UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c)
Of the Securities Exchange Act of 1934
File No. 0-18299
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
NEWS COMMUNICATIONS, INC.
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(Name of Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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News Communications, Inc.
2 Park Avenue, Suite 1405
New York, NY 10016
(212) 689-2500
October 6, 2005
Dear Stockholder:
The purpose of this letter is to inform you, the holders of the
capital stock of News Communications, Inc., that our board of directors has
approved the following corporate actions:
(1) Implementing a reverse stock split of our common stock on the
basis of one post-split share for each 100 pre-split shares.
Holders of fractional shares will be entitled to receive cash in
lieu of fractional interests in an amount equal to $1.10 per
share for each pre-split share that becomes a fractional interest
as a result of the reverse split; and
(2) Decreasing our authorized shares of common stock from 100,000,000
shares to 1,000,000 shares.
Our board of directors has fixed the close of business on
September 29, 2005 as the record date for the determination of stockholders
entitled to receive notice of the corporate actions described above.
Under Nevada Law, we may effect the corporate actions described above
by resolutions adopted by the board of directors without obtaining the approval
of the stockholders. Therefore, we are not seeking stockholder approval for
these actions and no vote is sought in connection with these actions.
Often referred to as a "going private transaction," these corporate
actions will reduce the number of holders of record of our common stock to less
than 300 and enable us to elect to terminate the registration of our common
stock under Section 12(g) of the Securities Exchange Act of 1934. The
termination of our Exchange Act registration will eliminate the significant
expense required to comply with the reporting and related requirements under
these laws.
After careful consideration, the board of directors has concluded that
the costs associated with being a "public" company are not justified by the
benefits. The board has reviewed the proposed transaction and considered its
fairness to stockholders who hold fewer than 100 shares as well as those
stockholders holding 100 or more shares. After careful consideration, the board
of directors believes that the transaction is in the best interests of the
stockholders, and the per share cash amount to be paid to the stockholders in
lieu of a fractional share is fair.
The attached document contains details on the proposed transaction and
we urge you to read it very carefully.
By Order of the Board of Directors,
James A. Finkelstein
President and Chief Executive Officer
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IMPORTANT
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
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News Communications, Inc.
2 Park Avenue, Suite 1405
New York, NY 10016
(212) 689-2500
Information Statement
This Information Statement is being mailed on or about October 6,
2005 to holders of the capital stock of News Communications, Inc. This
Information Statement is being sent to you for information purposes only; no
action is requested on your part.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
This Information Statement is being furnished to you to inform you of
the adoption of resolutions by the board of directors on June 30, 2005, which
resolutions approved the following corporate actions:
(1) Implementing a reverse stock split of our common stock on the
basis of one post-split share for each 100 pre-split shares.
Holders of fractional shares will be entitled to receive cash in
lieu of fractional interests in an amount equal to $1.10 per
share for each pre-split share that becomes a fractional
interest as a result of the reverse split; and.
(2) Decreasing our authorized shares of common stock from 100,000,000
shares to 1,000,000 shares.
Under Nevada Law, we may effect the corporate actions described above
by resolutions adopted by the board without obtaining the approval of the
stockholders and the stockholders are not entitled to dissenters' rights in
connection with the proposed actions.
The resolutions adopted by the board give us the authority to file a
Certificate of Amendment to the Articles of Incorporation of News
Communications, Inc. (the "Certificate of Amendment"). The Certificate of
Amendment shall be filed in Nevada on or after the expiration of 20 calendar
days following the date this Information Statement is first mailed to our
stockholders and will become effective immediately thereafter (the "Effective
Date"). We reserve the right to abandon the transaction any time before the
filing of the Certificate of Amendment in Nevada. We also reserve the right to
abandon or delay the transaction for any reason if the board determines that
such action would be in the best interest of News Communications, Inc. and its
stockholders.
The reverse split will provide for the conversion of each 100 shares
of common stock outstanding into one share of common stock as of the Effective
Date. You will be deemed to own, on the Effective Date, one share of common
stock for each 100 shares of common stock you hold and will receive a cash
payment in lieu of any fractional shares to which you would otherwise be
entitled. The cash payment will be equal to $1.10 per pre-split share. As a
result, if you own less than 100 shares, you will no longer be a stockholder of
our company. As of August 31, 2005, we had 12,024,597 shares of common stock
outstanding and immediately following the effectiveness of the Certificate of
Amendment, we will have approximately 119,880 shares of common stock
outstanding.
Following the Effective Date, we will provide you with a Letter of
Transmittal that explains how you can surrender your share certificate(s) in
exchange for your cash payment and/or, if applicable, a new share certificate
evidencing the number of shares of common stock which you will hold after giving
effect to the reverse split. If you hold your shares in "street name" through a
bank, broker or nominee, you should contact your bank, broker or nominee
regarding the treatment of your shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTION; PASSED
UPON THE MERITS OR FAIRNESS OF THE TRANSACTION; OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE DISCLOSURE IN THE DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
SUMMARY........................................................................1
Reverse Stock Split.........................................................1
Fairness of the Transaction.................................................1
Stockholder Approval........................................................1
Effects of Reverse Split....................................................1
Purposes of the Transaction.................................................1
Potential Conflicts of Interest.............................................2
No Dissenters' Rights.......................................................2
Fees and Expenses...........................................................2
Reservation.................................................................2
Method of Payment...........................................................2
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS......................3
SPECIAL FACTORS................................................................4
Background..................................................................4
Purposes of the Transaction.................................................5
Alternatives Considered.....................................................6
Reasons for the Structure and Timing of the Transaction.....................7
Going Private Transaction; Effects..........................................7
Fairness of the Transaction.................................................9
Potential Conflicts of Interest............................................12
Employee and Director Stock Options........................................13
Warrants to Purchase Shares of Common Stock................................13
Certain Impact of the Transaction..........................................13
Conduct of Business Following Transaction..................................14
Stockholder Approval.......................................................14
Dissenters' Rights.........................................................14
Exchange of Stock Certificates.............................................14
Federal Income Tax Consequences............................................15
Fees and Expenses..........................................................16
Reservation................................................................16
NEWS COMMUNICATIONS, INC. AND ITS SUBSIDIARIES FINANCIAL INFORMATION..........17
Consolidated Balance Sheet.................................................17
Consolidated Statements of Operations......................................18
Consolidated Statements of Stockholders' Equity (Deficit)..................19
Consolidated Statements of Cash Flows......................................20
Market Prices and Dividend Information.....................................21
PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.....................22
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............23
MANAGEMENT OF NEWS COMMUNICATIONS, INC........................................27
Directors and Executive Officers...........................................27
WHERE YOU CAN FIND MORE INFORMATION...........................................29
DOCUMENTS INCORPORATED BY REFERENCE...........................................29
SUMMARY
This summary highlights selected information from this Information
Statement about the proposed transaction. This summary may not contain all of
the information that is important to you. For a more complete description of the
transaction, you should carefully read this disclosure document. For your
convenience, we have directed your attention to the location in this disclosure
document where you can find a more complete discussion of each item listed
below.
As used in this disclosure document, "the company," "we," "ours" and
"us" refers to News Communications, Inc. and its subsidiaries, "the common
stock" refers to the common stock, par value $0.01 per share, of the company,
and "the transaction" refers to the reverse stock split, together with the
related cash payment to certain stockholders in lieu of fractional shares of
common stock, and the reduction of authorized shares of common stock.
Reverse Stock Split
The reverse split will provide for the conversion of each 100
outstanding shares of common stock into one share of common stock. In the
reverse stock split, the common stockholders will be deemed to own one share of
common stock for each 100 shares they hold, and they will receive cash in lieu
of any fractional shares to which they would otherwise be entitled. The cash
payment for the common stock will be equal to $1.10 per pre-split share. We will
also amend our Articles of Incorporation to reduce the authorized shares of
common stock correspondingly. Please see "SPECIAL FACTORS - Going Private
Transaction; Effects" for a more detailed discussion.
Fairness of the Transaction
The board believes that the transaction is fair from a financial point
of view to the unaffiliated stockholders, including those stockholders being
cashed out and those who will retain an equity interest in us subsequent to the
consummation of the transaction. We did not request nor receive any report,
opinion or appraisal from an outside adviser in connection with this
transaction. The board believes that the transaction is fair from a procedural
point of view to the unaffiliated stockholders due to the existence of an
independent unaffiliated director who reviewed the transaction, recommended the
reverse split ratio and recommended the price to be paid to stockholders in lieu
of any fractional interests that would result from the split. The board also
believes that it is not necessary to call a stockholders meeting to address the
reverse stock split because one is not required under Nevada law and holders of
a majority of our shares have indicated they are in favor of the reverse stock
split. See "SPECIAL FACTORS - Fairness of the Transaction."
Stockholder Approval
We are not asking the stockholders to vote on the transaction. Under
Nevada law, the board may implement the reverse stock split and the
corresponding reduction of authorized shares of common stock without the
approval of the stockholders. See "SPECIAL FACTORS - Stockholder Approval."
Effects of Reverse Split
The reverse split would reduce the number of record holders of the
common stock to less than 300 and enable us to elect to terminate the
registration of our common stock under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Terminating our registration will
significantly change our public disclosures. After the transaction, we
anticipate the common stock will continue to trade on the pink sheets. However,
we do not plan on regularly publishing business or financial information, if at
all. See "SPECIAL FACTORS - Going Private Transaction; Effects" and "SPECIAL
FACTORS - Certain Impact of the Transaction."
Purposes of the Transaction
The principal purpose of effecting the reverse stock split is to
terminate our registration and periodical reporting obligations under federal
securities laws and relieve us of the costs, administrative burdens and
competitive disadvantage associated with operating a public company. See
"SPECIAL FACTORS - Purposes of the Transaction."
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Potential Conflicts of Interest
Our executive officers and directors as well as certain other persons
may have interests in the transaction that are different from your interests as
a stockholder, or relationships that may present conflicts of interest, relating
to their ownership of the common stock and options or warrants to purchase the
common stock before and after the consummation of the transaction. See "SPECIAL
FACTORS - Potential Conflicts of Interest," "SPECIAL FACTORS - Employee and
Director Stock Options," "SPECIAL FACTORS - Warrants to Purchase Shares of
Common Stock" and "Securities Ownership of Certain Beneficial Owners and
Management."
No Dissenters' Rights
Under Nevada law, stockholders are not entitled to dissenters' rights
in connection with the transaction. See "SPECIAL FACTORS -Dissenters' Rights."
Fees and Expenses
Approximately $175,000 is necessary to pay for all of the fractional
shares of common stock exchanged for cash in the transaction and the expenses
relating to the transaction and such funds will come from cash from operations.
We do not have any other plans for financing the transaction. See "SPECIAL
FACTORS - Fees and Expenses."
Reservation
We reserve the right to abandon the transaction any time before the
filing of the necessary amendments to the Articles of Incorporation with the
Secretary of State of the State of Nevada, if the board determines that such
action would be in our best interest. See "SPECIAL FACTORS - Reservation."
Method of Payment
Following the Effective Date, we will provide you with a Letter of
Transmittal that explains how you can surrender your share certificate(s) in
exchange for your cash payment and/or, if applicable, a new share certificate
evidencing the number of shares of common stock which you will hold after giving
effect to the reverse split. We will not pay interest on cash sums due to any
stockholder in connection with the transaction.
If your shares are held in a stock brokerage account or by a bank or
other nominee, you are considered the beneficial owner of shares held in "street
name" with respect to those shares, and the Information Statement is being
forwarded to you by your broker or other nominee. Your broker or other nominee
is considered, with respect to those shares, the stockholder of record. Although
the transaction is designed to reduce the number of stockholders of record, we
will treat stockholders holding common stock in street name in substantially the
same manner as stockholders whose shares are registered in their names for
purposes of the transaction. However, banks, brokers or other nominees may have
different procedures, and stockholders holding common stock in street name
should contact their bank, broker or nominee regarding the treatment of their
shares. See "SPECIAL FACTORS - Exchange of Stock Certificates."
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CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
This document contains certain statements that are forward-looking
statements. Those statements may include statements regarding our intent, belief
or current expectations of our officers with respect to (i) our strategic plans
and ability to benefit from this transaction, (ii) our policies regarding
capital expenditures, dividends, financing and other matters, (iii) industry
trends affecting our financial condition or results of operations, (iv) the
expenses associated with this transaction, and (v) the number of stockholders
following the transaction. Readers of this document are cautioned that reliance
on any forward-looking statement involves risks and uncertainties. Although we
believe that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate given the inherent uncertainties as to the occurrence or
nonoccurrence of future events. There can be no assurance that the forward
looking statements contained in this document will prove to be accurate. The
inclusion of a forward-looking statement herein should not be regarded as a
representation by us that our objectives will be achieved.
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SPECIAL FACTORS
Background
We have given thorough consideration to whether or not we should
engage in a going private transaction and our board of directors considered the
issue on a variety of occasions. In a meeting of the board on January 12, 2005,
management presented its estimates for compliance with the Sarbanes-Oxley Act
of 2002. Such estimates included costs associated with complying with Section
404 (effective for the year ending December 31, 2007), which would result in a
one time cost in excess of $365,000 over the next two years. Following the
discussions between the board and management, the board determined that the
high cost of compliance, including the one time charge for compliance with
Section 404, would be prohibitive and that we could better maximize our limited
corporate resources by not being a reporting company. Based on this
determination, the board directed management to investigate the feasibility
and cost of engaging in a going private transaction.
Between January 12, 2005 and May 4, 2005, members of management, and
at times individual members of the board, discussed and analyzed the potential
benefits and costs of engaging in a going private transaction. Such analysis
focused on the cost of being a reporting company and the potential savings to us
if we were to de-register our stock. Furthermore, members of management
determined that we were not able to use our status as a public company to raise
capital through the sale of securities in a public offering, or otherwise access
the public markets to raise equity capital. Management also determined that our
small public float and minimal trading volume have limited our ability to use
our common stock as acquisition currency or to attract and retain employees. As
a result, any material benefit derived from continued registration under the
Exchange Act is outweighed by the considerable cost.
On April 15, 2005, members of management directed Katten Muchin
Rosenman LLP, our SEC counsel, to determine the mechanics of a transaction, that
was viable under Nevada corporate law and the federal securities laws, that
would allow us to de-register our common stock.
On May 4, 2005, the board met with attorneys from Katten Muchin
Rosenman LLP to further discuss our various strategic alternatives. At this
meeting, the board reviewed a presentation prepared by members of management and
Katten Muchin Rosenman LLP which explained the mechanics of the reverse stock
split transaction, which would result in our being able to de-register our
common stock, and the costs and benefits of continuing to be a reporting
company. Katten Muchin Rosenman LLP also reviewed with the board the mechanics
of an issuer tender offer and open market transactions. Furthermore, Katten
Muchin Rosenman LLP discussed with the board the level of certainty in achieving
our goals of becoming a non-reporting issuer associated with each of a reverse
stock split, an issuer tender offer and open market purchases, and our
corresponding ability to determine the cost of the transactions in achieving our
goal of de-registering our common stock. After the presentation, members of the
board asked a variety of questions about the cost and mechanics of the
transactions, as well as the positive and negative effects of such transactions.
Following such conversations, the board unanimously determined that it would be
in our best interests and the best interests of our stockholders to take steps
to eliminate the expenses that we currently incur as an SEC reporting company
and that a reverse stock split was the most efficient transaction that could
achieve this goal with sufficient certainty. The board instructed Katten Muchin
Rosenman LLP to further explore the structure and efficiency of a reverse stock
split and that such analysis should include various exchange ratios of simple
numbers (i.e. a reverse split ratio of 50-to-1 and 100-to-1). Also, the board
requested that management prepare an analysis of the costs of the reverse stock
split. Based on the initial presentation by management, the board believed that
the number of fractional shares resulting from the reverse stock split, and the
corresponding cost to us, would be relatively minimal (approximately $55,000,
plus expenses). After a discussion, the board determined that the potential cost
of a financial advisory firm and the delivery by such firm of a fairness opinion
would be costly, against prudent business judgment and against the stated goal
of preserving limited corporate resources due to the significant cost associated
with retaining a financial advisor. Based on the board's desire to preserve
limited corporate resources, as well as our limited financial and personnel
resources, Martin Mendelsohn, who is our one board member that neither has, nor
is associated with someone who has, a substantial interest in our company and
would directly benefit as a result of the reduction of the outstanding number of
shares, agreed to review the terms of the reverse stock split and make
recommendations to the board based on his review. In addition to reviewing the
terms of the reverse stock split, Mr. Mendelsohn agreed to recommend a fair
price to be paid to stockholders that will own fractional shares following the
transaction by reviewing the current market price of our common stock, the
historic market price of our common stock and the purchase price paid to us in
prior transactions by purchasers to whom we sold our common stock. The board did
not believe that a committee of independent directors, empowered with the
ability to retain independent legal or financial advisors, was necessary because
it was determining the reverse stock ratio and the price to be paid in lieu of
fractional shares based on the
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recommendation of Mr. Mendelsohn. The board determined that it was capable of
reaching such conclusions because all stockholders were being treated
identically and no group of stockholders was being favored at the expense of any
other group of stockholders.
On June 30, 2005, at a meeting of the board, members of management and
representatives of Katten Muchin Rosenman LLP explained the mechanics and
various terms of a reverse stock split. Following such explanation, Mr.
Mendelsohn recommended to the board that it approve a reverse stock split in
which each stockholder receive one post-split share for each 100 pre-split
shares that such stockholder owns and a cash payment equal to $1.10 for each
pre-split share resulting in a fractional share. Upon receipt of the
recommendation from Mr. Mendelsohn, members of the board discussed the
recommendation and the analysis presented by Katten Muchin Rosenman LLP. After
such discussions and due consideration, the board unanimously determined to
effectuate a reverse stock split which would enable us to de-register our common
stock. The board determined that the reverse stock split will provide for the
conversion of each 100 outstanding shares of common stock into one share of
common stock; that stockholders who own fractional shares after the reverse
stock split will receive a cash payment equal to $1.10 for every pre-split share
that they owned; that the transaction is fair to our stockholders, including
those stockholders who will receive a cash payment in lieu of fractional shares;
that our officers are authorized to file and distribute the documents necessary
to effectuate the transaction, including any filings required by the SEC under
applicable federal securities laws and the Certificate of Amendment to such
Articles of Incorporation of News Communications, Inc. (after giving effect to
any restrictions on such filings set forth in applicable federal securities
laws), in Nevada, and any distributions of documents to our stockholders.
Purposes of the Transaction
The primary purpose of the reverse stock split is to eliminate the
expense, as well as the effort, of our management, which is required in order to
comply with our disclosure and reporting requirements under the federal
securities laws as well as the related stockholder servicing expense associated
with being a SEC reporting company. The reverse stock split will eliminate the
expenses we incur as a SEC reporting company. The reverse stock split also will
enable our management and employees to devote more time and effort to improving
our operations by eliminating the time spent by them in preparing periodic
reports and managing stockholder relations.
Our common stock is registered under Section 12 of the Exchange Act,
therefore, we are required to comply with the disclosure and reporting
requirements under the Exchange Act and the new requirements of the
Sarbanes-Oxley Act of 2002. The cost of complying with these requirements is
substantial, representing an estimated annual cost to us in the future of
approximately $380,000 per year, including legal and accounting fees, printing,
postage, data entry, stock transfer and other administrative expenses. In going
private, we expect to save most of those costs.
In addition to the direct costs we incur, our management team and
employees are required to devote substantial time and energy to completing the
periodic reports required of us under the Exchange Act. We are a small company
and have limited resources with which to hire employees and prior to the
enactment of the Sarbanes-Oxley Act of 2002, our personnel devoted a significant
portion of such limited resources to compliance with the Exchange Act. However,
as a result of the compliance requirements imposed under the Sarbanes-Oxley Act
of 2002 we believe that the Exchange Act obligations have and will become more
burdensome on us due to our limited resources and inability to hire additional
personnel. The substantial time that our management and employees currently
devote to complying with the reporting requirement under the Exchange Act limit
their ability to promote and further develop our business and better serve our
stockholders. Based on the amount of resources that we currently invest in the
disclosure obligations, we believe that additional disclosure requirements could
severely constrain our management team's ability to properly focus on our
business at the expense of our stockholders. Therefore, in addition to the
approximately $380,000 in annual future direct savings that we expect to realize
following the reverse stock split, we will be able to benefit from our
management team; and employees' enhanced focus on improving revenues and
efficiencies.
The cost savings figures set forth above are only estimates. The
actual savings we realize from going private may be higher or lower than such
estimates. Estimates of the annual savings to be realized if the reverse stock
split is consummated are based upon the actual costs to us of the services and
disbursements in each of the categories listed above that were reflected in our
recent financial statements, and the allocation to each category of management's
estimates of the portion of the expenses and disbursements in such category
believed to be solely or primarily attributable to our status as a public
reporting company.
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It is important to note that in addition to the annual estimated cost
savings referenced above, the consummation of the reverse stock split and
subsequent deregistration of our common stock would result in a significant
one-time cost savings due to our not being subject to the new internal control
audit requirements imposed by Section 404 of the Sarbanes-Oxley Act of 2002.
Preparing ourselves to be able to comply with Section 404 of the Sarbanes-Oxley
Act of 2002 would require significant expenditures during the next two years,
including costs related to computer software and hardware and fees to third
parties for compliance planning, assessment, documentation and testing. Such
costs are expected to exceed $365,000.
We expect the actual cost savings of being a non-reporting private
company to be much greater than simply eliminating the estimated historical
out-of-pocket costs. Moreover, new legislation, such as the Sarbanes-Oxley Act
of 2002, will likely continue to have the effect of increasing the compliance
burdens and potential liabilities of being a SEC reporting company. Any new
legislation will likely continue to increase audit fees and other costs of
compliance, such as securities counsel fees, increase outside director fees,
increase in our director and officer insurance premiums and increase potential
liability faced by our officers and directors.
In some instances, management's cost savings expectations were based
on information provided or upon verifiable assumptions. For example, our
auditors have informed us, informally, that there will be a reduction in
auditing fees if we cease to be an SEC reporting company. In addition, the costs
associated with retaining legal counsel to assist with complying with the
Exchange Act reporting requirements will be eliminated if we no longer file
reports with the SEC and are otherwise not required to comply with the
disclosure requirements that apply to publicly reporting companies.
As a result of the reverse stock split, we will no longer be required
to publicly disclose or reveal sensitive financial information which we believe
can assist our competitors in approaching and soliciting our advertisers and
customers.
In addition to the expenses mentioned above, our board believes that
we receive little, if any, relative benefit from having our common stock
registered under the Exchange Act. Such benefits include:
o The ability to use our stock to raise capital. Most capital has
been raised through private placements and from existing
stockholders, thus minimizing the benefits of having our stock
registered pursuant to the Exchange Act. In addition, we
anticipate that the common stock will continue to trade on the
pink sheets after the transaction is completed, as it currently
does.
o Public companies often endeavor to use company stock to attract,
retain and provide incentives to employees. Due to the limited
liquidity of our common stock, we have found limited success in
using common stock in such a manner.
o An enhanced company image often accompanies publicly reporting
company status. We have determined that due to our size and other
factors, we have not enjoyed an appreciable enhancement in
company image as a result of our publicly reporting company
status.
We had approximately 1,052 stockholders of record as of August 31,
2005. Of the record holders, approximately 920 owned less than 100 shares.
Alternatives Considered
In making its determination to proceed with the reverse stock split,
the board considered other going private alternatives as well as remaining an
SEC reporting company. As discussed below, the board rejected the other
alternatives to the reverse stock split as well as simply remaining an SEC
reporting company. For the reasons discussed below, the board determined that
providing liquidity to some unaffiliated stockholders was fair to all the
stockholders considering the benefits to us of eliminating the expenses incurred
through being an SEC reporting company and relieving management of the time
necessary to meet regulatory responsibilities under federal securities laws. The
alternatives the board considered were:
o Issuer Tender Offer. The board considered an issuer tender offer
to repurchase shares of our outstanding common stock. An issuer
tender offer is an expensive undertaking and the results of an
issuer tender offer would be unpredictable due to its voluntary
nature; thus, the board was uncertain as to whether this
alternative would result in a sufficient number of shares being
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tendered. Moreover, federal regulations impose rules regarding
the treatment of stockholders in a tender offer, including
pro-rata acceptance of offers from stockholders, which make it
difficult to ensure that we would be able to significantly reduce
the number of stockholders of record. As a result, the board
rejected this alternative.
o Open Market Purchase Program. The board considered going private
by means of an open market purchasing program. The board rejected
an open market purchasing program because it would be highly
unlikely that our shares could be acquired from a sufficient
number of holders to accomplish the going private objective in
light of the fact that there is no active trading market for our
common stock.
o Maintaining the Status Quo. The board considered maintaining the
status quo. In that case, we would continue to incur the expenses
of being an SEC reporting company without, in the opinion of the
board, the commensurate benefits. Thus, the board considered
maintaining the status quo not to be in the best interests of
either us or our stockholders and rejected this alternative.
In reviewing the terms of the reverse stock split, the board was
advised by counsel that under Nevada law appraisal rights are not available to
stockholders of a company undertaking a reverse stock split. However, the board
determined that the cost and efficiency of a reverse stock split, as well as the
certainty with which it would allow us to achieve our goal of de-registering our
common stock made it the best alternative, despite appraisal rights not being
available to our stockholders. In addition, none of the other transaction
structures referred to above would have enabled our stockholders to exercise
appraisal rights under Nevada law. While appraisal rights are not available in a
reverse stock split under Nevada law, the other transaction structures reviewed
did not grant such appraisal rights, therefore, each of the transactions granted
stockholders similar rights and a reverse stock split is the only type of
transaction that could reduce the number of stockholders of record with
sufficient certainty.
In light of the foregoing, the board and management believe the
benefits associated with maintaining our status as an SEC reporting company are
substantially outweighed by the costs, both financial and operational. The board
believes that it is in our best interests to eliminate the administrative burden
and costs associated with maintaining our status as an SEC reporting company.
Reasons for the Structure and Timing of the Transaction
The primary purpose of the reverse stock split is to reduce the number
of holders of record of the common stock to less than 300 to enable us to elect
to terminate the registration of our common stock pursuant to Section 12(g) of
the Exchange Act and become a private company. The board believes that a reverse
stock split provides the most certainty for us to achieve this purpose.
We are currently required to comply with the disclosure and reporting
requirements under the Exchange Act, as well as new requirements of the
Sarbanes-Oxley Act of 2002. The cost of complying with these requirements is
substantial. We believe these obligations have become more burdensome on small
SEC reporting companies like ours as a result of the recent enactment of the
Sarbanes-Oxley Act of 2002 and the cost of remaining a public company would
further increase in the near future. The board determined that it was in our
best interest to proceed with the reverse stock split, in order to de-register
our common stock, due to preliminary estimates of management and our outside
auditors of the significant one-time cost associated with compliance with
Section 404 of the Sarbanes-Oxley Act of 2002. If we do not de-register
imminently, we will be forced to incur such cost, and be required to use our
limited resources, in order to comply with the new internal control audit
requirements imposed by Section 404 of the Sarbanes-Oxley Act of 2002, which
would become applicable to us in 2007.
Going Private Transaction; Effects
We intend to engage in a going private transaction which will reduce
the number of holders of record of our common stock to less than 300 and enable
us to elect to terminate the registration of our common stock pursuant to
Section 12(g) of the Exchange Act. As of August 31, 2005, there were 12,024,597
shares of common stock issued and outstanding, held by approximately 1,052
holders of record.
Shares of our common stock are currently traded on the pink sheets
under the trading symbol "NCOM.PK." After completing the transaction, we
anticipate that our common stock will continue to trade on the pink sheets. It
also is possible that trading in the common stock may only occur in privately
negotiated transactions.
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After the transaction, we anticipate that we will have fewer than 300
stockholders of record, in which event we intend to file a Form 15 with the SEC
to terminate registration of the common stock under the Exchange Act. Following
the termination of the registration of our common stock, we will no longer be
subject to certain provisions of the Exchange Act. In particular, our
obligations to publicly file annual and quarterly reports will cease. The rights
of the stockholders under Nevada law to inspect, copy and audit the corporate
books and records will be unaffected by the transaction.
The pink sheets is a centralized quotation service that collects and
publishes market maker quotes for over the counter securities in real time. It
is neither a SEC registered stock exchange nor a broker-dealer. There are no
specific eligibility and disclosure requirements in connection with the pink
sheets. A market maker determines whether to quote a security and the issuer of
the securities may not apply to list or quote securities on the pink sheets.
In order to accomplish the going private transaction, and to reduce
the number of holders of record to less than 300, there will be a 1-for-100
reverse stock split of our common stock. Those stockholders who, immediately
following the reverse stock split, would hold only a fraction of a share of
common stock will be paid an amount, in cash, equal to $1.10 for each pre-split
share and will no longer be our stockholders.
Mr. Mendelsohn recommended and the board approved a reverse stock
split ratio of one post-split share for 100 pre-split shares by calculating a
ratio that could be used to reliably reduce the stockholders of record to less
than 300, while providing us with some flexibility if future financings and
issuances are necessary and ensuring that remaining stockholders have some
liquidity. Mr. Mendelsohn considered the respective costs and benefits of
reverse stock split ratios in which one post-split share was issued for either
100 pre-split shares or 50 pre-split shares based upon information presented by
our management. Subsequently, Mr. Mendelsohn advised the board of his analysis
of the various reverse split ratios and recommended to the board that it approve
a ratio of one post-split share for 100 pre-split shares because he believed
that such ratio is the optimum ratio to achieve our goals of having less than
300 stockholders of record following consummation of the reverse stock split
while continuing to provide some liquidity for our remaining stockholders. After
reviewing Mr. Mendelsohn's recommendation, the board approved a reverse stock
split ratio of one post-split share for 100 pre-split shares because it achieved
our goals of ensuring that following the consummation of the reverse stock split
that we would have fewer than 300 stockholders of record and would also provide
some potential liquidity for our remaining stockholders.
The amendment to the Articles of Incorporation will decrease the
authorized common stock proportionately from 100,000,000 shares to 1,000,000
shares. The shares of common stock acquired by us as a result of the reverse
stock split will be retired, which will reduce the number of outstanding shares.
Our officers and directors at the effective time of the amendment to
the Articles of Incorporation effecting the reverse stock split will continue to
serve as our officers and directors immediately after the transaction is
complete.
Because the price to be paid in lieu of fractional shares to holders
of fewer than 100 shares of common stock will be $1.10 per share, and because
approximately 920 stockholders of record own less than 100 shares, the total
cost to us, including expenses, of effecting the reverse stock split is expected
to be approximately $175,000. At June 30, 2005, our aggregate stockholders'
deficit less preferred stock was approximately $(2,266,861), or $(0.19) per
share, we expect that, as a result of the reverse stock split, the stockholders
deficit per share of common stock will be increased to approximately $(18.91)
per share on a pro forma basis. However, it is important to note that book value
is an accounting methodology based on the historical cost of our assets, and
therefore does not necessarily reflect our current value.
The reverse stock split may be beneficial to our stockholders for,
among other things, the following reasons:
o We will be able to save considerable expenses related to
complying with the increasingly burdensome disclosure and
reporting requirements under the federal securities laws.
o Our management and employees will be able to devote more time and
effort to our operations instead of devoting time to comply with
the Sarbanes-Oxley Act of 2002 and other disclosure obligations
under the federal securities laws.
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o We will no longer be required to publicly disclose or reveal
sensitive financial information which we believe can assist our
competitors in approaching and soliciting our advertisers and
customers.
o With fewer stockholders, we will be able to reduce administration
costs related to stockholder services.
o Stockholders who own less than 100 shares will receive a cash
payment that is higher than any payment that they would receive
if they sold their shares on the open market because the cash
payment in lieu of fractional shares is higher than both the
current market price and the market price for the past five
years.
Prior to approving the reverse stock split, the board considered the
following matters that may be detrimental to our stockholders:
o Stockholders owning fewer than 100 shares of our common stock
immediately prior to the effective time of the reverse stock
split will, after giving effect to the reverse stock split, no
longer have any equity interest in us and therefore will not be
able to participate in our potential earnings or growth.
o Remaining stockholders may experience decreased liquidity due to
the resulting low public float.
o Remaining stockholders will not be able to rely on or review
either annual, quarterly or other periodic reports because we
will no longer be subject to the various reporting requirements
of the federal securities laws.
Fairness of the Transaction
The board believes that the transaction is fair from a financial point
of view to the unaffiliated stockholders of the company. The board is comprised
of seven (7) members. Six of our seven board members have, or are associated
with someone who has, substantial interests in our company and will indirectly
benefit as a result of the reduction in the number of outstanding shares. Our
one board member who is not so associated, Martin Mendelsohn, was asked to
advise on the price that we would pay for our fractional interests. The board
authorized Mr. Mendelsohn to recommend a reverse stock split ratio and to
recommend an amount to be paid to stockholders in lieu of fractional shares. The
board did not assign Mr. Mendelsohn responsibility to represent any, or all, of
the stockholders, but rather to recommend various terms of the transaction. Mr.
Mendelsohn was so authorized because the board believed that all stockholders
were being treated equally and that a special committee was not necessary to
represent certain stockholders, since no stockholder prospered at the expense of
other stockholders. Furthermore, the board determined that it would approve the
reverse stock split ratio and the amount to be paid to stockholders in lieu of
fractional shares because members of the board were not being treated
differently than the remaining stockholders. Due to the factors set forth above
and the fact that the costs of retaining a financial advisor to assist Mr.
Mendelsohn in determining the value of our shares would be so large compared
with the total value of the fractional interests to be cashed out, it was
determined that a financial advisor not be retained. Rather, it was determined
that we will pay an amount, $1.10 per share, which represents a price that is
higher than the highest price at which we have sold shares for the past five
years and represents a premium above the $0.70 price at which we last sold
shares to raise working capital. Mr. Mendelsohn's determination was unanimously
approved by the board at a meeting held on June 30, 2005.
The board considered a number of factors in determining the fairness
of the transaction prior to its approval of the transaction, which factors are
applicable to both unaffiliated stockholders who will remain our stockholders
after the transaction and unaffiliated stockholders who will be cashed out,
except for the factors with respect to savings in operating costs, the liquidity
of our common stock and the ability to participate in our growth subsequent to
the effectiveness of the transaction. The factors considered by the board
include the following:
o Fairness of Price
The board believes that the price which will be received by the
stockholders in lieu of fractional shares of common stock is fair from
a financial point of view to our unaffiliated stockholders. Mr.
Mendelsohn and the board considered a number of factors in reaching
this determination. In particular,
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the board considered current market price, historical market price and
the purchase prices paid in prior purchases of our common stock.
The highest trading price of our common stock since January 1,
2003 was $1.05 and the lowest $0.50. The board believed that market
price was indicative, but not decisive due to the low trading volume
and the small float. Because we have been raising most of our capital
through private placement and from existing stockholders, the board
considered the prices paid by purchasers in recent transactions with
us as more reliable than open market transactions. The highest price
at which we have sold shares in the past five years was $1.00 per
share. Combining the three factors, the board determined that a price
of $1.10, represents an amount that is higher than the highest price
at which we sold shares in the last five years and a premium over
current and historic market prices, and was therefore fair to our
unaffiliated stockholders. In its analysis and conclusion, the board
did not consider other factors, such as net book value, going concern
value and liquidation value, material. The board did not consider net
book value because it is an accounting concept designed to reflect
historical cost. The board did not determine the liquidation value
because such an analysis would not truly reflect the actual market
value of the Company since a buyer of our assets would be expected to
pay more for such assets when sold as a going concern due to the fact
that the assets should be able to generate greater cash flow when
operated as a going concern, as opposed to the cash flow that would be
generated if the assets were broken up and sold on an asset-by-asset
basis in a liquidation sale. The board did not analyze the going
concern value because it would be significantly effected by our
current deficit and the limited value of our tangible and intangible
property.
o Fairness of Process to Determine Price
The board believes that the process that it employed to determine
the price which will be received by the stockholders in lieu of
fractional shares of common stock was substantively and procedurally
fair because the sole independent board member recommended such price
because it represented the highest price at which we have sold shares
for the past five years, and represented a substantial premium above
the $0.70 price at which we recently sold shares to raise capital.
o Significant Savings Will Benefit Us and Remaining Unaffiliated
Stockholders
Following the transaction, the board believes that we and our
remaining unaffiliated stockholders will benefit from the savings in
direct and indirect operating costs to us resulting from our no longer
being a public company, which benefit outweighs the decreased access
to information and decreased liquidity.
o Fairness of the Determination of Reverse Split Ratio
Based upon the information presented by the management, Mr.
Mendelsohn recommended and the board selected the ratio of one for 100
for the reverse stock split by calculating a ratio that could be used
to reliably reduce the stockholders of record to less than 300, but
still maintain some level of liquidity in the remaining shares of
common stock outstanding. The board believes that in order to maximize
the cost savings value of the transaction, the ratio should be as high
as possible, while still ensuring that we would be able to maintain
some potential liquidity for our remaining stockholders and achieve
the stated purposes of the transaction.
The board believes that the process for determining the reverse
stock split ratio to be procedurally fair because the ratio was based
on the recommendation of an independent director and the ratio of one
for 100 represents the optimum ratio which allows us to both
reasonably believe that the reverse stock split will result in us
having fewer than 300 stockholders of record both immediately after
the reverse stock split and in the near future and achieve all the
benefits of a reverse split and maintain some potential liquidity for
our remaining stockholders.
o Liquidity for Remaining Unaffiliated Stockholders
The board recognizes that the transaction will result in a
decrease in liquidity and a readily available market for its common
stock and these factors are one of its greatest concerns in approving
the going private transaction. However, there has not been an active
market for our shares in more than three years and the board believes
that the decreased liquidity is offset by the gain to us in decreasing
our legal
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compliance costs and the other benefits of the transaction described
herein. We currently anticipate the common stock will continue to
trade on the pink sheets.
o Cashed Out Stockholders
One negative aspect of the transaction is the inability of those
stockholders who are cashed out to maintain an interest in our future
growth and progress with current holdings. The board believes that
this factor is outweighed by the ability of any stockholder who wishes
to remain a stockholder to increase its holdings to at least 100
shares of our common stock prior to the transaction by purchasing
shares on the open market or otherwise acquiring additional shares of
common stock prior to the effective date of the reverse stock split
and the liquidity provided to such stockholders at a considerable
premium over the current market price.
o No Stockholder Vote
Under Section 78.207 of Nevada Revised Statutes, the board may
effect the reverse stock split and the corresponding reduction in
authorized shares of common stock without the approval of the
stockholders. Due to such specific authorization in Nevada law, the
board does not believe that the lack of a vote affects the fairness of
the transaction to either the stockholders who receive cash in lieu of
fractional shares or who remain as unaffiliated stockholders.
Accordingly, we have not asked the stockholders to vote on the
transaction. Furthermore, any stockholder who wishes to remain a
stockholder following the reverse stock split may increase their
holdings of our common stock to at least 100 shares prior to the
effective time of the reverse stock split. Alternatively, any
stockholder who wishes not to remain a stockholder following the
reverse stock split may decrease their holdings of common stock to
less than 100 shares prior to the effective time of the reverse stock
split.
o No Impact on Net Operating Losses
The board, members of management and our legal advisors and
accountants reviewed the status of our net operating losses ("NOLs"),
in the context of the transaction. Following such review, each of the
parties concluded that we would preserve our NOLs following
consummation of the transaction and that there would not be a negative
impact on the NOLs as a result of the transaction.
o No Unaffiliated Representative
No unaffiliated representative was retained to act solely on
behalf of the unaffiliated stockholders. The board noted that the
affiliated and the unaffiliated stockholders were treated equally in
all respects of the transaction and that the sole independent member
of the board reviewed the terms of transaction and recommended the
reverse stock split ratio and cash price to be paid for fractional
interests. The board believes that the absence of unaffiliated
representatives does not adversely affect the fairness of the
procedure followed by the board in determining the transaction.
After considering all of these factors, the board believed that
overall, the transaction was substantively fair to our unaffiliated
stockholders, whether they would remain our stockholders or not, as the
potential benefit of the transaction to us and our unaffiliated stockholders
clearly outweighed the potential detriments and because our affiliated and
unaffiliated stockholders will receive equal treatment and face the same
detriments throughout and subsequent to the transaction. The board also
determined that the process by which the transaction was approved was fair to
those unaffiliated stockholders receiving the cash consideration as well as the
remaining unaffiliated stockholders because the sole independent director
reviewed the terms of the transaction, recommended the reverse split ratio and
the amount of cash to be paid in lieu of fractional shares and alternative types
of transaction would not have offered additional procedural safeguards. The
board did not receive any report, opinion or appraisal from any outside party in
connection with the transaction.
In reviewing the transaction and determining whether the transaction
is fair to and in the best interest of our stockholders, the board analyzed the
factors set forth above, consulted with certain members of our management and
consulted with legal counsel. The board did not believe it was necessary to seek
a fairness opinion or retain an independent financial advisor because the costs
of retaining a financial advisor to assist Mr. Mendelsohn in determining the
value of our shares was far greater than the relative benefits of such advisor
due to the relatively low total value of the fractional interests to be cashed
out.
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The discussion of the information and factors set forth above and
considered by the board in making its decision is not intended to be exhaustive,
but includes all material factors considered by the board. In view of the wide
variety of factors considered in connection with the evaluation of the
transaction, neither the board nor individual directors found it useful to, nor
did either it or they attempt to, quantify, rank or otherwise assign relative
weight to the factors set forth above. In addition, individual members of the
board may have given different weight to different factors.
Potential Conflicts of Interest
Our executive officers and directors may have interests in the
transaction that are different from the interests of the stockholders, or
relationships that may present conflicts of interest, including the following:
o as a result of the transaction, those stockholders who own 100 or
more shares of our common stock at the effective time of the
amendment to the Articles of Incorporation effecting the reverse
stock split, including our directors and executive officers, will
increase their percentage ownership interest as a result of the
transaction. For example, the ownership percentage of the
directors and executive officers as a group will be approximately
45.71% of the outstanding shares of our common stock, which
represents an increase of 0.13% from the approximately 45.58%
which they held immediately prior to the transaction as a result
of the elimination of fractional interests;
o each of our directors and certain executive officers hold options
to purchase our common stock, which will, if unexercised,
continue to be outstanding following the transaction, subject to
anti-dilution adjustment;
o if, following the reverse stock split, our directors and
executive officers were to exercise all of their currently
outstanding options to acquire the common stock, they would hold
approximately 46.22% of the then outstanding common stock
compared with 46.09% of our common stock if exercised immediately
before the transaction;
o certain directors and executive officers own warrants that are
exercisable for shares of common stock, which will, if not
exercised, continue to be outstanding following the transaction,
subject to adjustment;
o if, following the reverse stock split, our directors and
executive officers were to exercise all of their currently
outstanding warrants that are exercisable into shares of common
stock, our directors and executive officers would hold
approximately 57.01% of the then outstanding common stock
compared with 56.88% of our common stock if exercised immediately
before the transaction;
o certain directors own shares of our $10 Convertible Preferred
Stock that are convertible into shares of common stock, which
will, if not converted, continue to be outstanding following the
transaction, subject to anti-dilution adjustment;
o as a result of the reverse stock split, no director, executive
officer or holder of 5% of more of the common stock will receive
more than $108.90 in cash, in the aggregate, and most will
receive less upon consummation of the reverse stock split;
o if, following the reverse stock split, our directors and
executive officers were to convert all of their currently
outstanding shares of our $10 Convertible Preferred Stock that
are convertible into shares of common stock, our directors and
executive officers would hold approximately 46.58% of the then
outstanding common stock compared with 46.45% of our common stock
if converted immediately before the transaction; and
o the board considered the fact that each director either was a
stockholder, option holder, warrant holder and/or holder of
shares of our $10 Convertible Preferred Stock and concluded that
such facts alone did not cause any one or more directors not to
be a "disinterested director," as that term is defined under
Nevada law, and thereby unable to consider and act upon the
transaction in the best interests of us and our stockholders.
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Employee and Director Stock Options
The outstanding options to acquire shares of common stock held by our
employees and directors will continue to be outstanding after the transaction.
As of August 31, 2005, there were options outstanding to purchase 214,821 shares
of our common stock. The options were granted to our directors and employees as
incentive compensation for services to us. All of the options are and will
continue to be vested and exercisable as of the date of the transaction. Holders
of options not exercised prior to the effective time of the amendment to the
Articles of Incorporation effecting the reverse stock split will hold stock
options with limited liquidity. When existing options are exercised, the
exercise will cover underlying fractional shares of common stock resulting from
the reverse stock split, but we will not issue fractional shares upon exercise
of an option. No options to purchase fractional shares will be outstanding after
the transaction. Options which would result in the issuance of fractional shares
after the reverse stock split will be cancelled. Any person whose options are
exercisable at a price which is less than $1.10 per share will receive a cash
payment, if any, equal to the product of (i) the number of pre-split options
which are being cancelled and (ii) the excess of $1.10 per share over the
exercise price. Because any whole shares issued upon the exercise of options
will not be registered under the Securities Act of 1933, optionees will be
required to acquire such shares for investment purposes. They will benefit from
any future appreciation in the value after the transaction and will assume the
risk of any future downturns in our business after the transaction.
Warrants to Purchase Shares of Common Stock
The outstanding warrants to acquire shares of common stock will
continue to be outstanding after the transaction. As of August 31, 2005, there
were warrants outstanding to purchase 3,824,111 shares of our common stock. When
existing warrants are exercised, the exercise will cover underlying fractional
shares of common stock resulting from the reverse stock split, but we will not
issue fractional shares upon exercise of a warrant. Warrants which would result
in the issuance of fractional shares after the reverse stock split will be
cancelled. Any person whose warrants are exercisable at a price which is less
than $1.10 per share will receive a cash payment, if any, equal to the product
of (i) the number of pre-split warrants which are being cancelled and (ii) the
excess of $1.10 per share over the exercise price. Because any whole shares
issued upon the exercise of warrants will not be registered under the Securities
Act, holders of warrants will be required to acquire such shares for investment
purposes.
Certain Impact of the Transaction
Impact on the company
Following the transaction we will have less than 300 stockholders of
record and will terminate the registration of our common stock and become a
private company. We will no longer be public, and will no longer be subject to
the reporting requirements of the Exchange Act. Going private will significantly
change our public disclosures pursuant to the Exchange Act. We anticipate that
following the transaction we will continue to operate as we did prior to the
transaction. The same officers and directors will continue in their roles as
officers and directors, and we do not anticipate any significant corporate
events, such as a debt or equity financing, merger, reorganization or
liquidation; a transfer of a material amount of assets, changes in dividend
policy; or other material change with respect to our corporate structure or
business in the near future. We anticipate that we will realize significant
direct and indirect cost savings as a result of going private.
Prior to the transaction, we had 12,024,597 shares of common stock
outstanding and as a result of the transaction we will have approximately
119,880 shares of common stock outstanding. Approximately 920 stockholders of
record own less than 100 shares and will receive $1.10 per share, therefore we
estimate that the total cost of the transaction to us will be approximately
$175,000, including expenses. Our stockholders' equity and cash balance will be
reduced accordingly.
Impact on Stockholders
Stockholders holding less than 100 shares of common stock immediately
prior to the effective time of the reverse stock split will cease to be
stockholders. They will lose all rights associated with being a stockholder of
the company, such as the rights to attend and vote at stockholder meetings,
receive dividends and distributions, and share in the increase in value of our
stock or take advantage of any premium that may be offered by a third party in a
future transaction. These stockholders will be paid, in cash, an amount equal to
$1.10 for each pre-split share resulting in a fractional share. Such
stockholders will be liable for any applicable taxes, but will not be required
to pay brokerage fees. Following the Effective Date, we will provide you with a
Letter of Transmittal explaining how
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you can surrender your share certificates in exchange for cash payment and/or,
if applicable, shares of common stock.
Stockholders holding 100 or more shares of common stock immediately
prior to the effective time of the reverse stock split will continue to be
stockholders, but will receive cash in lieu of any fractional shares they may
otherwise be entitled to receive.
Stockholders who continue to be stockholders after the transaction
will:
o experience reduced liquidity of their shares. We anticipate the
common stock will continue to trade on the pink sheets. However,
the reduction in public information concerning us as a result of
our no longer being required to file reports under the Exchange
Act may further reduce the trading of the common stock; and
o not receive or have access to our financial and other business
information as they would if we were a public reporting company,
although such stockholders will continue to have rights to
inspect, copy and audit certain of our records, financial and
other information under Nevada law.
Effect on Market for Shares
Our common stock is currently traded on the pink sheets and we
anticipate that following the transaction our common stock will continue to
trade on the pink sheets. However, the reduction in public information
concerning us as a result of our no longer being required to file reports under
the Exchange Act will further reduce the liquidity of our common stock. It is
possible that any trading in our common stock after the transaction may only
occur in privately negotiated sales.
Conduct of Business Following Transaction
The primary purpose of the transaction is to reduce the number of
stockholders of record to less than 300 to enable us to elect to terminate the
registration of our common stock pursuant to Section 12(g) of the Exchange Act
and become a private company. Following the deregistration, we expect that our
common stock will continue to trade on the pink sheets. Furthermore, the
transaction and deregistration would result in our no longer filing reports
pursuant to Section 13 or 15(d) of the Exchange Act. We anticipate no other
material changes in our management or corporate structure.
We continue to explore strategic acquisitions and divestitures,
however we cannot assure you that we will enter into or consummate such a
transaction or buy or sell assets. Other than as described in this document,
neither we nor our management have any plans or proposals to effect any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to change
its board or management; to change materially its indebtedness or
capitalization; or otherwise to effect any material change in its corporate
structure or business.
Stockholder Approval
Pursuant to Section 78.207 of Nevada Revised Statutes, we may effect
one or more reverse stock splits and a corresponding decrease in authorized
shares of our common stock without stockholder approval and no vote of the
stockholders is being sought.
Dissenters' Rights
Pursuant to Section 78.207 of Nevada Revised Statutes, stockholders
are not entitled to dissenters' rights in connection with the transaction. No
provisions have been made to grant stockholders access to counsel or appraisal
services at the expense of the company.
Exchange of Stock Certificates
We have appointed Continental Stock Transfer and Trust Company, our
transfer agent, to act as exchange agent to carry out the exchange of existing
share certificates for cash payments in lieu of issuing fractional shares or, if
applicable, new share certificates. On the Effective Date, all share
certificates evidencing ownership of
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common stock held by our stockholders who will have fractional shares
repurchased will be deemed cancelled without further action by the stockholders
or us. Thereafter, such certificates will represent either the right to receive
cash in the amount of $1.10 per pre-split share of common stock for repurchased
fractional shares or if applicable, either the right to receive a new
certificate for shares of common stock or the right to receive a new certificate
for shares of common stock and the right to receive cash in the amount of $1.10
per pre-split share of common stock for repurchased fractional shares. The
shares of common stock acquired by us in connection with the transaction will be
cancelled. We will not pay interest on cash sums due to any stockholder in
connection with the transaction.
If, as a result of the transaction, you are entitled to receive either
a new certificate for shares of common stock or a new certificate for shares of
common stock and cash for repurchased fractional shares, and do not exercise
such rights, you will continue to be a stockholder of the Company, however your
ownership position will be revised on our books and records, as of the Effective
Date, to give effect to this transaction. As a stockholder, you will be entitled
to ratably participate in dividends and distributions and vote on matters
submitted to our stockholders. Also, you will have all rights granted to
stockholders under Nevada law and set forth and designated in our Articles of
Incorporation and By-laws.
The exchange agent will furnish you with the necessary materials and
instructions to surrender your common stock certificate(s) promptly following
the Effective Date. A Letter of Transmittal will explain how the certificates
are to be surrendered. You must complete and sign the Letter of Transmittal and
return it with your certificate(s) to the transfer agent as instructed before
you can receive any cash payment (and/or, if applicable, new certificate(s)) to
which you are entitled). Do not send your certificates to us, and do not send
them to the exchange agent until you have received a Letter of Transmittal and
followed the instructions therein.
Stock Certificates that contain a restrictive legend will be exchanged
for new certificates with the same restrictive legend. As applicable, the time
period during which the common stock has been held will be included in the time
period during which such stockholder actually holds the new common stock
certificate received in exchange for such stock certificate for the purposes of
determining the term of the restrictive period.
No service charges will be payable by you in connection with the
exchange of certificate or the payment of cash in lieu of issuing fractional
shares. We will pay for all expenses for the issuance of the new certificates.
If you hold your shares in "street name" your broker, bank or other
nominee is considered a stockholder of record with respect to those shares.
Although we intend to treat stockholders holding shares in street name in
substantially the same manner as stockholders whose shares are registered in
their names and to instruct nominees to effect the transaction for beneficial
holders, your nominee may have different procedures and is not legally obligated
to treat the transaction as affecting beneficial holders' shares, if such shares
would be cashed out by the transaction. To determine the transaction's effect on
any shares you hold in street name (and possible payment of the cash
consideration), you should contact your broker, bank or other nominee.
Federal Income Tax Consequences
The following is a discussion of the material United States federal
income tax consequences of the transaction to our stockholders who are citizens
or residents of the United States or that are domestic corporations. The
discussion below does not address all aspects of federal income taxation that
may affect particular stockholders in light of their particular circumstances,
that are generally assumed to be known by investors or that may affect
stockholders subject to special treatment under federal income tax laws. The
following discussion assumes that shares of our common stock are held as capital
assets. In addition, no information is provided in this document with respect to
the tax consequences of the transaction under foreign, state or local laws.
We believe that there will be no material federal income tax
consequences for those stockholders who continue to be stockholders following
the consummation of the transaction except for amounts received for fractional
shares. Their basis in their current shares (except for post-split fractional
shares) should carry forward as their basis in the new shares they will be
deemed to own after the reverse stock split.
We believe that, for those stockholders who receive cash in exchange
for fractions of shares of common stock following the reverse stock split
(including stockholders who are cashed out pursuant to the reverse stock split),
the transaction will be treated as a taxable transaction for federal income tax
purposes. Generally, stockholders receiving cash in the transaction will
recognize a gain or loss for federal income tax purposes based on the difference
between the amount of cash received and the portion of the stockholder's current
tax basis in our
-15-
shares of common stock that is allocated to the fractional shares (as if such
shares were issued to the stockholder and then immediately redeemed by us), such
gain or loss generally will be capital gain or loss, and will be long-term
capital gain or loss if the stockholder's holding period for the shares of our
common stock exceeds twelve months. Under present law, long-term capital gains
recognized by an individual stockholder generally will be taxed at a maximum
marginal federal tax rate of 15%, and long-term capital gains recognized by a
corporate stockholder will be taxed at a maximum marginal federal tax rate of
35%. In addition, under present law, the ability to use capital losses to offset
ordinary income is generally limited for stockholders that are individuals to
the amount of capital gains recognized during a tax year plus $3,000.
Tax matters are complicated and the tax consequences of the
transaction to each stockholder will depend on the facts of that stockholder's
situation. You are urged to consult your tax advisor for a full understanding of
the tax consequences of the transaction to you. The foregoing summary of
material federal income tax consequences of the transaction to our stockholders
is based upon the Internal Revenue Code, applicable Treasury Regulations
thereunder, rulings and pronouncements of the Internal Revenue Service and
judicial decisions now in effect, all of which are subject to change at any time
by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect such stockholders
and could affect the continuing validity of this summary. This summary does not
purport to discuss all aspects of United States federal income taxation that may
be relevant to each stockholder in light of their specific circumstances, or to
certain types of stockholders subject to special treatment under United States
federal income tax laws (for example, foreign persons, dealers in securities,
banks and other financial institutions and tax-exempt organizations). No ruling
from the IRS has been obtained (or will be sought) as to the United States
federal income tax consequences of the transaction.
Fees and Expenses
Management estimates approximately $55,000 will be required to pay for
the fractional shares of the common stock exchanged for cash in the transaction.
It is expected that the actual amount paid to acquire the fractional shares will
differ from this estimated amount due to possible changes in the number of our
stockholders who hold less than 100 shares of common stock. In addition,
expenses are projected to amount to $120,000 as follows:
Expenses Estimated Amount
-------- ----------------
Legal Fees $86,200
Accounting Fees 15,000
Exchange Agent/Transfer Agent fees 7,600
Filing 1,500
Printing 2,500
Mailing 7,200
The approximately $175,000 necessary to pay for all of the fractional
shares exchanged for cash in the transaction and the expenses relating to the
transaction will come from cash from operations.
Reservation
We reserve the right to abandon the transaction at any time before the
filing of the necessary amendments to the Articles of Incorporation effecting
the reverse stock split in Nevada if the board determines that such action is in
our best interests. We may, for example, abandon or delay the transaction if
there is a material change in our condition or if the board perceives that there
has been a material change in the benefits or risks associated with the
transaction.
-16-
NEWS COMMUNICATIONS, INC. AND ITS SUBSIDIARIES
FINANCIAL INFORMATION
Consolidated Balance Sheet
--------------------------------------------------------------------------------------------
As of As of
June 30, 2005 December 31, 2004
------------- -----------------
Assets
Current:
Cash and cash equivalents $ 327,231 $ 421,255
Accounts receivable - net of allowance for doubtful
accounts of $168,407 and $229,022, respectively 1,759,763 1,015,297
Notes receivable 10,000 10,000
Other 171,446 218,231
------------ ------------
Total current assets 2,268,440 1,664,783
Restricted cash 34,102 34,102
Notes receivable, net of current portion 80,000 80,000
Property and equipment at cost- net 226,531 243,904
Goodwill 314,809 314,809
Trade names, net 449,580 462,612
Other - net 47,007 23,526
------------ ------------
Total assets $ 3,420,469 $ 2,823,736
============ ============
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 1,098,948 $ 787,994
Accrued expenses 1,408,763 1,167,003
Income taxes payable 85,077 10,077
Notes payable and capital leases, current portion 17,411 18,752
Unearned revenue 628,212 528,900
Due to related parties 310,257 631,418
------------ ------------
Total current liabilities 3,548,668 3,144,144
Due to related parties 362,124 261,150
Notes payable and capital leases, net of current portion 30,689 39,394
------------ ------------
Total liabilities 3,941,481 3,444,688
------------ ------------
Commitments
Stockholders' deficit:
Preferred stock, $1.00 par value; 500,000 shares
authorized: 177,529 shares issued and outstanding:
$1,864,000 aggregate liquidation value 177,529 177,529
Common stock, $.01 par value; authorized 100,000,000
shares; 12,682,931 and 12,307,792 shares issued and
12,024,597 and 11,649,458 outstanding 126,829 123,078
Paid-in-capital preferred stock 1,568,320 1,568,320
Paid-in-capital common stock 27,429,323 27,086,071
Deficit (28,921,284) (28,674,221)
------------ ------------
380,717 280,777
Less: Treasury stock, (658,334 common shares) - at cost (901,729) (901,729)
------------ ------------
Total stockholders' deficit (521,012) (620,952)
============ ============
Total liabilities and deficit $ 3,420,469 $ 2,823,736
============ ============
-17-
Consolidated Statements of Operations
----------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended
June 30, December 31,
-------------------------- --------------------------
2005 2004 2004 2003
----------- ----------- ----------- -----------
Net revenues $ 6,639,623 $ 5,978,328 $12,168,133 $10,230,081
Expenses:
Editorial 1,011,362 986,091 2,055,657 1,915,575
Production and distribution 1,709,905 1,531,488 3,634,043 2,976,681
Selling 1,770,494 1,515,205 3,477,260 2,804,661
General and administrative 2,219,426 2,047,078 3,772,449 3,680,151
Depreciation and amortization 70,412 93,300 189,280 191,671
----------- ----------- ----------- -----------
Total expenses 6,781,599 6,173,162 13,128,689 11,568,739
Loss from operations, before gain on sale of
publication (141,976) (194,834) (960,556) (1,338,658)
Gain on sale of publication -- -- -- 67,575
----------- ----------- ----------- -----------
Loss from operations (141,976) (194,834) (960,556) (1,271,083)
Interest expense, net (29,525) (29,199) (56,746) (38,657)
----------- ----------- ----------- -----------
Loss before provision for income taxes (171,501) (224,033) (1,017,302) (1,309,740)
Provision for income taxes 75,000 64,774 44,506 23,176
----------- ----------- ----------- -----------
Net loss $ (246,501) $ (288,807) $(1,061,808) $(1,332,916)
=========== =========== =========== ===========
Less: preferred dividends 564 564 39,438 1,128
----------- ----------- ----------- -----------
Net loss applicable to common stockholders $ (247,065) $ (289,371) $(1,101,246) $(1,334,044)
Loss per common share:
Basic and diluted $ (0.02) $ (0.02) $ (0.09) $ (0.13)
----------- ----------- ----------- -----------
Weighted-average number of common shares outstanding:
Basic and diluted 11,956,201 11,636,678 11,643,103 10,479,689
----------- ----------- ----------- -----------
Deficiency of earnings to fixed charges $ (141,976) $ (194,834) $ (960,556) $(1,271,083)
Book value per share $ (0.19) $ (0.13) $ 0.20 $ 0.13
Ratio of adjusted earnings to fixed charges (0.5x) (0.9x) (4.1x) (4.2x)
Computation of ratio of earnings to fixed charges:
Interest expense $ 31,249 $ 36,525 $ 67,045 $ 92,946
Estimate of interest within rental expense 66,310 68,010 122,223 150,186
----------- ----------- ----------- -----------
Total fixed charges 97,559 104,535 189,268 243,132
----------- ----------- ----------- -----------
Earnings:
Add: Loss from operations (141,976) (194,834) (960,556) (1,271,083)
Fixed charges 97,559 104,535 189,268 243,132
----------- ----------- ----------- -----------
Total adjustment earnings (44,417) (90,299) (771,288) (1,027,951)
----------- ----------- ----------- -----------
Ratio of adjusted earnings to fixed charges (0.5x) (0.9x) (4.1x) (4.2x)
----------- ----------- ----------- -----------
Deficiency of earnings to fixed charges $ (141,976) $ (194,834) $ (960,556) $(1,271,083)
----------- ----------- ----------- -----------
-18-
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2004 and 2003
Preferred stock Common stock
------------------------------- -----------------------------------
Paid-in Paid-in
Shares Amount capital Shares Amount capital
------- -------- ---------- ---------- ------- -----------
Balance, December 31, 2002 192,534 $192,534 $1,703,345 10,844,744 $108,447 $25,550,672
Conversion of 10,005
shares of preferred stock into
3,000 shares of common stock (10,005) (10,005) (90,025) 42,281 423 99,607
Issuance of 1,400,000 shares
of common stock -- -- -- 1,400,000 14,000 1,386,000
Dividends on
preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- -------- ---------- ---------- ------- -----------
Balance, December 31, 2003 182,529 $182,529 $1,613,320 12,287,025 $122,870 $27,036,279
------- -------- ---------- ---------- ------- -----------
Conversion of 5,000 shares of
$10 preferred stock into
20,767 shares of common stock (5,000) (5,000) (45,000) 20,767 208 49,792
Dividends on preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- -------- ---------- ---------- ------- -----------
Balance, December 31, 2004 177,529 $177,529 $1,568,320 12,307,792 $123,078 $27,086,071
------- -------- ---------- ---------- ------- -----------
Issuance of 375,139 shares of common
stock in satisfaction of notes
payable -- -- -- 375,139 3,751 343,252
Dividends on preferred stock -- -- -- -- -- --
Rounding -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- -------- ---------- ---------- ------- -----------
Balance, June 30, 2005 177,529 $177,529 $1,568,320 12,682,931 126,829 $27,429,323
======= ======== ========== ========== ======= ===========
Total
stockholders'
Treasury equity
Deficit Stock (deficit)
------------ --------- ------------
Balance, December 31, 2002 $(26,238,931) $(901,729) $ 414,338
Conversion of 10,005
shares of preferred stock into
3,000 shares of common stock -- -- --
Issuance of 1,400,000 shares
of common stock -- -- 1,400,000
Dividends on preferred stock (1,128) -- (1,128)
Net loss (1,332,916) -- (1,332,916)
------------ --------- -----------
Balance, December 31, 2003 $(27,572,975) $(901,729) $ 480,294
------------ --------- -----------
Conversion of 5,000 shares of
$10 preferred stock into
20,767 shares of common stock -- -- --
Dividends on preferred stock (39,438) -- (39,438)
Net loss (1,061,808) -- (1,061,808)
------------ --------- -----------
Balance, December 31, 2004 $(28,674,221) $(901,729) $ (620,952)
------------ --------- -----------
Issuance of 375,139 shares of common
stock in satisfaction of notes
payable -- -- 347,003
Dividends on preferred stock (564) -- (564)
Rounding 2 -- 2
Net loss (246,501) -- (246,501)
------------ --------- -----------
Balance, June 30, 2005 $(28,921,284) $(901,729) $ (521,012)
============ ========= ===========
-19-
Consolidated Statements of Cash Flows
Six Months Ended Years Ended
June 30, December 31,
------------------------- ---------------------------
2005 2004 2004 2003
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(246,501) $ (288,807) $(1,061,808) $(1,332,916)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 70,412 93,300 189,280 191,671
Provision for doubtful accounts 53,000 134,900 39,100 103,800
Debt conversion expense related party debt 84,406 -- -- --
Gain on sale of publication -- -- -- (67,575)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (797,466) (1,043,773) (101,236) (585,225)
Other assets 23,304 (83,410) (24,936) 4,833
Increase (decrease) in:
Accounts payable and accrued expenses 552,716 151,684 (144,165) 716,323
Income taxes payable 75,000 40,977 10,077 (17,235)
Other liabilities 99,312 1,287 366,853 83,198
Related party payable 23,829 21,873 47,396 83,867
-------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (61,988) $ (971,969) $ (679,439) $ (819,259)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (40,008) (27,821) (53,508) (53,108)
Proceeds from sale of publication -- -- -- 25,000
Collection of notes receivable -- 836,000 846,000 205,200
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities $ (40,008) $ 808,179 $ 792,492 $ 177,092
-------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- -- 1,400,000
Proceeds from related party notes payable 350,000 -- -- --
Payment of related party notes payable (331,418) (786,370) (786,370) (112,461)
Dividends on preferred stock (564) (564) (39,438) (1,128)
Payments of notes payable and capital lease obligations (10,046) (16,756) (32,885) (29,825)
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 7,972 $ (803,690) $ (858,693) $ 1,256,586
-------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (94,024) (967,480) (745,640) 614,419
Cash, beginning of period 421,255 1,166,895 1,166,895 552,476
-------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 327,231 $ 199,415 $ 421,255 $ 1,166,895
=========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 38,838 $ 88,560 $ 100,432 $ 13,819
Income taxes -- 21,716 28,524 27,311
Non-cash activities:
Issuance of common stock in satisfaction of
related party notes payable 261,150 -- -- --
Conversion of preferred stock into common stock -- 50,000 50,000 100,030
Purchases of equipment under capital leases -- -- -- 34,309
Purchase of automobile - debt incurred -- -- -- 22,454
Disposition of assets - notes received -- -- -- 100,000
-20-
Market Prices and Dividend Information
The high and low prices for the common stock for each quarter during
the past two years are as following:
High Low
----- -----
Year ended December 31, 2003
First Quarter $0.85 $0.80
Second Quarter $0.88 $0.80
Third Quarter $0.86 $0.79
Fourth Quarter $0.81 $0.66
Year ended December 31, 2004
First Quarter $0.91 $0.70
Second Quarter $0.85 $0.79
Third Quarter $1.00 $0.84
Fourth Quarter $0.86 $0.65
Year ended December 31, 2005
First Quarter $0.75 $0.70
Second Quarter $0.70 $0.50
Third Quarter $1.05 $0.50
There has been no trade of our common stock during the fourth quarter
of 2005 through October 4, 2005.
We have never paid cash dividends on our common stock and do not
expect to pay such dividends in the foreseeable future.
The last reported sale price per share of our common stock was
reported on the pink sheets on July 12, 2005, the last full trading day prior to
the public announcement of this transaction was $0.70.
-21-
PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Pursuant to the terms of a Stockholders' Agreement dated May 8, 2001
by and among Jerry Finkelstein, The Finkelstein Foundation Inc., Shirley
Finkelstein, Melvyn I. Weiss, Wilbur L. Ross, Jr., M&B Weiss Family Partnership,
J. Morton Davis, D.H. Blair Investment Banking Corp., Rivkalex Corporation,
Rosalind Davidowitz and James A. Finkelstein, each of these stockholders have
agreed, for so long as James A. Finkelstein is employed by us, to vote their
shares to elect as directors: Four persons designated by James Finkelstein; one
person designated by J. Morton Davis, D.H. Blair Investment Banking Corp.,
Rivkalex Corporation and Rosalind Davidowitz; one person designated by Wilbur L.
Ross, Jr.; one person designated by Melvyn I. Weiss and M&B Weiss Family
Partnership; and two persons designated by mutual agreement of J. Morton Davis,
Melvyn I. Weiss, and Wilbur L. Ross, Jr.
Further, under the Stockholders' Agreement, Mr. Davis, D.H. Blair
Investment Banking Corp., Rivkalex Corporation and Rosalind Davidowitz have
granted James A. Finkelstein an irrevocable proxy to vote all of the shares
owned by them.
On June 19, 2003, pursuant to a Subscription Agreement, Kinder
Investments LP purchased 250,000 shares of the Company's common stock at a
purchase price of $1.00 per share.
In January 2005, we issued 8% convertible notes in the face amounts of
$224,000 and $126,000 to Kinder Investments LP and Rosalind Davidowitz. The
notes are convertible into common stock at a conversion price of $0.70 per
share.
On February 3, 2005, pursuant to a Subscription Agreement with D.H.
Blair Investment Banking Corp., we satisfied $200,000 of our 8% convertible
notes plus accrued interest thereon of $62,597 by issuing 375,139 shares of
common stock at a price of $0.70 per share.
-22-
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of our common stock, as of August 31, 2005, by each person
known to us to beneficially own more than 5% of our outstanding common stock, by
each person who is a director, by each person who is an executive officer, and
by all of our directors and officers 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
pre-split are based on 12,024,597 shares of common stock outstanding as of
August 31, 2005 plus, with respect to each such person, the number of additional
shares that will be outstanding upon the conversion by such person of
outstanding shares of our $10 Convertible Preferred Stock or upon the exercise
of the warrants and options exercisable within sixty (60) days set forth herein.
The calculations of the percent of shares beneficially owned post-split
are based on 119,880 shares of common stock being outstanding following the
reverse stock split; such number is derived by dividing the number of shares
outstanding as of August 31, 2005 by 100 and rounding down.
--------------------------------------------------------------------------------------------------------------------
Post Reverse
Pre Reverse Split Pre Reverse Split Post Reverse Split Split
Name and Address Number of Shares Approximate Number of Shares Approximate
of Beneficial Owners and of Common Stock Percentage of Common Stock Percentage
Management Beneficially Owned of Class Beneficially Owned of Class
--------------------------------------------------------------------------------------------------------------------
James A. Finkelstein 10,486,269 (1)(25) 67.63% 104,854 (2)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
Hollinger NCI Holdings LLC 4,168,445 (3) 27.47% 41,684 (4) 27.54%
--------------------------------------------------------------------------------------------------------------------
Martin A. Bell 16,665 (5)(15) * 166 (6) (16) *
--------------------------------------------------------------------------------------------------------------------
J. Morton Davis 10,486,269 (9) (13)(25) 67.63% 104,854 (10) (14)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
Jerry Finkelstein 10,486,269 (5)(7)(25) 67.63% 104,854 (6) (8)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
Martin Mendelsohn 16,665 (5) * 166 (6) *
--------------------------------------------------------------------------------------------------------------------
Wilbur L. Ross, Jr. 10,486,269 (5)(9)(25) 67.63% 104,854 (6) (10)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
Gary Weiss 16,665 (5) * 166 (6) *
--------------------------------------------------------------------------------------------------------------------
Melvyn I. Weiss 10,486,269 (9)(11)(25) 67.63% 104,854 (10) (12)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
Rosalind Davidowitz 10,486,269 (17)(25) 67.63% 104,854 (18)(26) 67.79%
--------------------------------------------------------------------------------------------------------------------
David Selengut 1,103,667 (19) 9.18% 11,036 (20) 9.21%
--------------------------------------------------------------------------------------------------------------------
Dov Perlysky 1,187,659 (21) 9.61% 11,876 (22) 9.64%
--------------------------------------------------------------------------------------------------------------------
Matthew Doull 13,332 (5) * 133 (6) *
--------------------------------------------------------------------------------------------------------------------
E. Paul Leishman 0 * 0 *
--------------------------------------------------------------------------------------------------------------------
All Directors and Executive 10,549,596 (23) 67.77% 105,485 (24) 67.92%
Officers as a Group (8 persons)
--------------------------------------------------------------------------------------------------------------------
----------
* Less than one percent.
(1) Includes (i) 50,000 shares of common stock directly owned by Mr.
Finkelstein, (ii) 1,018,445 shares of common stock and 3,150,000 shares of
common stock issuable upon the exercise of warrants owned by JAF-HLR, LLC
("JAF-HLR"), in which Mr. Finkelstein owns a 50% interest; (iii) options to
purchase 16,665 shares of common stock; and (iv) 3,983,816 shares of common
stock owned by J. Morton Davis and his affiliates (the "Davis Group") and Jerry
Finkelstein and his affiliates (the "Finkelstein Group") and 25,060 shares of
common stock currently issuable upon conversion of 5,900 shares of $10
Convertible Preferred Stock owned by the Davis Group, the voting rights of which
have been given to Mr. Finkelstein. Beneficial ownership of one half of the
shares and warrants set forth in clause (ii) above and all of the shares and
warrants referenced in clause (iv) above is disclaimed.
(2) Includes (i) 500 shares of common stock directly owned by Mr. Finkelstein,
(ii) 10,184 shares of common stock and 31,500 shares of common stock issuable
upon the exercise of warrants owned by JAF-HLR, LLC ("JAF-HLR"), in which Mr.
Finkelstein owns a 50% interest; (iii) options to purchase 166 shares of common
stock; and (iv) 39,834 shares of common stock owned by J. Morton Davis and his
affiliates (the "Davis Group") and Jerry Finkelstein and his affiliates (the
"Finkelstein Group") and 250 shares of common stock currently issuable upon
conversion of 5,900 shares of $10 Convertible Preferred Stock owned by the Davis
Group, the voting rights of which have been given to Mr. Finkelstein. Beneficial
ownership of one half of the shares and warrants set forth in clause (ii) above
and all of the shares and warrants referenced in clause (iv) above is
disclaimed.
-23-
(3) Includes 1,018,445 shares of common stock and 3,150,000 shares of common
stock issuable upon the exercise of options and warrants owned by JAF-HLR, in
which Hollinger-NCI Holdings LLC owns a 50% interest. Beneficial ownership of
one half of the shares and warrants held by JAF-HLR is disclaimed.
(4) Includes 10,184 shares of common stock and 31,500 shares of common stock
issuable upon the exercise of options and warrants owned by JAF-HLR, in which
Hollinger-NCI Holdings LLC owns a 50% interest. Beneficial ownership of one half
of the shares and warrants held by JAF-HLR is disclaimed.
(5) Includes the following numbers of shares purchasable upon the exercise of
presently exercisable options : Mr. Bell--16,665; Mr. Jerry Finkelstein--16,665;
Mr. Mendelsohn--16,665; Mr. Ross--16,665; Mr. G. Weiss--16,665; Mr.
Doull--13,332.
(6) Includes the following numbers of shares purchasable upon the exercise of
presently exercisable options : Mr. Bell--166; Mr. Jerry Finkelstein--166; Mr.
Mendelsohn--166; Mr. Ross--166; Mr. G. Weiss--166; Mr. Doull--133.
(7) Includes:
(a) 9,945 shares owned by The Jerry Finkelstein Foundation, Inc., of which
Jerry Finkelstein is President; and
(b) 66,667 shares owned by The Estate of Shirley Finkelstein, of which
Jerry Finkelstein is executor.
(8) Includes:
(a) 99 shares owned by The Jerry Finkelstein Foundation, Inc., of which
Jerry Finkelstein is President; and
(b) 666 shares owned by The Estate of Shirley Finkelstein, of which Jerry
Finkelstein is executor.
(9) Includes the following numbers of shares issuable upon conversion of shares
of $10 Convertible Preferred Stock: Davis Group--25,060; Mr. Ross--169,900; Mr.
M. Weiss--84,950.
(10) Includes the following numbers of shares issuable upon conversion of shares
of $10 Convertible Preferred Stock: Davis Group--250; Mr. Ross--1,699; Mr. M.
Weiss--849.
(11) Includes 457,304 shares owned by the M&B Weiss Family Limited Partnership.
(12) Includes 4,573 shares owned by the M&B Weiss Family Limited Partnership.
(13) Includes:
(a) 2,830,139 shares of common stock owned by D.H. Blair Investment Banking
Corp., of which J. Morton Davis is a Director and the sole stockholder;
(b) 150,000 shares of common stock issuable upon the exercise of warrants
owned by D.H. Blair Investment Banking Corp., of which J. Morton Davis is a
Director and the sole stockholder;
(c) 129,567 shares owned directly by Mr. Davis;
(d) 25,060 shares of common stock issuable upon exercise of 5,900 shares of
$10 Convertible Preferred Stock;
(e) 48,476 shares owned by Rivkalex Corporation ("Rivkalex"), a private
corporation owned by Rosalind Davidowitz, Mr. Davis's wife;
(f) 711,633 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; and
(g) 188,403 shares of common stock to be issued upon conversion of 8%
Convertible Notes owned by Rosalind Davidowitz.
-24-
(14) Includes:
(a) 28,301 shares of common stock owned by D.H. Blair Investment Banking
Corp., of which J. Morton Davis is a Director and the sole stockholder;
(b) 1,500 shares of common stock issuable upon the exercise of warrants
owned by D.H. Blair Investment Banking Corp., of which J. Morton Davis is a
Director and the sole stockholder;
(c) 1,295 shares owned directly by Mr. Davis;
(d) 250 shares of common stock issuable upon exercise of 5,900 shares of
$10 Convertible Preferred Stock;
(e) 484 shares owned by Rivkalex Corporation ("Rivkalex"), a private
corporation owned by Rosalind Davidowitz, Mr. Davis's wife;
(f) 7,116 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; and
(g) 1,884 shares of common stock to be issued upon conversion of 8%
Convertible Notes owned by Rosalind Davidowitz.
(15) Does not include 2,830,139 shares of common stock, warrants to purchase
150,000 shares of common stock or 25,060 shares of common stock issuable upon
conversion of $10 Convertible Preferred Stock 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.
(16) Does not include 28,301 shares of common stock, warrants to purchase 1,500
shares of common stock or 250 shares of common stock issuable upon conversion of
$10 Convertible Preferred Stock 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.
(17) Includes 711,633 shares of common stock owned by Ms. Davidowitz, 48,476
shares owned by Rivkalex and 188,403 shares of common stock to be issued upon
conversion of an 8% Convertible Note owned by Ms. Davidowitz.
Does not include:
(a) 2,830,139 shares of common stock owned by D.H. Blair Investment Banking
Corp., of which J. Morton Davis is a Director and the sole stockholder;
(b) 150,000 shares of common stock issuable upon the exercise of warrants
owned by D.H. Blair Investment Banking Corp., of which J. Morton Davis is a
Director and the sole stockholder;
(c) 129,567 shares owned directly by Mr. Davis; and
(d) 25,060 shares of common stock issuable upon conversion of 5,900 shares
of $10 Convertible Preferred Stock.
(18) Includes 7,116 shares of common stock owned by Ms. Davidowitz, 484 shares
owned by Rivkalex and 1,884 shares of common stock to be issued upon conversion
of an 8% Convertible Note owned by Ms. Davidowitz.
Does not include:
(a) 28,301 shares of common stock owned by D.H. Blair Investment Banking
Corp., of which J. Morton Davis is a Director and the sole stockholder;
(b) 1,500 shares of common stock issuable upon the exercise of warrants
owned by D.H. Blair Investment Banking Corp., of which J. Morton Davis is a
Director and the sole stockholder;
(c) 1,295 shares owned directly by Mr. Davis; and
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(d) 250 shares of common stock issuable upon conversion of 5,900 shares of
$10 Convertible Preferred Stock.
(19) Consists of 1,103,667 shares of common stock owned by Venturetek LP in
which Mr. Selengut is the beneficial owner.
(20) Consists of 11,036 shares of common stock owned by Venturetek LP in which
Mr. Selengut is the beneficial owner.
(21) Includes:
(a) 581,950 shares of common stock;
(b) 270,000 shares of common stock owned by Kinder Investments LP
("Kinder"), of which Mr. Perlysky is the sole member of the general partner of
Kinder; and
(c) 335,709 shares of common stock to be issued upon conversion of 8%
Convertible Notes owned by Dov Perlysky.
(22) Includes:
(a) 5,819 shares of common stock;
(b) 2,700 shares of common stock owned by Kinder, of which Mr. Perlysky is
the sole member of the general partner of Kinder; and
(c) 3,357 shares of common stock to be issued upon conversion of 8%
Convertible Notes owned by Dov Perlysky.
(23) Includes shares of common stock issuable upon exercise of the options
referenced in (1), (3) and (5) above, shares issuable upon the conversion of the
$10 Convertible Preferred Stock referenced in (9) above and shares issuable upon
the exercise of the warrants in (1) above.
(24) Includes shares of common stock issuable upon exercise of the options
referenced in (2), (4) and (6) above, shares issuable upon the conversion of the
$10 Convertible Preferred Stock referenced in (10) above and shares issuable
upon the exercise of the warrants in (2) above.
(25) Pursuant to the terms of a Stockholders' Agreement, the parties to such
Stockholders' Agreement may be deemed to have formed a group (the "Agreement
Group"), which group may be deemed to have acquired beneficial ownership of an
aggregate of 10,486,269 shares of our common stock for purposes of sections
13(d) and 13(g) of the Securities Exchange Act of 1934, as amended. Each member
of the Agreement Group hereby disclaims beneficial ownership with respect to
shares over which he or she does not have direct voting or dispositive powers,
other than pursuant to the Stockholders' Agreement.
(26) The Agreement Group will be deemed to beneficially own an aggregate of
104,854 shares of our common stock subsequent to the reverse stock split. Each
member of the Agreement Group hereby disclaims beneficial ownership with respect
to shares over which he or she does not have direct voting or dispositive
powers, other than pursuant to the Stockholders' Agreement.
On February 3, 2005, pursuant to a Subscription Agreement with D.H.
Blair Investment Banking Corp., we satisfied $200,000 of our 8% convertible
notes plus accrued interest thereon of $62,597 by issuing 375,139 shares of
common stock at a price of $0.70 per share.
On January 20 and 31, 2005, we borrowed an aggregate of $350,000 and
issued 8% convertible notes in the principal amounts of $224,000 and $126,000,
respectively, due July 20, 2006, to Kinder Investments LP and Rosalind
Davidowitz, respectively. The notes are convertible into common stock at a
conversion price of $0.70 per share.
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MANAGEMENT OF NEWS COMMUNICATIONS, INC.
Directors and Executive Officers
The board consists of James A. Finkelstein, Jerry Finkelstein, Wilbur L. Ross,
Jr., Martin A. Bell, Gary Weiss, Martin Mendelsohn and Mathew Doull. The address
of each of our executive officers and directors is: 2 Park Avenue, Suite 1405,
New York, NY 10016.
Set forth below is information concerning each of our directors and executive
officers, including information furnished by them as to principal occupations,
certain other directorships held by them and their ages.
Name and Address Age Position
---------------- --- --------
James A. Finkelstein 56 President, Chief Executive Officer and Director
Jerry Finkelstein 89 Chairman of the Board of Directors
Wilbur L. Ross, Jr. 66 Director
Martin A. Bell 53 Director
Gary Weiss 42 Director
Martin Mendelsohn 62 Director
Matthew Doull 35 Director
E. Paul Leishman 57 Chief Financial Officer and Secretary
James A. Finkelstein has been our President, Chief Executive Officer
and a Director since June 2001. Mr. Finkelstein has been Executive Chairman of
Thompson Publishing Group since May 2004. He has served as President of Marquis
Who's Who, LLC since September 2003. He has been a partner with Avista Capital
Holdings, LP since July 2005. He served as Chairman of Global Media Partners of
DLJ Merchant Banking Partners III from January 2004 through June 2005.
Previously he has served as media partner to DB Capital Partners in 2002 and
2003 and a media consultant to Veronis Suhler Stevenson in 2002. He was
President of JAF Communications, Inc. from 1999 to 2001. From 1979 to 1998 he
served as CEO of the National Law Publishing Company. He has been the Publisher
of the New York Law Journal and The National Law Journal. He currently serves as
a Director of Advanstar Communications. Mr. Finkelstein has served on the Board
of Directors of the Legal Aid Society, and New York University's Faculty of Arts
and Sciences Board of Overseers, and was awarded an Honorary Doctor of Laws
degree from Hofstra University.
Jerry Finkelstein has been our Chairman of the Board of Directors
since 1993, and a Director since December 1987. 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. Mr.
Finkelstein is the father of James A. Finkelstein, the President, Chief
Executive Officer and a Director of the Company.
Wilbur L. Ross, Jr. has been a Director since October 1996. Mr. Ross
served as our Chief Executive Officer from October 1996 to August 1999. From
1988 to March 2000, Mr. Ross was Executive Managing Director of Rothschild Inc.
and Chairman of Rothschild Recovery Fund and Asia Recovery Fund. On April 1,
2000, Mr. Ross purchased the controlling interest in the General Partner of
these funds and Rothschild Recovery Fund was renamed WLR Recovery Fund. Mr. Ross
resigned from Rothschild Inc. and organized WL Ross & Co. L.L.C., a merchant
banking firm with headquarters in New York. Mr. Ross is a Director of Syms
Corp., a clothing retailer, Tong Yang Life Insurance Co. (Korea), Clarent
Hospital Corp. and Nikko Electric. He is the Chairman of the Board of
International Steel Group, Marquis Who's Who, LLC, International Textile Group,
International Coal Group, Nano-Tex Inc. and Ohizumi Manufacturing Co. He also
serves as a member of the Alternative Investments Committee of the New York
Society of Security Analysts.
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Martin A. Bell has been a Director since July, 1999. He has been Vice
Chairman of D.H. Blair Investment Banking Corp. since December 1995, prior to
which time he served as Senior Vice President and General Counsel to the firm.
Gary Weiss has been a Director since July, 1999. He is a Founding
Partner in Valeo Partners LLC, a strategic advisory and consulting firm founded
in 2002. He has also served as President of Weiss Capital Group LLC, an
investment and consulting firm since 1997.
Martin Mendelsohn has been a Director since July, 1999. Since 2001, he
has been a partner at Schnader Harrison Segal & Lewis. From 1992 through 2001,
he was a partner at Verner, Liipfert, Bernhard, McPherson and Hand.
Matthew Doull has been a Director since August 5, 2002. He is a
portfolio manager at Pequot Capital, a New York-based investment firm.
Previously he was responsible for covering global media at Bailey Coates Asset
Management, a London-based investment firm, from 2004 until May 2005. He ran
private equity investments at a large newspaper publishing company, Hollinger
International, from 1997 to 2004, prior to which he was Associate Publisher of
Wired Magazine. He serves on the Vestry of Grace Church in New York. From 1998
to 2000, Mr. Doull served as Chairman of Trip.com Inc.
E. Paul Leishman has been our Chief Financial Officer since June
2001 prior to which he was Corporate Controller since September 2000. From
August 1996 through December 1999, Mr. Leishman was Corporate Controller of
Thomson Newspapers, Inc. Prior to that time, Mr. Leishman has held management
positions at other media companies including Conde Nast Publications, BPI
Communications, Inc., and Harcourt Brace and Company.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a Schedule 13E-3 with the SEC regarding this
transaction. In addition, we file reports, proxy statements and other
information with the SEC under the Exchange Act. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. You may
read and copy this information at the Public Reference Room of the SEC, Station
Place, 100 F Street, N.E., Washington, D.C., 20549.
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, Station Place, 100 F Street, N.E., Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet World Wide
Web site that contains reports, Information Statements and other information
about issuers, including us, who file electronically with the SEC. The address
of that site is http://www.sec.gov.
We have not authorized anyone to give any information or make any
representation about the transaction that differs from, or adds to, the
information in this disclosure document or our documents that are publicly filed
with the SEC. Therefore, if anyone gives you different or additional
information, you should not rely on it.
The information contained in this disclosure document speaks only as
of its date, unless the information specifically indicates that another date
applies.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information in this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this document, except
for any information that is superseded by information that is included directly
in this document or in any other subsequently filed document.
This document incorporates by reference the documents listed below
that we have filed with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
Commissions Filings (File No. 0-18299):
Quarterly Report on Form 10-QSB Quarter ended June 30, 2005
Annual Report on Form 10-KSB Year ended December 31, 2004
Current Report on 8-K February 3, 2005
January 26, 2005
We will amend this Information Statement and our Schedule 13E-3 to
include or incorporate by reference any additional documents that we may file
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this document to the extent required to fulfill our disclosure
obligations under the Exchange Act.
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