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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities Exchange Act
------- of 1934. For the fiscal year ended November 30, 1999 and the one
month ended December 31, 1999.
OR
_______ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to ___________.
Commission File Number: 0-18299
NEWS COMMUNICATIONS, INC.
-------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 13-3346991
-------------- ------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2Park Avenue
New York, New York 10016
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 689-2500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
------------------- -------------------
Common Stock, $0.01 par value None
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X No
- ---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $18,312,254.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 22, 2000, is $7,914,118.
The number of shares of common stock outstanding as of February 22, 2000
was 8,568,162.
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PART I
The information set forth in this Report on Form 10-KSB including, without
limitation, that contained in Item 6, Management's Discussion and Analysis and
Plan of Operation, contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may materially
differ from those projected in the forward-looking statements as a result of
certain risks and uncertainties set forth in this report. Although management
believes that the assumptions made and expectations reflected in the forward-
looking statements are reasonable, there is no assurance that the underlying
assumptions will, in fact, prove to be correct or that actual future results
will not be different from the expectations expressed in this report.
Unless otherwise indicated, all information contained in this report and
the consolidated financial statements and the notes to such financial statements
gives effect to a 1-for-3 reverse split of News Communications' common stock
that occurred on January 19, 1999.
Item 1. Description of Business
Overview
News Communications, Inc. ("NCI") is a Nevada corporation formed in 1986.
We have 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. We
currently publish 24 weekly newspapers through eight offices. 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 local news,
entertainment, politics, social issues, lifestyle, culture, and arts 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 our revenues is the sale of advertising space in our
publications.
Management Changes
A significant change for us in 1999 was the introduction of a new senior
management team. In August, Wilbur L. Ross, Jr. stepped down as acting Chief
Executive Officer and we hired Steven Farbman as President and Chief Executive
Officer. Mr. Farbman had been serving as Vice President and Chief Operating
Officer of American Lawyer Media, Inc. ("ALM"), which publishes 21 national and
regional legal magazines and newspapers, including The American Lawyer and The
National Law Journal. ALM's other businesses include dozens of national and
regional web sites, book and newsletter publishing, production of legal trade
shows and conferences, educational seminars and distribution of branded content
related to the legal industry. Mr. Farbman then recruited Paul Mastronardi, with
whom Mr. Farbman had worked at ALM, to serve as our Vice President and Chief
Financial Officer. Mr. Mastronardi had previously served as Chief Financial
Officer for ALM.
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Change in Fiscal Year
On December 15, 1999, we filed an 8-K with the SEC changing our fiscal year
end to December 31 from November 30.
As used herein, unless the context requires otherwise, the term "we" refers
to News Communications, Inc. together with its subsidiaries:
<TABLE>
<S> <C>
Publisher Publication
--------- -----------
Access Network Corp. ("Access")...... Manhattan Spirit, formerly called the West
Side Spirit
Manhattan Publishing Corp............ Our Town
West Side Newspapers Corp............ Chelsea-Clinton News and Westsider (together
with Access and Manhattan Publishing Corp. the
"Manhattan Newspapers")
Tribco Incorporated ("Tribco")....... The Queens Tribune published in nine
editions including The Western Queens Tribune
Dan's Papers Inc..................... Dan's Papers and Montauk Pioneer
Parkchester Publishing Co. Inc....... Bronx Press Review and Riverdale Review
(the "Bronx Newspapers")
Nassau Community Newspaper
Group, Inc. ("NCNG").............. Lynbrook USA, Malverne Times, Rockville
Centre News & Owl, Valley Stream
MAILeader, Independent Voice of Long
Beach, Oceanside & Island Park,
Rockville Centre-Oceanside Beacon,
Baldwin Citizen, East Rockaway Observer,
Elmont Life, Franklin Square Life, West
Hempstead Life and Long Island
Lifestyles
South Shore Publishers, Inc.......... South Shore Record (with NCNG, the "Nassau
Newspapers")
Capitol Hill Publishing, Inc.
("Capitol Hill").................. The Hill
Brooklyn Newspaper Publishing, Inc... Brooklyn Skyline
</TABLE>
All of the subsidiaries are wholly-owned except Dan's Papers, Inc., which is 80%
owned by NCI and Capitol Hill, which is 97.5% owned by NCI.
Manhattan Newspapers
We publish four newspapers through our Manhattan office.
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The Manhattan Spirit is a weekly free circulation newspaper founded in 1985
covering the West Side and lower Manhattan. Our Town, a 27-year-old weekly
publication which was acquired by NCI in 1991, is distributed in a single
edition, predominantly on the Upper East Side of Manhattan. Both publications
focus on the lifestyle, culture, arts, entertainment, politics and social issues
of interest to their respective audiences. Editors and reporters, together with
a variety of contributing free-lance writers and columnists, write and edit all
of the material for each weekly issue of Manhattan Spirit and Our Town. A
separate production staff performs all composition, layout, and typesetting
work. Printing is performed by outside contractors. In addition, the Manhattan
operation offers graphics and printing services to third party publishers and
other local businesses.
The Manhattan Spirit has won many awards, including, New York State Bar
Association awards for excellence in journalism. Various national and
international magazines have reprinted articles from the Manhattan Spirit,
including Glamour Magazine and Cosmopolitan International. Editorial content
includes columns by well-known columnists in the fields of food and wine, movies
and social advice. Other columnists and writers focus on finance, theater and
topics of community interest.
The Manhattan Spirit and Our Town are published in a four-color tabloid
format. Both papers are 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.
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 to 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.
All four Manhattan newspapers share display and classified advertising
sales staff.
Dan's Papers
For the past 40 years Dan's Papers has been a favorite of all people who
visit or live in the Hamptons. 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 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.
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The staff at Dan's 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.
The Hill
In September 1994, we began publication of The Hill, a weekly newspaper
devoted to the coverage of the United States Congress. In just five years the
paper has become required reading for members of Congress and their staff. 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 get their message in front of the decision-
makers in Congress. Additional revenues come from classified advertising, local
retail advertising, and subscriptions from the sale of the paper outside of the
Capitol area. The Hill is operated out of 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.
Queens Tribune
The Queens Tribune, a weekly community newspaper started in 1970, publishes
eight free circulation editions and one paid-circulation edition serving areas
in Queens County in New York City. Included in such editions are three editions
of the Western Queens Tribune.
The Queens Tribune is printed in a tabloid format with four-color cover and
some additional color pages inside. 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 the Tribune's
editors and reporters. The Queens Tribune has won numerous awards for
journalistic excellence, such as, the New York Press Association's coveted first
place award for community leadership. The paper is delivered through
independent contractors to heavy traffic locations, such as banks, supermarkets,
and sidewalk distribution boxes. The Queens Tribune generates additional
revenue by offering printing and graphics services to its clients.
The Bronx Newspapers
Parkchester Publishing Co., Inc. is the publisher of the Bronx Press
Review, a 57-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 four-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, we started the Riverdale Review, which serves
the affluent Riverdale section of the Bronx. The Riverdale Review is a
community weekly covering the
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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
Our Nassau Community Newspaper Group, Inc. publishes 12 weekly newspapers
serving various towns in Nassau County, New York. Eight of the titles were
purchased in 1993, three others were started by us in 1996 and 1997. In 1997,
we acquired the South Shore Record, a 33-year-old mailed subscription newspaper
serving the affluent "five-towns" area of Nassau County. The oldest of the
newspapers, (the Rockville Centre News & Owl) has been in continuous publication
since 1908. The other titles include the Valley Stream MAILeader, Lynbrook USA,
the East Rockaway Observer, the Independent Voice, which serves Long Beach, The
Oceanside Beacon, The Baldwin Citizen, and the Malverne Community Times. We
launched Elmont Life and Franklin Square Life in 1996 and West Hempstead Life in
1997.
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.
In 1995, we developed a new publication, Long Island Lifestyles, which is
published as a monthly supplement which is inserted into all of the Nassau
publications. It is also distributed by itself in heavily trafficked areas.
Brooklyn Skyline
The Brooklyn Skyline is a weekly newspaper published in five editions which
are distributed door-to-door in Brooklyn's southern tier. Originally a tabloid
shopper-type publication, we converted Brooklyn Skyline into a community
newspaper to complement our other publications. In addition to an already
established display sales team, in 1999 we developed a classified advertising
sales unit in the Brooklyn office. Previously, classified sales had been
handled from the Queens operation. 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 outside delivery vendors.
The New York Blade News
In a joint venture that began in the summer of 1997, we joined with the
Washington Blade, a large and respected gay and lesbian weekly newspaper, to
publish The New York Blade News, a weekly, four-color tabloid newspaper that
debuted in 1997. The paper, which is distributed by independent contractors to
more than 800 locations in the New York metropolitan area that are frequented by
New York's gay and lesbian community, derives its revenue from the sales of
display and classified advertising and personal advertisements. The New York
Blade News, which is distributed each Friday throughout Manhattan and areas of
Brooklyn, the Bronx, Queens, Staten Island as well as Long Island and New
Jersey, is
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operated out of its own offices in New York City but shares production and
distribution staff with the Manhattan newspapers.
Printing and Production
The printing of each of our publications is presently done by independent
printing shops. We send 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, such as paper, ink, etc., for printing,
and bills the company for its services and materials used. We believe that we
obtain our printing services at competitive prices, and if, for any reason, the
arrangements that we have with any of our printers should terminate, management
believes that similarly favorable arrangements could be had with several other
printing shops in or around New York City. We use several printers and are not
overly reliant on any one vendor.
Advertisers and Readers; Marketing Activities
Most of our publications are weekly newspapers 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 our revenue is
through the sale of advertising space in the publications, although several
operations also offer graphics and printing services to third parties, including
several school publications. The advertising revenues of each of our
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 our publications represents multiple insertion advertising. This is
where an advertising client runs an advertisement in two or more issues of a
publication. This percentage has remained fairly stable for our publications
over the last five years. On a year-to-year basis, we estimate that, over the
last four fiscal years, approximately two-thirds of our display advertising
revenues have been from advertisers who were advertisers in the prior year. No
one advertiser represents more than 5% of our advertising revenues. Classified
advertising has been a growing area of revenues for the weekly publications.
We employ sales representatives who are paid through incentive-based
compensation packages. We have commenced supplementing the sales activities of
the individual publications by enabling sales representatives to sell across the
chain and into our other newspapers. We are developing a more comprehensive
centralized group sales effort to target regional and national advertisers to
purchase space in all or a combination of our publications. Management believes
such a program is particularly attractive to advertisers who seek audiences
throughout the greater New York metropolitan area, such as public utilities,
health care providers, and large regional or national retailers.
Competition
We compete directly for advertising revenues with newspapers and magazines
which are sold to readers or are distributed free, as well as other advertising
media in the geographic and vertical markets that we serve. We do not
significantly compete, however, with other publishers of newspapers or magazines
for paid circulation revenues, as most of our publications are distributed free
of charge to readers.
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Those newspapers and magazines competing with the Manhattan Spirit and Our
Town for advertising, include, among others, The Resident, New York Press, New
York Observer and The Village Voice. 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 free weeklies on the West Side,
including The Resident.
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 Independent, a free weekly newspaper. 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.
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 twice weekly newspaper that has been in
publication nearly 50 years. The Hill also competes for advertising with two
magazines, The National Journal and Congressional Quarterly.
There are numerous other publications distributed in our circulation areas,
which compete for advertising against our publications. Management believes our
publications are competitive because we can offer customers the ability to focus
their advertisements on a specific market, thereby giving the customers a chance
to control costs by narrowing their advertising scope. Management believes
that, over the years of publication, our newspapers have developed a favorable
reputation and following. We also believe that we can compete favorably by
offering advertisers the opportunity to choose from a menu of 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.
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Employees
As of November 30, 1999, we had 250 full-time and 44 part-time employees,
of whom 64 were editorial; 89 were engaged as display and classified advertising
sales personnel; 75 were engaged in production; and 66 were engaged in
administrative and clerical activities. As of December 31, 1999, we had 245
full-time and 46 part-time employees, of whom 65 were editorial; 87 were engaged
as display and classified advertising sales personnel; 76 were engaged in
production; and 63 were engaged in administrative and clerical activities. We
also maintain a roster of free-lance contractors. Management considers its
relations with its employees to be satisfactory. None of our 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.
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.
Item 2. Description of Properties
We operate out of eight separate locations.
On November 3, 1999, we entered into a five-year lease at 2 Park Avenue in
New York City. The 2,900 square feet of office space will serve as our
executive offices including the centralization of our finance and administrative
staff. The annual base rental is approximately $93,000 per year.
The Manhattan Spirit, Our Town, Chelsea-Clinton News and the Westsider
share 7,000 square foot premises at 242 West 30th Street in New York City, under
a lease which commenced in 1995 and terminates in January 2001, at an annual
rental of approximately $75,000 per year.
Dan's Papers leases 2,810 square feet of office space in a building on
Montauk Highway, Bridgehampton, New York, at an annual rate of approximately
$74,000, plus cost-of-living increases, for a term of ten years terminating in
October 2008. We have an option to renew this lease for an additional five-year
term. See "Certain Transactions" for information regarding our lease of this
space from Mr. Daniel Rattiner, President of Dan's Papers.
Tribco has a ten-year lease, which commenced on November 1, 1990, to rent
approximately 8,000 square feet of office space in Fresh Meadows, New York, for
annual base
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rents ranging from $88,000 to $128,000. The lease is renewable for
five years at a $152,000 base annual rent.
Parkchester Publishing Co. operates out of 2,500 square feet of office
space at 170 West 233rd Street, Bronx, New York. We are currently leasing the
space on a month-to-month basis.
The Nassau Newspapers has recently signed a lease for approximately 5,000
square feet of office space at 33 Atlantic Avenue in Lynbrook, New York for a
seven-year term. The base rent in the first year is $69,600 increasing to
$76,500 in the final year.
In 1999, Capitol Hill Publishing, Inc. renewed its lease for approximately
4,000 square feet of office space at 733 15th Street, N.W., Washington, D.C. for
five years terminating July 21, 2004. The annual rent is approximately $82,000.
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.
We believe that our present space is adequate for current purposes and
offers moderate expansion possibilities.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our shares trade on The Nasdaq SmallCap Stock Market under the trading
symbol "NCOM". The following table sets forth, for the periods indicated, the
range of high and low closing bid quotations as reported by Nasdaq for each
quarter during the last two fiscal years. The bid quotations set forth below
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
High Low
----- -----
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
Fiscal Year Ended November 30, 1999
First Quarter..................... $2.00 $1.00
Second Quarter.................... 2.13 1.13
Third Quarter..................... 1.88 1.00
Fourth Quarter.................... 1.97 1.03
Fiscal Month Ended December 31, 1999 $1.16 $ .94
On February 22, 2000, the last reported sales price for our shares on The
Nasdaq SmallCap Stock Market was $1.94 per share. At February 18, 2000, we had
1,153 stockholders of record. We estimate that there are approximately 2,600
beneficial owners of our 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 our 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. These dividends have been and, in the future, it is anticipated that any
permitted dividends will, at least in the foreseeable future, continue to be
paid in shares of common stock. See "Consolidated Financial Statements" for
more information regarding our securities and any dividends we have paid.
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Recent Sale of Unregistered Securities
The securities described below were issued by us within the past three
years and were not registered under the Securities Act of 1933. Each of the
transactions is claimed to be exempt from registration with the SEC pursuant to
Section 4(2) of the Securities Act as transactions not involving a public
offering. All of such securities, other than the dividends paid on shares of
preferred stock in shares of common stock, are deemed to be restricted
securities for the purposes of the Securities Act. All certificates
representing such issued and outstanding restricted securities have been
properly legended and we have issued "stop transfer" instructions to its
transfer agent with respect to such securities. No commissions were paid in
connection with any of these issuances.
1. On September 30, 1997, we issued an aggregate of 7,800 shares of our common
stock, in payment of our dividend obligations, to holders of our 10%
convertible preferred stock.
2. On November 5, 1997, Dan's Papers and News Communications entered into a
Loan Agreement with Rothschild Recovery Fund L.P. pursuant to which Dan's
Papers borrowed $1,500,000 from Rothschild Recovery Fund. In connection
with the execution of the Loan Agreement, we issued to Rothschild a five-
year warrant to purchase, on or after February 28, 1998, 100,000 shares of
common stock at an initial exercise price of $6.75 per share (subject to
adjustment in certain circumstances).
3. In April 1998, we issued 20,000 shares of newly authorized $10 convertible
preferred stock, series 2, to Bershad Investment Group, L.P., for $200,000.
In December 1999, the $10 convertible preferred stock, series 2, was
converted into 133,333 shares of common stock.
4. On September 30, 1998, we issued an aggregate of 5,876 shares of our common
stock, in payment of our dividend obligations, to holders of our 10%
convertible preferred stock.
5. On July 28, 1999, we issued 250,000 shares of our common stock to Steven
Farbman in connection with his employment with us without consideration.
For a description of this transaction, see Item 10, Executive Compensation,
page 22.
6. On September 30, 1999, we issued an aggregate of 6,174 shares of our common
stock, in payment of our dividend obligations, to holders of our 10%
convertible preferred stock.
7. On January 31, 2000, we issued 483,200, 140,297 and 925,372 shares of our
common stock to Melvyn I. Weiss, Wilbur L. Ross, Jr. and J. Morton Davis,
respectively, at a purchase price of $1.75 per share, or $2,710,520 in the
aggregate.
Item 6. 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 our results of
operations and financial
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condition. The discussion should be read in conjunction with our audited
consolidated financial statements and notes thereto.
Overview
Revenues in fiscal 1999 were $18.3 million, an increase of 2.7% over the
$17.8 million in fiscal 1998, with display advertising accounting for 75% of
total sales and classified advertising generating 14% of the total. Other
revenue categories include: legal notice advertising (4.5%), commercial printing
(3.7%), and subscription and other (2.8%). A weak first quarter was offset by
strong third and fourth quarter revenue performances. The net loss in fiscal
1999 increased by $1.12 million to $3.83 million from a net loss of $2.71
million. Since the number of shares outstanding increased in fiscal 1999, the
loss per share decreased to $0.66 in fiscal 1999 from $1.01 in fiscal 1998.
Operating losses before interest, taxes, depreciation and amortization (EBITDA)
were reduced by 26% in fiscal 1999 to a loss of $1.29 million from a loss of
$1.74 million in fiscal 1998, excluding certain special items discussed below.
EBITDA is used in this report because management believes that EBITDA is an
effective way of monitoring our operating performance and is widely used among
media related businesses. EBITDA should be considered in addition to, not
instead of, operating profit, net income, cash flows and other measures of
financial performance reported in accordance with generally accepted accounting
principles.
Results of Operations
Revenue
The following chart shows a comparison of revenue, in thousands of dollars,
by category:
- ----------------------------------------------------------------------------
Category Fiscal Fiscal Change Percent change
1999 1998
- ----------------------------------------------------------------------------
Display Advertising 13,717 13,199 518 3.9%
- ----------------------------------------------------------------------------
Classified Advertising 2,557 2,290 267 11.7%
- ----------------------------------------------------------------------------
All Other 2,038 2,333 (295) (12.6%)
- ----------------------------------------------------------------------------
Total Revenue 18,312 17,822 490 2.7%
- ----------------------------------------------------------------------------
In fiscal 1999, display (75%) and classified (14%) advertising, which
comprised 89% of our revenue, increased 5.1% compared to fiscal 1998. Other
revenue declined by 12.6% as certain unprofitable commercial printing ventures
were discontinued in fiscal 1999. Revenue performance was stronger in the second
half of the year with a particularly strong fourth quarter, which grew by 18.6%
over the same period in fiscal 1998. Among our individual
13
<PAGE>
operating units Manhattan, Dan's Papers, The Hill and Brooklyn all had positive
contributions to revenue growth in fiscal 1999.
In Manhattan, new sales managers in the display and classified departments
were recruited to reverse a declining trend that emerged in the early part of
the year. As a result, revenues at the Manhattan newspapers in the last six
months of fiscal 1999 were 14% higher than revenues during the same period in
fiscal 1998. Dan's Papers had the traditional strong summer months, and was also
able to maintain momentum into the fall, helping the paper achieve strong (20%
growth) fourth quarter results. The Hill was hurt in the first part of the year
by the impeachment hearings and the resulting slowdown in Congressional
activity. The early shortfall was more than made up during a very strong (86%
growth) fourth quarter. Brooklyn Skyline installed a new classified sales
department in the first quarter and showed steady growth (22% for the year)
throughout the year. In November, the Brooklyn Skyline introduced the Health
Expo, which proved to be so successful that it has inspired some of our other
publishers to plan their own shows for fiscal 2000. Queens and Nassau had strong
classified advertising gains for both the fourth quarter and the full year.
Operating Performance
EBITDA, excluding three one-time expenses, improved by $442,000 from a loss
of $1.74 million in fiscal 1998 to a loss of $1.29 million in fiscal 1999.
Favorable paper prices, fewer glossy covers in the Manhattan newspapers and the
elimination of certain unprofitable commercial printing activities helped reduce
overall cost of sales by 2.4%, from $8.6 million in fiscal 1998 to $8.4 million
in fiscal 1999. We made a decision to invest in stronger editorial and sales
departments, which resulted in higher personnel expenses. A more efficient use
of our production personnel (primarily hourly employees) helped offset some of
that increase.
The three one-time expenses which were incurred in fiscal 1999 related to
the hiring of a new president and chief executive officer, an increase in the
reserve for uncollected receivables and an adjustment to the accrual for unpaid
commissions.
On July 28, 1999, Steven Farbman entered into an Employment Agreement with
NCI. As part of that Employment Agreement, Mr. Farbman was awarded a stock grant
of 250,000 shares of common stock. In addition, we also agreed to pay Mr.
Farbman cash compensation equal to 45% of the value of the stock grant. The
resulting net expense to the company in fiscal 1999 was $657,031.
The senior management team has reevaluated the reserve for uncollected
receivables. During the fourth quarter, management has recorded a $1.014
million charge against earnings for uncollectible receivables that relate to
periods prior to 1999. Management believes it has reserved properly for fiscal
1999 and has begun to institute more rigorous collection policies.
Historically, sales commission expense has been recorded at the time the
commission was paid to the employee which did not vary significantly from the
accrual basis. Management believes the commission expense should be accrued at
the same time that the corresponding
14
<PAGE>
revenue is recorded, similar to the way it records expenses for printing and
other direct expenses. Management believes that this method will more accurately
reflect the operating performance of the company and its subsidiaries. The net
effect of this change is a one-time commission expense of $173,611.
Income Taxes
We currently have a net operating loss (NOL) carryforward for federal
income tax purposes of approximately $13,700,000, which is available to offset
federal taxable income through the fiscal year 2018. We have provided a 100%
valuation allowance on deferred tax assets substantially resulting from the NOL
carryforwards discussed above.
Effects of Inflation
We do not believe that inflation has had a significant impact on our
financial position or the results of operations in the past three years.
Liquidity and Capital Resources
In order to comply with the requirements of NASD Marketplace Rule
4310(c)(2), from January 19, 1999 through February 16, 1999, we offered our
existing stockholders the right to purchase additional shares of its common
stock. On February 22, 1999 the Company successfully completed this offering
which resulted in gross proceeds of $5,750,000. In January 1999, we repaid the
$750,000 balance of bank loans from a $1,200,000 loan received from Messrs.
Ross, Weiss and Davis on December 31, 1998. This $1,200,000 loan was repaid on
February 28, 1999 with proceeds from the rights offering.
During fiscal year ended November 30, 1999, the total net cash used by
operations was $2,825,000 which included a reduction of our accounts payable of
$1,070,000. Cash used for investing activities totaled $433,000 including
$206,000 used to fund the operations of our unconsolidated subsidiary. We
expect this contribution to be reduced dramatically in fiscal 2000.
As of December 31, 1999, we had a shortage of current assets over current
liabilities in the amount of approximately $1,893,000. On January 31, 2000 we
sold an aggregate of 1,548,889 shares of common stock at a price of $1.75 per
share. The proceeds of the sale of shares was used to pay $2,710,521
representing the unpaid principal balance and accrued interest on our
indebtedness to D.H. Blair Investment Banking Corp. and Wilbur L. Ross.
While we cannot be sure we will generate positive cash flow for the fiscal
year ending December 31, 2000, management is confident that along with the
starting cash balance as of January 1, 2000 it has the resources available to it
to fund NCI's future cash needs.
Item 7. Financial Statements
The consolidated financial statements of News Communications, Inc. and its
subsidiaries including the notes thereto, together with the report thereon of
BDO Seidman LLP is presented beginning at page F-1.
15
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
16
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Our executive officers, directors and other significant employees and their
ages and positions are as follows:
<TABLE>
<CAPTION>
Name of Individual Age Position with News Communications and Subsidiaries
- --------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Jerry Finkelstein (1)(2) 84 Chairman of the Board and Director of News Communications
Wilbur L. Ross, Jr. (1) 62 Director and Publisher of News Communications
Michael Schenkler 54 Director of News Communications and Officer of Subsidiary
Steven Farbman (1) 39 President, Chief Executive Officer and Director of News Communications
Paul Mastronardi 40 Vice President and Chief Financial Officer of News Communications
Steven Price (3) 38 Director of News Communications
Martin A. Bell (2) 49 Director of News Communications
Gary Weiss (1)(2) 37 Director of News Communications
Robert E. Nederlander (3) 65 Director of News Communications
Martin Mendelsohn (3) 57 Director of News Communications
</TABLE>
- -------------------------------
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit 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 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. has been a director of News Communications since
October 1996. Mr. Ross served as Chief Executive Officer of News Communications
from October 1996 to August 1999. Since 1988, Mr. Ross has been Executive
Managing Director of Rothschild Inc. and Chairman of Rothschild Recovery Fund
and Asia Recovery Fund. Mr. Ross is also a director of World Airways, Inc., Mego
Financial Corp., a developer of timeshare properties, and Syms Corp., a clothing
retailer.
17
<PAGE>
Michael Schenkler has been a director of News Communications since March
1990, and served as president from December 1991 to July 1999. He has been
publisher of The Queens Tribune since 1979. 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.
Steven Farbman has been President and Chief Executive Officer and a
director of News Communications since July 29, 1999. From 1992 to 1999, he
served as Vice President and Chief Operating Officer of American Lawyer Media,
Inc. and its predecessor National Law Publishing Company, a publisher of legal
periodicals.
Paul Mastronardi has been Vice President and Chief Financial Officer of
News Communications since August 16, 1999. Prior to such date, from December
1997 to June 1999, Mr. Mastronardi served as Vice President, Finance of American
Lawyer Media. From March 1996 to December 1997, he was Vice President and Chief
Financial Officer of the National Law Publishing Company (subsequently purchased
by American Lawyer Media). He served as Director of Financial Planning for
Bantam Doubleday Dell, a division of Bertelsmann Inc., from April 1995 to March
1996. Prior to that time, Mr. Mastronardi spent fourteen years at Gruner & Jahr
USA Publishing, where he served in a variety of capacities, including Staff
Accountant, Manager of Information Systems, Senior Financial Manager and
Director of Financial Planning.
Steven Price has been a director of News Communications since July 29,
1999. Since June 1998, he has been President and Chief Executive Officer of
LiveWire Corporation, a telecommunications investment and management company.
From 1996 to 1998, Mr. Price was President and Chief Executive Officer of
PriCellular Corporation, a publicly traded cellular telephone operator which was
sold in June 1998. Mr. Price served as senior vice president, corporate
development of PriCellular from 1994 to 1996.
Martin A. Bell has been a director of News Communications since July 29,
1999. He has been Vice Chairman of D.H. Blair Investment Banking Corporation
since December 1995, prior to which time he served as Senior Vice President and
General Counsel to the firm. He is also a director of Venus Exploration, Inc.
Gary Weiss has been a director of News Communications since July 29, 1999.
He has been President of Weiss Capital Group LLC, an investment and consulting
firm since 1997. From 1992 to 1997, Mr. Weiss was a managing director of Bennis
& Reissman Inc.
Robert E. Nederlander has been a director of News Communications 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., a sporting goods manufacturer, Mego Financial Corp., Allis Chalmers Corp.,
and Cendant Corp.
Martin Mendelsohn has been a director of News Communications since July 29,
1999. Since 1992, he has been a partner at Verner, Liipfert, Bernhard,
McPherson and Hand.
18
<PAGE>
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.
We and Mr. Finkelstein, The Jerry Finkelstein Foundation, Inc. and Shirley
Finkelstein, Mr. Finkelstein's wife (collectively, the "Finkelstein Group");
Wilbur L. Ross, Jr.; J. Morton Davis, D.H. Blair Investment Banking Corp.,
Rivkalex Corporation and Rosalind Davidowitz, Mr. Davis' wife (collectively, the
"Davis Group"); Melvyn I. Weiss ("Weiss") and the M&B Weiss Family Partnership
(collectively, the "Weiss Group"); and Mr. Farbman (each member of the
Finkelstein Group, Mr. Ross, the Davis Group, the Weiss Group and Mr. Farbman,
individually, a "Stockholder" and collectively the "Stockholders") entered into
a Stockholders' Agreement. Under the terms of the Stockholders' Agreement, while
Mr. Farbman is President and Chief Executive Officer of the Company, the
Stockholders have agreed to act to maintain the size of the Board at 9 members.
The Stockholders have also agreed to vote their shares so as to elect as
directors of the Company (i) Mr. Finkelstein; (ii) two persons designated by Mr.
Ross, one of whom is Mr. Ross and the other of whom initially is Mr.
Nederlander; (iii) three persons designated by Mr. Farbman, one of whom is Mr.
Farbman, one of whom is Mr. Price and one of whom is Mr. Schenkler; (iv) one
person to be designated by the Weiss Group who initially is Mr. Weiss; (v) one
person to be designated by the Davis Group who initially is Mr. Bell; and (vi)
one person to be designated by the Davis Group, the Weiss Group and the
Finkelstein Group acting jointly who currently is Mr. Mendelsohn. As a result of
the Stockholders' Agreement and the collective ownership by the Stockholders of
more than 66% of the Company's Common Stock, the Stockholders will control the
election of the members of the entire Board of Directors. Mr. Farbman and Mr.
Price are brothers-in-law.
Committees of the Board of Directors
The Board currently has three committees: the Executive Committee, the
Audit Committee and the Compensation Committee.
The Executive Committee is comprised of Messrs. Farbman, Ross, Finkelstein
and Weiss. Mr. Ross serves as Chairman of the Executive Committee.
The Audit Committee is comprised of Messrs. Nederlander, Price and
Mendelsohn. The Audit Committee recommends the independent accountants
appointed by the Board to audit our the financial statements, which includes an
inspection of our books and accounts, 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 our 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. Finkelstein, Bell and
Weiss. The function of the Compensation Committee is to review and approve the
compensation of executive officers and establish targets and incentive awards
under our incentive compensation plans. The Compensation Committee reports to
the Board.
Compliance with Section 16(a) of the Exchange Act
19
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires a company's
officers, directors and persons who own more than ten percent of a registered
class of such company's equity securities to file reports of ownership and
changes in ownership with the SEC. Officers, directors and ten percent
stockholders are required by regulation to furnish us with copies of all Section
16(a) forms they file. Based on our records, we believe that during fiscal
1999, our officers, directors and ten percent beneficial owners complied with
all applicable filing requirements.
Item 10. Executive Compensation.
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended November 30, 1999, 1998 and 1997 concerning the compensation paid and
awarded to all individuals serving as our executive officers or key employees
whose total annual salary and bonus exceeded $100,000 for these periods:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Other Annual Compensation Restricted
Annual Compensation Compensation Awards Stock Awards
-----------------------------------------------------------------------------------------------
Salary Bonus Options
Name and Principal Position Year ($) ($) ($) (#)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven Farbman, President and 1999(3) $ 46,250 --- --- 830,000 $453,125
Chief Executive Officer
Jerry Finkelstein, Chairman of the 1999 168,083 --- $150,000(1) ---
Board 1998 195,000 --- --- ---
1997 195,000 --- --- ---
Wilbur L. Ross, Jr., Chief 1999(2) $ 1 --- --- ---
Executive Officer 1998 $ 1 --- --- ---
1997 $ 1 --- --- ---
Michael Schenkler, President and 1999(4) 164,528 --- --- ---
Publisher of The Queens Tribune 1998 167,223 --- --- ---
1997 158,197 --- --- ---
</TABLE>
_____________________________
(1) During July 1999, Mr. Finkelstein's Employment Agreement was amended to
reduce his annual salary to $95,000 from $195,000. In connection with the
amendment of Mr. Finkelstein's employment agreement, Mr. Finkelstein also
received a one-time cash payment of $150,000.
(2) Mr. Ross resigned as Chief Executive Officer of News Communications in July
1999.
20
<PAGE>
(3) Mr. Farbman was hired as President and Chief Executive Officer in July
1999. At that time, he received 250,000 shares of our common stock having
a fair market value of $453,125. Mr. Farbman's compensation does not
include an additional $203,906 paid in December 1999 under the terms of his
Employment Agreement, which is more fully described at Employment
Agreements, page 22.
(4) Mr. Schenkler served as President of News Communications from December 1991
until his resignation in July 1999.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Percent Of
Total Options
Number of Granted
Securities To Employees Exercise or
Underlying In Fiscal Base Price
Name Options Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven Farbman.................... 830,000 $1.8125 07-28-2004
---------------------------------------------------------------
Paul Mastronardi.................. 100,000 $1.625 08-16-2004
---------------------------------------------------------------
Jerry Finkelstein................. 200,000 $2.25 07-28-2004
---------------------------------------------------------------
..................................
---------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATE YEAR-END OPTION VALUES
(November 30, 1999)
<TABLE>
<CAPTION>
Number of unexercised options at Value of unexercised in-the-money
fiscal year-end (#) options at fiscal year-end ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Steven Farbman 3,333 830,000 --- ---
Wilbur L. Ross 71,666 --- --- ---
Michael Schenkler 10,000 --- --- ---
Jerry Finkelstein 396,666 --- --- ---
Paul Mastronardi --- 100,000 --- ---
Gary Weiss 153,333 --- --- ---
Employment Agreements
</TABLE>
On July 28, 1999, Steven Farbman, our President and Chief Executive
Officer, entered into an Employment Agreement with us (the "Employment
Agreement"). The Employment Agreement expires on November 30, 2004 unless it is
terminated earlier by Mr. Farbman or by us.
Under the Employment Agreement, Mr. Farbman will be paid an initial base
salary of $185,000. The base salary will increase annually by an amount equal
to the percentage increase in the cost of living for the New York metropolitan
area, and the Board of Directors will annually review Mr. Farbman's compensation
to determine whether a further increase is warranted. In addition to his base
salary, Mr. Farbman will receive an annual bonus based upon increases in
earnings before interest, taxes, depreciation and amortization for such period
("EBITDA"). For the fiscal year ending November 30, 1999, the bonus will be 15%
of the amount by which EBITDA for the six months ending November 30, 1999
exceeds the EBITDA for the six months ending November 30, 1998. Thereafter, the
amount of Mr. Farbman's bonus will be 15% of the amount by which EBITDA for the
fiscal year ending November 30, 1999 exceeds the EBITDA for the immediately
preceding fiscal year. Mr. Farbman will also be eligible to receive other cash
or stock bonuses as the Board may determine from time to time in its sole
discretion.
21
<PAGE>
Mr. Farbman's designated beneficiary will also have the right to receive
$1,000,000 of a $3,000,000 key man insurance policy that we have agreed to
maintain on the life of Mr. Farbman. We have also agreed to provide Mr. Farbman
with an automobile allowance of $20,000 per year.
The Employment Agreement may be terminated by us at any time for Cause (as
defined in the Employment Agreement). If Mr. Farbman's employment is terminated
for Cause, we will have no further obligations under the Employment Agreement
other than base salary and expenses accrued through the date of termination.
The Employment Agreement may also be terminated by us upon Mr. Farbman's death
or disability. In such event, we will pay to Mr. Farbman or his estate an
amount equal to his annual base salary at the time of his death unless, in the
case of his death, Mr. Farbman's estate receives the insurance proceeds
described above.
The Employment Agreement may also be terminated by Mr. Farbman for "Good
Reason," which includes, among other things, Mr. Farbman's removal as President
and Chief Executive Officer and as one of our directors, a material change in
Mr. Farbman's duties or responsibilities, a reduction in Mr. Farbman's
compensation, the breach of the Stockholders' Agreement or a change in control.
If Mr. Farbman terminates his employment for Good Reason, he will be entitled to
receive an amount equal to (A) the sum of (x) Mr. Farbman's Base Salary then in
effect and (y) the greater of the Bonus for the year preceding his termination
or the Bonus that he would have received had he completed the year in which his
termination occurred multiplied by (B) the lesser of (x) two (2) or (y) the
number of years remaining in the Term (including fractional portions of a year),
but in no event shall the multiplier be less than one (1).
The Employment Agreement contains a restrictive covenant that restricts Mr.
Farbman from engaging in (i) publication of community oriented newspapers in the
communities served by us, (ii) publication of newspapers, magazines or
periodicals the content of which is similar to or competitive with any of our
publications of having a circulation that is directed to a specific demographic
group to whom any of our publications are directed or (iii) a business that
directly competes within the same geographic market in which our business
accounts for, or is projected to account for, more than 5% of our gross
revenues. The Employment Agreement also prohibits Mr. Farbman from soliciting
our customers and employees. These restrictions apply both during the term and
for (x) two (2) years after the termination of Mr. Farbman's employment by us
for Cause or by Mr. Farbman without Good Reason or (y) one (1) year after the
termination of Mr. Farbman's employment by us without Cause, by Mr. Farbman for
Good Reason or as a result of Mr. Farbman's disability.
In connection with our employment of Mr. Farbman, on July 28, 1999, we have
also entered into a Restricted Stock Agreement and a Stock Option Agreement with
Mr. Farbman. Under the terms of the Restricted Stock Agreement, we issued to
Mr. Farbman 250,000 shares of common stock.
The terms of Mr. Farbman's Stock Option Agreement are set forth in
Directors' and Officers' Options at page 23.
22
<PAGE>
Pursuant to an amended and restated employment agreement entered into by
News Communications 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 News Communications at an annual salary of $195,000. On July 29,
1999, the Board of Directors and Mr. Finkelstein agreed to amend Mr.
Finkelstein's employment agreement to reduce his annual salary to $95,000 from
$195,000. Mr. Finkelstein may also be paid annual bonuses at the discretion of
the Board, based upon such factors as our results of operations and transactions
involving News Communications which are introduced to us by Mr. Finkelstein or
in which he is otherwise involved on our behalf. We also provide Mr.
Finkelstein with medical and other benefits and perquisites. Mr. Finkelstein
may terminate the agreement at any time by giving us at least 10 days' notice.
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.
Director Compensation
We have no established compensation arrangements with our directors. See
"Directors' and Officers' Options" for a discussion of our Directors and
Officers Stock Option Plan and options granted to certain directors and
officers.
However, on July 28, 1999 we granted to Gary Weiss, one of our directors
five (5) year options to purchase 100,000 shares of our common stock at a price
of $2.25 per share in consideration for services rendered to us during our
search for a permanent Chief Executive Officer.
Directors' and Officers' Options
On August 16, 1999, pursuant to a Stock Option Agreement, we granted Paul
Mastronardi options to purchase 100,000 shares of our common stock at an
exercise price of $1.625 per share. The options shall vest in four equal
installments of 25,000 shares beginning on the first anniversary of the
agreement through the fourth anniversary subject to accelerated vesting
provisions set forth in the Stock Option Agreement.
On July 28, 1999, we entered into a Stock Option Agreement with Steven
Farbman. Under the terms of the Stock Option Agreement, we granted Mr. Farbman
options to purchase 830,000 shares of our common stock at an exercise price of
$1.8125 per share. The options vest in four equal installments of 207,500
shares commencing on July 28, 2000 and on each July 28 thereafter. The vesting
may be such that 10% of the shares shall vest for each cumulative $.05
improvement in per share earnings before interest, taxes, depreciation and
amortization over that for the fiscal year ended November 30, 1998.
On July 28, 1999, we entered into a Stock Option Agreement with Jerry
Finkelstein. Under the terms of the Stock Option Agreement, we granted
Finkelstein immediately exercisable five year options to purchase 200,000 shares
of our common stock at an exercise price of $2.25 per share. In addition, all of
Finkelstein's unexpired options were extended to July 2004.
On July 28, 1999, pursuant to a Stock Option Agreement, we granted Gary
Weiss, one of our directors, immediately exercisable five year options to
purchase 150,000 shares of our common stock at an exercise price of $2.25 per
share.
On December 21, 1999, the Board adopted subject to stockholder approval,
a Stock Incentive Plan pursuant to which the Board may award options to purchase
an aggregate of 200,000 shares of our common stock to directors, officers,
employees and consultants. Options under the Stock Incentive Plan may be non-
qualified or incentive stock options for purposes of income taxation under
Section 422 of the Internal Revenue Code of 1986. All qualified incentive stock
options granted under the plan must have an exercise price at least equal to
Fair Market Value (as defined in the plan) as
23
<PAGE>
of the grant date while non-qualified stock options may be granted at an
exercise price less than Fair Market Value. No grants were made under the Stock
Incentive Plan during the fiscal year ended November 30, 1999.
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 News Communications 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 422 of
the Internal Revenue Code of 1986. No grants were made under the Discretionary
Option Plan during the fiscal years ended November 30, 1998 and 1999.
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 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 News Communications, on August 17, 1999 received a grant
of an option to purchase 3,333 shares of common stock exercisable at $1.625 per
share.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding ownership of
our common stock, as of February 18, 2000 by each person known to us to own
beneficially more than 5% of our outstanding common stock, by each person who is
a director of News Communications, by each person listed in the Summary
Compensation Table and by all directors and officers of News Communications 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 are based
on 8,568,162 shares of common stock outstanding on February 18, 2000 plus with
respect to each such person the number of additional shares that will be
outstanding upon exercise of the warrants and options exercisable within sixty
(60) days set forth herein.
<TABLE>
<CAPTION>
Beneficial Ownership Current
Name and Address of Common Stock Percent of Class
- ---------------- --------------- ----------------
<S> <C> <C>
Martin A. Bell 3,333 (1) (8) *
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Current
Name and Address of Common Stock Percent of Class
- ---------------- --------------- ----------------
<S> <C> <C>
Steven Farbman 253,333 (1) 2.59%
2 Park Avenue
New York, New York 10016
Jerry Finkelstein 660,667 (1)(2) 6.76%
150 East 58th Street
33rd Floor
New York, NY 10158
Martin Mendelsohn 3,333 (1) *
Verner, Liipfert, Bernhard,
McPherson and Hand
901 15th Street, N.W.
Suite 700
Washington, D.C. 20005
Robert E. Nederlander 50,801 (1)(3) *
810 7th Avenue, 21st Floor
New York, NY 10019
Steven Price 3,333 (1) *
c/o LiveWire Corporation
711 Westchester Avenue
White Plains, NY 10604
Wilbur L. Ross, Jr. 683,269 (1)(3)(4) 6.99%
1251 Avenue of the Americas
New York, NY 10020
Michael Schenkler 210,144 (1)(5) 2.15%
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
Gary Weiss 153,333 1.57%
Weiss Capital Group LLC
99 Seaview Blvd.
Port Washington, NY 11050
Melvyn I. Weiss 1,296,430 (1)(3)(6) 13.27%
One Pennsylvania Plaza
New York, NY 10119
J. Morton Davis 2,524,428 (1)(7) 25.84%
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
All Directors and Executive Officers as a 5,842,404 (9) 59.81%
Group (11 persons)
</TABLE>
- -------------------------------
* Less than one percent.
25
<PAGE>
(1) Includes the following numbers of shares purchasable upon the exercise of
presently exercisable options and warrants: Mr. Bell--3,333; Mr. Davis--
7,867; Mr. Farbman--3,333; Mr. Finkelstein--396,666; Mr. Mendelsohn--3,333;
Mr. Nederlander--18,333; Mr. Price--3,333; Mr. Ross--125,000; Mr.
Schenkler--10,000; Mr. M. Weiss--26,667; Mr. G. Weiss--153,333.
(2) 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.
(3) Includes the following numbers of shares issuable upon conversion of shares
of $10 convertible preferred stock: Mr. Nederlander--32,468; Mr. Weiss--
64,935; Mr. Ross--129,870.
(4) Does not include
(a) 16,667 shares owned by Rothschild Inc.
(b) 32,468 shares issuable upon conversion of shares of $10 convertible
preferred stock owned by Arrow Investment Limited Partnership.
(c) 25,974 shares issuable upon exercise of warrants owned by Arrow
Investment Limited Partnership.
(d) 100,000 shares issuable upon exercise of warrants owned by the
Rothschild Recovery Fund L.P.
(e) 16,670 shares of common stock owned by Arrow Investment Limited
Partnership.
Mr. Ross disclaims beneficial ownership of all of such shares.
(5) Includes
(a) 3,000 shares that are issuable upon conversion of our 10% preferred
stock.
Does not include
(b) 13,678 shares owned by Mr. Schenkler's wife as custodian for two minor
children of which Mr. Schenkler disclaims beneficial ownership.
(6) Includes 160,071 shares owned by the M&B Weiss Family Partnership.
(7) Includes
(a) 1,372,303 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, and
(b) 19,156 shares of common stock issuable upon exercise of 5,900 shares of
$10 convertible preferred stock.
Does not include
(c) 41,276 shares owned by Rivkalex Corporation ("Rivkalex"), a private
corporation owned by Rosalind Davidowitz, Mr. Davis's wife, and
(d) 749,166 shares of common stock owned by Rosalind Davidowitz.
Mr. Davis and D.H. Blair Investment Banking Corp. expressly disclaim
beneficial ownership of all securities held by Rivkalex and Rosalind
Davidowitz.
(8) Does not include 1,372,303 shares of common stock and warrants to purchase
207,867 shares owned by D.H. Blair Investment Banking Corp., of which
Martin A. Bell is Vice Chairman. Mr. Bell expressly disclaims beneficial
ownership of all securities held by D.H. Blair Investment Banking Corp.
(9) Includes shares issuable upon exercise of the options referenced in (1)
above, conversion of the $10 convertible preferred stock referenced in (3)
above, conversion of the 10% preferred stock referenced in (5) above.
Item 12. Certain Relationships and Related Transactions.
July 28, 1999 Stockholder's Agreement. Please see Item 9, Directors,
Executive Officers, Promoters and Control Persons, page 19.
July 28, 1999 Restricted Stock Agreement with Steven Farbman. Please see
Item 10, Employment Agreements, page 22.
26
<PAGE>
July 28, 1999 Stock Option Agreement with Steven Farbman. Please see
Item 10, Employment Agreements, page 22.
August 16, 1999 Stock Option Agreement with Paul Mastronardi. Please see
Director and Officer Options, page 23.
On July 28, 1999, the maturity of the $1,000,000 aggregate principal amount
of indebtedness of our subsidiaries, Tribco Incorporated and Access Network
Corp., to D.H. Blair Investment Banking Corp. was extended to January 31, 2000.
With respect to the repayment of the such indebtedness, on July 28, 1999, we
entered into a Subscription Agreement with Messrs. Weiss, Ross and Davis to
which Messrs. Weiss, Ross and Davis agreed to purchase 483,200, 140,297 and
925,372 shares of the our common stock, respectively, at a purchase price of
$1.75 per share, on January 31, 2000. On January 31, 2000 we sold an aggregate
of 1,548,869 shares at a price of $1.75 per share. The proceeds of the sale of
shares was used to pay $2,710,520.83 representing the unpaid principal balance
and accrued interest on our indebtedness to DH Blair Investment Banking Corp.
and Wilbur L. Ross, Jr.
On January 12, 1999, Messrs. Ross, Weiss and Davis entered into a Standby
Agreement with News Communications in which they agreed to purchase any shares
remaining unsold in the rights offering. The Standby Agreement granted each
such person certain registration rights that will allow them to register for
sale the unsold shares that they purchase during the three-year period following
the closing of the rights offering. Pursuant to the Standby Agreement, Messrs.
Ross, Weiss and Davis purchased, 224,722, 524,399 and 749,149 shares,
respectively.
On December 31, 1998, Messrs. Ross, Weiss and Davis each loaned News
Communications $400,000, for a total of $1,200,000. In consideration for the
loans, each such person received a promissory note from News Communications in
the principal amount of $400,000, payable on February 28, 1999, at an interest
rate equal to the prime lending rate then in effect, plus 1%. We used $750,000
of the loans to repay the line of credit from Chase Manhattan Bank, N.A. This
indebtedness was satisfied from proceeds on a rights offering on February 28,
1999.
Dan's Papers leases from Mr. Rattiner 2,810 square feet of office space at
an annual rate of approximately $74,000, plus cost-of-living adjustments, in a
building on Montauk Highway, Bridgehampton, New York, for a term of ten years
terminating in October 2008.
Rothschild Inc., of which Wilbur L. Ross, Jr. is Executive Managing
Director, furnished investment banking services to News Communications in
connection with the issuance and sale of our $10 convertible preferred stock and
associated warrants. In
27
<PAGE>
consideration for such services, we issued Rothschild Inc. 16,668 shares of
common stock, valued at $6.00 per share.
On November 5, 1997, Dan's Papers and News Communications entered into the
Rothschild Recovery Fund Loan Agreement with Rothschild Recovery Fund L.P.
pursuant to which Dan's Papers borrowed $1,500,000 from Rothschild Recovery
Fund. In addition, in connection with the execution of the Rothschild Recovery
Fund Loan Agreement, we issued to Rothschild Recovery Fund a five-year warrant
to purchase 100,000 shares of our common stock at an initial exercise price of
$6.75 per share, subject to adjustment. Wilbur L. Ross, Jr. purchased the loan
from Rothschilds Recovery Fund in July 1999. Wilbur L. Ross, Jr. is Chairman of
Rothschild Recovery Fund. This loan has been satisfied from the proceeds of the
sale of our common stock on January 31, 2000 to Messrs. Weiss, Ross and Davis as
set forth above.
In May 1996, News Communications, Tribco and Access obtained a $1,000,000
loan from D. H. Blair Investment Banking Corp., one of our principal
stockholders. This loan has been satisfied from the proceeds of the sale of our
common stock on January 31, 2000 to Messrs. Weiss, Ross and Davis as set forth
above. As additional consideration for the loan, we issued D.H. Blair
Investment Banking Corp. a five-year warrant to purchase 66,667 shares of our
common stock at an initial exercise price of $7.50 per share, subject to
adjustment.
The transactions described above are on terms as favorable to News
Communications as those that could have been obtained from independent third
parties and arms-length negotiations.
Item 13. Exhibits, List and Reports on Form 10-KSB.
(a) Exhibits
--------
<TABLE>
<CAPTION>
Incorporated by Exhibit No. in
Exhibit Reference from Referenced
Number Description Document (1) Document
<S> <C> <C>
3.1 Articles of Incorporation of the company (formerly A 3.1
known as Applied Resources, Inc.), filed with the
Secretary of State of the State of Nevada on May 20,
1986.
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
3.1.1 Certificate of Amendment of the Articles of A 3.1.1
Incorporation of the company, filed with the
Secretary of State of the State of Nevada on
December 8, 1987.
3.1.2 Certificate of Amendment of the Articles of B 3.1.2
Incorporation of the company, filed with the
Secretary of State of Nevada on August 16, 1990.
3.1.3 Certificate of Amendment of the Articles of C 3.1.3
Incorporation of the company, filed with the
Secretary of the State of Nevada on July 26, 1994.
3.2 By-Laws of the company (as amended and restated). C 3.2.1
4.1 Form of Common Stock Certificate. B 4.1
4.2 Form of 10% Convertible Preferred Stock Certificate. B 4.2
4.2.1 Resolution of Board of Directors fixing the terms of B 4.2.1
the 10% Convertible Preferred Stock.
4.2.2 Resolution of Board of Directors fixing the terms of C 4.2.2
the 8% Convertible Preferred Stock.
4.2.3 Certificate of Amendment of Certificate of C 4.2.4
Designation of 8% Convertible Preferred Stock.
4.2.4 Resolution of Board of Directors fixing the terms of C 4.2.3
the 12% Convertible Preferred Stock.
4.2.5 Certificate of Designation of 12% Convertible L 4.2.5
Preferred Stock
4.2.6 Certificate of Designation of $10 Convertible H 10.33
Preferred Stock (included as part of Exhibit 10.21).
4.3 Form of Rights Certificate L 4.3
10.1 1987 Stock Option Plan of the company, as amended. G 10.1.1
10.2 Discretionary Directors and Officers Stock Option C 10.2.1
Plan.
10.3 Non-discretionary Directors Stock Option Plan. C 10.2.2
10.4 Stockholders' Agreement, dated as of October 13, D 2.1
1988, between Daniel Rattiner and the company.
10.5 Agreement of Lease, dated October 31, 1988, between D 2.4
Daniel Rattiner and DP Acquisition Corp., as to
building known as Dan's Papers, Ltd. Located on
Montauk Highway, Bridgehampton, New York.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Amendment of Lease, dated October 31, 1998, between L 10.6
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 J 10.4.4
Daniel Rattiner regarding exercise of option to
purchase stock of Dan's Papers, Ltd.
10.8 Employment and Stockholders' Agreement dated as of K 10.4.5
November 25, 1997 by and between the company and
Daniel Rattiner
10.9 Amended and Restated Employment Agreement, dated J 10.7.4.1
October 28, 1996, between Jerry Finkelstein and the
company.
10.10 Stock Option Agreement dated September 1, 1993, C 10.11
between Jerry Finkelstein and the company.
10.11 Letter Agreement, dated June 15, 1990, between Dan's B 10.21
Papers, Inc. and Dan's Papers, Ltd.
10.12 Lease for space at 174-15 Horace Harding Expressway, B 10.25
Fresh Meadows, New York.
10.13 Agreement of Lease dated January 28, 1995, between E 10.24
Furcraft Associates, Inc. and the company.
10.14 Warrant dated May 17, 1996, to purchase 400,000 H 10.31
shares of the company's common stock issued by the
company to D.H. Blair Investment Banking Corp.
10.15 Warrant dated May 21, 1996, to purchase 200,000 H 10.32
shares of the company's common stock issued by the
company to D.H. Blair Investment Banking Corp.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
10.16 Form of Subscription Agreement made as of October 4, H 10.33
1996 among the company and persons designated
therein as "Purchasers," including Exhibit 1
thereto, form of Certificate of Designation of
$10.00 Convertible Preferred Stock, and Exhibit 2
thereto, form of Warrant.
10.17 Form of Standby Agreement dated January 12, 1998 L 10.25
among the company, Wilbur L. Ross, Jr., Melvyn I.
Weiss and J. Morton Davis, as amended.
10.18 Employment Agreement dated as of July 28, 1999 by N 10.1
and between News Communications, Inc. and Steven
Farbman.
10.19 Restricted Stock Agreement dated as of July 28, 1999 N 10.2
by and between News Communications, Inc. and Steven
Farbman.
10.20 Stock Option Agreement dated as of July 28, 1999 by N 10.3
and between News Communications, Inc. and Steven
Farbman.
10.21 Stockholders Agreement dated July 28, 1999 by and N 10.4
among the News Communications, Inc., Wilbur L. Ross,
Jr., Melvyn I. Weiss, The M&B Weiss Family
Partnership, Jerry Finkelstein, Shirley Finkelstein,
The Jerry Finkelstein Foundation, Inc., J. Morton
Davis, D.H. Blair Investment Banking Corp., Rivkalex
Corporation, Rosalind Davidowitz and Steven Farbman.
10.22 Subscription Agreement dated July 28, 1999 by and N 10.5
between News Communications, Inc., Wilbur L. Ross,
Jr., Melvyn I. Weiss and J. Morton Davis.
10.23 Stock Option Agreement dated July 28, 1999 by and * *
between News Communications, Inc. and Jerry
Finkelstein.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
10.24 Letter Agreement dated July 29, 1999 by and between * *
Jerry Finkelstein and News Communcations, Inc.
10.25 Stock Option Agreement dated July 28, 1999 by and * *
between News Communications, Inc. and Gary Weiss.
10.26 Stock Option Agreement dated August 16, 1999 by and * *
between News Communications, Inc. and Paul
Mastronardi.
10.27 1999 Stock Option Plan of News Communications, Inc. * *
21 Subsidiaries of the company. K 22
24 Power of Attorney (included on signature page) * *
27 Financial Data Schedule * *
</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 events 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.
L Registration Statement on Form SB-2 (Registration No. 333-67407), declared
effective by the SEC on January 14, 1999.
M Annual Report of the company on Form 10-KSB40 for the year ended November
30, 1998.
N Current Report of the company on Form 8-K relating to events occurring on
July 28, 1999.
O Current Report of the company on Form 8-K relating to events occurring on
December 15, 1999.
* Filed herewith.
(b) No reports were filed on Form 8-K during the last quarter of fiscal
year 1999.
32
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Financial Statements
Years Ended November 30, 1998 and 1999 and
One Month Ended December 31, 1999
<PAGE>
News Communications, Inc.
and Subsidiaries
Contents
Independent auditors' report............................................... F-2
Consolidated financial statements:
Balance sheets............................................................. F-3
Statements of operations................................................... F-4
Statements of stockholders' equity (deficit)............................... F-5
Statements of cash flows................................................... F-6
Notes to consolidated financial statements........................... F-7- F-28
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders of
News Communications, Inc.
We have audited the accompanying consolidated balance sheets of News
Communications, Inc. and Subsidiaries as of November 30, 1999 and December 31,
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended November 30, 1998 and 1999
and the one month ended December 31, 1999. 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, 1999 and December 31,
1999, and the consolidated results of their operations and their cash flows for
the years ended November 30, 1998 and 1999 and the one month ended December 31,
1999, in conformity with generally accepted accounting principles.
February 17, 2000
F-2
<PAGE>
News Communications, Inc.
and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
November 30, December 31,
1999 1999
- -----------------------------------------------------------------------------------------------------------------------------
Assets
Current:
<S> <C> <C>
Cash $ 1,365,286 $ 1,250,288
Accounts receivable, net of allowance for doubtful accounts of $2,097,366 and 2,533,288 2,208,904
$2,031,763
Due from related parties 18,200 17,566
Other 226,720 254,838
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 4,143,494 3,731,596
Investment in unconsolidated entities 173,802 171,119
Property and equipment, net 418,310 405,509
Intangible assets, net 2,922,561 2,901,533
Other, net 153,574 150,449
- -----------------------------------------------------------------------------------------------------------------------------
$ 7,811,741 $ 7,360,206
=============================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 589,663 $ 694,937
Accrued expenses 2,077,114 1,962,572
Due to related parties 2,835,260 2,823,696
Unearned revenue 150,542 143,015
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,652,579 5,624,220
- -----------------------------------------------------------------------------------------------------------------------------
Minority interest 502,473 492,358
- -----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 shares authorized; 217,835 and 197,835 217,835 197,835
shares issued and outstanding, respectively; $2,594,000 and $2,394,000 aggregated
liquidation value, respectively
Common stock, $.01 par value; authorized 100,000,000 shares; 6,888,674 and 7,022,007 68,886 70,219
shares issued and outstanding, respectively
Paid-in capital - preferred stock 2,216,540 2,036,540
Paid-in capital - common stock 20,247,047 20,445,714
Deficit (20,684,890) (21,097,951)
- -----------------------------------------------------------------------------------------------------------------------------
2,065,418 1,652,357
Less: Treasury stock (50,333 common shares) - at cost 408,729 408,729
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,656,689 1,243,628
- -----------------------------------------------------------------------------------------------------------------------------
$ 7,811,741 $ 7,360,206
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
News Communications, Inc.
and Subsidiaries
Consolidated Statement of Operations
Year ended November 30, One month
-------------------------- ended
December 31,
1998 1999 1999
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Net revenues $17,822,070 $18,312,254 $1,184,829
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Salaries, benefits and outside labor costs 9,787,867 11,033,731 802,710
Direct mechanical costs 5,658,234 5,664,282 414,466
General and administrative 2,788,938 2,050,731 217,195
Provision for doubtful accounts 699,269 1,967,126 60,500
Rent, occupancy and utilities 881,291 949,158 78,343
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 19,815,599 21,665,028 1,573,214
- -------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,993,529) (3,352,774) (388,385)
Interest expense (322,970) (238,341) (15,360)
- -------------------------------------------------------------------------------------------------------------------------
Loss before minority interest and equity in loss of
unconsolidated entities (2,316,499) (3,591,115) (403,745)
Less:
Minority interest in income of subsidiary 178,600 42,399 (10,115)
Equity in loss of unconsolidated entities 216,636 200,000 16,667
- -------------------------------------------------------------------------------------------------------------------------
Net loss $(2,711,735) $(3,833,514) $ (410,297)
=========================================================================================================================
Loss per common share -
Basic and diluted $(1.01) $(.66) $(.06)
=========================================================================================================================
Weighted average number of common shares outstanding 2,721,670 5,767,606 6,904,513
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
News Communications, Inc.
and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficit)
Years ended November 30, 1998 and 1999 and one month ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------
Paid-in
Preferred stock capital- Common stock
--------------------------- preferred -------------------------
Shares Amount stock Shares Amount
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1997 200,340 $200,340 $2,077,025 2,737,410 $27,373
Stock issued in connection with
purchase of Nassau Newspapers - - - 48,714 487
Issuance of $10 convertible preferred
stock 20,000 20,000 180,000 - -
Stock issued as preferred dividends - - - 5,876 59
Dividends on preferred stock - - - - -
Net loss - - - - -
Balance, November 30, 1998 220,340 220,340 2,257,025 2,792,000 27,919
Rights offering - - - 3,833,333 38,333
Costs associated with offering - - - - -
Conversion of 5 shares 10% preferred
into 3,000 shares of common stock (5) (5) (17,985) 3,000 30
Conversion of 2,500 shares $10
preferred to 4,167 common stock (2,500) (2,500) (22,500) 4,167 42
Stock issued as preferred dividends - - - 6,174 62
Issuance of 250,000 shares common stock
par $.01 at $1.8125 - - - 250,000 2,500
Dividends on preferred stock - - - - -
Net loss - - - - -
Balance, November 30, 1999 217,835 217,835 2,216,540 6,888,674 68,886
Conversion of 20,000 shares $10
preferred to 133,333 shares of common
stock (20,000) (20,000) (180,000) 133,333 1,333
Dividends on preferred stock - - - - -
Net loss - - - - -
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 197,835 $197,835 $2,036,540 7,022,007 $70,219
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Years ended November 30, 1998 and 1999 and one month ended December 31, 1999
- ---------------------------------------------------------------------------------------------------------
Paid-in Total
capital - stockholders'
common Treasury equity
stock Deficit stock (deficit)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 $14,486,654 $(14,049,876) $(408,729) $ 2,332,787
Stock issued in connection with
purchase of Nassau Newspapers (487) - - -
Issuance of $10 convertible preferred
stock - - - 200,000
Stock issued as preferred dividends 12,941 (13,000) - -
Dividends on preferred stock - (33,121) - (33,121)
Net loss - (2,711,735) - (2,711,735)
- ---------------------------------------------------------------------------------------------------------
Balance, November 30, 1998 14,499,108 (16,807,732) (408,729) (212,069)
Rights offering 5,711,667 - - 5,750,000
Costs associated with offering (467,709) - - (467,709)
Conversion of 5 shares 10% preferred
into 3,000 shares of common stock 17,960 - - -
Conversion of 2,500 shares $10
preferred to 4,167 common stock 24,958 - - -
Stock issued as preferred dividends 10,438 (10,500) - -
Issuance of 250,000 shares common stock
par $.01 at 1.8125 450,625 - - 453,125
Dividends on preferred stock - (33,144) - (33,144)
Net loss - (3,833,514) - (3,833,514)
- ---------------------------------------------------------------------------------------------------------
Balance, November 30, 1999 20,247,047 (20,684,890) (408,729) 1,656,689
Conversion of 20,000 shares $10
preferred to 133,333 shares of common
stock 198,667 - - -
Dividends on preferred stock - (2,764) - (2,764)
Net loss - (410,297) - (410,297)
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $20,445,714 $(21,097,951) $(408,729) $ 1,243,628
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
News Communications, Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
One month
Year ended November 30, ended
--------------------------- December 31,
1998 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities of continuing operations:
Net loss $(2,711,735) $(3,833,514) $ (410,297)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 485,978 426,891 41,652
Provision for doubtful accounts 699,269 1,967,126 60,500
Amortization of debt discount 99,329 - -
Noncash compensation to officer - 453,125 -
Minority interest 178,600 42,399 (10,115)
Loss from unconsolidated entities 216,636 200,000 16,667
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (475,936) (1,219,763) 263,884
Other current assets (100,194) 25,496 (28,119)
Other assets 30,656 (109,096) 3,125
Related party receivable 1,196 8,217 635
Increase (decrease) in:
Accounts payable 1,033,350 (1,070,296) 105,274
Accrued expenses 421,945 396,079 (114,542)
Other current liabilities 57,135 (44,245) (7,527)
Related party payable 251,750 (67,178) (11,564)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities of
continuing operations 187,979 (2,824,759) (90,427)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities of continuing operations:
Capital expenditures (139,949) (226,527) (7,823)
Investment in unconsolidated entities (312,000) (206,196) (13,984)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing
operations (451,949) (432,723) (21,807)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities of continuing operations:
Proceeds from common stock 200,000 - -
Proceeds from rights offering - 5,750,000 -
Costs associated with rights offering - (467,709) -
Principal payments on notes payable (150,000) (750,000) -
Dividend on preferred stock (33,121) (33,144) (2,764)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities of
continuing operations 16,879 4,499,147 (2,764)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in discontinued operations (53,908) - -
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (300,999) 1,241,665 (114,998)
Cash, beginning of period 424,620 123,621 1,365,286
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 123,621 $ 1,365,286 $1,250,288
=======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 171,249 $ 175,654 $ 12,188
Stock issued as preferred dividend 13,000 10,500 -
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
1. Organization and Description of Business - News Communications, Inc., a Nevada
Industry Segment 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, which is the news publication business.
Change in Year-End - In December 1999, the Company elected to
change its year-end to December 31 from November 30. This change
was made effective December 31, 1999.
2. Summary of Principles of Consolidation - The consolidated financial
Significant statements of the Company include the accounts of the parent
Accounting Policies company and its wholly-owned and majority-owned subsidiaries.
Investments in unconsolidated affiliates which are 50% or less
owned are accounted for under the equity method. All intercompany
accounts and 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. Estimates have been made by
management with respect to the Company's allowance for doubtful
accounts, amortization relating to goodwill and tradenames, among
other items. Actual results could differ from those estimates.
</TABLE>
F-7
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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:
</TABLE>
<TABLE>
<CAPTION>
Years
- -----------------------------------------------------------------------------------------------
<S> <C>
Furniture, fixtures and office equipment 5-10
Leasehold improvements Shorter of useful
life of asset or
length of lease
Computer equipment 5
Distribution boxes 5
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Tradenames - Tradenames are amortized over ten to twenty years on
a straight-line basis.
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.
Revenue Recognition - Advertising revenues are earned when
advertisements appear in the various publications. Unearned
revenues of $150,542 and $143,015 at November 30, 1999 and
December 31, 1999, respectively, represent future advertisements
that have been paid for by customers in advance.
Direct Mechanical Costs - Production and distribution-related
expenses are classified as direct mechanical costs.
Seasonality - One of the Company's publications (which generated
approximately 24% of revenues in fiscal 1998 and 1999 and
approximately 14% for the one month ended December 31, 1999) 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.
</TABLE>
F-8
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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, 1999 and December 31, 1999, the
Company had no funds with financial institutions subject to a
credit risk beyond the insured amount.
Loss Per Common Share - Basic loss per share includes no dilution
and is computed by dividing loss available to common shareholders
by the weighted average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution
from the assumed exercise of stock options, warrants and conversion
of Preferred stock. Diluted loss per share has not been
presented for the years ended November 30, 1998 and 1999 and the
one month ended December 31, 1999, as the effects of stock options
would be anti-dilutive. Accordingly, basic and dilutive earnings per
share did not differ for the years ending November 30, 1998 and 1999
and the one month ended December 31, 1999.
For the years ended November 30, 1998 and 1999 and the one month ended
December 31, 1999, options to purchase 627,713, 867,183 and 1,618,332
shares of common stock, warrants to purchase 600,000, 566,667 and 566,667
shares of common stock and convertible preferred shares of 409,885,
402,971 and 371,658, respectively, were not included in the computation of
diluted loss per share because the effect would be antidilutive.
Income Taxes - Income taxes are calculated using the liability
method specified by SFAS No. 109 "Accounting for Income Taxes."
SFAS 109 requires a company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events
that have been recognized in a company's financial statements or
tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent
realization is uncertain.
</TABLE>
F-9
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
Stock Options - The Company accounts for stock options in
accordance with SFAS No. 123 "Accounting for Stock Based
Compensation," which allows a choice of either the intrinsic
value method or the fair value method of accounting for employee
stock options. The Company has elected to use the current
intrinsic value method.
Long-Lived Assets - Long-lived assets, such as intangibles and
property and equipment, are evaluated for impairment when events
or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When
any such impairment exists, the related assets will be written
down to fair value. No impairment losses have been necessary
through December 31, 1999.
Restatement - The financial statements and related notes have
been restated to give retroactive effect to a one-for-three
reverse stock split on January 19, 1999.
Segment Information - The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" for fiscal 1999. The statement requires disclosure
of certain financial information related to operating segments.
The Company has determined that it operates in one reportable
segment.
</TABLE>
F-10
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
3. Property and Equipment Major classes of property and equipment are as
follows:
November 30, December 31,
1999 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $269,703 $225,180
Computer equipment and software 421,725 424,448
Machinery and equipment 20,235 8,139
Furniture, fixtures and office
equipment 103,358 103,357
Distribution boxes 73,763 73,763
- -----------------------------------------------------------------------------------------
888,784 834,887
Less: Accumulated depreciation and
amortization 470,474 429,378
- -----------------------------------------------------------------------------------------
Property and equipment, net $418,310 $405,509
=========================================================================================
</TABLE>
<TABLE>
<S> <C> <C>
Depreciation expense for the years ended November 30, 1998 and
1999 amounted to $166,337 and $168,411, respectively.
Depreciation expense for the one month ended December 31, 1999
amounted to $20,624.
4. Intangible Assets Intangible assets consist of goodwill and tradenames. Intangibles
are amortized on a straight-line basis over their estimated
lives, which vary from 10 to 20 years. Tradenames and goodwill as
of November 30, 1999 and December 31, 1999 consisted of:
</TABLE>
<TABLE>
<CAPTION>
November 30, December 31,
Useful lives
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $2,117,708 $2,117,708 10-20 years
Tradenames 2,850,000 2,850,000 10-20 years
- ----------------------------------------------------------------------------------------------
4,967,708 4,967,708
Less: Accumulated amortization:
Goodwill 883,496 893,649
Tradenames 1,161,651 1,172,526
- ----------------------------------------------------------------------------------------------
$2,922,561 $2,901,533
==============================================================================================
</TABLE>
<TABLE>
<S> <C> <C>
Amortization expense of $297,483 and $258,480 was recognized for
the years ended November 30, 1998 and 1999, respectively.
Amortization expense for the one month ended December 31, 1999
amounted to $21,028.
</TABLE>
F-11
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
5. Related Parties Short-term note payable in the amount of $1,000,000 at November
30, 1999 and December 31, 1999 consisted of a promissory note due
to a principal shareholder of the Company, which is included in
due to related party. The note was originally due on June 21,
1999, but was extended until January 31, 2000. The note has a
stated interest rate of 8.5 percent per annum. Interest is
payable quarterly commencing July 1, 1996. As of November 30,
1999, accrued interest was approximately $184,000. As of December
31, 1999, accrued interest was approximately $191,000. As
additional consideration for the promissory note, in 1996
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.
Short-term note payable in the amount of $1,500,000 at November
30, 1999 and December 31, 1999 consisted of a promissory note due
to an affiliate of a principal shareholder and officer of the
Company. The note was originally due on December 31, 1998, but
was extended until January 31, 2000. The note 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 in 1997 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.
Interest expense for the years ended November 30, 1998 and 1999,
relating to the above notes was approximately $231,000. Interest
expense for the one month ended December 31, 1999 amounted to
approximately $19,000.
</TABLE>
F-12
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
On January 31, 2000 the Company sold an aggregate of 1,548,869
shares of common stock at a price of $1.75. The proceeds of the
sale were used to pay the $1,000,000 and $1,500,000 short-term
notes payable referred to above, along with the accrued interest
in the amount of $210,520.
Certain Company office facilities are leased from an officer of a
subsidiary of the Company. Rental expense amounted to
approximately $52,000 and $66,000 for the years ended November
30, 1998 and 1999, respectively. Rent expense for the one month
ended December 31, 1999 amounted to approximately $6,300. The
lease payment 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 expired on
October 31, 1998. A new lease was entered into on October 31,
1998 with the same terms as the original lease.
Amounts owed to an officer of a subsidiary of the Company for a
bonus and expenses amounted to approximately $43,000 at November
30, 1999 and December 31, 1999. Amounts due to another officer of
a subsidiary of the Company for a bonus and expenses amounted to
approximately $73,000 and $60,000 at November 30, 1999 and
December 31, 1999, respectively. Amounts due to other employees
for bonuses amounted to $35,000 and $25,000 at November 30, 1999
and December 31, 1999, respectively.
Revenues from related parties amounted to $44,750 and $24,350
during the years ended November 30, 1998 and 1999, respectively.
Revenues from related parties for the one month ended December
31, 1999 amounted to $-0-.
</TABLE>
F-13
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
6. Fair Value of SFAS No. 107, "Disclosures about Fair Value of Financial
Financial Instruments," and SFAS No. 119, "Disclosure about Derivative
Instruments 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, 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, net accounts receivable, trade payables and short-term debt
approximate cost because of the immediate or short-term maturity
of these financial instruments. The fair value of long-term debt
is estimated based on discounting expected cash flows at rates
currently available to the Company for instruments with similar
risks and maturities.
7. Leases The Company leases all operating facilities under operating
leases expiring through October 2008. Rent expense under
operating leases was approximately $513,000 and $560,000 for the
years ended November 30, 1998 and 1999, respectively. Rent
expense for the one month ended December 31, 1999 was
approximately $46,000.
The future minimum payments under noncancelable operating leases
consisted of the following at December 31, 1999:
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ending December 31, Operating leases
- -----------------------------------------------------------------------------------------------
<S> <C>
2000 $ 565,677
2001 395,567
2002 392,122
2003 360,743
2004 269,183
Thereafter 182,179
- -----------------------------------------------------------------------------------------------
$2,165,471
===============================================================================================
</TABLE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
F-14
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
8. Commitments and The Company has an employment agreement expiring in 2007 with the
Contingencies President of DPI. The agreement stipulates an annual salary of
$144,000, 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 of approximately $50,000
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, 1999 and December 31, 1999, the value
of the put option based on the aforementioned formula was
approximately $1.4 million. The option is related to the 1988
acquisition of DPI by the Company.
In July 1999, NCI entered into a five-year employment agreement
with the CEO and president of the Company. The agreement
stipulates a base salary of $185,000 (adjusted for increases in
the consumer price index), bonuses and other benefits. In
addition, the agreement also calls for the awarding of 250,000
shares of the Company's common stock and options for 830,000
shares of the Company's common stock (see Note 9). Compensation
expense associated with the above transaction amounted to
approximately $657,000 and is included in the year ended November
30, 1999 salaries benefits and outside labor costs expense.
</TABLE>
F-15
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
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 called 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 $7.14 per share, which were awarded to the Chairman
in connection with the agreement, expired on August 31, 1998. 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. In July
1999, the agreement was modified reducing the annual salary to
$95,000 and the chairman of the board received a one-time payment
of $150,000. The $150,000 is being amortized over the remaining
four years of the agreement. In addition, all of the Chairmans'
unexpired options were extended to July 2004.
</TABLE>
F-16
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
9. Common Stock At November 30, 1999 and December 31, 1999, the Company has
approximately 3,152,506 and 3,019,173 shares of common stock,
respectively, reserved for issuance upon conversion of
outstanding preferred stock and exercise of options and warrants.
In January 1999, there was a one-for-three reverse stock split
for the Company's common stock.
In January 1999, the Company distributed 6,174 shares of its
common stock in payment of $500 dividend per share due holders
as of September 19, 1999 on each of the 21 shares of 10%
nonvoting convertible preferred stock.
In February 1999, the Company completed a stock rights offering
of 3,833,333 shares of its common stock at $1.50 per share for
gross proceeds of $5,750,000.
In July 1999, the Company issued 250,000 shares of its common
stock to an officer of the Company in accordance with the terms
of his agreement (see Note 8).
In May 1999, the Company converted 2,500 shares of $10 preferred
stock to 4,167 shares of common stock.
During the year ended November 30, 1999, the Company converted
five shares of its 10% preferred stock to 3,000 shares of common
stock.
In December 1999, the Company converted 20,000 shares of $10
preferred stock to 133,333 shares of common stock.
</TABLE>
F-17
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
10. Preferred Stock Preferred stock consisted of the following:
<TABLE>
<CAPTION>
November 30, 1999 December 31, 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
10% nonvoting convertible preferred stock,
1,250 shares authorized; 21 shares issued
and outstanding, $500 per share per annum
cumulative dividends, $105,000 liquidation
value. $ 21 $ 21
8% convertible preferred stock, 500 shares
authorized, 114 shares issued and
outstanding, $80 per share per annum
cumulative dividends, $114,000 liquidation
value. 114 114
12% convertible preferred stock, 200 shares
authorized, 200 shares issued and
outstanding, $120 per share per annum
cumulative dividends, $200,000 liquidation
value. 200 200
$10 convertible preferred stock, 220,000
shares authorized, 217,500 and 197,500
issued and outstanding, $2,175,000 and
$1,975,000 liquidation value, respectively. 217,500 197,500
==============================================================================================
(a) The 10% nonvoting 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 600 shares of common
stock for each share of preferred stock, subject to standard anti-dilution
provisions.
</TABLE>
F-18
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
During 1999, holders of the Company's 10% convertible preferred
stock converted 5 shares into 3,000 shares of common stock. As a
result, common stock at par increased by $30, additional paid-in
capital - common stock increased by $17,960, preferred stock at
par decreased by $5 and additional paid-in capital - preferred
stock decreased by $17,985.
(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 the years ended November 30, 1998 and 1999, cash dividends
totaling $33,121 and $33,144, 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 266,667 shares of common stock at $6.00 per share
(see Note 14) for an aggregate consideration of $2,000,000. In April
1998, the Company entered into an agreement pursuant to which the
Company issued 20,000 shares of $10.00 convertible preferred stock for
an aggregate consideration of $200,000. The 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. In July 1999, the $10 convertible preferred stockholders waived
this right through July 2004.
</TABLE>
F-19
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
During 1999, holders of the Company's $10 convertible preferred
stock converted 2,500 shares into 4,167 shares of common stock.
As a result, common stock at par increased by $42, additional
paid-in-capital common stock increased by $24,958, preferred
stock at par decreased by $2,500 and additional paid-in-capital
preferred stock decreased by $22,500.
During December 1999, holders of the Company's $10 preferred
stock converted 20,000 shares into 133,333 shares of common
stock. As a result, common stock at par increased by $1,333,
additional paid-in-capital common stock increased by $198,667,
preferred stock at par decreased by $20,000 and additional
paid-in-capital preferred stock decreased by $180,000.
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.
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 shareholder approval of certain corporate matters.
Each holder of the $10 convertible preferred stock is entitled to
the number of votes that he or she would have had if each share
of $10 convertible preferred stock had been converted into shares
of common stock.
</TABLE>
F-20
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
11. Stock-Based SFAS No. 123, "Accounting for Stock-Based Compensation,"
Compensation 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 pro forma disclosures has been estimated
using a Black-Scholes option pricing model. No options were
granted by the Company during 1998.
In July 1999, the Company entered into a stock option agreement
with an officer of the company. The Company granted options to
purchase 830,000 shares of common stock at an exercise price of
$1.8125 per share. The options vest in four equal installments
of 207,500 shares commencing in July 2000.
In July 1999, the Company entered into a stock option agreement with
two directors for five year options to purchase an aggregate of
350,000 shares of common stock at an exercise price of $2.25 per share.
The options are immediately exercisable.
In August 1999, the Company entered into a stock option agreement with
an officer for options to purchase 100,000 shares of common stock at
an exercise price of $1.625 per share. The options vest in four equal
installments of 25,000 shares, commencing in August 2000.
Information regarding the Company's stock option plans is as
follows:
</TABLE>
F-21
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
(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, 1998 and 1999 and
December 31, 1999, 45,000, 39,999 and 39,999 options were
exercisable, respectively. The following is a summary of
transactions:
</TABLE>
<TABLE>
<CAPTION>
November 30, December 31,
1998 1999 1999
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of period 45,555 45,000 39,999
Granted during the period - - -
Terminated during the period (555) (5,001) -
- -----------------------------------------------------------------------------------
Outstanding, end of period(1) 45,000 39,999 39,999
===================================================================================
(1) With an exercise price per share ranging from $6.00 to $9.38, 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 January 19, 1999.
The weighted average exercise price per share at November 30, 1998 and 1999
and December 31, 1999 was $7.20, $7.22 and $7.22, respectively.
</TABLE>
F-22
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
At November 30, 1998 and 1999 and December 31, 1999, there were 77,222,
82,223 and 82,223 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, respectively.
(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 certain conditions, specified by the
Board in such grants. Options under the Discretionary Option Plan are
nonqualified and nonincentive 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 years ended November 30, 1999 and 1998.
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 Option Plan also provides that any person
becoming a director within the six months after any August 17 will be
granted options. On August 17, 1999, options to purchase 30,000 shares of
common stock were granted at an exercise price of $1.625 per share.
F-23
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
The following is a summary of transactions relating to the Directors and
Officers Stock Option Plans:
<TABLE>
<CAPTION>
November 30,
---------------------------- December 31,
1998 1999 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 666,833 498,500 368,333
Expired during the year (168,333) (160,167) --
Granted during the year -- 30,000 --
- ------------------------------------------------------------------------------------------------------
Outstanding, end of year (1) 498,500 368,333 368,333
======================================================================================================
(1) With an exercise price per share ranging from $1.63 to $8.07. The
weighted average exercise price at November 30, 1999 and December 31,
1999 was $6.05 per share.
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The fair value of these
options was estimated at the date of grant using a Black-Scholes options pricing
model with the following weighted-average assumptions for 1999, risk-free
interest rates from 5.75% to 5.82%; volatility factor of the expected market
price of the Company's Common Stock of 45.8%; and a weighed-average expected
life of the options of 4.97 years. The Company's pro forma information relative
to the Company's option plan is as follows:
One month
Year ended ended
November December
30, 1999 31, 1999
- ------------------------------------------------------------------------------
Pro Forma Net Loss:
Net loss as reported $ (3,833,514) $ (410,297)
Additional compensation
expense under SFAS #123 (426,184) (55,674)
- ------------------------------------------------------------------------------
$(4,259,703) $ (465,971)
==============================================================================
</TABLE>
F-24
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
During the year ended November 30, 1998, no options were
granted and therefore pro forma information has only been
presented for the year ended November 30, 1999 and the one
month ended December 31, 1999.
12. Stock At December 31, 1999, the Company has 566,667 shares of
Warrants stock reserved for issuance upon exercise of warrants.
Information regarding the Company's warrants outstanding
is as follows:
Non-Redeemable Warrants - At November 30, 1998 and 1999
and December 31, 1999, the Company had outstanding
600,000, 566,667 and 566,667 nonredeemable warrants,
respectively. Each warrant entitles the holder to purchase
one share of the Company's common stock at an exercise
price ranging from $6.00 to $7.50 per share. The warrants
are all currently exercisable and expire on the following
dates:
Number of warrants Expiration date
-------------------------------------------------------
200,000 May 2001
266,667 October 2001
100,000 November 2002
-------------------------------------------------------
There were no exercises of non-redeemable warrants during
the years ended November 30, 1999 and 1998. All of the
warrants that expire May 2001 were issued to a principal
shareholder 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 11) All of
the warrants that expire November 2002 were issued to an
affiliate of the principal shareholder of the Company in
connection with a promissory note (see Note 5).
F-25
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
13. Income Taxes The Company has a deferred tax asset amounting to approximately
$7,300,000 at November 30, 1999 and $7,500,000 at December 31,
1999, principally relating to net operating loss carryforwards
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 due
to the Company's financial condition, its lack of a history of
consistent earnings, and possible limitations on the use of
carryforwards giving 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, 1999 and December 31, 1999, the Company had
net operating loss income tax carryforwards of approximately
$13.3 million and $13.7 million, respectively, which expire in
the years 2004 through 2018.
</TABLE>
F-26
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C>
14. Summary Results of One month ended December 31, 1998 Unaudited
Operations
---------------------------------------------------------------------
Revenue $1,263,740
Total operating expenses 1,503,932
Loss from operations (240,192)
Taxes -
EPS (.10)
---------------------------------------------------------------------
</TABLE>
F-27
<PAGE>
News Communications, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
15. Recent In June 1998, the FASB issued SFAS No. 133, "Accounting
Accounting for Derivative Instruments and Hedging Activities". SFAS
Standards No. 133 requires companies to recognize all derivative
contracts at their fair values, as either assets or
liabilities on the balance sheet. If certain conditions
are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing
of gain or loss recognition on the hedging derivative
with the recognition of (1) the changes in the fair
value of the hedged asset or liability that are
attributable to the hedged risk, or (2) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into
derivative contracts either to hedge existing risks or
for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard to affect its
financial statements.
In March 1998, the Accounting Standards Executive
Committee issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal
Use," which is effective for fiscal years beginning
after December 15, 1998. SOP 98-1 provides guidance on
accounting for costs of computer software developed or
obtained for internal use. The pronouncement will not
have a material impact on the Company.
16. Significant During the fourth quarter of the year ended November 30,
Fourth 1999, the Company recorded a significant adjustment,
Quarter which increased the net loss by approximately
Adjustments $1,442,000. The adjustment was to record an additional
reserve for uncollectable receivables for approximately
$1,442,000.
F-28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEWS COMMUNICATIONS, INC.
By /s/ Steven Farbman
----------------------------------
Steven Farbman,
President and Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
either Wilbur L. Ross, Jr. 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 report, 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 Exchange Act, this report has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steven Farbman President and Chief Executive Officer February ___, 2000
- ------------------------------- (Principal Executive Officer)
Steven Farbman
/s/ Wilbur L. Ross, Jr. Director February ___, 2000
- -----------------------------
Wilbur L. Ross, Jr.
Director February ___, 2000
- -----------------------------
Jerry Finkelstein
/s/ Michael Schenkler Director February ___, 2000
- -----------------------------
Michael Schenkler
/s/ Paul Mastronardi Chief Financial Officer February ___, 2000
- -----------------------------
Paul Mastronardi
/s/ Robert Berkowitz Controller February ___, 2000
- -----------------------------
Robert Berkowitz
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Director February ___, 2000
- -----------------------------
Steven Price
Director February ___, 2000
- -----------------------------
Martin A. Bell
Director February ___, 2000
- -----------------------------
Robert E. Nederlander
/s/ Gary Weiss Director February ___, 2000
- -----------------------------
Gary Weiss
/s/ Martin Mendelsohn Director February ___, 2000
- -----------------------------
Martin Mendelsohn
</TABLE>
<PAGE>
EXHIBIT 10.23
STOCK OPTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1999 by and between NEWS
COMMUNICATIONS, INC., a corporation organized under the laws of the State of
Nevada (the "Company"), and Jerry Finkelstein (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Optionee is the Chairman of the Board of Directors of the
Companyin and
WHEREAS, the Optionee was instrumental in bringing about the employment by the
Company of Steven Farbman as the Company's President and Chief Executive
Officer; and
WHEREAS, the Company desires to compensate the Optionee for his services to
the Company as Chairman of the Board and for his efforts in the hiring of Steven
Farbman.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant of Option. Upon the terms and subject to the conditions set forth
---------------
herein, the Company hereby grants to the Optionee, during the period commencing
on the date of this Agreement, the right and option (the "Option") to purchase
200,000 shares of the Company's common stock (the "Common Stock") at $2.25 per
share.
2. Vesting and Exercise of Option. The Option shall vest as of the date
------------------------------
hereof and shall expire on the fifth anniversay of the date hereof (the
"Termination Date"). Subject to the terms and conditions set forth herein, the
Optionee may exercise all or part of the Option any time prior to the
Termination Date.
3. Method of Exercising Option. The Optionee may exercise the Option by
---------------------------
delivering to the Company (i) a written notice stating the number of shares of
Common Stock that the Optionee has elected to purchase at that time from the
Company and (ii) full payment of the purchase price of the shares of Common
Stock then to be purchased.
Payment of the purchase price for the shares of Common Stock upon any exercise
of the Option may be made by certified or bank cashier's check payable to the
order of the Company, by wire transfer subject to the Company's instructions or
by delivery of shares of Common Stock having a fair market value equal to the
purchase price of the Common Stock issuable upon exercise of the Option, duly
endorsed in blank or accompanied by appropriate stock powers, together with such
amount as the Company shall, in its sole discretion, deem
<PAGE>
necessary to satisfy any tax withholding obligation or tax arising by reason of
the transfer of such shares of Common Stock.
Only full shares of Common Stock with an aggregate fair market value (as
determined by the Company) not exceeding the purchase price of the Option will
be accepted in payment, and any portion of the Option price which is in excess
of such aggregate fair market value must be paid in cash or by certified or bank
cashier's check payable to the order of the Company, it being understood that
the Company shall not be required to pay cash in exchange for tendered
certificates. If the tendered certificate(s) evidence more shares of Common
Stock than are accepted for payment, an appropriate replacement certificate
shall be issued to the Optionee for the number of excess shares of Common Stock.
4. Issuance of Common Stock upon Exercise of Option. As promptly as
------------------------------------------------
practicable after receipt of such written notification of the Optionee's
election to exercise the Option and full payment of such purchase price, the
Company shall issue or transfer to the Optionee the number of shares of Common
Stock with respect to which the Option has been so exercised and shall deliver
to the Optionee a certificate or certificates therefor, registered in the
Optionee's name.
5. Securities Law Acknowledgments. The Optionee acknowledges that the
------------------------------
shares of Common Stock issued upon exercise of the Option may not be registered
under applicable securities laws, that such shares of Common Stock purchased
upon the exercise of the Option must be held indefinitely unless subsequently
registered under the applicable securities laws or unless an exemption therefrom
is available and at the election of the Company, such certificates may bear such
legends regarding the limited transferability of the shares of Common Stock
under applicable securities laws as counsel for the Company may require. The
shares of Common Stock issued pursuant to the terms of this Agreement shall
represent fully paid and nonassessable shares of Common Stock.
6. Optionee. Whenever the word "Optionee" is used in any provision of this
--------
Agreement under circumstances where the provision should logically be construed
to apply to the executors, administrators or person or persons to whom the
Option may be transferred by will or by the laws of descent and distribution,
the word "Optionee" shall be deemed to include such person or persons.
7. Transferability. The Option may be transferred by the Optionee only to a
---------------
member of the Optionee's immediate family or pursuant to applicable laws of
descent and distribution.
8. Rights as Shareholder. The Optionee shall have no rights as a shareholder
---------------------
with respect to any share of Common Stock covered by the Option until the
Optionee shall have become the holder of record of such share of Common Stock,
and no adjustment shall be made for dividends or distributions or other rights
in respect of such share of Common Stock for which the record date is prior to
the date upon which the Optionee shall become the holder of record thereof.
<PAGE>
9. Adjustment for Recapitalization, Merger, Etc. The aggregate
--------------------------------------------
number of shares of Common Stock that may be purchased pursuant to the Option,
the number of shares of Common Stock covered by the Option and the price per
share shall be appropriately adjusted for any increase or decrease in the number
of outstanding shares of Common Stock resulting from a stock split or other
subdivision or consolidation of shares of Common Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Common Stock effected without receipt
of consideration by the Company.
Subject to any required action by the shareholders, if the Company shall be
the surviving corporation in any merger, combination, consolidation or other
business transaction, the Option shall cover the securities to which a holder of
the number of shares of Common Stock covered by the unexercised portion of the
Option would have been entitled pursuant to the terms of the merger or
consolidation.
Upon the dissolution or liquidation of the Company, the Option shall
terminate; provided, however, that the surviving corporation may grant an option
or options to purchase its shares on such terms and conditions, both as to the
number of shares and otherwise, which shall substantially preserve the rights
and benefits of the Option.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Board of Directors of the Company in its
sole discretion. Any such adjustments may provide for the elimination of any
fractional share which might otherwise become subject to the Option.
10. Compliance with Law. Notwithstanding any of the provisions hereof, the
-------------------
Optionee hereby agrees that the Optionee will not exercise the Option, and that
the Company will not be obligated to issue or transfer any shares of Common
Stock to the Optionee hereunder, if the exercise hereof or the issuance or
transfer of such Common Stock shall constitute a violation by the Optionee or
the Company of any provisions of any law or regulation of any governmental
authority. Any determination in this regard by the Compensation Committee or,
in the absence of a Compensation Committee, by the Board of Directors shall be
final, binding and conclusive. The Company shall in no event be obliged to
register any securities pursuant to the Securities Act of 1933, as amended, or
to take any other affirmative action in order to cause the exercise of the
Option or the issuance or transfer of Common Stock pursuant thereto to comply
with any law or regulation of any governmental authority.
11. Notice. Every notice or other communication relating to this Agreement
------
shall be in writing and shall be mailed to or delivered to the party for whom it
is intended at such address as may from time to time be designated in a notice
mailed or delivered to the other party as herein provided; provided that, unless
and until some other address be so designated, all notices or communications by
the Optionee to the Company shall be mailed or delivered to the Company at its
executive offices at 174-15 Horace Harding Expressway, Fresh Meadows, NY 11365
and all notices or communications by the Company to the Optionee may be given to
the Optionee personally or may be mailed to the Optionee at the address shown
below the Optionee's signature to this Agreement.
<PAGE>
12. Entire Agreement. This Agreement sets forth the complete understanding
----------------
of the Company and the Optionee with respect to the subject matter hereof and
supersedes all prior understandings, whether oral or written.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York (without giving effect to
principles of conflicts of law).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Steven Farbman
-------------------
Name: Steven Farbman
Title: President and Chief Executive Officer
Name: /s/ Jerry Finkelstein
---------------------
Address: The Carlyle Hotel
Room 1907
35 East 76th Street
New York, NY 10021
<PAGE>
EXHIBIT 10.24
NEWS COMMUNICATIONS, INC.
174-15 Horace Harding Expressway
Fresh Meadows, NY 11365
July 29, 1999
Mr. Jerry Finkelstein
10 East 40th Street, Suite 1308
New York, NY
Dear Jerry:
On behalf of myself personally and everyone else on the board of directors
of News Communications, I appreciate your understanding and acceptance of the
changes required in order for us to reach the next level in our growth. This
letter is intended to confirm the substance of our discussions with respect to
your employment with News Communications, Inc. and the options granted to you in
connection with your employment and service to us.
Section 2.1 of your Amended and Restated Employment Agreement with NCI,
dated as of October 28, 1986, as amended (the "Employment Agreement"), is
amended to reduce your annual salary from $195,000 to $95,000 per annum. In
addition, the Board has appointed a committee of Wilbur Ross and Gary Weiss to
look into your claims of unreimbursed business expenses and we hope to have this
matter resolved as soon as possible. Except as modified by this letter, the
Employment Agreement remains in full force and effect.
This letter also confirms that the Board has granted to you new options to
purchase 200,000 shares of NCI's common stock at an exercise price of $2.25 per
share. These options will expire on July 28, 2004 and the terms of the options
will be formalized by a Grant Letter. In addition, the Board has authorized the
extension of each of your 193,333 unexpired options to July 28, 2004 so that
they are coterminus with the new options granted to you.
<PAGE>
We appreciate your understanding in making these changes and we look
forward to continuing your long association with us. Please acknowledge your
agreement with the foregoing by signing the space provided for your signature
below. Upon receipt of your signature, $150,000 will be paid to you as per our
understanding.
This letter supercedes the similar letter to you from News Communications,
Inc. dated July 28, 1999.
Very truly yours,
NEWS COMMUNICATIONS, INC.
By: /s/ Steven Farbman
-------------------
Steven Farbman
President and Chief Executive
Officer
Accepted and agreed to:
/s/ Jerry Finkelstein
- ----------------------
Jerry Finkelstein
<PAGE>
EXHIBIT 10.25
STOCK OPTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1999 by and between NEWS
COMMUNICATIONS, INC., a corporation organized under the laws of the State of
Nevada (the "Company"), and Gary Weiss (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Optionee was instrumental in bringing about the employment by the
Company of Steven Farbman as the Company's President and Chief Executive
Officer; and
WHEREAS, the Company desires to compensate the Optionee for his efforts.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant of Option. Upon the terms and subject to the conditions set forth
---------------
herein, the Company hereby grants to the Optionee, during the period commencing
on the date of this Agreement, the right and option (the "Option") to purchase
150,000 shares of the Company's common stock (the "Common Stock") at $2.25 per
share.
2. Vesting and Exercise of Option. The Option shall vest as of the date
------------------------------
hereof and shall expire on the fifth anniversay of the date hereof (the
"Termination Date"). Subject to the terms and conditions set forth herein, the
Optionee may exercise all or part of the Option any time prior to the
Termination Date.
3. Method of Exercising Option. The Optionee may exercise the Option by
---------------------------
delivering to the Company (i) a written notice stating the number of shares of
Common Stock that the Optionee has elected to purchase at that time from the
Company and (ii) full payment of the purchase price of the shares of Common
Stock then to be purchased.
Payment of the purchase price for the shares of Common Stock upon any exercise
of the Option may be made by certified or bank cashier's check payable to the
order of the Company, by wire transfer subject to the Company's instructions or
by delivery of shares of Common Stock having a fair market value equal to the
purchase price of the Common Stock issuable upon exercise of the Option, duly
endorsed in blank or accompanied by appropriate stock powers, together with such
amount as the Company shall, in its sole discretion, deem necessary to satisfy
any tax withholding obligation or tax arising by reason of the transfer of such
shares of Common Stock.
Only full shares of Common Stock with an aggregate fair market value (as
determined by the Company) not exceeding the purchase price of the Option will
be accepted in
<PAGE>
payment, and any portion of the Option price which is in excess of such
aggregate fair market value must be paid in cash or by certified or bank
cashier's check payable to the order of the Company, it being understood that
the Company shall not be required to pay cash in exchange for tendered
certificates. If the tendered certificate(s) evidence more shares of Common
Stock than are accepted for payment, an appropriate replacement certificate
shall be issued to the Optionee for the number of excess shares of Common Stock.
4. Issuance of Common Stock upon Exercise of Option. As promptly as
------------------------------------------------
practicable after receipt of such written notification of the Optionee's
election to exercise the Option and full payment of such purchase price, the
Company shall issue or transfer to the Optionee the number of shares of Common
Stock with respect to which the Option has been so exercised and shall deliver
to the Optionee a certificate or certificates therefor, registered in the
Optionee's name.
5. Securities Law Acknowledgments. The Optionee acknowledges that the
------------------------------
shares of Common Stock issued upon exercise of the Option may not be registered
under applicable securities laws, that such shares of Common Stock purchased
upon the exercise of the Option must be held indefinitely unless subsequently
registered under the applicable securities laws or unless an exemption therefrom
is available and at the election of the Company, such certificates may bear such
legends regarding the limited transferability of the shares of Common Stock
under applicable securities laws as counsel for the Company may require. The
shares of Common Stock issued pursuant to the terms of this Agreement shall
represent fully paid and nonassessable shares of Common Stock.
6. Optionee. Whenever the word "Optionee" is used in any provision of this
--------
Agreement under circumstances where the provision should logically be construed
to apply to the executors, administrators or person or persons to whom the
Option may be transferred by will or by the laws of descent and distribution,
the word "Optionee" shall be deemed to include such person or persons.
7. Transferability. The Option may be transferred by the Optionee only to a
---------------
member of the Optionee's immediate family or pursuant to applicable laws of
descent and distribution.
8. Rights as Shareholder. The Optionee shall have no rights as a shareholder
---------------------
with respect to any share of Common Stock covered by the Option until the
Optionee shall have become the holder of record of such share of Common Stock,
and no adjustment shall be made for dividends or distributions or other rights
in respect of such share of Common Stock for which the record date is prior to
the date upon which the Optionee shall become the holder of record thereof.
9. Adjustment for Recapitalization, Merger, Etc. The aggregate
--------------------------------------------
number of shares of Common Stock that may be purchased pursuant to the Option,
the number of shares of Common Stock covered by the Option and the price per
share shall be appropriately adjusted for any increase or decrease in the number
of outstanding shares of Common Stock resulting from a
<PAGE>
stock split or other subdivision or consolidation of shares of Common Stock or
for other capital adjustments or payments of stock dividends or distributions or
other increases or decreases in the outstanding shares of Common Stock effected
without receipt of consideration by the Company.
Subject to any required action by the shareholders, if the Company shall be
the surviving corporation in any merger, combination, consolidation or other
business transaction, the Option shall cover the securities to which a holder of
the number of shares of Common Stock covered by the unexercised portion of the
Option would have been entitled pursuant to the terms of the merger or
consolidation.
Upon the dissolution or liquidation of the Company, the Option shall
terminate; provided, however, that the surviving corporation may grant an option
or options to purchase its shares on such terms and conditions, both as to the
number of shares and otherwise, which shall substantially preserve the rights
and benefits of the Option.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Board of Directors of the Company in its
sole discretion. Any such adjustments may provide for the elimination of any
fractional share which might otherwise become subject to the Option.
10. Compliance with Law. Notwithstanding any of the provisions hereof, the
-------------------
Optionee hereby agrees that the Optionee will not exercise the Option, and that
the Company will not be obligated to issue or transfer any shares of Common
Stock to the Optionee hereunder, if the exercise hereof or the issuance or
transfer of such Common Stock shall constitute a violation by the Optionee or
the Company of any provisions of any law or regulation of any governmental
authority. Any determination in this regard by the Compensation Committee or,
in the absence of a Compensation Committee, by the Board of Directors shall be
final, binding and conclusive. The Company shall in no event be obliged to
register any securities pursuant to the Securities Act of 1933, as amended, or
to take any other affirmative action in order to cause the exercise of the
Option or the issuance or transfer of Common Stock pursuant thereto to comply
with any law or regulation of any governmental authority.
11. Notice. Every notice or other communication relating to this Agreement
------
shall be in writing and shall be mailed to or delivered to the party for whom it
is intended at such address as may from time to time be designated in a notice
mailed or delivered to the other party as herein provided; provided that, unless
and until some other address be so designated, all notices or communications by
the Optionee to the Company shall be mailed or delivered to the Company at its
executive offices at 174-15 Horace Harding Expressway, Fresh Meadows, NY 11365
and all notices or communications by the Company to the Optionee may be given to
the Optionee personally or may be mailed to the Optionee at the address shown
below the Optionee's signature to this Agreement.
12. Entire Agreement. This Agreement sets forth the complete understanding
----------------
of the Company and the Optionee with respect to the subject matter hereof and
supersedes all prior understandings, whether oral or written.
<PAGE>
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York (without giving effect to
principles of conflicts of law).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Steven Farbman
-------------------
Name: Steven Farbman
Title: President and Chief Executive Officer
/s/ Gary Weiss
---------------
Name: Gary Weiss
Address: 99 Seaview Boulevard
Port Washington, NY 11050
<PAGE>
EXHIBIT 10.26
STOCK OPTION AGREEMENT
AGREEMENT made as of this 16th day of August, 1999 by and between NEWS
COMMUNICATIONS, INC., a Nevada corporation ("NCI"), and PAUL MASTRONARDI
---
("Mastronardi").
- -------------
WHEREAS, pursuant to a certain Employment Agreement dated the date
hereof between NCI and Mastronardi (the "Employment Agreement"), Mastronardi has
--------------------
become employed as Vice President and Chief Financial Officer of NCI and, in
such capacity will provide valuable services to NCI (terms used but not
otherwise defined herein shall have the meaning set forth in the Employment
Agreement);
WHEREAS, NCI desires to reward such services and encourage
Mastronardi's continued dedication and to afford Mastronardi the opportunity to
acquire stock ownership in, or otherwise share in the appreciation of the stock
of, NCI so that Mastronardi may have a direct proprietary interest in NCI's
success;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Upon the terms and subject to the conditions set
---------------
forth herein, NCI hereby irrevocably grants to Mastronardi, during the period
commencing on the date of this Agreement and, unless earlier terminated pursuant
to Section 5 or Section 6 hereof, ending ten (10) years from the date hereof
(the "Expiration Date"), the right and option (the "Options") to purchase from
--------------- -------
NCI, at a price of $1.625 per share, 100,000 shares of NCI's Common Stock, par
value $.01 per share (the "Common Stock"). The Options are not intended to
------------
qualify under Section 422 of the United States Internal Revenue Code of 1986, as
amended (the "Code"), as an incentive stock option.
----
2. Vesting and Exercise of Options. The Options shall vest in four equal
-------------------------------
installments of 25,000 shares commencing on the first anniversary of the date
hereof and on each anniversary of the date hereof until the fourth anniversary
of the date hereof when all of the shares subject to the Options shall be
vested; provided, however, that the Options shall be subject to accelerated
vesting as provided on Exhibit A hereto.
3. Method of Exercising Options. Mastronardi may exercise the
----------------------------
Options by delivering to NCI (i) a written notice stating the number of shares
of Common Stock that Mastronardi has elected to purchase at that time from NCI
and (ii) full payment of the purchase price of the shares of Common Stock then
to be purchased.
Payment of the exercise price for the shares of Common Stock upon any
exercise of the Options may be made by check payable to the order of NCI.
<PAGE>
4. Issuance of Common Stock and Payment of Cash upon Exercise of
-------------------------------------------------------------
Options. As promptly as practicable after receipt of such written notification
- -------
of Mastronardi's election to exercise the Options and full payment of such
exercise price and any applicable withholding taxes, NCI shall issue or transfer
to Mastronardi the number of shares of Common Stock with respect to which the
Options have been so exercised and shall deliver to Mastronardi a certificate or
certificates therefor, registered in Mastronardi's name.
5. Death or Disability of Mastronardi. If the employment of
----------------------------------
Mastronardi shall terminate prior to the Expiration Date as a result of the
death of Mastronardi or by reason of his Disability (as defined in that certain
Employment Agreement between NCI and Steven Farbman (the "Employment
Agreement"), Mastronardi, the executor or administrator of the estate or affairs
of Mastronardi or the person or persons to whom the Options shall have been
validly transferred by the executor or administrator pursuant to applicable laws
of descent and distribution shall have the right to exercise the Options until
the Expiration Date to the extent that the Options were vested at the date of
death or Disability.
6. Termination of Employment. In the event that the employment of
-------------------------
Mastronardi shall be terminated by NCI (other than by reason of death,
Disability or for Cause (as defined in the Employment Agreement), Mastronardi
shall have the right, until the Expiration Date, to exercise the Options, it
being acknowledged and agreed that any unvested portion of the Options shall
immediately vest and become exercisable upon the date of such termination of
employment. In the event that the employment of Mastronardi shall be terminated
(i) by NCI for Cause, (ii) by Mastronardi voluntarily, the Options, to the
extent vested on the date of Mastronardi's termination (the "Termination Date"),
------------------
shall be exercisable until the first anniversary of the Termination Date.
Nothing in this Agreement shall confer upon Mastronardi any right to continue in
the employ of NCI or interfere in any way with the right of NCI to terminate or
otherwise modify the terms of Mastronardi's employment.
7. Change of Control. Notwithstanding anything in this Agreement to
-----------------
the contrary, unless the Options or any portion thereof shall have been earlier
terminated in accordance with Sections 5 and 6 hereof, the unvested portion of
the Options shall vest, and the Options shall become immediately exercisable in
its entirety immediately prior to a Change of Control (as defined in the
Employment Agreement).
8. Securities Law Acknowledgments. Mastronardi acknowledges that the
------------------------------
shares of Common Stock issued upon exercise of the Options may not be registered
under applicable securities laws, that such shares of Common Stock purchased
upon the exercise of the Options must be held indefinitely unless subsequently
registered under the applicable securities laws or unless an exemption therefrom
is available, and, at the election of NCI, such certificates may bear such
legends regarding the limited transferability of the shares of Common Stock
under applicable securities laws as counsel for NCI may require. The shares of
Common Stock issued pursuant to the terms of this Agreement shall represent
fully paid and non-assessable shares of Common Stock. . On or before the
earlier to occur of the first anniversary of this Agreement or the termination
of Mastronardi's employment by NCI without Cause or upon a Change of Control (as
such terms are defined in the Employment Agreement), NCI shall prepare and file
a
<PAGE>
registration statement on Form S-8 or such other appropriate Form under the
Securities Act of 1933, as amended (the "Act") and, if effectiveness is not
automatic, use its best efforts to cause such registration statement to become
effective as promptly as practicable. Thereafter, NCI shall maintain the
effectiveness of the registration statement until all of the Shares may be sold
without restriction under the Act.
9. Name References. Whenever in any provision of this Agreement
---------------
reference is made to Mastronardi, under circumstances where such reference
should logically be construed to apply to the executors, administrators or
person or persons to whom the Options may be transferred by will or by the laws
of descent and distribution, the reference to Mastronardi shall be deemed to
include such person or persons.
10. Non-Transferability. The Options are not transferable by
-------------------
Mastronardi otherwise than by applicable laws of descent and distribution and,
except as set forth herein, are exercisable during Mastronardi's lifetime only
by Mastronardi. No assignment or transfer of the Options, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise (except by will or the laws of descent and distribution), shall vest
in the assignee or transferee any interest or right herein whatsoever, but
immediately upon such assignment or transfer the Options shall terminate and
become of no further effect.
11. Rights as Stockholder. Mastronardi shall have no rights as a
---------------------
stockholder with respect to any share of Common Stock covered by the Options
until Mastronardi shall have become the holder of record of such share of Common
Stock, and no adjustment shall be made for dividends or distributions or other
rights in respect of such share of Common Stock for which the record date is
prior to the date upon which Mastronardi shall become the holder of record
thereof.
12. Adjustment for Recapitalization, Merger, Etc. The aggregate
---------------------------------------------
number of shares of Common Stock that may be purchased pursuant to the Options,
the number of shares of Common Stock covered by the Options and the price per
share shall be appropriately adjusted for any increase or decrease in the number
of outstanding shares of Common Stock resulting from a stock split or other
subdivision or consolidation of shares of Common Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Common Stock effected without receipt
of consideration by NCI.
Subject to any required action by the stockholders, if NCI shall be
the surviving corporation in any merger, combination, consolidation or other
business transaction, the Options shall cover the securities to which a holder
of the number of shares of Common Stock covered by the unexercised portion of
the Options would have been entitled pursuant to the terms of the merger or
consolidation.
Upon any dissolution or liquidation of NCI, the Options shall
terminate; provided, however, that the surviving corporation may grant an option
or options to purchase its shares on such terms and conditions, both as to the
number of shares and otherwise, which shall
<PAGE>
substantially preserve the rights and benefits of the Options. Any such
adjustments may provide for the elimination of any fractional share which might
otherwise become subject to the Options.
13. Compliance with Law. Notwithstanding any of the provisions
-------------------
hereof, except in connection with a Change of Control or the dissolution or
liquidation of NCI, Mastronardi hereby agrees that Mastronardi will not exercise
the Options, and that NCI will not be obligated to issue or transfer any shares
of Common Stock to Mastronardi hereunder, if the exercise hereof or the issuance
or transfer of such Common Stock shall constitute a violation by Mastronardi or
NCI of any provisions of any law or regulation of any governmental authority.
14. Notice. Every notice or other communication relating to this
------
Agreement shall be in writing and shall be mailed to or delivered to the party
for whom it is intended at such address as may from time to time be designated
in a notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by Mastronardi to NCI shall be mailed or delivered to NCI at its
executive offices currently located at 174-15 Horace Harding Expressway, Fresh
Meadows, NY 11365, or such other location as shall then be NCI's principal
corporate office, Attn: Chairman; with a copy to Paul J. Pollock, Esq., Piper &
Marbury, LLP, 1251 Avenue of the Americas, New York, NY 10020, and all notices
or communications by NCI to Mastronardi may be given to Mastronardi personally
or may be mailed to Mastronardi at 34 Hawthorne Avenue, Floral Park, NY 11001.
15. Entire Agreement. This Agreement sets forth the complete
----------------
understanding of NCI and Mastronardi with respect to the subject matter hereof
and supersedes all prior understandings, whether oral or written.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York (without giving effect to
principles of conflicts of law).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
NEWS COMMUNICATIONS, INC.
By: /s/ Steven Farbman
-------------------
Name: Steven Farbman
Title: President and Chief Executive Officer
/s/ Paul Mastronardi
---------------------
Paul Mastronardi
<PAGE>
EXHIBIT A
The Options shall be subject to accelerated vesting such that 10% of the
shares issuable upon exercise of the Options shall vest for each cumulative $.05
of EBITDA Improvement on a per share basis. For the purpose herein, EBITDA
shall mean, with respect to any fiscal year of NCI, earnings of NCI for such
year before interest (including without limitation the interest component of any
capital lease obligation), taxes, depreciation and amortization for such year.
For purposes of the foregoing,
(i) "EBITDA" shall mean with respect to any period, earnings of NCI
------
for such period before interest (including without limitation the interest
component of any capital lease obligation), taxes, depreciation and amortization
for such period; provided, that for purposes of determining EBITDA, (i) cash and
non-cash compensation expenses resulting from Mastronardi's equity arrangements
shall, to the extent deducted from earnings in calculating EBITDA in accordance
with generally accepted accounting principles, be added back to earnings in
calculating EBITDA and (ii) earnings shall exclude earnings from extraordinary
items, including net gains or losses from sales of assets (other than asset
sales in the ordinary course of business) or sales of stock. In comparing
EBITDA of NCI at two different points in time, the parties agree that the
determination of EBITDA shall be adjusted on a basis acceptable to both parties
to reflect extraordinary, non-recurring items and events, such as acquisitions
and divestitures and other corporate events which have occurred during the time
period between the two such reference points in time.
(ii) "EBITDA Improvement" shall mean the amount by which EBITDA on a
per share basis exceeds EBITDA on per share basis as of the end of the fiscal
year ended November 30, 1998.
<PAGE>
EXHIBIT 10.27
NEWS COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
1. Establishment, Purpose and Types of Awards
NEWS COMMUNICATIONS, INC., a Nevada corporation (the "Company"), hereby
establishes the NEWS COMMUNICATIONS, INC. 2000 STOCK INCENTIVE PLAN (the
"Plan"). The purpose of the Plan is to promote the long-term growth and
profitability of the Company by (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Company, and (ii) enabling the Company to attract, retain and reward the
best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination of the
foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the following
definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the Company
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power or value of all classes of stock or interests
of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, performance award, or other stock-based award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Company, par
value of $0.01 per share.
(f) "Fair Market Value" shall mean, with respect to a share of the Company's
Common Stock for any purpose on a particular date, the value determined by the
Administrator in good faith. However, if the Common Stock is registered under
Section 12(b) of the Securities Exchange Act of 1934, as amended, "Fair Market
Value" shall mean, as applicable, (i) either the closing price or the average of
the high and low sale price on the relevant date, as determined in the
Administrator's discretion, quoted on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq National Market; (ii) the last sale price on the
relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of the
high bid and low asked prices on the relevant date quoted on the Nasdaq OTC
Bulletin Board Service or by the National Quotation Bureau, Inc. or a comparable
service as determined in the Administrator's discretion; or (iv) if the Common
Stock is not quoted by any of the above, the average of the closing bid and
asked
<PAGE>
prices on the relevant date furnished by a professional market maker for the
Common Stock, or by such other source, selected by the Administrator. If no
public trading of the Common Stock occurs on the relevant date, then Fair Market
Value shall be determined as of the next preceding date on which trading of the
Common Stock does occur. For all purposes under this Plan, the term "relevant
date" as used in this Section 2.1(f) shall mean either the date as of which Fair
Market Value is to be determined or the next preceding date on which public
trading of the Common Stock occurs, as determined in the Administrator's
discretion.
(g) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the Board
or by such committee or committees as may be appointed by the Board from time to
time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in its
sole and absolute discretion, to grant Awards under the Plan, prescribe Grant
Agreements evidencing such Awards and establish programs for granting Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under the
Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
<PAGE>
(d) Limited Liability. To the maximum extent permitted by law, no member of
the Administrator shall be liable for any action taken or decision made in good
faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee, consultant, or director of the Company, and their
respective successors in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d) of the Plan, the shares of
Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of two hundred thousand (200,000) shares of Common
Stock. The Company shall reserve such number of shares for Awards under the
Plan, subject to adjustments as provided in Section 7(d) of the Plan. If any
Award, or portion of an Award, under the Plan expires or terminates unexercised,
becomes unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered to
the Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), or if any shares are withheld by the
Company, the shares subject to such Award and the surrendered and withheld
shares shall thereafter be available for further Awards under the Plan;
provided, however, that any such shares that are surrendered to or withheld by
the Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
Subject to adjustments as provided in Section 7(d) of the Plan, the maximum
number of shares of Common Stock subject to Awards of any combination that may
be granted during any one fiscal year of the Company to any one individual under
this Plan shall be limited to one hundred fifty thousand (150,000). Such per-
individual limit shall not be adjusted to effect a restoration of shares of
Common Stock with respect to which the related Award is terminated, surrendered
or canceled.
5. Participation
Participation in the Plan shall be open to all employees, officers, and
directors of, and other individuals providing bona fide services to or for, the
Company, or of any Affiliate of the Company, as may be selected by the
Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement. The Administrator may permit or require a
recipient of an Award to defer such individual's receipt of the payment of cash
or the delivery of
<PAGE>
Common Stock that would otherwise be due to such individual by virtue of the
exercise of, payment of, or lapse or waiver of restrictions respecting, any
Award. If any such payment deferral is required or permitted, the Administrator
shall, in its sole discretion, establish rules and procedures for such payment
deferrals.
(a) Stock Options. The Administrator may from time to time grant to eligible
participants Awards of incentive stock options as that term is defined in Code
section 422 or nonqualified stock options; provided, however, that Awards of
incentive stock options shall be limited to employees of the Company or of any
current or hereafter existing "parent corporation" or "subsidiary corporation,"
as defined in Code sections 424(e) and (f), respectively, of the Company.
Options intended to qualify as incentive stock options under Code section 422
must have an exercise price at least equal to Fair Market Value as of the date
of grant, but nonqualified stock options may be granted with an exercise price
less than Fair Market Value. No stock option shall be an incentive stock option
unless so designated by the Administrator at the time of grant or in the Grant
Agreement evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time grant
to eligible participants Awards of Stock Appreciation Rights ("SAR"). An SAR
entitles the grantee to receive, subject to the provisions of the Plan and the
Grant Agreement, a payment having an aggregate value equal to the product of (i)
the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be
used for such payment and the Administrator shall determine whether cash shall
be given in lieu of such fractional shares or whether such fractional shares
shall be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator.
<PAGE>
Performance goals established by the Administrator may be based on the Company's
or an Affiliate's operating income or one or more other business criteria
selected by the Administrator that apply to an individual or group of
individuals, a business unit, or the Company or an Affiliate as a whole, over
such performance period as the Administrator may designate.
(f) Other Stock-Based Awards. The Administrator may from time to time grant
other stock-based awards to eligible participants in such amounts, on such terms
and conditions, and for such consideration, including no consideration or such
minimum consideration as may be required by law, as it shall determine. Other
stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Company or its Affiliate, or make provision satisfactory to the Administrator
for payment of, any taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax liability. The
Company or its Affiliate may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the grantee or
holder of an Award. In the event that payment to the Company or its Affiliate
of such tax obligations is made in shares of Common Stock, such shares shall be
valued at Fair Market Value on the applicable date for such purposes.
(b) Loans. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations.
(i) Upon a stock dividend of, or stock split or reverse stock split
affecting, the Common Stock of the Company, (A) the maximum number of shares
reserved for issuance or with respect to which Awards may be granted under the
Plan and the maximum number of shares with respect to which Awards may be
granted during any one fiscal year of the Company to any individual, as provided
in Section 4 of the Plan, and (B) the number of shares covered by and the
exercise price and other terms of outstanding Awards, shall, without further
action of the Board, be adjusted to reflect such event unless the Board
determines, at the time it approves such stock dividend, stock split or reverse
stock split, that no such adjustment shall be made. The Administrator may make
adjustments, in its discretion, to address the treatment of fractional shares
and fractional cents that arise with respect to outstanding Awards as a result
of the stock dividend, stock split or reverse stock split.
<PAGE>
(ii) In the event of any other changes affecting the Company, the
capitalization of the Company or the Common Stock of the Company by reason of
any spin-off, split-up, dividend, recapitalization, merger, consolidation,
business combination or exchange of shares and the like, the Administrator, in
its discretion and without the consent of holders of Awards, shall make: (A)
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan, in the
aggregate and with respect to any individual during any one fiscal year of the
Company, as provided in Section 4 of the Plan, and to the number, kind and price
of shares covered by outstanding Awards; and (B) any other adjustments in
outstanding Awards, including but not limited to reducing the number of shares
subject to Awards or providing or mandating alternative settlement methods such
as settlement of the Awards in cash or in shares of Common Stock or other
securities of the Company or of any other entity, or in any other matters which
relate to Awards as the Administrator shall, in its sole discretion, determine
to be necessary or appropriate.
(iii) Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
(iv) The Administrator is authorized to make, in its discretion and
without the consent of holders of Awards, adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events affecting the Company, or the financial statements of the
Company or any Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Administrator determines that such
adjustments are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan and
outstanding Awards.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Company or shall interfere in any way with the right of
the Company to terminate such service at any time with or without cause or
notice.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive
<PAGE>
payments from the Company pursuant to an Award, such right shall be no greater
than the right of any unsecured general creditor of the Company.
(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of New York, without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan, or if
earlier, the tenth anniversary of the date this Plan is approved by the
stockholders. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: December 21, 1999
-----------------
Date Approved by the Stockholders:
-----------------
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<PAGE>
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<FISCAL-YEAR-END> NOV-30-1999 DEC-31-1999
<PERIOD-END> NOV-30-1999 DEC-31-1999
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