a director of Riddell Sports, Inc., Mego
Financial Corp., Allis Chalmers Corp., and Cendant Corp.
ANDREW J. STEIN has been a director of the company since July 1994. He is
President of Benake Corporation, a management consulting firm. Prior to
assuming such position in 1993, Mr. Stein was actively involved in public
affairs. From 1986 to 1993, he was President of the Council, New York City.
From 1978 to 1985, he was President of the Borough of Manhattan and from 1969 to
1977, he was a member of the New York State Assembly. He
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was also Chairman of the New York City Commission on Public Information and
Communication, and has been a Trustee of the New York City Employees Retirement
System and an ex officio member of The Museum of The City of New York, The New
York Public Library, The Metropolitan Museum of Art and The Queens Borough
Public Library. Mr. Stein is a son of Mr. Finkelstein.
SY SYMS has been a director of the company since October 1996. He is
Chairman and Chief Executive Officer of Syms Corp., a clothing retailer, a
position he has held since 1983. Mr. Syms is also a director of Israel Discount
Bank of New York.
ARTHUR TARLOW has been a director of the company since August 1993. He is
an attorney currently of counsel to Meyer, Suozzi, English & Klein, P.C. of
Mineola, New York, where he has been practicing for more than 10 years as a
specialist in taxation, estates and trusts. He is also a Certified Public
Accountant and was a partner in the accounting firm of David Tarlow & company
for more than 25 years until August 1995. He is currently a partner in the
accounting firm of Tarlow & Tarlow. He is a member of the New York State Bar
Association, admitted to practice before the U.S. Tax Court, and a member of the
New York State Society of CPAs and the American Institute of Certified Public
Accountants.
HILLEL WEINBERGER has been a director of the company since October 1996.
Since 1988, he has been Senior Vice President and Senior Portfolio Manager of
Loews/CNA Holdings, a diversified holding company. He is also a director of
Applause, Inc., a leading producer of licensed gift items.
THOMAS ALLON has been Executive Vice President of the company since
November 1994. He has been Publisher of the Manhattan Spirit and Our Town since
1992. From 1990 to 1991 he was Managing/Associate Publisher of the Manhattan
Spirit.
ROBERT BERKOWITZ has served as Controller of the company since December
1992. From November 1991 to November 1992, Mr. Berkowitz was a financial and
management consultant with Gobstein, Weingarten & Goldfarb, a certified public
accounting firm. From August 1989 to November 1991 he was the Chief Accounting
Officer for Meringoff Equities, an owner and manager of commercial real estate.
From August 1980 to August 1989 he was Vice-President and Controller of the
Trump Group, a private investment company specializing in the acquisition and
operation of both public and private companies. From 1977 to 1980, he was with
the public accounting firm of Price Waterhouse.
DANIEL RATTINER is Publisher and Editor of Dan's Papers, having held these
positions since he founded the publication in 1960. He has also been President
and a director of DPI since its organization in October 1988.
MARTY TOLCHIN is publisher and editor-in-chief of The Hill. This capped a
40-year career at the New York Times, including two decades in the Washington
Bureau. With his wife Susan he is the co-author of five books, including "To
the Victor: Political Patronage from the Clubhouse to the White House," which
was cited in three decisions of the U.S. Supreme
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<PAGE>
Court. Their last two books have been on international trade. Mr. Tolchin has
been with The Hill since its inception in September 1994.
The directors serve until the next annual meeting of stockholders and until
their respective successors are elected and qualified. Officers serve at the
discretion of the Board of Directors.
Pursuant to the agreement regarding the sale of the $10 convertible
preferred stock, the company's Board of Directors was increased to 16 members,
of whom the holders of the $10 convertible preferred stock are entitled to
nominate and elect 8 members. Messrs. Bernstein, Dickstein, Nederlander, Ross,
Syms and Weinberger are the Board designees of the holders of the $10
convertible preferred stock. There are presently three vacancies on the board
of directors due to the death of Sydney Gruson on March 1, 1998, the death of
another former director, Eric Breindel, on February 28, 1998 and the resignation
of John H. McConnaughy, Jr. effective April 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has three committees: (a) Executive Committee; (b)
Audit Committee; and (c) Compensation Committee.
The Executive Committee is comprised of Messrs. Ross, Finkelstein and
Schenkler. Mr. Ross serves as Chairman of the Executive Committee.
The Audit Committee is comprised of Messrs. Nederlander and Tarlow. The
Audit Committee recommends the independent accountants appointed by the Board to
audit the financial statements of the company, which includes an inspection of
the books and accounts of the company, and reviews with such accountants the
scope of their audit and their report thereon, including any questions and
recommendations that may arise relating to such audit and report or the
company's internal accounting and auditing system procedures. The composition of
the Audit Committee complies with the independent director requirements of
Nasdaq.
The Compensation Committee is comprised of Messrs. Catsimatidis and Tarlow.
The function of the Compensation Committee is to review and approve the
compensation of executive officers and establish targets and incentive awards
under incentive compensation plans of the company. The Compensation Committee
reports to the Board.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1997, 1996 and 1995 concerning compensation of (a) all
individuals serving as the company's executive officers during the fiscal year
ended November 30, 1997; and (b) each other executive officer or key employee of
the company whose total annual salary and bonus exceeded $100,000 in fiscal
1997:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual Long-Term
Annual Compensation Compensation Compensation Awards
--------------------------------------------------------------------------------------
Salary Bonus Options
Name and Principal Position Year ($) ($) ($) (#)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jerry Finkelstein, Chairman of the Board 1997 195,000 --- --- ---
of the company 1996 195,000 --- --- 3,334
1995 195,000 --- --- 120,000
Wilbur L. Ross, Jr., Chief Executive 1997 $ 1 --- --- ---
Officer 1996 $ 1 --- --- 66,667
Michael Schenkler, President of the 1997 158,197 --- --- ---
company and officer of subsidiaries 1996 154,621 30,000 --- 3,334
1995 150,000 --- --- 3,334
Thomas Allon, Executive Vice President 1997 84,141 45,000 --- ---
of the company 1996 82,341 45,000 --- ---
1995 80,885 45,000 --- ---
Daniel Rattiner, Publisher, Editor and 1997 133,770 81,000 --- ---
President of Dan's Papers, Inc. 1996 130,869 110,235 15,000 (1) ---
1995 127,813 61,169 15,000 (1) ---
</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 became entitled to a new leased or
purchased automobile every two years, having a value not in excess of
$40,000, and a new leased portable computer every two years, having a value
not in excess of $4,000.
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<PAGE>
AGGREGATE YEAR-END OPTION VALUES
(NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end (#) options at fiscal year-end ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ----- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Wilbur L. Ross 66,667 0
Michael Schenkler 47,500 --- 417 ---
Jerry Finkelstein 232,500 --- 417 ---
Daniel Rattiner 11,667 --- 0 ---
</TABLE>
EMPLOYMENT AGREEMENTS
Pursuant to an amended and restated employment agreement entered into by
the company and Jerry Finkelstein as of August 20, 1993, and terminating on
August 19, 2003, Mr. Finkelstein is employed as Chairman of the Board of
Directors of the company at an annual salary of $195,000. Mr. Finkelstein may
also be paid annual bonuses at the discretion of the Board, based upon such
factors as the company's results of operations and transactions involving the
company which are introduced to the company by Mr. Finkelstein or in which he is
otherwise involved on behalf of the company. The company also provides Mr.
Finkelstein with medical and other benefits and perquisites. Mr. Finkelstein
may terminate the agreement at any time on at least 10 days' notice to the
company. In the event of his permanent disability or death, salary and bonuses
shall continue to be paid to him or the legal representative of his estate until
the end of the term of the agreement.
Pursuant to an employment agreement entered into by the company and Michael
Schenkler as of October 15, 1994, and terminating October 14, 1999, Mr.
Schenkler is employed as President of the company and President of Tribco. The
employment agreement provides for a minimum base salary of $150,000 per year
(subject to cost-of-living increases) and such annual bonuses as the Board of
Directors of the company may determine in its sole discretion. The agreement
requires Mr. Schenkler to protect confidential information of the company and
restricts him from engaging in certain competitive activities during the term of
his employment and for one year thereafter.
Pursuant to an employment agreement between DPI and Daniel Rattiner
terminating in 2007, Mr. Rattiner earns a base salary from DPI of $133,770 per
year, adjusted for increases in the consumer price index after 1997, plus a
bonus in each fiscal year based on net profits (as defined) of DPI and fringe
benefits totaling approximately $37,000 annually. Mr. Rattiner may terminate
his employment at any time. Mr. Rattiner has pledged to keep secret DPI's
confidential matters and, in the event he leaves the employ of DPI, not to
compete with DPI for specific periods of time, depending on the reasons for his
separation.
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<PAGE>
The company has no established compensation arrangements with its
directors. See "Directors' and Officers' Options" for a discussion of the
company's Directors and Officers Stock Option Plan and options granted to
certain directors and officers.
DIRECTORS' AND OFFICERS' OPTIONS
On August 17, 1993, the Board adopted a Discretionary Directors and
Officers Stock Option Plan pursuant to which, as amended, the Board may award
options to purchase an aggregate of 500,000 shares of common stock to directors
and officers of the company and its subsidiaries which shall be exercisable at
the market price on the date of grant for periods, and under conditions,
specified by the Board in such grants. Options under the Discretionary Option
Plan are non-qualified and non-incentive options for purposes of income taxation
and are not intended to qualify under Section 422A of the Internal Revenue Code
of 1986. No grants were made under the Discretionary Option Plan during the
fiscal year ended November 30, 1997.
On August 17, 1993, the Board also adopted a Non-Discretionary Directors
Stock Option Plan pursuant to which each director was granted on August 17, 1993
and is granted each anniversary thereof on which he or she continues to be a
director, a five-year option to purchase 3,333 shares of common stock at the
market price on the date of grant. The Non-Discretionary Option Plan also
provides that any person becoming a director within the six months after any
August 17, 1998 will be granted an option for 3,333 shares on the date he or she
becomes a director. Pursuant to the Non-Discretionary Option Plan, each person
who was a director of the company (other than Mr. Ackerman) on August 17, 1996
received a grant of an option to purchase 3,333 shares of common stock
exercisable at $4.875 per share and each person who became a director on October
28, 1996 received a grant of an option to purchase 1,666.67 shares of common
stock exercisable at $6.75 per share. The latter grants completed the grants
that may be made under the Non-Discretionary Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company has the option, in certain circumstances, to acquire Mr.
Rattiner's shares in DPI. In addition, Mr. Rattiner can require the company to
purchase his 20% interest in DPI at any time for a price equal to 20% of DPI's
retained earnings (if any) plus the greater of $200,000 or 20% of DPI's gross
collected revenues (after deduction of advertising agency commissions) for the
full fiscal year prior to the year in which notice is given.
DPI leases from Mr. Rattiner 1,910 square feet of office space at an annual
rate of $38,200 (plus cost-of-living adjustments) in a building on Montauk
Highway, Bridgehampton, New York, for a term of ten years terminating in October
2008. Pursuant to the lease, the company has agreed to an increased rental
amount if Mr. Rattiner expands the building. DPI has the option to renew the
lease for one additional 5 year term.
Rothschild Inc., of which Wilbur L. Ross, Jr. is Senior Managing Director
and Sydney Gruson, a deceased former director of the company, was Senior
Advisor, furnished investment banking services to the company in connection with
the issuance and sale of the company's $10
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<PAGE>
convertible preferred stock and associated warrants. In consideration for such
services, the company issued Rothschild Inc. 16,668 shares of common stock,
valued at $6.00 per share.
On November 5, 1997, DPI and the company entered into the Rothschild
Recovery Fund Loan Agreement with Rothschild Recovery Fund L.P. pursuant to
which DPI borrowed $1,500,000 from Rothschild Recovery Fund pursuant to a
promissory note bearing interest payable monthly at the rate of 9.75% per annum
and with a maturity date of December 31, 1998. The maturity date of the loan
has been extended to January 31, 2000. The note is secured by a lien on all of
DPI's assets and is guaranteed by the company. In addition, in connection with
the execution of the Rothschild Recovery Fund Loan Agreement, the company issued
to Rothschild Recovery Fund a five-year warrant to purchase 100,000 shares of
common stock of the company at an initial exercise price of $6.75 per share,
subject to adjustment. Wilbur L. Ross, Jr. is Chairman of Rothschild Recovery
Fund.
In May 1996, the company, Tribco and Access obtained a $1,000,000 loan from
D. H. Blair Investment Banking Corp., a principal stockholder of the company.
The loan is repayable on June 21, 1999 and bears interest at the rate of 8.5%
per annum payable quarterly. The loan is secured by a security interest granted
by the borrowers to D.H. Blair Investment Banking Corp. on all of their personal
property and fixtures and by a pledge made by the company to D.H. Blair
Investment Banking Corp. of all of the outstanding common stock of Tribco and
Access. As additional consideration for the loan, the company issued D.H. Blair
Investment Banking Corp. a five-year warrant to purchase 66,667 shares of common
stock at an initial exercise price of $7.50 per share, subject to adjustment.
Effective May 17, 1996, the company entered into an agreement with D.H.
Blair Investment Banking Corp. pursuant to which D.H. Blair Investment Banking
Corp. was engaged as a non-exclusive financial advisor and investment banker to
the company. As an inducement to D.H. Blair Investment Banking Corp.'s
providing such services, the company issued D.H. Blair Investment Banking Corp.
a five-year warrant to purchase 133,000 shares of common stock at an initial
exercise price of $7.50 per share, subject to adjustment.
Gristede's and Red Apple Markets, supermarket chains that are owned by Red
Apple Group, Inc., of which Mr. Catsimatidis is Chairman, and Sloan's
Supermarkets, Inc., of which Mr. Catsimatidis is Chairman, advertise in various
of the company's publications and also utilize various of the company's printing
services. Such advertising and printing services are charged at the company's
standard rates and totaled approximately $25,300 during the fiscal year ended
November 30, 1997.
The transactions described above are on terms as favorable to the company
as those that could have been obtained from independent third parties and arms-
length negotiations.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
News Communications' common stock, as of January 4, 1999, and as adjusted to
reflect the sale of the shares offered hereby by each person known to the
company to own beneficially more than 5% of the outstanding common stock, by
each person who is a director of the company, by each person listed in the
Summary Compensation Table and by all directors and officers of the company as a
group.
The information contained in the table was furnished by the persons listed
therein. The calculations of the percent of shares beneficially owned before
the offering are based on 2,786,125 shares of common stock outstanding on
January 4, 1999. The calculations of the percent of shares beneficially owned
after the offering and after the offering if all shares offered are purchased by
Messrs. Davis, Ross and Weiss are based on 6,569,125 shares of common stock
anticipated to be outstanding after the offering.
<TABLE>
<CAPTION>
Percent of Shares Beneficially Owned
-----------------------------------------------------
After Offering if
all Shares Offered
are Purchased by
Number of Shares Before After Messrs. Davis,
Name and Address Beneficially Owned Offering Offering Ross and Weiss
- ---------------- ------------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Gary Ackerman 128,881 (1) 4.6% 2.6% 1.9%
218-14 Northern Boulevard
Bayside, NY 11432
Thomas Allon 61,666 (2) 2.2% 1.1% *
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Carl Bernstein 1,667 (2) * * *
35 East 84th Street
New York, NY 10028
John Catsimatidis 18,333 (2) * * *
823 11th Avenue
New York, NY 10019
Mark Dickstein 61,666 (2)(3) 2.2% 1.1% *
120 East End Avenue
New York, NY 10028
Jerry Finkelstein 496,501 (2)(4) 16.4% 8.6% 7.3%
150 East 58th Street
33rd Floor
New York, NY 10158
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percent of Shares Beneficially Owned
After Offering if all
Shares Offered are
Number of Shares Before After Purchased by Messrs.
Name and Address Beneficially Owned Offering Offering Davis, Ross and Weiss
<S> <C> <C> <C> <C>
Andrew J. Maloney 17,667 (2) * * *
1 World Trade Center
New York, NY 10001
Robert E. Nederlander 39,333 (2)(3) 1.4% * *
810 7th Avenue, 21st Fl.
New York, NY 10019
New York, NY 10022
Daniel Rattiner 56,103 (2)(5) 2.0% 1.1% *
26 Three Mile Harbor
Hog Creek Road
East Hampton, NY 11932
Wilbur L. Ross, Jr. 190,000 (2)(3)(6) 6.4% 3.2% 11.4%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 151,756 (2)(7) 5.3% 2.8% 2.3%
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Andrew J. Stein 60,000 (2) 2.1% 1.0% *
625 Madison Avenue
New York, NY 10022
Sy Syms 61,667 (2)(3) 2.2% 1.1% *
Syms Way
Secaucus, NJ 07094
Arthur Tarlow 26,572 (2) * * *
1505 Kellum Place
Mineola, NY 11501
Hillel Weinberger 73,667 (2)(3) 2.6% 1.3% 1.1%
667 Madison Avenue
New York, NY 10021
Melvyn I. Weiss 178,133 6.4% 3.6% 23.1%
One Pennsylvania Plaza
New York, NY 10119
J. Morton Davis 890,743 (8) 29.7% 16.5% 41.4%
D.H. Blair Holdings, Inc.
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
All Directors and Executive Officers 1,389,376 (2)(9) 40.7% 22.8% 27.3%
as a Group (15 persons)
</TABLE>
- ----------------
* Less than one percent.
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<PAGE>
(1) Includes 1,778 shares owned by Mr. Ackerman's children for whom Mr.
Ackerman is custodian.
(2) Includes the following numbers of shares purchasable upon the exercise
of presently exercisable options and warrants: Mr. Bernstein--1,667;
Mr. Allon-- 20,555; Mr. Catsimatidis--18,333; Mr. Dickstein--28,333;
Mr. Finkelstein--232,500; Mr. Maloney--17,667; Mr. Nederlander--
15,000; Mr. Rattiner--11,667; Mr. Ross--121,667; Mr. Schenkler--
47,500; Mr. Stein--43,333; Mr. Syms--28,333; Mr. Tarlow--22,500; Mr.
Weinberger--33,667.
(3) Includes the following numbers of shares issuable upon conversion of
shares of $10 convertible preferred stock: Mr. Dickstein--33,333; Mr.
Nederlander--16,667; Mr. Ross--66,667; Mr. Syms--33,333; Mr.
Weinberger--40,000.
(4) Includes (a) 9,945 shares owned by The Jerry Finkelstein Foundation,
Inc., of which Mr. Finkelstein is President, and (b) 66,667 shares
owned by Mr. Finkelstein's wife.
(5) Includes (a) 167 shares owned by Mr. Rattiner's wife and (b) 600
shares issuable upon conversion of the company's 10% preferred stock.
(6) Does not include (a) 16,667 shares owned by Rothschild Inc. and (b)
16,667 shares issuable upon conversion of shares of $10 convertible
preferred stock owned by Rothschild North America Inc. ("RNA"), (c)
13,333 shares issuable upon exercise of warrants owned by RNA, and (d)
100,000 shares issuable upon exercise of warrants owned by the
Rothschild Recovery Fund L.P. Mr. Ross disclaims beneficial ownership
of all of such shares.
(7) Includes (a) 3,000 shares that are issuable upon conversion of the
company's 10% preferred stock; and (b) 13,678 owned by Mr. Schenkler's
wife as custodian for two minor children of which Mr. Schenkler
disclaims beneficial ownership.
(8) Includes (a) 622,538 shares of common stock and warrants to purchase
207,867 shares owned by D.H. Blair Investment Banking Corp., of which
J. Morton Davis is a director and the sole stockholder, (b) 20,638
shares owned by Rivkalex Corporation ("Rivkalex"), a private
corporation owned by Rosalind Davidowitz, Mr. Davis's wife, (c) 29,867
shares of common stock owned by Rosalind Davidowitz and (d) 9,833
shares of common stock issuable upon exercise of 1,967 shares of $10
convertible preferred stock. Mr. Davis and D.H. Blair Investment
Banking Corp. expressly disclaim beneficial ownership of all
securities held by Rivkalex and Rosalind Davidowitz.
(9) Includes shares issuable upon exercise of the options referenced in
(2) above, conversion of the $10 convertible preferred stock
referenced in (3) above, as well as 7,500 shares issuable to Mr.
Robert Berkowitz, Chief Financial Officer and Controller of the
company, upon exercise of presently exercisable stock options.
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<PAGE>
DESCRIPTION OF SECURITIES
News Communications is presently authorized to issue 100,000,000 shares of
common stock and 500,000 shares of preferred stock.
COMMON STOCK
The holders of shares of common stock have equal, ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board, and are entitled to share ratably in all of the assets of the company
available for distribution to holders of common stock upon the liquidation,
dissolution or winding up of the affairs of the company.
Holders of common stock do not have preemptive, subscription or conversion
rights to purchase or subscribe to securities of the company. Holders of common
stock are entitled to one vote per share on all matters which stockholders are
entitled to vote upon at all meetings of stockholders. There is no cumulative
voting. Thus, the holders of more than 50% of the shares voting for election of
directors can elect all the members of the Board of Directors who are elected by
the holders of common stock and can decide any question brought before the
stockholders requiring approval by a simple majority of the holders of common
stock. In such event, the holders of the remaining shares of common stock will
not be able to elect any directors or carry out any other matter brought before
the stockholders.
RIGHTS DESCRIPTION
For information about the rights and the offering process, reference should
be made to "The Offering."
PREFERRED STOCK
The Articles of Incorporation of News Communications authorize the issuance
of 500,000 shares of preferred stock. The Board of Directors is authorized to
issue shares of preferred stock from time to time in one or more series and,
subject to the limitations contained in the Articles of Incorporation and any
limitations prescribed by law, to establish and designate any such series and to
fix the number of shares and the relative rights, conversion rights, voting
rights and terms of redemption (including sinking fund provisions) and
liquidation preferences. Issuance of preferred stock, could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the company and may adversely affect the rights of holders of common stock such
as by placing restrictions upon payments of dividends to holders of common stock
or by diluting the voting power of such holders. The company has no present
plans to issue any additional shares of preferred stock other than the four
series of convertible preferred stock presently authorized. Reference is made
to the resolutions of the Board of Directors fixing the terms of the convertible
preferred stock, copies of which have been filed as exhibits to the prior
Registration Statements of the company.
8%, 10% AND 12% CONVERTIBLE PREFERRED STOCK. The Board of Directors has
authorized four series of preferred stock: 10% convertible preferred stock
("10% preferred stock"), of which 26 shares remain outstanding; 8% convertible
preferred stock ("8% preferred stock"), of which 114 shares are outstanding; 12%
convertible preferred stock ("12% preferred stock"), of which 200 shares are
outstanding; and the $10 convertible preferred stock discussed below. For
purposes of paying interest and liquidation preference, the shares of 10%
preferred stock have a stated value of $5,000 per share, the shares of 8%
preferred stock and 12% preferred stock have stated values of $1,000 per share.
At the option of the company, interest on the 10% preferred stock may be paid in
an equivalent value of shares of common stock. Presently, the 10% preferred
stock, 8% preferred stock and 12% preferred stock are convertible into shares of
common stock at the rates of 6,000 shares of common stock per share of 10%
preferred stock, 158.73 shares of common stock per share of 8% preferred stock
and 158.73
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<PAGE>
shares of common stock per share of 12% preferred stock. In addition, upon
conversion of the 8% preferred stock, the holder is entitled to receive 5-year
warrants to purchase an equivalent number of shares of common stock at an
exercise price equal to the per share conversion price.
$10 CONVERTIBLE PREFERRED STOCK. The company has 220,000 shares of $10
convertible preferred stock outstanding. Dividends on the $10 convertible
preferred stock are payable at a rate equal to five times the amount of
dividends, if any, per share declared and paid by the company on the common
stock. The holders of the $10 convertible preferred stock are entitled to a
liquidation preference of $10 per share.
Except as hereinafter described, each share of $10 convertible preferred
stock is entitled to such number of votes such share would have had if it had
been converted into shares of common stock (presently one and sixth sevenths of
a share) on all matters presented for a vote to holders of common stock. So
long as at least 100,000 shares of $10 convertible preferred stock are
outstanding, the holders of the $10 convertible preferred stock are entitled to
nominate and elect one-half of the Board. Any director elected by the holders
of the $10 convertible preferred stock may only be removed with cause by the
holders of a majority of the $10 convertible preferred stock. During the period
that the preceding provisions regarding election of directors are in effect, the
holders of the $10 convertible preferred stock shall not be entitled to vote for
the election of any other directors.
The vote of all of the holders of the $10 convertible preferred stock is
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of the company's Articles of Incorporation so as
to affect adversely the $10 convertible preferred stock. So long as at least
100,000 shares of $10 convertible preferred stock are outstanding, the vote of a
majority of the holders thereof (or such greater amount as may be required by
law), shall be necessary for authorizing
. the merger or consolidation of the company into or with any other
corporation,
. the sale of all or substantially all of the assets of the company,
or
. the issuance of any other class of stock having parity with the $10
convertible preferred stock.
The shares of $10 convertible preferred stock are convertible at any time
into shares of common stock, initially at the rate of 1.667 shares of common
stock per share of $10 convertible preferred stock, subject to adjustment in the
event of subdivisions or splits of the common stock or recapitalization or
reclassification thereof or upon the sale of common stock at a price less than
the then current conversion price. The holders of the $10 convertible preferred
stock have no preemptive rights. Upon the request of holders of at least 40% of
the outstanding shares of $10 convertible preferred stock made on or prior to
October 27, 2001, the company, is required to register the common stock issuable
upon conversion of $10 convertible preferred stock. During such period, the
holders of the $10 convertible preferred stock also have the right to have such
shares of common stock
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<PAGE>
included in any registration statement filed by the company under that Act,
subject to certain restrictions. These rights have been waived in connection
with the registration statement of which this prospectus is a part.
TRANSFER AND WARRANT AGENT
The company's Transfer Agent is Continental Stock Transfer & Trust company,
2 Broadway, New York, New York 10004.
INDEMNIFICATION AND INDEMNITY
Under the Nevada General Corporation Law, as amended, a director, officer,
employee or agent of a Nevada corporation may be entitled to indemnification by
the corporation under certain circumstances against expenses, judgments, fines
and amounts paid in settlement of claims brought against them by a third person
or by or in right of the corporation.
News Communications is obligated under its Articles of Incorporation to
indemnify any of its present or former directors who served at the company's
request as a director, officer or member of another organization against
expenses, judgments, fines and amounts paid in settlement of claims brought
against them by a third person or by or in right of the corporation if such
director acted in good faith or in a manner such director reasonably believed to
be in, or not opposed to, the best interests of the company and, with respect
to any criminal action or proceeding, if such director had no reason to believe
his or her conduct was unlawful. However with respect to any action by or in
the right of the company, the Articles of Incorporation prohibit indemnification
in respect of any claim, issue or matter as to which such director is adjudged
liable for negligence or misconduct in the performance of his or her duties to
the company, unless otherwise ordered by the relevant court. The company's
Articles of Incorporation also permit it to indemnify other persons except
against gross negligence or willful misconduct.
The company is obligated under its bylaws to indemnify its directors,
officers and other persons who have acted as a representatives of the company at
its request to the fullest extent permitted by applicable law as in effect from
time to time, except for costs, expenses or payments in relation to any matter
as to which such officer, director or representative is finally adjudged
derelict in the performance of his or her duties, unless the company has
received an opinion from independent counsel that such person was not so
derelict.
The Nevada General Corporation Law, as amended, also permits a corporation
to limit the personal liability of its officers and directors for monetary
damages resulting from a breach of their fiduciary duty to the corporation and
its stockholders. The company's Articles of Incorporation limit director
liability to the maximum extent permitted by the Nevada General Corporation Law,
which presently permits limitation of director liability except for a director's
acts or omissions that involve intentional misconduct, fraud or a knowing
violation of law and for a director's willful or grossly negligent violation of
a Nevada statutory provision that imposes personal liability on directors for
improper distributions to stockholders. As a result
-45-
<PAGE>
of the inclusion in the company's Articles of Incorporation of this provision,
the company's stockholders may be unable to recover monetary damages against
directors as a result of their breach of their fiduciary duty to the company and
its stockholders. This provision does not, however, affect the availability of
equitable remedies, such as injunctions or rescission based upon a breach of
fiduciary duty by a director.
The company currently maintains director and officer liability insurance in
the amount of $1,000,000 for the benefit of its officers and directors.
The foregoing indemnification obligations are broad enough to permit
indemnification with respect to liabilities arising under the Securities Act.
Insofar as the company may otherwise be permitted to indemnify its directors,
officers and controlling persons against liabilities arising under the
Securities Act or otherwise, the company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
News Communications currently has 2,735,791 shares of common stock
outstanding. In addition, 447,259 shares of common stock are currently issuable
upon conversion of outstanding shares of preferred stock. Of this amount,
approximately 50,000 shares are "restricted" securities as that term is defined
under Rule 144 promulgated under the Securities Act of 1933. Of the restricted
shares none have been held for at least two years.
Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the company (or
persons whose shares are aggregated), who has owned restricted shares of common
stock beneficially for at least one year, is entitled to sell, within any three
month period, a number of shares that do not exceed the greater of 1% of the
total number of outstanding shares of the same class or the average weekly
trading volume during a specified four-week period preceding the sale. A person
who has not been an affiliate of the company for at least 3 months and who has
beneficially owned shares of common stock for at least two years is entitled to
sell such shares under Rule 144 without regard to such volume limitations.
The company is unable to predict the effect that sales made under Rule 144,
or pursuant to other exemptions under the Securities Act of 1933, may have on
the then prevailing market price of the common stock.
As of the date of this prospectus, without taking into effect the
securities offered hereby, there were immediately exercisable options and
warrants which, upon exercise, would enable their holders to purchase up to
1,132,667 of common stock at prices ranging from $3.75 to $9.38 per share and
exercisable over periods of up to ten years.
-46-
<PAGE>
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon for
the company by Piper & Marbury L.L.P., New York, New York.
EXPERTS
The consolidated balance sheet as of November 30, 1997 and the consolidated
statements of income, stockholders' equity, and cash flows for the years ended
November 30, 1997 and 1996, included in this prospectus have been included
herein in reliance on the report of PricewaterhouseCoopers LLP (formerly Coopers
& Lybrand L.L.P.) independent accountants, given on the authority of that firm
as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Moore Stephens, P.C. (formerly named Mortenson & Associates, P.C.) served
as independent auditors of the company for the fiscal years ended November 30,
1994 and 1995 and until February 3, 1997. On February 3, 1997, Moore Stephens,
P.C. was dismissed by the company because it was determined by the company that
its best interests would be served by retaining PricewaterhouseCoopers LLP The
decision to change auditors was approved by the Audit Committee of the company's
Board of Directors. The report of Mortenson & Associates, P.C. dated March 27,
1996, relating to the financial statements of the company as of November 30,
1995 and for the two years then ended contained a statement regarding
uncertainty about the company's ability to continue as a going concern. During
the company's two most recent fiscal years and the subsequent interim period
preceding such dismissal, there were no disagreements between the company and
Moore Stephens, P.C. on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
We then engaged Coopers & Lybrand LLP as our independent auditors as of
February 3, 1997.
On October 9, 1998, PricewaterhouseCoopers LLP, successors to Coopers &
Lybrand L.L.P., declined to stand for reelection as our independent
accountants.
PricewaterhouseCoopers' reports on our financial statements for the fiscal
years ended November 30, 1997 and 1996 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the audits for the
fiscal years ended November 30, 1997 and 1996 and through October 9, 1998, there
were no disagreements with PricewaterhouseCoopers on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers would have caused them to make reference thereto in their
report on the financial statements for such year. The decision to change
accountants was approved by the Audit Committee of our Board of Directors.
-47-
<PAGE>
In a letter dated June 30, 1997, in connection with the audit of our
financial statements for the year ended November 30, 1996,
PricewaterhouseCoopers reported to management and the Audit Committee of our
Board of Directors that the following reportable conditions existed in our
internal control structure:
1. A need for us to implement formal accounting closing procedures to
ensure annual and quarterly financial statements are prepared in a timely,
accurate and consistent manner, reflecting all significant accruals and
estimates necessary for the results of each annual and interim period to provide
meaningful information with respect to our operations.
2. A need for us to restrict access to accounting records and information
systems to authorized personnel.
We have taken measures to improve our internal control structure in
response to the above recommendations by PricewaterhouseCoopers and, as a
result, believe that our internal control structure is sufficient.
On October 30, 1998, we engaged BDO Seidman LLP as our new independent
accountants to audit our financial statements beginning with the fiscal year
ending November 30, 1998.
We did not consult the BDO Seidman regarding the application of accounting
principles to a specific completed or contemplated transaction or the type of
audit opinion that might be rendered on our financial statements for which
advice was provided that was an important factor considered by us in reaching
our decision as to the accounting, auditing or financial reporting issue.
-48-
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Reports of Independent Accountants ............................. F-2
Consolidated Balance Sheets as of November 30, 1997
and August 31, 1998 (unaudited)............................ F-3
Consolidated Statements of Operations for the years ended
November 30, 1997 and 1996 and for the nine months
ended August 31, 1997 and 1998 (unaudited)................. F-4
Consolidated Statements of Cash Flows for the years ended
November 30, 1996 and 1997 and for the nine months
ended August 31, 1997 and 1998 (unaudited)................. F-5
Consolidated Statements of Stockholder's Equity for the
years ended November 30, 1995, 1996 and 1997 and
for the nine months ended August 31, 1998 (unaudited)...... F-6
Notes to Consolidated Financial Statements...................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
News Communications, Inc.
Fresh Meadows, New York
We have audited the accompanying consolidated balance sheet of News
Communications, Inc. and Subsidiaries as of November 30, 1997, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the years ended November 30, 1997 and 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
News Communications, Inc. and Subsidiaries as of November 30, 1997, and the
consolidated results of their operations and their cash flows for the years
ended November 30, 1996 and 1997, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
New York, New York
May 15, 1998
F-2
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, August 31,
1997 1998
-------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 424,620 $ 199,634
Accounts receivable, less allowances for doubtful accounts of
$849,530 in November 1997 and $1,050,304 in August 1998..........
3,479,269 3,574,031
Due from related parties.......................................... 27,613 38,610
Other............................................................. 176,738 214,468
--------------- ----------------
Total current assets.......................................... 4,108,240 4,026,743
INVESTMENT IN UNCONSOLIDATED ENTITIES 72,242 249,729
PROPERTY AND EQUIPMENT (at Cost), Net............................... 399,364 382,209
OTHER ASSETS:
Goodwill, Net..................................................... 3,481,766 3,271,629
Other, Net........................................................ 81,267 58,106
--------------- ----------------
TOTAL ASSETS........................................................ 8,142,879 7,988,416
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. 626,610 1,091,040
Accrued expenses.................................................. 1,166,573 1,315,855
Accrued payroll and payroll taxes................................. 92,516
Note payable...................................................... 900,000 800,000
Unearned revenue.................................................. 137,652 151,129
Related Party-Short-Term Debt..................................... 985,333 2,478,834
Due to related party.............................................. 150,688 103,438
--------------- ----------------
Total current liabilities..................................... 4,059,372 5,940,296
NET LIABILITIES OF DISCONTINUED OPERATIONS 53,908
RELATED PARTY LONG-TERM DEBT....................................... 1,415,338
COMMITMENTS AND CONTINGENCIES.......................................
MINORITY INTEREST................................................... 281,474 281,474
STOCKHOLDER'S EQUITY:
Preferred Stock, $1.00 Par Value; 500,000
shares authorized; $2,444,000 aggregate
liquidation value................................................ 200,340 220,340
Common Stock, $.01 Par Value; 100,000,000
shares authorized; 2,737,410 and 2,786,124 shares issued
and outstanding as of November 30, 1997 and August 31, 1998
respectively........................................................ 27,374 27,861
PAID-IN-CAPITAL, PREFERRED STOCK.................................... 2,077,025 2,257,025
PAID-IN-CAPITAL, COMMON STOCK....................................... 14,486,653 14,456,167
RETAINED EARNINGS (Accumulated deficit)............................. (14,049,876) (14,816,018)
LESS: TREASURY STOCK (at Cost)..................................... (408,729) (408,729)
--------------- ----------------
Total Stockholder's Equity.................................... 2,332,787 1,766,646
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 8,142,879 $ 7,988,416
=============== ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, 1996 NOVEMBER 30, 1997 AUGUST 31, 1997 AUGUST 31, 1998
----------------- ----------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES..................................... $16,614,501 $17,523,952 $13,051,666 $13,654,111
OPERATING EXPENSES:
Direct Mechanical Costs..................... 6,175,727 5,683,638 4,504,294 4,458,967
Salaries, Benefits and
Outside Labor Costs..................... 8,801,931 8,880,694 6,212,264 6,753,411
Rent, Occupancy & Utilities................. 820,299 842,735 658,144 658,691
Provisions for Doubtful Accounts............ 1,360,057 1,013,904 301,250 332,200
General and Administrative.................. 2,674,163 2,672,444 1,757,274 1,793,030
----------------- ----------------- ------------------ -----------------
Total Operating Expenses.............. 19,123,415 19,802,177 13,433,226 13,996,299
----------------- ----------------- ------------------ -----------------
OPERATING INCOME (LOSS) Before Interest Expense
and Equity in Loss From Unconsolidated
Entities.................................... (3,217,676) (1,599,463) (381,560) (342,188)
INTEREST EXPENSE................................. (177,471) (200,948) (143,101) (240,173)
----------------- ----------------- ------------------ -----------------
INCOME (LOSS) BEFORE
INCOME TAXES................................ (3,395,147) (1,770,411) (524,661) (582,361)
INCOME TAX PROVISION
(BENEFIT)................................... --- --- --- ---
MINORITY INTEREST IN INCOME OF SUBSIDIARY........ (66,440) (167,246) --- ---
----------------- ----------------- ----------------- -----------------
EQUITY IN LOSS FROM UNCONSOLIDATED ENTITIES...... --- (30,000) --- (160,000)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS..... (3,461,587) (1,967,657) (524,661) (742,361)
LOSS FROM DISCONTINUED OPERATIONS................ (419,841) (730,585) (348,168) ---
GAIN (LOSS) ON DISPOSAL.......................... (255,973)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) (3,881,428) (2,954,215) (872,829) (742,361)
================= ================= ================= =================
LOSS PER COMMON SHARE:
Continuing Operations....................... $ (1.30) $ (.73) $ (.20) $ (.27)
Discontinued Operations..................... $ (.16) $ (.36) $ (.13) $ ---
Total Loss per Common Share........... $ (1.46) $ (1.09) $ (.33) $ (.27)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 2,663,999 2,710,918 2,650,885 2,730,379
================= ================= ================= =================
</TABLE>
F-4
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
NOVEMBER 30, NOVEMBER 30, AUGUST 31, AUGUST 31,
1996 1997 1997 1998
---------------- --------------- ---------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss).......................... (3,881,428) (2,954,215) (872,829) (742,361)
Adjustments to reconcile net loss to
net cash (used for) Loss from discontinued
operations................................ 419,841 986,558
Depreciation and Amortization.............. 497,774 447,462 374,470 428,700
Provision for doubtful accounts............ 1,370,224 1,013,904 301,256 332,200
Compensation recognized related to
Warrants issued............................ 128,000 --- --- ---
Amortization of debt discount.............. 17,333 39,138
Minority interest.......................... 66,440 167,246
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable..................... (345,658) (1,227,954) (1,465,061) (426,962)
Other current assets.................... (63,424) (26,614) (7,679) (37,729)
Other assets............................ 2,929 64,471 (28,869) 7,705
Related party receivable................ 105,233 (13,613) 1,109 (10,977)
Increase (decrease) in:.................
Accounts payable and accrued expenses (181,351) 395,509 355,829 265,221
Accrued payroll and payroll taxes....... 83,591 (316,076)
Other current liabilities............... 122,653 15,000 4,222 13,477
Related party payable................... 30,506 91,000 25,017 (47,250)
Total adjustments.......................... 2,254,091 1,636,031 (439,712) 524,365
---------- --------- --------- -------
Net cash operating activities of
Continuing operations...................... (1,627,337) (1,318,184) (1,312,541) (217,996)
---------- --------- --------- -------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Purchase of South Shore Publishers, Inc.... - (421,500)
Capital expenditures....................... (47,626) (102,658) (85,090) (109,289)
Investment in unconsolidated entities...... - (72,242) - (175,986)
---------- --------- --------- -------
Net cash investing activities forward.... (47,626) (596,400) (85,090) (285,275)
---------- --------- --------- -------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS:
Proceeds from preferred stock.............. 2,000,000 - 200,000
Proceeds from exercise of stock options.... 12,500 181,090 131,935
Costs of raising capital................... (18,183) (39,670)
Proceeds from exercise of warrants and
underwriter options....................... 19,500
Principal payments on notes payable........ (24,000) (275,000) (275,000) (100,000)
Dividend on preferred stock................ (41,360) (35,426) (17,620) (23,780)
Proceeds from notes payable................ 1,675,000 1,500,000
---------- --------- --------- -------
Net cash provided by (used) financing
activities of continuing operations.... 3,623,457 1,330,994 (160,685) 76,220
---------- --------- --------- -------
Net cash (used in) provided by
discontinued operations................ (508,081) (486,677) 88,632 202,065
---------- --------- --------- -------
Net increase (decrease) in cash......... 1,440,413 (1,070,267) (1,469,684) (224,986)
Cash - beginning of year.................. 54,474 1,494,887 1,546,704 424,620
Cash - End of year.......................... 1,494,887 424,620 77,020 199,634
========== ========= ========= =======
Supplemental disclosure of cash flow
information:..............................
Cash paid during the year for interest 130,969 189,572 75,674 94,730
</TABLE>
F-5
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
PAID-IN
CAPITAL
PREFERRED PREFERRED PREFERRED COMMON
STOCK STOCK STOCK STOCK
(SHARES) (SHARES)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, November 30, 1995 449 $ 449 $ 519,873 2,652,555
Stock issued in connection with exercise of C warrants --- --- --- 3,250
Stock issued in connection with exercise of options --- --- --- 3,333
Issuance of $10 Convertible Preferred Stock 20,000 200,000 1,800,000 ---
Costs of raising capital --- --- (118,183) 16,667
Warrants issued in connection with long term debt --- --- --- ---
Warrants issued in connection with consulting services --- --- --- ---
Stock issued as preferred dividends --- --- --- 3,541
Dividend on preferred stock --- --- --- ---
Net loss --- --- --- ---
-------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996............................... 20,449 $200,449 $2,201,690 2,679,346
Stock issued in connection with exercise of C warrants.
Stock issued in connection with purchase of Nassau.....
Conversion of 8% Convertible Preferred Stock........... (103) (103) (102,897) 16,349
Warrants issued in connection with long term debt......
Conversion of 10% Convertible Preferred Stock.......... (6) (6) (21,768) 3,600
Stock issued as preferred dividends.................... --- --- --- 2,600
Dividend on preferred stock............................ --- --- --- ---
Net loss............................................... --- --- --- ---
-------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 20,340 $200,340 $2,077,025 2,737,410
===================================================================
Stock issued in connection with purchase of Nassau..... 48,714
Issuance of $10 Convertible Preferred Stock............ 2,000 20,000 180,000
Dividends on preferred stock........................... --- --- --- ---
Net loss............................................... --- --- --- ---
-----------------------------------------------------------------
BALANCE, AUGUST 31, 1998 (UNAUDITED) 22,340 $ 220,340 $2,257,025 2,786,125
==================================================================
<CAPTION>
PAID-IN TOTAL
COMMON CAPITAL STOCK-
STOCK COMMON RETAINED TREASURY HOLDERS'
STOCK DEFICIT STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1995 $26,527 $13,776,505 $ (7,108,447) ($ 408,729) $ 6,806,178
Stock issued in connection with exercise of C warrants 33 19,468 --- --- 19,500
Stock issued in connection with exercise of options 33 12,467 --- --- 12,500
Issuance of $10 Convertible Preferred Stock --- --- --- --- 2,000,000
Costs of raising capital 167 94,833 --- --- (18,183)
Warrants issued in connection with long term debt --- 64,000 --- --- 64,000
Warrants issued in connection with consulting services --- 128,000 --- --- 128,000
Stock issued as preferred dividends 35 15,965 (16,000) --- ---
Dividend on preferred stock --- --- (41,360) --- (41,360)
Net loss --- --- (3,881,428) --- (3,881,428)
------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996............................... $26,794 $14,116,238 ($11,047,235) ($ 408,729) $ 5,089,207
Stock issued in connection with exercise of C warrants. 302 141,119 --- --- 141,421
Stock issued in connection with purchase of Nassau..... 53 (53) --- --- ---
Conversion of 8% Convertible Preferred Stock........... 163 102,837 --- --- ---
Warrants issued in connection with long term debt...... --- 91,800 --- --- 91,800
Conversion of 10% Convertible Preferred Stock.......... 36 21,738 --- --- ---
Stock issued as preferred dividends.................... 26 12,974 (13,000) --- ---
Dividend on preferred stock............................ --- --- (35,426) --- (35,426)
Net loss............................................... --- --- (2,954,215) --- (2,954,215)
------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 $27,374 $14,486,653 $ (14,049,876) ($ 408,729) $ 2,332,787
========================================================================
Stock issued in connection with purchase of Nassau..... 487 (486) (1) --- ---
Issuance of $10 Convertible Preferred Stock............ 200,000
Dividends on preferred stock........................... --- --- (23,780) (23,780)
Net loss............................................... --- --- (742,361) (742,361)
-----------------------------------------------------------------------
BALANCE, AUGUST 31, 1998 (UNAUDITED) $ 27,861 $14,486,167 ($14,816,018) $(408,729) $1,766,646
=======================================================================
</TABLE>
F-6
<PAGE>
NEWS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AT AUGUST 31, 1998
AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS AT NOVEMBER 30, 1997
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:
F-7
<PAGE>
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture, fixtures and office
equipment 5-10
Leasehold improvements Shorter of useful life of asset
or length of lease
</TABLE>
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-8
<PAGE>
3. Property and Equipment and Depreciation and Amortization:
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
November 30, August 31,
1997 1998
----------- ----------
<S> <C> <C>
Leasehold improvements $281,122 $297,815
Computer equipment and software 390,327 464,518
Machinery and equipment 114,637 117,972
Furniture and fixtures and office equipment 125,135 141,393
Distribution boxes 42,634 41,435
Total - at cost 953,845 106,313
Less: Accumulated depreciation and amortization 554,481 680,924
Property and equipment net $399,364 $382,209
-------- --------
</TABLE>
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 is as follows:
<TABLE>
<CAPTION>
Amortization
Period
Years Cost Amortization Net
------------ ---- ----------- ---
<S> <C> <C> <C> <C>
9-months ended Goodwill 10-20
August 31, 1998 Organization costs 5
Year ended, Goodwill 10-20 $5,474,720 $1,992,954 $3,481,766
November 31, 1997 Organization costs 5 $ 30,184 $ 17,860 $ 12,324
</TABLE>
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
F-9
<PAGE>
Short-term payable at November 30, 1997 consisted of a $900,000 loan due on
January 5, 1998 at the Bank's prime rate plus 3 percent. The prime rate at
November 30, 1997 was 8.5 percent. The Bank has not called the loan subsequent
to its due date, and, at its sole option, can continue to extend the due date of
the loan. $100,000 of the note was paid in January 1998. All of the Company's
accounts receivable are pledged as collateral for the loan.
Short-term note payable in the amount of $985,333 (net of unamortized
discount of $14,667) at November 30, 1997 consisted of a promissory note due to
a principal shareholder of the Company. The note is due on May 21, 1998, and has
as a stated interest rate of 8.5 percent per annum. Interest is payable
quarterly commencing July 1, 1996. As additional consideration for the
promissory note, detachable warrants to purchase 66,667 shares of the Company's
common stock at $7.50 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 100,000 shares of the
Company's common stock at $6.75 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.
The company does not anticipate using any portion of the proceeds of this
offering for the payment of debts to related parties. The company currently
intends to obtain loans to pay any related-party debts.
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 with
similar risks and maturities.
F-10
<PAGE>
7. Related Parties:
Certain company office facilities are leased from an officer of a
subsidiary of the company. Rental expense amounted to approximately $58,000 and
$49,000 for the years ended November 30, 1997 and 1996, respectively. The lease
commitment is adjusted annually based on the consumer price index as of
November. The lease term is for ten years with a renewal option of five years.
The original lease term expires on November 1, 2008.
At November 30, 1997, amounts owed to an officer of a subsidiary of the
company for a bonus and expenses amounted to approximately $150,000.
As discussed in Note 5, at November 30, 1997, the company has a short - and
long - term note payable due to affiliates of principal stockholders of the
company.
Revenues from related parties amounted to $25,300 and $354,125 during the
years ended November 30, 1997 and 1996, respectively.
8. Leases:
The company leases all operating facilities under operating leases expiring
through January 2003. Rent expense under operating leases was approximately
$541,000 and $512,000 for years ended November 30, 1997 and 1996, respectively.
The future minimum payments under non-cancelable operating leases consisted
of the following at November 30, 1997:
<TABLE>
<CAPTION>
Fiscal Year Ending Operating
November 30, Leases
------------------ ---------
<S> <C>
1998 $ 487,229
1999 375,923
2000 243,911
2001 58,842
2002 46,675
----------
$1,212,580
==========
</TABLE>
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
F-11
<PAGE>
such adverse judgments as may be based on claims that allege or involve wrongful
conduct by said former employees and director. The company has paid no such
indemnification amounts to date.
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
100,000 shares of the company's common stock at an exercise price of
approximately $7.13 per share expiring on August 31, 1998 were awarded to the
Chairman in connection with the agreement. At his request, the company will also
provide the Chairman of the Board with medical and other benefits and
perquisites, including reimbursement for expenses relating to maintenance of
appropriate office space for him, including rent and secretarial costs. The
Chairman of the Board may terminate the agreement at any time on at least 10
days' notice to the company. In the event of his permanent disability or death,
amounts of salary and bonuses shall continue to be paid to him or the legal
representative of his estate until the end of the term of the agreement.
The Publisher of Brooklyn has an employment agreement expiring in August
1999. The agreement stipulates an annual salary of $60,000, plus increases and
bonuses based upon the net profits (as defined) of Brooklyn.
Certain holders of options, warrants and stock of the company have received
registration rights with respect to the securities held by or issuable to them.
These registration rights could result in substantial future expense to the
company and could adversely affect any future equity or debt financing.
10. Legal Proceedings:
F-12
<PAGE>
An action entitled Tracey Robinson v. The Hill, News Communications, Inc.,
and Media Venture Group, Inc., was initiated in September 1996 in the United
States District Court for the District of Columbia in which the Plaintiff, a
former national advertising executive for Capitol Hill, has alleged race
discrimination and retaliation in connection with her discharge and claims
compensatory and punitive damages of $5.2 million. The case was tried to a jury
and resulted in an adverse determination of liability to the company in the
amount of $100,000, which has been recorded in the period ended November 30,
1997. No appeal has been taken from that finding. The plaintiff has requested an
award of fees and costs in the approximate amount of $150,000, which the company
is vigorously opposing.
Management of the company is unable to predict or determine the final
outcome of the aforementioned proceeding or whether the resolution of the
matters could materially affect the company's financial position, results of
operations, or liquidity.
11. Common Stock:
At November 30, 1997, the company has approximately 2,764,333 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 48,714 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, 12,191 have
been placed in escrow for delivery in December 1998.
12. Preferred Stock:
Preferred stock at November 30, 1997 consisted of the following:
<TABLE>
<S> <C> <C>
10% non-voting convertible preferred stock, 1,250 shares $ 26
authorized; 26 issued and outstanding, $500 per share per
annum cumulative dividends, $130,000 liquidation value
8% convertible preferred stock, 500 shares authorized, 114
114 issued and outstanding, $80 per share per annum
cumulative dividends, $114,000 liquidation value
12% convertible preferred stock, 200 shares authorized, 200
200 shares issued and outstanding, $120 per share per
annum cumulative dividends, $200,000 liquidation value
$10 convertible preferred stock, 200,000 shares 200,000
authorized, issued and outstanding, $2,000,000
liquidation value
</TABLE>
(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 2,000
shares of common stock for each share of preferred stock, subject to
standard anti-dilution provisions.
In October 1996, the company distributed 3,541 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
F-13
<PAGE>
shares of 10% non-voting convertible preferred stock. As a result, common
stock at par increased by $35, additional paid-in-capital - common stock
was increased by $15,965 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 $6.30, which is subject to
standard anti-dilution provisions. The 8% and 12% convertible preferred
stock have no voting rights except if the company is in default of four
consecutive dividend payments, then holders are entitled to vote.
During 1997, holders of the company's 8% convertible preferred stock
converted 103 shares into 16,349 shares of common stock and 16,349 five-
year warrants to purchase common stock exercisable at $6.30 per share. As a
result, common stock at par increased by $163, additional paid-in-capital-
common stock increased by $102,837, preferred stock at par decreased by
$103 and additional paid-in-capital - preferred stock decreased by
$102,897.
During the years ended November 30, 1997 and 1996, cash dividends totaling
$35,426 and $41,360, respectively were paid to the holders of the 8%
convertible preferred stock and the 12% convertible preferred stock.
(c) In October 1996, the company entered into an agreement with a group of
investors to which the company issued 200,000 shares of a newly designated
$10.00 convertible preferred stock and warrants to purchase 266,000 shares
of common stock at $6.00 per share (See Note 15) for an aggregate
consideration of $2,000,000. The holders of $10 convertible preferred
stock, acting as a single class, are entitled to nominate and elect, at all
times, one-half of the total number of directors of the company.
Dividends on the $10 convertible preferred stock are noncumulative and are
payable at a rate of five times the amount of dividends, if any, per share
declared and paid by the company on its common stock. During 1996, no
dividends were declared and paid on the $10 convertible preferred
stock.
The holders of the $10 convertible preferred stock may convert each share,
at any time, into shares of common stock. The number of shares of common
stock into which each share of the $10 convertible preferred stock may be
converted is obtained by dividing $10 by a conversion price. The conversion
price is initially set at $6.00, and is subject to adjustments generally
for dilution or decline in the market price below $6.00.
The holders of the $10 convertible preferred stock have substantially the
same voting rights as the holders of the company's common stock; however,
the vote of the holders of the $10 convertible preferred stock, acting as a
single class, is required for stockholder approval of certain corporate
matters. Each holder of the $10 convertible
F-14
<PAGE>
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 50,333 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. 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 122,222 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 12,222 and 40,400 options were exercisable,
respectively. The following is a summary of transactions:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C>
Outstanding - Beginning of year 59,722 59,722
</TABLE>
F-15
<PAGE>
<TABLE>
<S> <C> <C>
Granted during the year - -
Terminated during the year (14,167) -
------- ------
Outstanding - End of year (1) 45,555 59,722
</TABLE>
(1) With an exercise price per share ranging from $6.00 to $27.00, giving
effect to the one-for-ten reverse stock split, which occurred on May 12,
1992 and the one-for-three reverse stock split which occurred on
___________. The weighted average exercise price at November 30, 1997 was
$6.72 per share.
At November 30, 1997 and 1996, there were 76,667 and 62,500 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 666,667 shares of common
stock to directors and officers of the company and its subsidiaries which
shall be exercisable at the market price on the date of grant for periods
(generally five years), and under conditions, specified by the Board in
such grants. Options under the Discretionary Option Plan are non-
qualified and non-incentive options for purposes of income taxation and are
not intended to qualify under Section 422A of the Internal Revenue Code of
1986. No grants were made under the Discretionary Option Plan during the
fiscal year ended November 30, 1997.
On August 17, 1993, the Board also adopted a Non-Discretionary Directors
Stock Option Plan (the "Non-Discretionary Option Plan") pursuant to which
each director will be granted, on August 17, 1993 and each anniversary
thereof on which he or she continues to be a director, a five-year option
to purchase 3,333 shares of common stock at the market price on the date of
the grant. The Non-Discretionary Plan also provides that any person
becoming a director within the six months after any August 17 will be
granted options. The maximum number of options authorized pursuant to the
plan amounts to 166,666 which were granted as of November 30, 1996.
The following is a summary of transactions relating the Directors and
Officers Stock Option Plans:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------
<S> <C> <C>
Outstanding Beginning of year 706,833 586,833
Granted during the year - 120,000
--------- -------
Outstanding - End of the year (1) 706,833 706,833
</TABLE>
(1) With an exercise price per share ranging from $3.75 to $8.07. The weighted
average exercise price at November 30, 1997 was $6.63 share.
F-16
<PAGE>
15. Stock Warrants
At November 30, 1997, the company has 812,376 shares of common stock
reserved for issuance upon exercise of warrants. Information regarding the
company's warrants outstanding is as follows:
Redeemable Class C Warrants - Each Class C Warrant, which entitles the
holder to purchase one share of the company's common stock at $6.00 per share,
became exercisable October 9, 1993 and expired October 9, 1996. During the year
ended November 30, 1996, 35,982 Redeemable Class C Warrants were exercised for
proceeds of $215,890. The common stock in connection with the October 1996
exercise of 30,182 of the Redeemable Class C Warrants was issued in March and
May 1997.
Redeemable Class D-9 Warrants - Each Class D Warrant, which entitles the
holder to purchase one share of the company's common stock at $9.00 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 284,645 Redeemable Class D
Warrants.
Non-Redeemable Warrants - At November 30, 1997 and 1996, the company had
outstanding 628,333 and 528,333 non-redeemable warrants, respectively. Each
warrant entitles the holder to purchase one share of the company's common stock
at an exercise price ranging from $4.14 to $9.00 per share. The warrants are
all currently exercisable and expire on the following dates:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS EXPIRATION DATE
<S> <C>
28,333 October 1998
33,333 May 1999
200,000 May 2001
266,667 October 2001
100,000 November 2002
</TABLE>
There were no exercises of non-redeemable warrants during the years ended
November 30, 1997 and 1996. All of the warrants that expire May 2001 were
issued to a principal stockholder of the company, of which 66,667 were issued in
connection with a promissory note (See Note 5) and 133,333 were issued as
consideration for consulting services. The 266,667 warrants expiring in October
2001 were issued with the $10 convertible preferred stock (See Note 12). All of
the warrants that expire November 2002 were issued to an affiliate of principal
stockholder of the company in connection with a promissory note (See Note
5).
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,
F-17
<PAGE>
its lack of a history of consistent earnings, and possible limitations on the
use of carryforwards give rise to uncertainty as to whether the deferred tax
asset is realizable. No amount of current or deferred federal or state income
tax is presented.
As of November 30, 1997, the approximate amount of the net operating loss
income tax carryforwards of continuing operations and their expiration dates are
as follows:
<TABLE>
<CAPTION>
Expiring in Years
Ending November 30, Carryforwards
------------------- -------------
<S> <C>
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
</TABLE>
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
F-18
<PAGE>
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 Publishers, Inc. for approximately $421,500. In accordance with the
terms of the agreement, the company is entitled to an adjustment of purchase
price if certain net working capital requirements are not met as of the
acquisition date. The entire purchase price was allocated to intangible assets
and is being amortized over an average period of 15 years.
In 1997, the company acquired 50 percent of the outstanding stock of New
York Blade News, Inc. (NYBN) for approximately $100,000. The New York Blade
began publishing in October 1997 under the terms of a letter agreement between
the company and the owner of the remaining 50 percent interest in NYBN.
Unaudited financial data is as follows:
<TABLE>
<CAPTION>
Year ended November 30, 9 months ended August 31,
--------------------------- ---------------------------
1997 1996 (Unaudited) 1998 1997
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 66,523 --- $ 517,568 ---
Operating Loss (60,098) --- (320,282) ---
Net Loss (60,098) --- (320,282) ---
</TABLE>
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
F-19
<PAGE>
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 2,600 shares of its common stock
in payment of a $500 dividend per share due holders as of September 19, 1997 on
each of the 26 shares of 10% non-voting convertible preferred stock. As a
result, common stock at par increased by $26, additional paid-in-capital -
common stock increased by $12,974 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 convertible preferred stock for an aggregate
consideration of $200,000.
The company's common stock is listed on the Nasdaq Stock Market, Inc.
("Nasdaq"). The company has been advised by Nasdaq that the company is not in
compliance with Nasdaq's new net tangible assets/market capitalization/net
income requirements for companies listed on the Nasdaq SmallCap Stock Market
became effective on February 23, 1998, and that Nasdaq intended to delist the
company's securities from the Nasdaq SmallCap Stock Market as of the close of
business on March 16, 1998. On July 29, 1998, following an expedited written
hearing before Nasdaq Listing Qualifications Panel, a determination was made
that News Communications had failed to meet the minimum net tangible asset
requirement and the minimum market capitalization requirement. As a result,
Nasdaq decided that our shares would be delisted from the Nasdaq SmallCap Stock
Market effective as of the close of business on August 6, 1998. The delisting
process was temporarily delayed because we requested an oral review/hearing by
the Nasdaq staff. The hearing was held in October 1, 1998 and we are awaiting a
response from NASDAQ. Although we are challenging the delisting and have
proposed a plan to regain compliance with the requirements for continued listing
(of which this offering is a part), we cannot be sure that the shares will
remain listed on The Nasdaq SmallCap Stock Market after completion of the review
process. If the plan of compliance is rejected, the company's securities are
subsequently delisted from the Nasdaq SmallCap Stock Market, trading, if any, in
the company's securities would thereafter be conducted on the OTC Bulletin
Board.
F-20
<PAGE>
On October 19, 1998, the short-term note payable by Tribco and Access to
Blair was extended to June 21, 1999.
On October 6, 1998, the long-term note payable to RRF by the company was
extended to January 31, 2000.
22. Basis of Presentation
The Consolidated Balance Sheet as of August 31, 1998 and the Consolidated
Statements of Operations for the nine-month periods ended August 31, 1998 and
August 31, 1997, and the Consolidated Statements of Cash Flows have been
prepared by the company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flow have
been made. The results for the interim periods are not necessarily indicative of
the results for a full year.
23. Restatement (unaudited)
The financial statements and related notes have been restated to give
retroactive effective to a one-for-three reverse stock split on January __,
1999.
F-21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Fifteenth of the company's Articles of Incorporation, as amended,
provides that the company shall indemnify its officers, directors, employees and
agents to the full extent permitted by Section 78.751 of the General Corporation
Law of Nevada ("GCL").
Article Sixteenth of the company's Articles of Incorporation, as amended,
provides for limitation of the personal liability of a director or officer to
the company or its stockholders for damage for breach of his fiduciary duty as a
director or officer, other than for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or for the payment of dividends
in violation of Section 78.300 of the GCL, which generally states that dividends
may be paid to stockholders from a corporation's excess of its assets over its
liabilities.
The company has obtained directors' and officers' insurance and company
reimbursement policy in the amount of $1,000,000 (subject to a $100,000 per
claim deductible). The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
would reimburse the company for such loss for which the company has lawfully
indemnified the directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration:
Securities and Exchange Commission Registration Fee... $ 2,144
Nasdaq Listing Fee.................................... 7,500
*Printing and Engraving Expenses...................... 50,000
*Accounting Fees and Expenses......................... 40,000
*Legal Fees and Expenses.............................. 50,000
*Blue Sky Fees and Expenses........................... 20,000
**Transfer Agent's and Registrar's Fees and Expenses.. ------
Miscellaneous Expenses................................ 10,000
**Total......................................... $
-------
* Estimate
** To be filed by amendment.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were issued by the company within the past three
years and were not registered under the Securities Act of 1933, as amended (the
"Act"). Each of the transactions is claimed to be exempt from registration with
the Securities Exchange Commission pursuant to Section 4(2) of the Act as
transactions by an issuer not involving a public offering. All of such
securities are deemed to be restricted securities for the purposes of the Act.
All certificates representing such issued and outstanding restricted securities
of the company have been properly legended and the company has issued "stop
transfer" instructions to its transfer agent with respect to such securities.
1. On May 17, 1996, the company issued to D.H. Blair Investment Banking Corp.
("DHBIB") an immediately exercisable warrant to purchase 133,330 shares of
common stock exercisable at $7.50 per share.
On May 21, 1996, the company issued to D.H. Blair Investment Banking Corp.
an immediately exercisable warrant to purchase 66,000 shares of common
stock exercisable at $7.50 per share.
2. On August 17, 1996, the company granted immediately exercisable options to
purchase 3,333 shares of common stock to each of its then directors other
than Mr. Ackerman (12 persons) under the company's Non-Discretionary
Directors Stock Option Plan, exercisable at $4.785 per share.
3. On October 28, 1996, the company sold to a group of 15 private investors an
aggregate of 66,000 shares of its $10 convertible preferred stock, each of
which is convertible into 1.667 shares of common stock at $10.00 per share,
and immediately exercisable warrants to purchase an aggregate of 266,666
shares of common stock exercisable at $6.00 per share. On that date the
company also granted Wilbur L. Ross, Jr. an immediately exercisable option
to purchase 66,000 shares of common stock under the company's Discretionary
Directors and Officers Stock Option Plan, exercisable at $6.00 per share
and granted 8 persons who became directors options to each purchase 1,666
shares of common stock under the company's Non-Discretionary Directors
Stock Option Plan, exercisable at $6.00 per share. In connection with such
transactions, the company issued 50,000 shares of its common stock, valued
at $100,000, to Rothschild Inc. as consideration for investment banking
services rendered by that firm.
4. On November 5, 1997, DPI and the company entered into a Loan Agreement with
Rothschild Recovery Fund L.P. pursuant to which DPI borrowed $1,500,000
from Rothschild. In connection with the execution of the Loan Agreement,
the company issued to Rothschild a five-year warrant to purchase, on or
after February 28, 1998, 33,000 shares of common stock of the company at an
initial exercise price of $6.75 per share (subject to adjustment).
II-2
<PAGE>
5. In April 1998 the company issued 6,666 shares of newly authorized $10
convertible preferred stock, series 2, to Bershad Investment Group, L.P.,
for $200,000 in a transaction exempt from registration under the Securities
Act of 1933 pursuant to Section 4(2) thereof. Each share of $10
convertible preferred stock, series 2, is convertible into 1.667 shares of
common stock, subject to adjustments in certain circumstances.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Incorporated by Exhibit No. in
Exhibit Reference from Referenced
Number Description Document (1) Document
<S> <C> <C> <C>
3.1 Articles of Incorporation of the company (formerly known as A 3.1
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 Articles of Incorporation of A 3.1.1
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 Incorporation of B 3.1.2
the company, filed with the Secretary of State of Nevada on
August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of Incorporation of C 3.1.3
the company, filed with the Secretary of the State of Nevada
on July 26, 1994.
3.2 By-Laws of the company (as amended and restated). C 3.2.1
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Preferred Stock Certificate. B 4.2
4.2.1 Resolution of Board of Directors fixing the terms of the 10% B 4.2.1
Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the terms of the 8% C 4.2.2
Convertible Preferred Stock.
4.2.3 Certificate of Amendment of Certificate of Designation of 8% C 4.2.4
Convertible Preferred Stock.
4.2.4 Resolution of Board of Directors fixing the terms of the 12% C 4.2.3
Convertible Preferred Stock.
4.2.5 Certificate of Designation of 12% Convertible Preferred Stock ** **
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.2.6 Certificate of Designation of $10 Convertible Preferred Stock H 10.33
(included as part of Exhibit 10.21).
4.3 Form of Rights Certificate *** ***
5 Opinion of Piper & Marbury, L.L.P. * *
10.1 1987 Stock Option Plan of the company, as amended. G 10.1.1
10.2 Discretionary Directors and Officers Stock Option Plan. C 10.2.1
10.3 Non-discretionary Directors Stock Option Plan. C 10.2.2
10.4 Stockholders' Agreement, dated as of October 13, 1988, between D 2.1
Daniel Rattiner and the company.
10.5 Agreement of Lease, dated October 31, 1988, between Daniel D 2.4
Rattiner and DP Acquisition Corp., as to building known as
Dan's Papers, Ltd. Located on Montauk Highway, Bridgehampton,
New York.
10.6 Amendment of Lease, dated October 31, 1998, between Dan's ** **
Paper's Inc. (f/k/a D.P. Acquisition, Inc.) and Daniel
Rattiner.
10.7 Letter dated November 22, 1996 from the company to Daniel J 10.4.4
Rattiner regarding exercise of option to purchase stock of
Dan's Papers, Ltd.
10.8 Employment and Stockholders' Agreement dated as of November K 10.4.5
25, 1997 by and between the company and Daniel Rattiner
10.9 Employment Agreement, dated as of October 15, 1994, between F 10.7.3.1
Michael Schenkler and the company.
10.10 Amended and Restated Employment Agreement, dated October 28, J 10.7.4.1
1996, between Jerry Finkelstein and the company.
10.11 Stock Option Agreement dated September 1, 1993, between Jerry C 10.11
Finkelstein and the company.
10.12 Letter Agreement, dated June 15, 1990, between Dan's Papers, B 10.21
Inc. and Dan's Papers, Ltd.
10.13 Lease for space at 174-15 Horace Harding Expressway, Fresh B 10.25
Meadows, New York.
10.14 Agreement of Lease dated January 28, 1993, between Furcraft E 10.24
Associates, Inc. and the company.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.15 Agreement dated May 17, 1996 between D.H. Blair Investment H 10.28
Banking Corp. ("Blair") and the company.
10.16 Loan Agreement dated May 21, 1995 among Blair, the company, H 10.29
Tribco Incorporated ("Tribco") and Access Network Corp.
("Access").
10.17 Waiver Agreement dated October 19, 1998, between Blair, the ** **
company, Tribro and Access regarding Loan Agreement dated May
21, 1996.
10.18 $1,000,000 Promissory Note dated May 21, 1996 issued by the H 10.30
company, Tribco and Access to the order of Blair.
10.19 Warrant dated May 17, 1996, to purchase 400,000 shares of the H 10.31
company's common stock issued by the company to Blair.
10.20 Warrant dated May 21, 1996, to purchase 200,000 shares of the H 10.32
company's common stock issued by the company to Blair.
10.21 Form of Subscription Agreement made as of October 4, 1996 H 10.33
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.
10.22 Loan Agreement dated as of November 5, 1997 by and between K 10.34
Rothschild Recovery Fund L.P. and Dan's Papers, Inc. and the
company.
10.23 Waiver Agreement dated October 6, 1998, between Rothschild ** **
Recovery Fund L.P., Dan's Papers, Inc. and the company
regarding Loan Agreement dated November 5, 1997.
10.24 Program Services Agreement dated as of April 11, 1997, between K 10.36
M.B.C. Incorporated and the company.
10.25 Form of Standby Agreement dated December , 1998 among the * *
company, Wilbur L. Ross, Jr., Melvyn I. Weiss and J. Morton
Davis.
16.1 Letter from Moore Stephens, P.C., dated March 4, 1997. I 16.2
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
21 Subsidiaries of the company. K 22
23.1 Consent of Piper & Marbury L.L.P. (included in Exhibit 5). *** ***
23.2 Consent of PricewaterhouseCoopers LLP (formerly Coopers & * *
Lybrand L.L.P.)
</TABLE>
@@
NOTES:
A Annual Report of the company on Form 10-K for the year ended November 30,
1987.
B Registration Statement of the company on Form S-1, No. 33-35484.
C Registration Statement of the company on Form S-1, No. 33-46467.
D Current Report of the company on Form 8-K relating to events occurring on
October 31, 1988.
E Annual Report of the company on Form 10-KSB for the year ended November
30, 1992.
F Annual Report of the company on Form 10-KSB for the year ended November
30, 1994.
G Annual Report of the company on Form 10-KSB for the year ended November
30, 1995.
H Quarterly Report of the company on Form 10-QSB for the quarter ended
August 31, 1996.
I Current Report of the company on Form 8-K/A relating to event occurring on
February 3, 1997.
J Annual Report of the company on Form 10-KSB/A for the year ended November
30, 1996.
K Annual Report of the company on Form 10-KSB for the year ended November
30, 1997.
* Filed herewith.
** Filed with prior version of this Registration Statement.
*** To be filed by amendment to this Registration Statement.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a
II-6
<PAGE>
fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the Underwriter during
the subscription period, the amount of unsubscribed securities to be purchased
by the Underwriter, and the terms of any subsequent reoffering thereof. If any
public offering by the Underwriter is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(e) "Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as express in the Act and is, therefore,
unenforceable.
(f)(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 4th day of January, 1999.
NEWS COMMUNICATIONS, INC.
By /s/ Wilbur L. Ross, Jr.
--------------------------------------------
Wilbur L. Ross, Jr., Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
either Wilbur L. Ross or Michael Schenkler his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying all that said attorney-in-fact and agent
or his substitute or substitutes, or any of them, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Wilbur L. Ross, Jr. Director and Chief Executive Officer January 4, 1999
- -------------------------------
Wilbur L. Ross, Jr. (Principal Executive Officer)
Director January 4, 1999
- -------------------------------
Jerry Finkelstein
/s/ Michael Schenkler Director January 4, 1999
- -------------------------------
Michael Schenkler
/s/ Robert Berkowitz Controller (Principal Financial and January 4, 1999
- -------------------------------
Robert Berkowitz Accounting Officer)
Director January 4, 1999
- -------------------------------
Gary Ackerman
Director January 4, 1999
- -------------------------------
Carl Bernstein
/s/ John Catsimatidis Director January 4, 1999
- -------------------------------
John Catsimatidis
</TABLE>
II-8
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Mark Dickstein Director January 4, 1999
- -------------------------------
Mark Dickstein
Director January 4, 1999
- -------------------------------
Andrew J. Maloney
/s/ Robert E. Nederlander Director January 4, 1999
- -------------------------------
Robert E. Nederlander
/s/ Andrew J. Stein Director January 4, 1999
- -------------------------------
Andrew J. Stein
/s/ Sy Syms Director January 4, 1999
- -------------------------------
Sy Syms
Director January 4, 1999
- -------------------------------
Arthur Tarlow
Director January 4, 1999
- -------------------------------
Hillel Weinberger
</TABLE>
@@
II-9
<PAGE>
Exhibit 4.3
THIS CERTIFICATE WILL BE VALUELESS IF NOT RECEIVED BY THE SUBSCRIPTION AGENT
BY 5:00 P.M., EASTERN STANDARD TIME, ON ________________, 1999
RIGHTS SUBSCRIPTION CERTIFICATE
NEWS COMMUNICATIONS, INC.
-------------------------
CERTIFICATE #______________ CUSIP #652484
THIS CERTIFICATE IS NOT TRANSFERABLE.
The terms and conditions of the Rights Offering to which this certificate
applies are set forth in the prospectus of News Communications, Inc. dated
January ___, 1999, relating to 3,833,333 shares of the company's common stock,
and are incorporated herein by reference. Copies of the prospectus are
available upon request from the company at its offices located at 174-15 Horace
Harding Expressway, Fresh Meadows, NY 11365, Attn: Chief Financial Officer,
and from Continental Stock Transfer & Trust Company at its offices located at 2
Broadway, New York, New York 10004, Attn: William Seegraber (the "Subscription
Agent"). Capitalized terms used in this certificate without definition shall
have the meanings set forth in the prospectus.
______________________________________________________________________________
SUBSCRIPTION PRICE: $1.50 PER SHARE
REGISTERED HOLDER: [TO INSERT LABEL HERE WITH
NAME, ADDRESS, # OF SHARES OWNED]
______________________________________________________________________________
IMPORTANT The Rights represented by this certificate may be exercised, in
whole or in part, by completing Sections 1 and 2 (if applicable) below and
signing where indicated. If your instructions on this certificate are unclear
or insufficient to describe the proper action to be taken with respect to the
Rights, the Subscription Agent has the authority to interpret your instructions
and take such action as he believes you intended. Before exercising any rights,
registered holders are urged to read the prospectus carefully and in its
entirety.
The registered holder whose name is set forth herein is entitled to
subscribe for a minimum of one share and a maximum of two shares (based on
availability) of the common stock of the News Communications, Inc. at a
subscription price of $1.50 per share for every share of common stock owned and
every share of $10 convertible preferred stock owned by such registered holder.
Payment of the full subscription price for all shares subscribed for upon
exercise of the Rights must accompany this properly completed and duly executed
certificate, payable in U.S. dollars, by personal check or money order drawn on
a bank located in the United States, payable to "News Communications, Inc.
Escrow Account."
Dated: ______________________ NEWS COMMUNICATIONS, INC.
____________________________________
<PAGE>
NEWS COMMUNICATIONS, INC.
INSTRUCTIONS: To exercise all or part of the Rights evidenced by this
certificate, please complete Section 1. If you would like to have the
Subscription Agent deliver shares issued upon the exercise of your Rights to
another person or delivered to an address other than the one listed on the first
page of this certificate, please also complete Section 2 and obtain the required
signature guarantee by a medallion institution. You must deliver this
certificate to the Subscription Agent, at the address set forth above, along
with the total subscription price by 5:00 p.m. Eastern Standard Time on
February , 1999.
ANY EXERCISE OF RIGHTS EVIDENCED HEREBY IS IRREVOCABLE.
SECTION 1 EXERCISE AND SUBSCRIPTION: The undersigned hereby exercises
Rights to subscribe for the number of shares of common stock indicated below, on
the terms and subject to the conditions specified in the prospectus, receipt of
which is hereby acknowledged.
(Please print all information clearly and legibly)
Subscriber Name: ____________________________________
I subscribe for ____________________ shares of common stock of the Company.
(Number of shares whole number only)
(Number may not be less than 10 shares)
TOTAL SUBSCRIPTION PRICE: ___________________ x $1.50 = $_______________
(Number of shares subscribed for)
Enclosed is a [ ] Check or [ ] Money Order (check one) in the amount
of $___________________ payable to "News Communications, Inc. Escrow
Account."
Please write the certificate #, set forth on the first page, on your check
or money order.
*NOTE: If you exercised your Right to receive two shares for every share
owned, and the number of shares remaining in the Rights Offering is
insufficient, you will receive a pro rata portion of the remaining shares based
on the number of shares you owned, and you will receive a refund for the amount
overpaid.
Unless otherwise indicated in Section 2 below, the Subscription Agent is
hereby authorized to issue and deliver certificates for the Shares subscribed
for to you at the address appearing on the first page of this certificate.
Dated: _____________________, 1999 _______________________________________
_______________________________________
(Signature of holder(s) exactly as
appears on the first page of this
certificate)
<PAGE>
SECTION 2 SPECIAL INSTRUCTIONS
If this section is completed, your signature in Section 1 above must be
guaranteed by a medallion guarantor.
[ ] CHECK HERE IF, UPON EXERCISE OF YOUR RIGHTS, YOU WOULD LIKE THE
SUBSCRIPTION AGENT TO DELIVER THE SHARES TO ANOTHER PERSON OR
DELIVERED TO AN ADDRESS OTHER THAN THE ONE LISTED ON THE FIRST PAGE OF
THIS CERTIFICATE.
I would like the shares delivered to the following person at the following
address:
Name: __________________________________
Address: __________________________________
__________________________________
Taxpayer ID # or Social Security #: __________________________________
SIGNATURE GUARANTEE (to be executed only if Section 2 is completed)
The undersigned, an eligible guarantor institution pursuant to Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended, and a
participant in a Securities Transfer Association recognized signature program,
does hereby guarantee that the signature of the holder set forth above is
genuine.
Firm Name: ____________________________________
Authorized Signature: ____________________________________
Name and Title ____________________________________
Address ____________________________________
____________________________________
Telephone Number ____________________________________
Dated: _______________________, 1999
<PAGE>
Exhibit 10.25
NEWS COMMUNICATIONS, INC.
STANDBY AGREEMENT
-----------------
December __, 1998
Mr. Wilbur L. Ross, Jr.
Rothschild, Inc.
1251 Avenue of the Americas
51st Floor
New York, New York 10019
Melvyn I. Weiss, Esq.
Milberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania Plaza
New York, N.Y. 10119
Mr. J. Morton Davis
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, N.Y. 10005
Dear Sirs:
News Communications, Inc., a Nevada corporation (the "Company"), proposes
to offer to its existing holders of Common Stock and $10 Convertible Preferred
Stock non-transferable rights to subscribe for an aggregate of 3,833,333 shares
(the "Shares") of the Company's Common Stock, $.01 par value on the basis of a
minimum of one and a maximum of two shares (as available) for every share owned
on _________, 1998, the record date, by each stockholder, at a subscription
price of $1.50 per share (the "Subscription Price"). Such offering to existing
shareholders shall be referred to herein as the "Rights Offering." In this
regard, the Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (No. 333-67407) with respect to the
Rights Offering (the "Registration Statement"). The Rights Offering will last
for a period of thirty (30) days. The Company desires to make arrangements
pursuant to which Wilbur L. Ross, Jr., Melvyn I. Weiss and J. Morton Davis
(collectively, the "Purchasers") will purchase from the Company, on the terms
and subject to the conditions set forth herein, such number of shares of Common
Stock, if any (the "Standby Shares"), that are not subscribed for in the Rights
Offering as follows:
Mr. Ross 15%
Mr. Weiss 35%
Mr. Davis 50%
<PAGE>
The Company confirms its agreements with the Purchasers as follows:
1. Agreement to Sell and Purchase.
------------------------------
Upon and subject to all the terms and conditions of this Standby Agreement
(this "Agreement"), the Company agrees to sell to the Purchasers, and the
Purchasers agree to purchase from the Company, all of the Standby Shares at the
Subscription Price.
2. Delivery and Payment. (a) Delivery of the Standby Shares shall be
--------------------
made to the Purchasers against payment of the purchase price by wire transfer to
the Company of immediately available funds. Such payment shall be made by 10:00
a.m., Eastern time, on the third business day following closing of the Rights
Offering (such date is hereinafter referred to as the "Closing Date"). The
Company shall advise the Purchasers in writing no later than 7:00 p.m., New York
City time, on the business day after the Closing Date of the number of shares of
Common Stock that will comprise the Standby Shares. At the Closing Date, the
Company shall deliver to the Purchasers three certificates, one registered in
the name of each of the Purchasers, representing the total number of Standby
Shares.
The cost of original issue and stamp tax, if any, in connection with the
issuance and delivery of the Standby Shares by the Company to the Purchasers
shall be borne by the Company. The Company will pay and hold the Purchasers and
any subsequent holder of the Standby Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
the Purchasers of the Standby Shares.
(b) As compensation for their commitment to purchase the Standby
Shares, on the Closing Date the Company will pay the Purchasers by wire transfer
of immediately available fund to accounts designated by the Purchasers a standby
fee equal to 2.5% of the aggregate offering price of the Shares offered in the
Rights Offering.
3. Representations and Warranties of the Company.
---------------------------------------------
The Company represents, warrants and covenants to the Purchasers as
follows:
(a) Prior to the effective date (the "Effective Date") of the
Registration Statement, the Company will take all actions necessary to effect a
one-for-three reverse stock split of its Common Stock, after which there will be
approximately 2,735,791 shares of Common Stock issued and outstanding, excluding
1,579,926 shares issuable upon exercise of convertible securities, options or
warrants, subject to adjustment for the elimination of fractional shares
resulting from the reverse stock split.
(b) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the (i) authorization, issuance, transfer, sale or delivery of
the Standby Shares by the Company; (ii) execution, delivery and performance of
this Agreement by the Company; or (iii) taking by the
<PAGE>
Company of any action contemplated hereby, except as have been obtained under
the Securities Act of 1933, as amended (the "Act") or the rules and regulations
promulgated thereunder (the "Rules and Regulations") and as may be required
under state securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD"), in connection with the
purchase of the Standby Shares.
(c) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding agreement or obligation of
the Company and is enforceable against the Company in accordance with its terms
except to the extent that the enforceability thereof may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies and by general principles of equity. The Company has full
corporate power and authority to issue the Standby Shares, all as described in
the Registration Statement, and all such actions have been duly authorized by
the Company. The Standby Shares, when issued in accordance with the terms of
this Agreement and the Registration Statement, will be duly and validly issued,
fully paid and non-assessable. Neither the performance of this Agreement nor
the consummation of the transactions contemplated hereby will result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or give any other party a right to terminate any of the obligations under, or
result in the acceleration of any obligation under, the Articles of
Incorporation or By-Laws of the Company, any contract or other agreement to
which the Company or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company.
4. Representations and Warranties of the Purchasers. Each of the
------------------------------------------------
Purchasers, severally and not jointly, represents and warrants to the Company as
follows:
(a) Each Purchaser is of majority age and has the legal capacity to
enter into this Agreement and to carry out the transactions contemplated hereby,
and this Agreement constitutes the valid and binding obligation of the each
Purchaser enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not (i) conflict with
or violate any law, regulation, court order, judgment or decree applicable to
each Purchaser, (ii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or (iii) give to others any rights of termination or cancellation of any
contract, permit, license or franchise to which each Purchaser is a party or is
bound or affected.
(c) The execution, delivery or performance of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, require
any notice, report or other filing with any governmental authority, domestic or
foreign, or require any waiver,
<PAGE>
consent, approval or authorization of any person or any governmental or
regulatory authority, domestic or foreign.
(d) Each Purchaser understands and acknowledges that, notwithstanding
the effectiveness of the Registration Statement, the Purchaser may be deemed to
be an "underwriter" within the meaning of the Securities Act. Accordingly, each
Purchaser confirms that (i) the Standby Shares are being acquired for investment
purposes and for an indefinite period for each Purchaser's own account and not
with a view to sell or distribute any part thereof, (ii) that each Purchaser has
no present intention of selling or otherwise distributing the Standby Shares,
and (iii) that each Purchaser does not have any contract, undertaking, agreement
or arrangement with any person to sell or transfer to such person any of the
Standby Shares.
(e) Each Purchaser has reached the age of majority in the state in
which such Purchaser resides, has adequate means of providing for the
Purchaser's current financial needs and contingencies, is able to bear the
substantial economic risks of an investment in the Standby Shares for an
indefinite period of time, has no need for liquidity in such investment, has
made commitments to investments that are not readily marketable which are
reasonable in relation to the Purchaser's net worth and, at the present time,
could afford a complete loss of such investment.
5. Agreement of the Company. The Company agrees with the Purchasers as
------------------------
follows:
(a) During the five-year period commencing on the Effective Date, the
Company will furnish to the Purchasers copies of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of any class of its capital stock, and will
furnish to the Purchasers a copy of each annual or other report it shall be
required to file with the Commission.
(b) The Company will make generally available to holders of its
securities as soon as may be practicable, but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement (which need not be audited but
shall be in reasonable detail) for a period of 12 months commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(c) The Company will apply the net proceeds from the sale of the
Standby Shares to the Purchasers in the manner set forth in the Registration
Statement under "Use of Proceeds."
(d) The Company will mail or cause to be mailed to the existing
shareholders of the Company the Notice of Rights Offering, together with a
letter of transmittal, within three days after the expiration of the thirty-day
period referred to in the first paragraph of this Agreement.
<PAGE>
6. Conditions to the Obligations of the Purchasers.
-----------------------------------------------
The obligations of the Purchasers hereunder are subject to the following
conditions:
(a) The Notice of Rights Offering shall have been given to all
existing shareholders as contemplated herein.
(b) Notification that the Registration Statement has become effective
shall be received by the Purchasers no later than 5:00 p.m., Eastern time, on
the date and time as shall be consented to in writing by the Purchasers, and all
filings required by Rule 424 of the Rules and Regulations shall have been made
within the time required by such rule.
(c) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of such staff and (iv) after
the date hereof no amendment or supplement to the Registration Statement or the
prospectus included in the Registration Statement (the "Prospectus") shall have
been filed unless a copy thereof was first submitted to the Purchasers, and the
Purchasers did not object thereto in good faith.
(d) At the Closing Date, (i) other than as set forth in or
contemplated by the Registration Statement and the Prospectus, there shall not
have been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or results
of operations of the Company, taken as a whole, whether or not arising from
transactions in the ordinary course of business, since the date as of which such
information is given in the Registration Statement and the Prospectus and (ii)
the Company shall not have sustained, since the date as of which such
information is given in the Registration Statement and the Prospectus, any
material loss or interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if, in the judgment of the Purchasers, any such development makes it
impracticable or inadvisable to proceed with the transactions contemplated
hereby on the terms and in the manner contemplated by the Registration Statement
and the Prospectus.
(e) At the Closing Date, there shall have been, since the date as of
which such information is given in the Registration Statement and the
Prospectus, no litigation or other proceeding instituted against the Company or
any of its officers or directors in their capacities as such, before or by any
federal, state or local court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, that might reasonably
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company,
taken as a whole.
<PAGE>
(f) Each of the representations and warranties of the Company
contained herein shall be true and correct at the Closing Date, as if made on
the Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing Date shall
have been duly performed, fulfilled or complied with.
(g) Prior to the Closing Date, the Shares will have been listed on
Nasdaq.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Purchasers
against any losses, claims, damages, liabilities or expenses, joint or several,
to which the Purchasers may become subject, under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or other federal or state
statutory law or regulations, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, (ii) in whole or in part, any inaccuracy in the
representations and warranties of the Company contained herein, or (iii) any
failure of the Company to perform its obligations hereunder or under law; and
will reimburse the Purchasers for any legal and other expenses as such expenses
are reasonably incurred by the Purchasers in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
information furnished to the Company by each of the Purchasers expressly for the
inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
the Company may otherwise have. The Company will not, without the prior written
consent of the Purchasers, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of action
or portion of such cause of action in respect of which indemnification may be
sought hereunder (whether or not the Purchasers are parties to such action or
claim), unless such settlement, compromise or consent includes an unconditional
release of the Purchasers from all liability arising out of such action or claim
(or related cause of action or portion thereof).
(b) The Purchasers, severally and not jointly, agree to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such
<PAGE>
director, officer, or controlling person may become subject, under the Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Purchasers), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon (i) any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any preliminary prospectus, the Prospectus, or any amendment or
supplement thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with information furnished to the Company by a Purchaser expressly
for the use in the Registration Statement, any preliminary prospectus or the
Prospectus; and will reimburse the Company, or any such director, officer, or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. This indemnity agreement will be in
addition to any liability which each Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability that it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Purchasers in the case of paragraph
<PAGE>
(a), representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(d) If the indemnification provided for in this Section 7 is required
but is for any reason held to be unavailable to or otherwise insufficient to
hold harmless an indemnified party under subparagraphs (a), (b) or (c) in
respect of any losses, claims, damages, liabilities or expenses referred to
herein, then each applicable indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company and
the Purchasers from any other persons, such as persons who control the Company
within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company who also may be liable for
contribution) (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Purchasers from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Purchasers in connection with the statements or omissions or
inaccuracies in the representations and warranties herein which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Purchasers, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the sale of the Standby Shares (before
deducting expenses) received by the Company bear to the total compensation
received by the Purchasers hereunder. The relative fault of the Company and the
Purchasers shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company or
the Purchasers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in subparagraph (c) of this Section 7, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth
in subparagraph (c) of this Section 7 with respect to notice of commencement of
any actions shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company and the Purchasers agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined solely by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in this Section. Notwithstanding the provisions of this Section 7, the
Purchasers shall not be required to contribute any amount in excess of the
amount of compensation received by each of
<PAGE>
them. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
8. Termination.
-----------
(a) The obligations of the Purchasers under this Agreement may be
terminated at any time on or prior to the Closing Date, by notice to the Company
from the Purchasers, without liability on the part of the Purchasers to the
Company, if, prior to delivery and payment for the Standby Shares, (i) trading
in any of the equity securities of the Company shall have been suspended by the
Commission, by an exchange that lists the Common Stock or by the National
Association of Securities Dealers Automated Quotation System, (ii) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the Commission or any court or other governmental
authority, (iii) a general banking moratorium shall have been declared by either
federal or New York State authorities, or (iv) the enactment, publication,
decree or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority shall have occurred that, in the
Purchasers' opinion, materially and adversely affects or may materially and
adversely affect the business or operations of the Company.
(b) This Agreement shall expire automatically on February 15, 1999.
Upon the expiration of this Agreement, neither the Company nor the Purchasers
shall have any further rights or obligations hereunder except as may be
expressly contemplated herein.
9. Miscellaneous.
-------------
Notice given pursuant to any of the provisions of this Agreement shall be
in writing and, unless otherwise specified, shall be mailed, delivered,
telecopied, telegraphed and confirmed (a) if to the Company, 174-15 Horace
Harding Expressway, Fresh Meadows, New York 11365, Attention: ________________,
or (b) if to the Purchasers, to them at the address first set forth above. Any
such notice shall be effective only upon receipt.
This Agreement has been and is made solely for the benefit of the
Purchasers and the Company and of the controlling persons, directors and
officers referred to in Section 7, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
<PAGE>
In case any provision in this Agreement shall be held invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Purchasers each hereby irrevocably waive any right they
may have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
the Purchasers or controlling person thereof, or by or on behalf of the Company
or its directors or officers and (c) delivery of and payment for the Standby
Shares under this Agreement.
Please confirm that the foregoing correctly sets forth the Standby
Agreement between the Company and the Purchasers.
Very truly yours
NEWS COMMUNICATIONS, INC.
By:______________________
Name:
Title:
Confirmed as of the date first
above mentioned:
By:___________________________
Wilbur L. Ross, Jr.
By:___________________________
Melvyn I. Weiss
By:___________________________
J. Morton Davis
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration Statement on
Form SB-2 (Registration No. 333-67407) of our report dated May 15, 1998, on our
audits of the consolidated financial statements of News Communications, Inc. and
Subsidiaries. We also consent to the reference of our firm under the caption
"Experts."
/s/ PricewaterhouseCoopers
New York, New York
January 4, 1999
