-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QElgVmcxr4+KOVPte8RRUuUdSI/+dbFuJjUDoEdQFMTnMScbV5YWZDkK0ztMgsgq 5tEf+W3b6mAh3Gl9ivWPtw== 0000950170-97-001186.txt : 19971002 0000950170-97-001186.hdr.sgml : 19971002 ACCESSION NUMBER: 0000950170-97-001186 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19971001 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAY ENTERTAINMENT TELEVISION INC CENTRAL INDEX KEY: 0001046933 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133693919 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-36873 FILM NUMBER: 97689111 BUSINESS ADDRESS: STREET 1: 7 EAST 17TH STREET CITY: NEW YORK STATE: NY ZIP: 10003 BUSINESS PHONE: 2122558824 MAIL ADDRESS: STREET 1: 7 EAST 17TH STREET CITY: NEW YORK STATE: NY ZIP: 10003 SB-2 1 As filed with the Securities and Exchange Commission on October 1, 1997 Registration No. U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 GAY ENTERTAINMENT TELEVISION, INC. (Name of Small Business Issuer in its Charter) NEW YORK 7812 13-3693919 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number Identification No.) 7 EAST 17TH STREET, NEW YORK, NEW YORK 10003 (212) 255-8824 (Address and telephone number of principal executive offices and principal place of business) MARVIN A. SCHWAM, PRESIDENT GAY ENTERTAINMENT TELEVISION, INC. 7 EAST 17TH STREET NEW YORK, NEW YORK 10003 (212) 255-8824 (Name, address and telephone number of agent for service) Copies to: CHARLES B. PEARLMAN, ESQ. NEIL BARITZ, ESQ. GAYLE COLEMAN, ESQ. DREIER & BARITZ, LLP ATLAS, PEARLMAN, TROP & BORKSON, P.A. 1515 N. FEDERAL HIGHWAY, SUITE 300 200 EAST LAS OLAS BOULEVARD, SUITE 1900 BOCA RATON, FLORIDA 33431 FORT LAUDERDALE, FLORIDA 33301 (561) 750-0910 (954) 763-1200 Approximate date of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box: [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM CLASS OF SECURITIES AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED BE REGISTERED SECURITY PRICE(1) REGISTRATION FEE ------------------- ------------- ------------------ ------------------ ---------------- Units (consisting of one 2,350,000 $4.25 $9,987,500 $3,026.52 share of Common Stock and two Redeemable Warrants) Common Stock 2,350,000 ____ ____ ___ (par value $.0001 per share) Redeemable Warrants 2,350,000 ____ ____ ___ Common Stock 1,175,000 $5.25 $6,168,750 $1,869.32 underlying Warrants(2)(3) Underwriters' Warrants(4)(5) 235,000 ____ ____ ____ Units Underlying Underwriter's Warrants 235,000 $5.10 $1,198,500 $ 363.18 Common Stock 235,000 ____ ____ ____ included in Underwriters' Warrants Warrants included in the 235,000 ____ ____ ____ Underwriters' Warrants Common Stock 117,500 $6.30 $ 740,250 $ 224.32 underlying warrants included in Underwriters' Warrants(2)(3) TOTAL............................................................................................... $5,483.34 - -------------- 1. Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended (the "Securities Act"). 2. Represents shares of Common Stock issuable upon the exercise of the Warrants. 3. Pursuant to Rule 416, there is also being registered such additional securities as may become issuable pursuant to the anti-dilution provisions of the Warrants and/or the Underwriters' Warrants. 4. No fee required pursuant to Section 457(g) of the Securities Act. 5. Includes up to 235,000 shares of Common Stock, 235,000 Warrants to purchase up to 117,500 shares of Common Stock. See "Underwriting."
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. GAY ENTERTAINMENT TELEVISION, INC. ----------------- Cross Reference Sheet for Prospectus Under Form SB-2
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS ------------------------------ --------------------------------- 1. Front of Registration Statement Outside Front Cover Page; Cross Reference and Outside Front Cover of Prospectus Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Inside Front and Outside Back Pages of Prospectus Cover Pages 3. Summary Information and Prospectus Summary; Risk Factors Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Cover Page; Risk Factors; Underwriting 6. Dilution Dilution 7. Selling Security Holders Not Applicable 8. Plan of Distribution Inside Front Cover Page; Underwriting 9. Legal Proceedings Business - Legal Proceedings 10. Directors, Executive Officers Management Promoters and Control Persons 11. Security Ownership of Certain Principal Shareholders; Management Beneficial Owners and Management 12. Description of Securities Description of Securities 13. Interest of Named Experts and Counsel Legal Matters; Experts 14. Disclosure of Commission Management - Limitation of Liability; Position on Indemnification for Underwriting; Management - Indemnification of for Securities Act Liabilities Officers and Directors 15. Organization within Last Five Years Business 16. Description of Busines Business
iii
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS ------------------------------ --------------------------------- 15. Management's Discussion Management's Discussion and Analysis of and Analysis or Plan of Financial Condition and Results of Operations; Operation Business 16. Description of Property Business 17. Certain Relationships and Certain Relationships and Related Related Transactions Transactions 18. Market for Common Equity and Risk Factors; Dividend Policy; Description of Related Shareholder Matters Securities; Shares Eligible for Future Sale 19. Executive Compensation Management - Executive Compensation 20. Financial Statements Financial Statements 21. Changes in and Disagreements with Not Applicable Accountants on Accounting and Financial Disclosure
iv INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 1, 1997 GAY ENTERTAINMENT TELEVISION, INC. 2,350,000 UNITS Each Unit Consists of One Share of Common Stock and Two Redeemable Warrants to Purchase One Share of Common Stock Gay Entertainment Television, Inc. ("GET" or "Company") is offering ("Offering") a minimum of 1,882,350 "Units", on a "best efforts, all or none" basis ("Minimum Offering"), and an additional 467,650 Units on a "best efforts" basis, for a maximum of 2,350,000 Units ("Maximum Offering"), at $4.25 per Unit (for an aggregate of $7,999,987.50 and $9,987,500, respectively). Each Unit consists of one (1) share ("Share") of Common Stock, par value $.0001 per share ("Common Stock"), and two (2) Redeemable Common Stock Purchase Warrants ("Warrants"). The Warrants are not immediately separable from the Units, subject to the discretion of The Agean Group, Inc. (the "Representative"), the representative of the several underwriters ("Underwriters"). The exercise of two Warrants entitles the holder to purchase one Share at $5.25 per share commencing upon the trading of the Company's securities and continuing for a period of three years from the date hereof. The Warrants are redeemable by the Company at $.05 per Warrant, commencing one year from the closing of the Offering, upon 30 days' prior written notice, if the average closing bid price of the Common Stock, as reported by the principal exchange on which the Common Stock is traded, equals or exceeds $6.50 per Share for 20 consecutive trading days and ending within 30 days prior to the date the notice is given. Prior to this Offering, there has been no public market for the Units, the Common Stock, the Warrants, or the Common Stock underlying the Warrants (collectively the "Securities") and there can be no assurances that any such markets will develop or, if developed, that it will be sustained. The Company has applied for quotation of the Units, the Common Stock and Warrants on The Nasdaq SmallCap Market ("Nasdaq") under the symbols "GETU", "GETC" and "GETW" respectively. There can be no assurance that such securities will be accepted for quotation or, if accepted, that an active trading market will develop. THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. INVESTMENT IN THE SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 5 AND DILUTION. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS A CRIMINAL OFFENSE. =============================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNTS(1) COMPANY(2) - ------------------------------------------------------------------------------- Per Unit $4.25 $.425 $3.825 - ------------------------------------------------------------------------------- Total Minimum(2) $7,999,987.50 $799,987.75 $7,199,999.75 - ------------------------------------------------------------------------------- Total Maximum(3) $9,987,500.00 $998,750.00 $8,988,750.00 =============================================================================== (See next page for footnotes) The Securities are offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify the Offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the shares of Common Stock and Warrants will be made against payment therefor at the office of The Agean Group, Inc., One South Ocean Boulevard, Suite 300, Boca Raton, Florida 33432, on or about _____________, 1997. THE AGEAN GROUP, INC. The date of this Prospectus is October 1, 1997 (1) Does not include additional compensation payable to the Representative in the form of (1) a non-accountable expense allowance of 3% of the total Offering price of Units sold in this Offering (of which $15,000 has been advanced), and (2) warrants (the "Underwriters' Warrants") entitling the Underwriter to purchase up to an aggregate of 10% of the number of Units sold in this Offering at nominal consideration, the exercise price of such Underwriters' Warrants being 120% of the Offering price of each Unit to the public. In addition, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $280,000 which excludes the non-accountable expense allowance, commissions and discounts. (3) The Units are being offered on a "best efforts, minimum-maximum" basis through the Representative. There is no minimum investment requirement. All proceeds of this Offering will be deposited in an escrow account with all checks must be made payable to ________________, ,__________ Florida pending the sale of a minimum of 1,882,350 Units on or before ____, 199__, 90 days from the date of this Prospectus and which period may be extended for an additional 90 days, until ____, 199__, upon mutual consent of the Company and the Underwriter), and if not sold within such period, will be returned promptly to investors without interest or deduction. Subscribers have no right to demand return of their subscription payments during the escrow period. See "Underwriting." CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMPANY'S COMMON STOCK AND WARRANTS, INCLUDING STABILIZING TRANSACTIONS EFFECTED IN ACCORDANCE WITH RULE 104 OF REGULATION M PURSUANT TO WHICH PERSONS MAY BID FOR OR PURCHASE SECURITIES FOR THE PURPOSE OF STABILIZING ITS MARKET PRICE. SEE "UNDERWRITING." A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE NUMBERS AND AMOUNTS DESCRIBED BELOW GIVE EFFECT TO A 13,875:1 FORWARD STOCK SPLIT EFFECTIVE IN SEPTEMBER 1997. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' WARRANTS, (II) ASSUMES NO EXERCISE OF OPTIONS TO PURCHASE UP TO (A) 375,000 SHARES OF COMMON STOCK PURSUANT TO THE COMPANY'S STOCK OPTION PLAN AND DIRECTORS PLAN OR (B) 12,500 SHARES OF COMMON STOCK ISSUED TO THE COMPANY'S ADVISORY BOARD, AND (III) DOES NOT GIVE EFFECT TO THE EXERCISE OF A MINIMUM OF 188,235 AND A MAXIMUM OF 235,000 WARRANTS INTO APPROXIMATELY 94,117 AND 117,500 SHARES, RESPECTIVELY, UPON THE EXERCISE OF THE WARRANTS ISSUED IN CONNECTION WITH THIS OFFERING. SEE "MANAGEMENT" AND "UNDERWRITING." THE COMPANY Gay Entertainment Television, Inc. (the "Company" or "GET") was organized to create and develop a cable television network (the "Network") and television channel (the "Channel") devoted to informing, educating, and entertaining the public concerning the gay and lesbian lifestyle. While the Company expects that much of its viewership will be comprised of members of the gay and lesbian population, management also believes that quality programming about the gay and lesbian lifestyle will be attractive to many other segments of the television audience. The Company's strategy is (1) to initially commence broadcasting six hours of programming per week (four hours of which will be original programming and two hours will be acquired programming) focusing on issues relating to the gay and lesbian lifestyles on cable television in targeted markets within six months of the final closing of this Offering, (2) to eventually provide twenty-four hour programming on a dedicated channel, and (3) to establish a website to complement its programming. In order to attain these goals, the Company will initially lease access from cable systems in targeted markets, which markets include the metropolitan New York area, South Florida, Chicago, San Francisco, Seattle, and Boston. See "Business - Distribution." Additionally, the Company intends to enter into strategic partnerships with television affiliates and advertisers in order to provide quality programming that is profitable for the Company as well as its advertisers, however, there are no assurances that the Company will be able to attain these goals. GET, a development stage company, had limited operations since its inception in November 1992 as a New York corporation and continuing through December 1996. The Company ceased its activities in December 1996 and since then, while not generating any revenues, has sought to develop and enhance its original programming concept. See "Risk Factors - Limited Operating History, History of Losses and Accumulated Deficit" and "Business - Background." The address of the Company's principal executive and administrative office is 7 3 East 17th Street, New York, New York 10003 and its telephone number is (212) 255-8824. Its fiscal year end is September 30.
THE OFFERING Common Stock Outstanding Prior to Offering................................................ 2,775,000 Securities Offered by the Company Units Minimum............................................... 1,882,350 Maximum............................................... 2,350,000 Common Stock Minimum............................................... 1,882,350 Maximum............................................... 2,350,000 Warrants Minimum............................................... 1,882,350 Maximum............................................... 2,350,000 Common Stock Underlying Warrants Minimum............................................... 941,175 Maximum............................................... 1,117,500 Common Stock Outstanding After the Offering(1)........................ Minimum .............................................. 4,657,350 Maximum............................................... 5,125,000 Use of Proceeds ...................................................... The net proceeds of this Offering will be used for (1) production costs, (2) leased access, (3) salaries, (4) acquired programming, (5) repayment of loans, (6) website development, (7) facilities, and (8) working capital. Proposed Nasdaq SmallCap Market Symbols(2)............................ Units ........................................................... GETU Common Stock..................................................... GETC Warrants......................................................... GETW - -------------- (1) This amount assumes no exercise of (i) the Underwriters' Warrants, (ii) options to purchase up to (A) 375,000 shares of Common Stock pursuant to the Company's Stock Option Plan and Directors Plan or (B) 12,500 shares of Common Stock issued to the Company's Advisory Board, and (iii) a minimum of 188,235 and a maximum of 235,000 Warrants into approximately 94,117 and 117,500 shares, respectively, upon the exercise of the Warrants issued in connection with this Offering. (2) Nasdaq symbols do not imply that an established public trading market will develop for any of these securities, or if developed, that any such market will be sustained.
RISK FACTORS Investment in the Securities offered hereby involves a high degree of risk and immediate and substantial dilution from the price to the public. See "Risk Factors" and "Dilution." 4 RISK FACTORS AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IS HIGHLY SPECULATIVE IN NATURE. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHERS DESCRIBED ELSEWHERE IN THE PROSPECTUS, RELATING TO THE BUSINESS OF THE COMPANY AND THIS OFFERING. THE DISCUSSION BELOW HIGHLIGHTS SOME OF THE MORE IMPORTANT RISKS REGARDING THE COMPANY. THE RISKS HIGHLIGHTED BELOW SHOULD NOT BE ASSUMED TO BE THE ONLY THINGS THAT COULD AFFECT FUTURE PERFORMANCE. IN ADDITION, THE DISCUSSION IN THIS PROSPECTUS REGARDING THE COMPANY AND ITS BUSINESS AND OPERATIONS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF PRIVATE SECURITIES LITIGATION REFORM ACT 1995. SUCH STATEMENTS CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVE," "WILL," "MAY," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE READER IS CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY DOES NOT HAVE A POLICY OF UPDATING OR REVISING FORWARD-LOOKING STATEMENTS AND THUS IT SHOULD NOT BE ASSUMED THAT SILENCE BY MANAGEMENT OF THE COMPANY OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT AS ESTIMATED IN SUCH FORWARD LOOKING STATEMENTS. LIMITED OPERATING HISTORY, HISTORY OF LOSSES AND ACCUMULATED DEFICIT. GET, a development stage company, had limited operations from its inception in November 1992 through December 1996, during which time the Company produced and/or aired 3 television shows ("Party Talk," a cultural variety show, "Inside/Out," a topical talk show, and "Makostyle," a contemporary fashion and style show) in approximately 6 markets including New York, San Francisco, Los Angeles, Southern California, Chicago and Miami. The Company ceased such activities in December 1996, and since then has sought to develop and enhance its original programming concept, without generating revenues. Potential investors, therefore, have limited historical financial information upon which to base an evaluation of the Company's performance and an investment in the securities offered hereby. The likelihood of success of the Company must be considered in light of the problems, expenses, complications, and delays frequently encountered in connection with the development of new businesses. The Company reported net losses of $17,102 and $18,454, and $39,793 and $37,923 for the eight months ended June 30, 1997 and 1996 and for the years ended October 31, 1996 and 1995, respectively. Additionally, the Company has an accumulated deficit at June 30, 1997 of $164,574. There can be no assurance that the Company will be profitable in future periods. If the Company is unable to attain profitability or positive cash flow from operating activities, it may be unable to meet its working capital requirements which would have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, while the Company's net operating losses could be used to reduce future taxable income, the ability to use the net losses may be limited as a result of receiving proceeds from this Offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Financial Statements. 5 NO FIRM COMMITMENT TO PURCHASE UNITS. There is no commitment to purchase all or any part of the Units being offered hereby. The Representative, as Agent will offer on a "best efforts, all or none" basis a Minimum Offering of 1,882,350 Units and an additional 467,650 Units on a "best efforts" basis for an aggregate of 2,350,000 Units representing the Maximum Offering. If 1,882,350 Units are not sold prior to ________, 1998, which is 90 days from date of this Prospectus, or thereafter on ________, 199__, which is 180 days from the date of this Offering upon mutual consent of the Representative and the Company, all funds received from subscriptions will be promptly returned in full, without interest thereon or deducted therefrom, to the subscribers and no Units will be sold. During the stated Offering period, subscriptions are irrevocable and subscribers will not have the opportunity to have their funds returned. It is possible that subscribers will not have the use of, or earn interest on, their funds for up to four months. If no material developments occur, such subscribers will receive no further written information about the Company or the status of the Offering during that period. CONTINUATION AS AN ON-GOING CONCERN. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that the Company has sustained substantial operating losses. Additionally, the Company has used substantial amounts of working capital in its operations, has failed to generate sufficient net cash flow from operations and the continuing need for additional financing raises substantial doubt about its ability to continue as a going concern. See "Note 2 to Notes to Financial Statements." RISKS ASSOCIATED WITH THE DEVELOPMENT OF NEW BUSINESS. The Company has had limited operations and has not received any revenues from its proposed business activities. The Company will face all the problems encountered in the development of a new business attempting to market an innovative television network with specialized programming targeted to a distinct market, which include (i) intense future competition including many of the largest media operations in the industry; (ii) problems associated with recruitment of highly skilled employees and integration of such persons into a cohesive organization; and (iii) absence of sufficient capital. Accordingly, there can be no assurance that the Company will be able to market its Network and programming successfully or that the Company will be able to operate profitably. UNCERTAINTY OF LEASED ACCESS AVAILABILITY. The Company's success will initially be subject to its obtaining prime leased access time on cable systems in the Company's targeted market areas. These market areas will include, among others, metropolitan New York, South Florida, San Francisco, Southern California, Seattle and Chicago. See "Business - Program Distribution." To the extent that the Company is unable to lease access time in time slots that would reach the greatest number of its targeted market, or that the Company is unable to negotiate the cost of leased access time on terms and conditions favorable to the Company, such could have an adverse impact on the Company and its operations. RISKS ASSOCIATED WITH DISTRIBUTION OF TELEVISION PROGRAMMING. The Company's business is dependent upon the distribution of its programming through cable television systems and in particular, those controlled by Multiple System Operators ("MSOs") and, as such, the Network competes for a limited number of spaces with a larger number of well-established programmers 6 supplying a variety of alternative programming. Because advertising revenue generated by the Network is a function of distribution, the Company's success in the distribution of its television programming will directly affect the amount of advertising revenue generated by the Network. If the Company is unable to obtain and maintain its distribution of the Network and its programming, it could have a material adverse impact on the Company and its operations. DEPENDENCE ON RELATIONSHIP WITH WESTERN INTERNATIONAL MEDIA (WIM). The Company is highly dependent on the efforts of Western International Media (WIM) with whom the Company has established an alliance. WIM contracts for the purchase of leased access time, as well as for the sale of advertising for its programming. See "Business - Distribution." There can be no assurance that WIM will be successful in obtaining time slots or purchase advertising on behalf of the Company, that the Company's relationship with WIM will continue, maintain or increase the amount of air time purchased nor can there be any assurance that the Company will be able to continue its relationship with WIM or obtain suitable replacements on acceptable terms. While the Company is not materially dependent upon WIM in connection with the sale of advertising space for the Company's programming because there are many other companies offering similar services, and although alternative sources are available to act on behalf of the Company to purchase leased access time, the loss of its relationship with WIM to purchase leased access time could have a material adverse effect on the Company. DEPENDENCE ON ADVERTISING REVENUE AND SPONSORSHIP REVENUE. The Company will be relying heavily upon advertising revenue and sponsorship revenues, and attracting advertisers and sponsors, the success of which is dependent upon the Company's ability to demonstrate that its programming is able to reach the demographics that such advertisers and sponsors seek to target with their advertising dollars. The Company's success will be affected by a number of factors including, among others, the Company's ability to deliver high quality, entertaining programming that is appealing to its targeted viewers. There can be no assurances, however, that the Company will be successful in its endeavors or that it will receive sufficient advertising revenue to make the Company profitable. The Company's advertising and sponsorship revenue and operating results also may be adversely affected by economic downturns which, if prolonged, might have an adverse impact on television advertising, in general, and on the Company's financial condition and results of operations. Additionally, advertising and sponsorship revenue may be impacted by many other factors beyond the Company's control including, among other things: (i) the amount of funds that advertisers and sponsors dedicate to television advertising and sponsorship in general and to the Company's programming in particular, (ii) the number of advertisers and sponsors who seek audiences within the demographic groups to which the Company's programming is targeted, (iii) competition within national and regional markets from other media, and (iv) regulatory restrictions on advertising and sponsorships (such as liquor or cigarette advertising). There can be no assurance that the Company will be able to attract advertisers and sponsors. The inability to attain advertisers and sponsors or once attained, maintain these relationships, could have an adverse affect on the Company. 7 ACCEPTANCE OF PROGRAMMING. The Company's business plan is predicated on active and loyal support from the gay and lesbian community. While the Company has conducted various informal surveys and has undertaken extensive discussions with various groups disseminating information to the gay and lesbian community, there can be no assurance that there will be significant support from the Company's anticipated viewership segment or that sufficient public acceptance of the Company's programming will enable GET to operate profitably. More over, there can be no assurance that a sufficient number of advertisers will support the Company's programming because it may be considered too much outside mainstream programming. SEASONABILITY. Advertising revenue in the television industry fluctuates due to seasonality. Television network revenues are typically lower in the third quarter due to the number of reruns broadcast during the summer months. In the future, the Company's results of operations may fluctuate from quarter to quarter, which could have a material adverse effect on the Company's cash flow. AVAILABILITY OF CHANNELS. Because WIM, on behalf of the Company, has not conducted a formal market study, GET does not know how many cable televisions systems have channels available for, or any interest in, programming featuring gay and lesbian interests or whether it can secure available channels on a profitable basis. There can be no assurance that GET will be able to secure channel space or be able to expand its operations as planned. See "Business - Strategy." GOVERNMENT REGULATION; ADVERSE IMPACT OF POSSIBLE REGULATION OF CABLE TELEVISION AND SATELLITE SYSTEMS. Although the vast majority of the planned Company's operations are not subject to regulation, the operations of cable television systems, satellite distribution systems and television broadcasters are regulated. From time to time there are pending before Congress various proposals which provide, among other things, for increased rate regulation of cable systems, some form of "must carry" regime for local broadcast stations, limits on the size of multiple system operators and limits on carriage of affiliated program services. In addition, legislation is periodically before Congress which would restore local authority to set cable rates, to require the Federal Communications Commission to determine whether and/or how to limit cable system ownership, and to require cable programmers to sell their product to non-cable distributors under certain circumstances. It is impossible to predict with accuracy whether any of these legislative proposals will be enacted, or, if enacted, the form they will take; however, any legislation which increases rate regulation or effects structural changes in the cable industry could have a material adverse effect on the Company's business. INDUSTRY FACTORS. The Company's activities will be subject to all of the risks generally associated with the entertainment industry. Program acquisition costs, as well as promotion and marketing expenses and third-party participation payable to producers and others, which reduce potential revenues derived from programming events, have increased significantly in recent years. The Company's future operating results will depend upon numerous factors beyond its control, including the popularity, price and timing of programming and special events being released and distributed, national, regional, and local economic conditions (particularly adverse conditions affecting consumer spending), changes in demographics, the availability of alternative forms of 8 entertainment, critical reviews and public tastes and preferences, which change rapidly and cannot be predicted. The Company's ability to plan for program development and promotional activities will be significantly affected by the Company's ability to anticipate and respond to relatively rapid changes in taste and preferences of its viewership. There can be no assurances, however, that the Company's operations will be profitable. COMPETITION. The Company will face intense competition for "viewership discretionary spending" from numerous other businesses in the entertainment industry. The Company will compete with various forms of entertainment which provide similar value, including movies, video and audio cassettes, broadcast television, cable programming, special pay-per-view events, sporting events and other forms of entertainment which may be less expensive or provide other advantages to the Company's viewers. The Company will also compete for advertising dollars with traditional media. While the Company believes that GET will be the only network of its kind, there can be no assurances that other companies are not developing or will not seek to develop similar networks. If GET is successful, it is possible that other companies may seek to enter or capitalize on such market and compete directly with the Company. Many of these companies have substantially greater financing, personnel, technical and other resources than the Company and have well-established reputations for success in the development, promotion and marketing of entertainment events. There can be no assurance that the Company will be able to compete successfully. PROPRIETARY PROTECTION AND INFRINGEMENT. The Company's success will dependent, in part, upon its proprietary concepts, methodology and technology. The Company will rely on a combination of contractual rights, copyrights, patents, trade secrets, know-how, trademarks, non-disclosure agreements and technical measures to establish and protect its proprietary rights. There can be no assurance that the measures taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation or independent development by others of programming and media concepts based upon, or otherwise similar to, those of the Company. In addition, although the Company believes that its programming and concepts have been independently developed and does not infringe on the proprietary rights or trade secrets of others, there can be no assurance that the Company's methods and concepts do not and will not so infringe or that third parties will not assert infringement claims, trade secret violations, competitive torts or other proprietary rights violations against the Company in the future. In the case of infringement, the Company could, under certain circumstances, be required to modify its programming or obtain a license. There can be no assurance that the Company would be able to do either in a timely manner or upon acceptable terms and conditions, and such failure could have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the resources to defend or prosecute proprietary rights infringement action. NO DIVIDENDS ANTICIPATED TO BE PAID. The Company does not anticipate paying dividends in the foreseeable future. The future payment of dividends is directly dependent upon future earnings of the Company, its financial requirements and other factors to be determined by the Company's Board of Directors. For the foreseeable future, it is anticipated that any earnings which may be 9 generated from the Company's operations will be used to finance the growth of the Company and that dividends will not be paid to shareholders. MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The net proceeds from this Offering will be used for the purposes described under "Use of Proceeds." The Company reserves the right to use the funds obtained from this Offering for other purposes not presently contemplated which it deems to be in the best interests of the Company and its shareholders in order to address changed circumstances and opportunities. As a result of the foregoing, the success of the Company will be substantially dependent upon the discretion and judgment of management with respect to the application and allocation of the net proceeds of the Offering. Investors for the securities offered hereby will be entrusting their funds to the Company's management, upon whose judgment and discretion the investors must depend, with only limited information concerning management's specific intentions. CONTROL OF THE COMPANY BY PRESENT MANAGEMENT. Immediately following the closing of the Offering, assuming the sale of the Maximum Offering, members of management will own and control the vote of 52.4%, assuming the Maximum Offering is sold (and 57.7%, assuming the Minimum Offering is sold) of the outstanding shares of Common Stock (without giving effect to the exercise of any outstanding options), which, among other things, will enable them to elect the Company's entire Board of Directors and generally control the operations of the Company. MATERIAL DEPENDENCE ON EXECUTIVE OFFICERS. The Company is materially dependent on the efforts and abilities of Marvin A. Schwam, its founder, Chief Executive Officer, and Chairman. Mr. Schwam is a party to a three-year employment agreement with the Company. In addition, the Company will attempt to obtain key-man insurance coverage on Mr. Schwam upon the closing of this Offering. The loss of the services of Mr. Schwam could have a material adverse effect upon the Company's business and future prospects. See "Management". IMMEDIATE AND SUBSTANTIAL DILUTION. Investors purchasing shares of Common Stock in this Offering will incur immediate and substantial dilution of approximately $2.85 per share (assuming the Minimum Offering) and $2.64 per share (assuming the Maximum Offering) or approximately 67% or 62%, respectively, of the initial public Offering price per share, in net tangible book value of the Company's Common Stock. See "Capitalization" and "Dilution." POSSIBLE NEED FOR ADDITIONAL FINANCING. While the Company believes that the net proceeds from the Offering will be sufficient to enable the Company to carry out its business objectives and continue to operate as a going concern for the 12 month period following the date of this Offering, adverse changes in economic and/or competitive conditions may adversely affect the Company's planned operations. If cash requirements are greater than anticipated, the Company could be required to modify its operations or seek additional financing. The Company has no current arrangements with respect to additional financing and there can be no assurances that additional financing will be available on terms acceptable to the Company, if at all. Additional financings may result in dilution to existing shareholders. Moreover, if funds are needed but not available in adequate amounts from additional financing sources or from operations, the Company 10 may be materially and adversely affected. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." LACK OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBILITY OF VOLATILITY OF PRICES OF THE SECURITIES. Prior to this Offering, there has been no public market for the Securities and there can be no assurances that an active public market for the securities will be developed or, if developed, sustained after this Offering. The initial public Offering prices of the Securities offered hereby and the exercise price and terms of the Warrants have been arbitrarily determined by negotiations between the Company and the Representative and bear no relationship to the Company's current earnings, book value, net worth or other established valuation criteria. The factors considered in determining the initial public offering price included an evaluation by management of the Company and the Representative of the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure (including the loans made by private investors in the Company prior to this Offering) and certain other factors deemed relevant. See "Underwriting." The stock market from time to time experiences significant price and volume fluctuations that may be unrelated to the operating performance of specific companies. The trading prices of the securities could be subject to wide fluctuations in response to variations in the Company's operating results, announcements by the Company or others, developments affecting the Company or its competitors, suppliers or clients and other events or factors which may or may not be in the Company's control. SHARES ELIGIBLE FOR FUTURE SALE AND REGISTRATION RIGHTS. All of the shares of Common Stock outstanding are currently "restricted securities" as that term is defined under the Securities Act and may only be sold pursuant to a registration statement or in compliance with Rule 144 under the Securities Act or other exemption from registration. Rule 144 provides, in essence, that a person holding restricted Common Stock for a period of one year may sell such securities during any three month period, subject to certain exceptions, in amounts equal to the greater of one percent (1%) of the Company's outstanding Common Stock or the average weekly trading volume of the Common Stock during the four calendar weeks prior to the filing of the required Form 144. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who is not an affiliate of the Company and who has satisfied a two year holding period. Upon the sale of the Common Stock offered hereby, the Company will have 5,125,000 shares (assuming the Maximum Offering) and 4,657,350 shares (assuming the Minimum Offering), respectively, of its Common Stock issued and outstanding, of which 2,775,000 shares are "restricted securities. Shares of Common Stock held by the Company's existing shareholders of the Company immediately prior to the date of this Offering, are subject to a 24 month lock-up period, subject to earlier release at the sole discretion of the Representative. The Representative does not have a general policy with respect to the release of these shares prior to the expiration of the lock-up. See "Underwriting." After expiration of these lock-up agreements, all outstanding shares of Common Stock will be eligible for sale under Rule 144. The availability for sale of substantial amounts of Common Stock subsequent to this 11 Offering could adversely affect the prevailing market price of the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. See "Principal Shareholders," and "Shares Eligible for Future Sale." POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE TO QUALIFY FOR NASDAQ SMALLCAP MARKET LISTING. The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. Upon completion of this Offering, the shares of Common Stock, offered hereby may be deemed to be "penny stocks" and thus will become subject to rules that impose additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors, unless the Common Stock is listed on The Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the ability of broker/dealers to sell the Company's securities and may affect the ability of purchasers in this Offering to sell the Company's securities in a secondary market. See "Underwriting." Effective February 28, 1997 The NASDAQ Stock Market, Inc. adopted certain changes to the entry and maintenance criteria for listing eligibility on The Nasdaq SmallCap Market which become effective 60 days therefrom. In addition to increased listing criteria, new maintenance standards requiring at least $2,000,000 in net tangible assets (total assets less total liabilities and goodwill) or $500,000 in net income in two of the last three years, a public float of at least 500,000 shares, a $1,000,000 market value of public float, a minimum bid price of $1.00 per share, at least two market makers, at least 300 shareholders and at least two outside directors. If the Company is or becomes unable to meet the listing criteria (either initially or on a maintenance basis) of the Nasdaq SmallCap Market and is never traded or becomes delisted therefrom, trading, if any, in the Common Stock would thereafter be conducted in the over-the-counter market on the OTC Electronic Bulletin Board. In such an event, the market price of the Common Stock may be adversely impacted and an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of the Common Stock. UNDERWRITERS' WARRANTS. At the consummation of this Offering, the Company will sell to the to the Underwriters and/or their designees, for nominal consideration, warrants (the "Underwriters' Warrants") to purchase up to 235,000 Units (assuming the Maximum Offering, and 188,235 if the Minimum Offering is sold), which may represent 235,000 shares of Common Stock and 235,000 Warrants to purchase up to 117,500 Shares (188,235 shares of Common stock and 188,235 Warrants to purchase up to approximately 94,117 Shares if the Minimum Offering is sold). The Underwriters' Warrants will be exercisable for a period of four years commencing one year after the date hereof, and will entitle the Underwriters to purchase Units for $5.10 per Unit and the Warrants underlying the Underwriters' Warrants will entitle the holder to purchase one share of Common Stock at $6.30 per Share for each two (2) Warrants exercised. For the term of the Underwriters' Warrants, the holders thereof will have, at nominal cost, the opportunity to profit from a rise in the market price of the Company's securities without assuming the risk of ownership, with a resulting dilution in the interest of other security holders. As long as the Underwriters' Warrants remain unexercised, the Company's ability to obtain 12 additional capital might be adversely affected. Moreover, the Underwriter may be expected to exercise the Underwriters' Warrants at a time when the Company would, in all likelihood, be able to obtain any needed capital through a new offering of its securities on terms more favorable than those provided in the Underwriters' Warrants. See "Underwriting." LIMITED EXPERIENCE OF REPRESENTATIVE. The Representative was organized in 1992 and commenced business in Florida as a broker-dealer in 1993. This is its first public offering as managing underwriter and Representative. The Representative's relative inexperience in conducting public offerings could have an adverse effect on the "due diligence" investigation of the Company which the Underwriter has conducted, although the Underwriter believes that such investigation has been thorough on its part. Additionally, although the Representative believes it has exercised care in establishing the Offering price of the Units, because the Representative is a relatively small firm, there can be no assurance that the Representative will be able to continue to make a market in the Units, the Common Stock and Warrants, or that if it does develop, it will be able to adequately support trading of the Units, the Common Stock and Warrants in the aftermarket. See "Underwriting." REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE COMPANY AND THE MARKET. Pursuant to the terms of the Underwriting Agreement between the Company and the Representative, the Representative has the right to designate a member to the Company's Board of Directors for a period of 60 months from the date hereof, such member to be reasonably acceptable to management of the Company. The ability to designate a member to the Company's Board of Directors will provide the Representative with a certain amount of continuing influence over the Company's business and operations, even though such single designee will constitute a minority of the Board of Directors. In addition, it is anticipated that a significant amount of the Common Stock and the Warrants will be sold to customers of the Representative. Although the Representative has advised the Company that it intends to make a market in the Common Stock and the Warrants, it will have no legal obligation to do so. If it participated in the market, the Representative may influence the market, if one develops, for the Company's securities. Such market-making activity may be discontinued at any time. Moreover, if the Representative sells the securities issuable upon the exercise of the Underwriters' Warrants or acts as a warrant solicitation agent for the Warrants, it may be required under the Securities Exchange Act of 1934, as amended, to temporarily suspend its market-making activities. The prices and liquidity of the Company's securities may be significantly affected by the degree, if any, of the Representative's participation in such market. See "Underwriting." CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS. Holders of the Warrants will have the right to exercise the Warrants for the purchase of shares of Common Stock only if a current prospectus relating to such shares is then in effect and only if the shares have been qualified for sale under the securities laws of the applicable state or states. The Company has undertaken to use its best efforts to file and keep effective and current a prospectus which will permit the purchase and sale of the Warrants and the Common Stock underlying the Warrants, but there can be no assurances that the Company will be able to do so. Although the Company has undertaken to use its best efforts to qualify for sale the Warrants and the shares of 13 Common Stock underlying the Warrants in those states in which the securities are to be offered, no assurance can be given that such qualifications will occur. The Warrants may lose or be of no value if a prospectus covering the shares issuable upon the exercise thereof is not kept current or if such underlying shares are not, or cannot be, registered in the applicable states. See "Description of Securities." ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCES OF PREFERRED STOCK; CONTROL BY MANAGEMENT. Certain provisions of the Business Corporation Law of the State of New York also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested shareholders. Furthermore, the Board of Directors has the authority to issue up to 2,500,000 shares of the Company's preferred stock and to fix the dividend, liquidation, conversion, redemption and other rights, preferences and limitations of such shares without any further vote or action of the shareholders. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or the rights of the holders of the Company's Common Stock. In the event of issuance, the preferred stock could be utilized under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although the Company has no present intention to issue any shares of its preferred stock, there can be no assurance that the Company will not do so in the future. See "Description of Securities." LIMITATION OF DIRECTOR LIABILITY. The Business Corporation Laws of the State of New York provides that a director is not personally liable for monetary damages to the Company or any other person for breach of fiduciary duty, except under very limited circumstances. Such a provision makes it more difficult to assert a claim and obtain damages from a director in the event of his non-intentional breach of fiduciary duty. See "Management-Limitation of Liability." FORWARD-LOOKING STATEMENTS. This discussion in this Prospectus regarding the Company and its business and operations includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. Prospective investors are cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. The Company does not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by management of the Company over time means that actual events are bearing out as estimated in such forward looking statements. 14 USE OF PROCEEDS The net proceeds to the Company, assuming an initial public Offering price of $4.25 per Unit are estimated to be $8,689,125 ($6,959,989 if the Minimum Offering is sold) after deducting the estimated underwriting discounts, commissions and non-accountable expense allowance, but before deducting Offering expenses payable by the Company, estimated at approximately $280,000). The Company intends to use the estimated approximate net proceeds as follows:
MINIMUM MAXIMUM ANTICIPATED USE MINIMUM OFFERING MAXIMUM OFFERING OF NET PROCEEDS AMOUNT PERCENTAGE OFFERING PERCENTAGE - --------------- ---------- ---------- ---------- ---------- Production Costs(1) $1,750,000 25.14% $2,500,000 28.77% Leased Access(2) $1,500,000 21.55% $2,000,000 23.02% Salaries $1,500,000 21.55% $1,500,000 17.26% Acquired Programming(1) $750,000 10.78% $500,000 5.75% Repayment of Loans(3) $429,000 6.16% $429,000 4.93% Website Development $325,000 4.66% $325,000 3.74% Facilities $125,000 1.80% $125,000 1.44% Working Capital(4) $580,989 8.36% $1,310,125 15.09% TOTAL $6,959,989 100.00% $8,689,125 100.00% - -------------- (1) This amount is based on four hours of original programming for the twelve months, assuming the Maximum Offering, and includes (1) salaries for cast and crew ($1,150,000), (2) studio rental and equipment ($100,000), (3) interstitial programs (e.g. promotions and coming attractions) ($100,000), (4) outside post production ($200,000), and (5) remote location costs and expenses (including travel and rental expenses) ($200,000). If the Minimum Offering is sold, the Company will likely reduce the number of original hours and increase the number of hours of acquired programming. (2) Represents costs and expenses related to leased access and is based upon six hours of programming per week in approximately 20 cities on 65 systems servicing those cities. (3) Loans made to the Company by shareholders and two Directors of the Company. See "Certain Relationships and Related Transactions." (4) Includes fixtures, equipment, furniture, overhead and administrative expenses and reserves. (5) Any additional net proceeds will be used for working capital and reserves.
15 The foregoing represents the Company's best estimate of the allocation of the net proceeds of the Offering, based upon the current status of its operations and anticipated business plans. It is possible, however, that the application of funds may vary depending on numerous factors including, but not limited to, changes in the economic climate or unanticipated complications, delay and expenses. The Company currently estimates that the net proceeds from this Offering will be sufficient to meet the Company's liquidity and working capital requirements for a period of at least 12 months from the completion of this Offering. However, there can be no assurance that the net proceeds of this Offering will satisfy the Company's requirements for any particular period of time. Additional financing may be required to implement the Company's long-term business plan. There can be no assurance that any such additional financing will be available when needed on terms acceptable to the Company, if at all. Pending the foregoing uses, the net proceeds of this Offering will be invested in short-term, investment grade, interest bearing securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation." Any additional proceeds realized from the exercise of the Warrants will be used for working capital. Pending use of the proceeds of this Offering, the Company may make temporary investments in bank certificates of deposit, interest bearing savings accounts, prime commercial paper, United States Government obligations and money market funds. Any income derived from these short term investments will be used for working capital. 16 DILUTION At June 30, 1997, the Company had a net tangible book value of ($164,574), or approximately ($.07) per share of outstanding Common Stock. "Net tangible book value" per share represents the amount of total tangible assets of the Company less total liabilities of the Company, divided by the number of shares of Common Stock outstanding. After giving effect to the receipt of the estimated net proceeds from the Company's sale of the 1,882,350 shares of Common Stock offered hereby, assuming the Minimum Offering, and 2,350,000 shares of Common Stock, assuming the Maximum Offering, at an assumed initial public offering price of $4.25 per Unit, each Unit consists of one (1) share of Common Stock and two (2) Warrants to purchase one (1) share of Common Stock (after deducting underwriting discounts and commissions and estimated Offering expenses payable by the Company), the net tangible book value of the Company at June 30, 1997, would have been approximately $6,516,415 (assuming the Minimum Offering) and $8,244,551 (assuming the Maximum Offering) or $1.40 and $1.61 per share of Common Stock, respectively, This would represent an immediate increase in the net tangible book value of $1.47, assuming the Minimum Offering, and $1.68, assuming the Maximum Offering, to existing shareholders and an immediate dilution of between $2.85 per Share, assuming the Minimum Offering and $2.64 per Share, assuming the Maximum Offering. "Dilution" is determined by subtracting net tangible book value per share after the Offering from the Offering price to investors. The following table illustrates this per share dilution: MINIMUM MAXIMUM OFFERING OFFERING -------- -------- Initial public offering price per share and warrant $4.25 $4.25 Net tangible book value per share, before the offering $(.07) $(.07) Increase attributable to new investors $1.47 $1.68 ----- ----- Proforma net tangible book value after the offering $1.40 $1.61 Dilution to new investors $2.85 $2.64 Percentage of dilution to new investors 67.00% 62.00% The following table summarizes the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by (i) existing shareholders of the Company at September 30, 1997 and (ii) new investors purchasing shares of Common Stock in this offering, before deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company. The following table does not reflect the consideration paid for the Warrants. 17
MAXIMUM OFFERING SHARES PURCHASED CONSIDERATION PAID ------------------------- -------------------------- AVERAGE PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE --------- ---------- ---------- ---------- ------------- Existing Shareholders 2,775,000 54.15% $-0- -0- $-0- New Investors 2,350,000 45.85% $9,987,500 100% $4.25 --------- ----- ---------- ---- Total 5,125,000 100.00% $9,987,500 100% $1.95
MINIMUM OFFERING SHARES PURCHASED CONSIDERATION PAID ------------------------- --------------------------- AVERAGE PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE --------- ---------- ------------- ---------- ------------- Existing Shareholders 2,775,000 59.58% $-0- -0- $-0- New Investors 1,882,350 40.42% $7,999,987.50 100% $4.25 --------- ------ ------------- ---- Total 4,657,350 100.00% $7,999,987.50 100% $1.72
CAPITALIZATION The following table sets forth the capitalization of the Company (i) at June 30, 1997, and (ii) proforma adjusted to give effect to the sale of the 2,350,000 shares of Common Stock and 2,350,000 Warrants offered hereby, assuming the Maximum Offering, and 1,882,350 shares of Common Stock and 1,882,350 Warrants offered hereby, assuming the Minimum Offering, and the application of the estimated net proceeds therefrom assuming an initial Offering price of $4.25 per share for the Common Stock. See "Use of Proceeds."
MAXIMUM MINIMUM OFFERING OFFERING ---------- ----------- JUNE 30, 1997 ADJUSTED FOR SHARES SOLD(1) ------------- --------------------------- DEBT: Loans Payable $ 145,000 -0- -0- SHAREHOLDER'S EQUITY Common Stock, par value $.0001, 2,770,000 shares issued and outstanding, actual 4,652,350 and 5,120,000 shares issued and outstanding, as adjusted(2) 277 $5,120 $4,652 Paid-in Capital -0- 8,404,282 6,676,614 Accumulated Deficit (164,851) (164,851) (164,851) ---------- ---------- ---------- Total Capitalization $ (19,574) $8,244,551 $6,516,415 - -------------- (1) After deducting underwriting discounts, commissions and offering expenses estimated to be $1,320,000 (assuming the Minimum Offering) and $1,580,000 (assuming the Maximum Offering). (2) In September 1997, the Company amended its certificate of incorporation to increase its authorized capital from 200 shares of Common Stock, no par value, to 40,000,000 shares of Common Stock, $.0001 par value and 2,500,000 shares of Preferred Stock.
18 DIVIDEND POLICY The Company has never declared or paid dividends on its Common Stock and the Company does not currently intend to declare or pay dividends on the Common Stock in the foreseeable future. The Company currently intends to retain earnings for use in its business and therefore does not anticipate paying dividends in the foreseeable future. SELECTED FINANCIAL DATA The statement of operations data as set forth below for the years ended October 31, 1995 and 1996 and the balance sheet data at October 31, 1996 have been derived from the Company's financial statements, which have been audited by Spear, Safer, Harmon & Co., P.A., independent auditors, whose report with respect thereto is included elsewhere in this Prospectus. The statement of operations data for the eight months ended June 30, 1996 and 1997, and the balance sheet data at June 30, 1997, are derived from the unaudited financial statements of the Company included elsewhere in this Prospectus. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial condition and results of operations for such periods. The results of operations for the eight months ended June 30, 1997 are not necessarily indicative of the results to be expected for any other interim period or the entire year. The following financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
YEARS ENDED OCTOBER 31 EIGHT MONTHS ENDED JUNE 30 --------------------------- -------------------------- 1995 1996 1996 1997 --------------------------- -------------------------- EARNINGS DATA (UNAUDITED) (UNAUDITED) - ------------- Revenues $99,096 $68,982 $54,523 $ 14,087 Cost of Operations 96,227 62,653 47,704 5,147 General and Administrative Expenses 40,792 46,122 25,273 26,042 Net Loss (37,923) (39,793) (18,454) (17,102) Net Loss per Common Share (0.02) (.02) (.01) (.01) Weighted Average Shares Outstanding 2,473,500 2,473,500 2,473,500 2,695,875
SUPPLEMENTAL BALANCE SHEET DATA PERIOD ENDED JUNE 30, 1997 PERIOD ENDED AS ADJUSTED ----------------------------------- (UNAUDITED) (UNAUDITED) OCTOBER 31, 1996 JUNE 30, 1997 MAXIMUM MINIMUM ----------------------------------- --------------------------- Working Capital $(91,479) $(104,026) $8,218,099 $6,488,963 Total Assets 13,178 2,750 8,222,227 6,494,091 Total Long-Term Liabilities 59,788 63,268 5,268 5,268 Stockholders' Equity (164,851) (164,851) 8,244,551 6,516,415
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The discussion in this section as well as other sections of this Prospectus regarding the Company and its business and operations contains "forward-looking statements" within the meaning of Private Securities Litigation Reform Act 1995. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as "believe," "will," "may," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward looking statements. The Company does not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by management of the Company over time means that actual events are bearing out as estimated in such forward looking statements. OVERVIEW The Company is a development stage company, which creates, develops, acquires and distributes programming relating to the gay and lesbian lifestyles. The Company's revenues will initially consist of advertising revenues as well as from other revenue sources including its soon to be developed website. See "Business - Revenues." The Company will generate television advertising revenues by selling air time to advertisers. The Company's operating expenses will consist of (1) production expenses, (2) selling and marketing expenses, (3) costs associated with the acquisition of air time on leased access channels, and (4) general and administrative expenses. Production expenses consist primarily of distribution and delivery costs and other costs related to the operation of the Company's programming and eventually the Channel. Selling and marketing expenses include salaries, travel and other associated expenses related to the Company's sales and marketing activities, as well as the costs of designing, producing and distributing marketing, advertising and promotional materials. RESULTS OF OPERATIONS Seasonability and Quarterly Fluctuations Advertising revenue in the television industry fluctuates due to seasonality. Television network revenues are typically lower in the third quarter due to the number of reruns broadcast during the summer months. In the future, the Company's results of operations may fluctuate from quarter to quarter. The Company believes that its quarterly and annual results of operations will be affected by a wide variety of factors, many of which are outside the Company's control, which could materially and adversely affect profitability. These factors include the timing and volume of advertising, the number and size of cable systems that carry the Company's programming, and general economic conditions. 20 YEAR ENDED OCTOBER 31, 1996 COMPARED TO OCTOBER 31, 1995 Gross revenues for the fiscal year ended October 31, 1996 decreased $30,114 over the fiscal year ended October 31, 1995 from $99,096 to $68,982, a decrease of 30%. This decrease is due to a reduction in weekly programming from one hour during 1995 to 1/2 hour during 1996. This resulted in less advertising revenues. As a result, cost of sales also decreased for the same period from $96,227 to $62,653, a decrease of $33,574 or 54%. Selling and administrative costs increased $5,330 from 1995 to 1996 from $40,792 to $46,122 or 13% because of increased marketing expenses associated with various exhibitions at industry shows and conferences. EIGHT MONTHS ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996 Gross revenues decreased at June 30, 1997 as compared to June 30, 1996 by $40,426 or 74% from $54,523 to $14,087, as a result of the Company concluding its test marketing and its determination to concentrate its efforts to raising sufficient capital to produce up to four hours of original programming and to acquire not less than two hours of acquired programming for an aggregate of six hours of programming for transmission on a weekly basis in up to 20 targeted markets, the results of which is this Offering. Cost of sales decreased accordingly from June 1996 from $47,704 to $5,147 in June 1997, a decrease of $42,557 or 89%, for the reasons set forth above. General and administrative costs increased from $25,273 at June 1996 to $26,042 at June 1997, an increase of $769 or 3%. This increase is as a result of the decrease in programming costs from 1996, based upon the decision to cease production of programming in December 1997. The Company ceased producing programming because management believed that its test results were positive and warranted the undertaking of this Offering in order to initially offer up to six hours of programming per week in up to 20 targeted markets. This resulted in necessary continued operating expenses. CAPITAL AND LIQUIDITY At June 30, 1997, the Company was a development stage company, where, in its existing financial condition, substantial doubt existed as to the Company's ability to continue as a going concern, unless additional capital was provided. Total liabilities exceed total assets by approximately $165,000, which represents several years of cumulative losses. A large part of the deficit ($145,000) is represented by both long term and short term notes, payable to various parties, for operating capital. Furthermore, subsequent to June 30, 1997, the Company a loan from Richard P. Moorehead, a Director of the Company, in the principal amount of $200,000 to defray the majority of the costs of this Offering. See "Certain Relationships and Related Transactions." Upon the completion of the Offering, all of the debts will be paid from the proceeds. In addition, Mr. Moorehead will receive interest at an annual rate 21 of 8% and has received 176,000 shares of Common Stock from the Company's Chief Executive Officer and Chairman, Marvin Schwam. Initially when the Company was organized in November 1992, it elected to have its fiscal year commence as of November 1. Management now believes that as a public company, a September 30 year end is more appropriate. As a result, effective with the period ended September 30, 1997, the Company has elected to change its fiscal year end from October 31 to September 30. 22 BUSINESS INTRODUCTION Gay Entertainment Television, Inc. (the "Company" or "GET"), a development stage company, was organized to create and develop a cable television network (the "Network") and a cable television channel (the "Channel") devoted to informing, educating and entertaining the public concerning the gay and lesbian communities and lifestyle. A network may include as few as two programs and as much as a dedicated 24-hour network programming such as Black Entertainment Television Network (BET), which initially broadcasted three hours of programming per week and over the years, evolved into a 24 hour network on its own dedicated channel. A channel is dedicated space on the television dial to a particular networks programming. While it is expected that viewership will be comprised predominantly of members of the gay and lesbian population, management believes that the availability of informative and entertaining programming about gay and lesbian lifestyles will also be attractive to many other segments of the television viewing audience. Management understands that several cable stations in certain local geographic areas, including Time Warner Cable of Manhattan, Century Communications of Los Angeles, Continental Cable in Los Angeles, and Gold Coast Cable in Miami have offered limited leased access programming directed towards the gay and lesbian community, however management is not aware of any cable network that is devoted to serving the gay and lesbian viewership audience on a regional or national basis. Management believes that the time is optimal for a television network devoted to showcasing and promoting the gay and lesbian lifestyle. With the success of channels such as Black Entertainment Television (BET), the Food Channel, the Home and Garden TV (HGTV), and the Golf Channel, each which target specific markets, the Company believes that the time is favorable to launch a new cable network aimed at the gay and lesbian lifestyle and dedicated to serving a large segment of the population with programming which will include documentaries, entertainment magazines, talk shows, brief and in-depth news telecasts, music, sporting events, health-related topics and merchandising showcases. Within six months from the closing of this Offering, the Company anticipates that it will launch the Network by presenting 6 hours of programming per week of which 4 hours will be produced by the Company and 2 hours will be acquired programming, assuming the Maximum Offering proceeds are attained. There can be no assurances, however, that the Company will be able to meet its goal of broadcasting six hours within six months of the closing of this Offering. See "Use of Proceeds" and "Programming." The Company also proposes to establish an Internet website to support its programming and as an additional method by which to reach its target audience with information, entertainment and consumer products and services. The Company currently maintains its principal office at 7 East 17th Street, New York, NY 10003, (212) 255-8824. 23 BACKGROUND The Company was organized on November 12, 1992, and until 1996, serviced the New York, Los Angeles, Southern California, San Francisco and Miami television markets with limited programming directed towards gay and lesbian viewership. During that time, the Company has produced three-leased access programs for cable systems in New York, Los Angeles, Chicago and Miami and was available in 7 million homes. As noted in the March 14, 1994 issue of Newsweek and in the February 20, 1994 edition of the New York Times, GET also attracted several national advertisers and sponsors for its programming, including Miller Brewing Company, and the Schieffelin & Somerset Company, makers of Tanqueray gin and Dewar's Scotch. In December 1996, the Company discontinued its production and on-the-air programming in order to devote its energies to developing and financing a television network capable of reaching the gay and lesbian population on a national level. As a result of its four years on-the-air presence, the Company has accumulated an extensive library of programming upon which it will draw in formulating and developing program content for the Network. Since inception, the Company, which has worked with an entirely volunteer staff, has not generated revenues from operations, and is dependent upon the proceeds of this Offering, or alternative financing, in order to implement its business plan. There is no assurance that this Offering will be successful or that alternative financing, if required, will be available on acceptable terms. See "Risk Factors". STRATEGY The Company's strategy is (i) to commence broadcasting of six hours of programming per week focusing on issues relating to the gay and lesbian lifestyles on channels available to targeted markets within six (6) months of the closing of this Offering, (ii) to provide twenty-four hour programming on a dedicated channel through GET within three years from the closing of this Offering, and (iii) to establish a website to complement its programming. In particular, the Company expects that the website will (a) help to promote programming and viewership of the Network and Channel, (b) provide a forum for the advertisement, promotion, purchase of, and participation in, gay and lesbian themed events, vacations, products and services and local and regional periodicals, and (c) provide a forum for the expression of, and response to, current events and issues that impact the gay and lesbian community. In order to achieve these goals, the Company will initially attempt to lease access from cable systems available in targeted markets including the metropolitan New York area, South Florida, Chicago, San Francisco, and Seattle, Boston and Chicago. See "Program Distribution" for a listing of the twenty targeted markets. Additionally, the Company intends to enter into strategic partnerships with television affiliates and advertisers in order to provide quality programming that is profitable for the Company as well as its advertisers. In particular the Company has entered into an alliance with Western International Media ("WIM"), believed to be the largest and most diversified full service media management company in North America, to implement its distribution strategy, although there are no assurances that the Company will be 24 able to enter into relationships that will be advantageous to the Company. WIM purchases time for their diversified client base which includes buying advertising time slots for sale on individual shows, as well as time from networks between shows. WIM will also undertake to purchase time in prime time (7:00 p.m. to 12:00 a.m., Sunday through Thursday) on leased access channels on the 65 systems targeted by the Company. See "Distribution." WIM has conducted their own test of approximately 20 systems for the Company's programming to determine the interest. WIM concluded that in almost every instance, there was a positive response to the Company's programming and concept. There can be no assurances, however, that the WIM, on behalf of the Company will be able to purchase leased access time for the Company's desired time slots. Additionally, to the extent that the relationship between the Company and WIM does not meet the Company's expectations, the Company will likely be required to purchase leased access through other companies or directly, which could delay the Company's programming and could have an adverse impact on the Company. DEMOGRAPHICS AND MARKET IN 1996, THE SIMMONS MARKET RESEARCH BUREAU, A MARKETING SURVEY FIRM, CONDUCTED A STUDY OF THE GAY AND LESBIAN MARKETS IN THE UNITED STATES. THE STUDY PROFILED GAY AND LESBIAN CONSUMERS IN TERMS OF THEIR READERSHIP OF SPECIFIC PUBLICATIONS, PURCHASING AND USAGE OF SELECTED CONSUMER PRODUCTS AND SERVICES, LIFESTYLE HABITS, AS WELL AS DEMOGRAPHICS. The Simmons Report states that the gay and lesbian community in the US consists of men and women predominantly with a middle to upper income, highly educated, professionally employed persons who tend to live in the Northeast and West. Generally, the gay and lesbian community surveyed own their own homes, have purchased a significant amount of clothing in the past year and use credit cards. The survey indicated that the persons responding read heavily, particularly major urban newspapers and national magazines, tend to own luxury automobiles and subscribe to cable and premium television. There has been some criticism of the study, having been judged as being biased, sourcing for respondents from narrow upscale lists, however the Simmons report remains the benchmark public study. According to the August 7, 1997 issue of ADVERTISING AGE, visibility of gays and lesbians has reached a critical mass in corporate America and over the last several years, mainstream media is beginning to court a demographic group previously perceived as "risky." Major advertisers including, among others, IBM Corp., Seagram Americas' Absolut Vodka, America Online, Aetna life and Casualty, Chase Manhattan Corp., Johnson & Johnson, Lotus Development Corp., Merrill Lynch & Co., Samsung Electronics America, Subaru of America, American Airlines, United Airlines and U.S. West are targeting the gay and lesbian community and other major corporate names will likely follow suit. There can be no assurances, however, that the Company will be able to enter into agreements with any major corporations, including those set forth above. In the past, most targeted advertising efforts for gays and lesbian have been limited to print because few options exist in TV. Certain local cable-access channels in several markets 25 carry programming blocks from Gay USA (produced by Gay Cable Network made available through public access) and Dyke TV (a not-for profit company whose programming is also made available through public access), but these channels have had low budgets with inconsistent program schedules and small audiences. According to ADVERTISING AGE, however the coming-out episode of ABC's "Ellen" was ground breaking in more ways than just programming -- it was the first time advertisers used prime-time network TV to reach gay and lesbian viewers. While some regular "Ellen" advertisers bowed out, others paid a premium -- up to $350,000 from an original $270,000 - to get time on the April 30, 1997 episode. Thus, many advertisers are not afraid to be associated with programming geared to less mainstream lifestyles. In the past, companies such as Miller Breweries, Dewar's Scotch, Tanqueray, Hennessey Cognac, Sony Electronics, Jaguar, Motown Records, Columbia Artists, New Line Cinema, Buena Vista Pictures have advertised with the Company or have sponsored certain of the Company's programming. Currently, there are three magazines -- OUT, GENRE, and ADVOCATE -- that focus on the gay and lesbian lifestyles. It is estimated that the combined number of subscribers for these magazines is approximately 250,000 (although the general circulation through newsstand sales is much greater), whereas the average number of subscribers for other men's magazines which have a large gay following but do not purport to be a gay and lesbian publications such as "Details" is 485,000, "Esquire" is 658,000 and "Men's Journal" is 555,000. The Company believes that because in order for a person to subscribe to a gay or lesbian magazines, a subscriber it may imply that he or she is gay or lesbian or has an interest in a gay or lesbian lifestyle. Because society's perception to these alternative lifestyles is often less than positive, people often are reticent to place their name on any mailing list that could subsequently be made available to other organizations. On the other hand, watching GET's programming requires nothing more than for a person to turn on the television. STRATEGIC PARTNERSHIPS GET expects to establish relationships with two separate groups to succeed in today's competitive television marketplace--television affiliates and advertisers--and solidifying these relationships will be an ongoing task for the Company. The recruitment and maintenance of relationships with television affiliates and advertisers will be an ongoing task for the Company. Television affiliates include individual cable systems and Multiple System Operators ("MSOs"), which, due to the number of individual cable systems such as Time-Warner Cable, Adelphia Cable, Continental Cablevision, Century Communications, Cox Cable, TeleCommunications, Inc., Gold Coast Cable, and Chicago Cable under their domain, control a substantial portion of the program content aired over cable television. These affiliates will be approached to carry the Network programming on their respective systems. The general manager or program director of each cable system or MSO has a finite number of channels until more are made available through Federal Communication Commission decree or technological changes. A program manager will typically substitute a channel which sustains only limited appeal for one that is dynamic so that the systems' sales people can have an easier time selling the local avails (time slots that the networks or program providers make available to the cable systems to sell to 26 their own advertisers) or commercials. Management believes that the large and affluent market represented by the gay and lesbian communities will convince station managers and MSOs to carry GET's programming on their system. There can be no assurances, however, that the gay and lesbian communities will have any influence on station managers or MSOs. See "Cable Access." Advertisers are the sponsors of the individual programs that comprise a network's programming day. Their support represents the lifeblood of any network, and it is important that GET be in a position to impress advertisers with a strong demonstration of acceptance among cable systems because such advertisers value the worth of a network by (i) the demographics of who is watching and (ii) total number of cable subscribers a network is reaching. Through the efforts of the Company's Vice President of Affiliate Relations and Director of Marketing, the Company intends to demonstrate the value of its programming and in particular, how it will enhance subscriber members by incorporating a special interest group network into a network's mix of current channels. The Company anticipates that during the first two years that the Company's programming is broadcast on a system, it will be able to make these affiliate systems aware of the Company's high quality programming, advertiser support and community support in order that the Company can make the transition from leased access, where the Company pays for air time, to a Channel that the affiliate systems pay to carry. There can be no assurances that it will be successful in convincing these affiliates to continue or expand the Company's programming, or that these affiliate systems will agree to allow the Company to make the transition from leased access to becoming a channel. CABLE ACCESS Cable systems and MSOs must make available three different types of access through their respective systems: (1) broadcast access, (2) public access, and (3) leased access. Broadcast access carries the major television channels such as ABC, CBS and NBC and are normally broadcast over the air waves (as opposed to cable). Systems are also required to carry public access channels which are to be made available to residents of that licensees locality. The purpose of public access is to give every citizen free access to the air waves. Because public access is made available for free, it is a non-commercial venture. Additionally, every system is also required to have a certain amount of channels available for leased access, which is made available to any person (whether or not a resident of the area) who may purchase time and present any type of suitable programming. The Company intends to start transmitting its programming through leased access. Systems also have premium channels available that, for an extra fee, subscribers can have access. Premium channels include channels such as HBO, Showtime, the Disney Channel, and The Movie Channel. Systems also have pay per view channels where a system gives the option to purchase a specific program, such a sporting event, concert or film. A subscriber is charged a basic monthly fee for cable delivery that generally includes the broadcast channels, public access channels, leased access channels and a variety of channels 27 selected by the individual system. For an additional fee, subscribers can purchase "extended basic" (commonly referred to as `cable'), which is another tier of channels that comprise more special interest programming and may include channels such as A&E, the Food Channel, Bravo, MTV and the Gold Channel. There are additional charges for premium channels and still another charge for Pay-Per-View channels. The Company intends to initially lease access for its programming on channels that are transmitted through basic cable and extended (tiered) cable. The Company intends to initially purchase either 2-three hours blocks or 3-two hour blocks (for a total of six hours) for its programming at the same time and on the same days each week in order to broadcast its programming. There can be no assurances, however, that the Company will be able to broadcast its programming in time slots of its choice or be able to purchase any time slots at all. See "Distribution." PROGRAMMING One of the most important elements of any television network is its daily program content. Programming is critical to attracting cable system affiliates, advertisers and viewers, and is a paramount factor in insuring rapid growth and profitability. Programming is also the most expensive component in establishing a new television network. The Network will encompass both original programming and the acquisition of programs produced by others, focusing on gay and lesbian lifestyles. In planning its programming mix, management has endeavored to appeal to the needs of viewers, advertisers and cable affiliates. The planned program line-up is comprised of a number of series with differing emphases on gay and lesbian lifestyles, and with slightly different target groups within the over-all viewing audience. Maintaining an appropriate content mix will be the responsibility of the Company's programming committee, initially to be comprised of its Chief Executive Officer, President, Executive Vice President - Programming and Production, Senior Vice President - Program Development and Acquisitions and Vice Presidents servicing the areas of Affiliate Relations, Public Affairs, National Advertising Sales and Finance. During the initial 24 months of operations after the closing of this Offering, the Company expects to offer six hours of programming on a weekly basis. Certain programs may be rerun, depending upon leased access expense and availability of space in the market. The initial six hour programming block is expected to consist of four hours of original programming and two hours of acquired programs, assuming the Maximum Offering, with wrap arounds (in between segment pieces that tie segments together, such as opening and closing credits and introductions), bumpers (short sound bites from celebrities between segments to arouse interest and/or introduce a segment) and interstitial programs (promotions and coming attractions). The amount of original programming and acquired programming may be modified if less than the Maximum Offering is attained. See "Use of Proceeds." Current anticipated plans are for the four hours of original programming to consist of: 28 /bullet/ a one hour entertainment magazine, to be known as "I-Line", will offer a contemporary look at many industries and issues, such as entertainment, travel, health, home improvement, investments, fashion and music from a gay and lesbian perspective. It will also showcase up and coming talent. /bullet/ a one-hour talk show, "Inside/Out", will be produced live to tape (filmed live for subsequent broadcast), and feature an opening remote segment introducing an issue to be discussed by a knowledgeable panel and studio audience. Topics will focus on interpersonal issues including how the gay and lesbian communities are perceived by the general public, and are scheduled to include segments such as "The Corporate Closet", "Monogamous vs. Open Relationships" and "Domestic Violence"; /bullet/ a one-hour talk show to be called "One-To-One", will be an up close interview/profile series. The show will feature host with two guest segments per show. The interviews are intended to be controversial, honest, and direct with "no holds barred." /bullet/ a one-half hour show called "Performance, Performance, Performance" will feature gay and lesbian entertainers, hosted by critical, opinionated, but friendly hosts. The Company intends to broadcast from remote locations including night clubs, dance floors, in "green rooms". /bullet/ a one-half hour show called "Preview, Review Gay View" that covers the entertainment scene from a gay and lesbian point of view that will include movies, television, music, theatre, and the visual arts, from a gay and lesbian perspective. Similar to "Entertainment Tonight," "E!", and "Siskel and Ebert," the show will feature inside scoops. new talent, coverage of the club and party scenes. The show will draw upon the cast from an entertainment pilot produced by the Company in conjunction with The Image Group Studios in New York, a television production facility in New York City. In addition to the foregoing series programming, in the future GET intends to offer such diverse original programs as: "Gay Nation Newsbreak", which will broadcast throughout the programming day with up-to-the minute news impacting on the gay and lesbian community; coverage of the "World AIDS Telethon" which GET plans to produce and manage; and the "Gay Games", amateur sports events in which the gay and lesbian community participates. The Company is also exploring and researching the production of additional programs focusing on health and fitness (including exercise programs featuring top gay and lesbian athletes and trainers, and AIDS awareness and updates); entertainment (including sitcoms, animation, performances, celebrity magazine series); music (videos and the European scene); news (including international ventures, news from a gay and lesbian perspective and alternative living); game shows; and programs on fashion, real estate, travel, decorating, and specials (including award shows, sporting events, and entertainment and variety programming). There can be no assurances, however, that 29 the Company will be able to present its proposed programming or that such programming will not be deemed to be too much "outside mainstream programming" because of its targeted market to attract sufficient viewership to make the Company profitable. The Company's original programming will draw from the extensive library accumulated during the Company's four years on-the-air from 1992 to 1996. Included in its library are over 100 hours of "Party Talk", 10 hours of "Inside/Out" and 12 episodes of Makostyle (a fashion and style series). It is anticipated that the Company's program library will be replayed and repackaged for airing at minimal additional cost to the Company, and that these programs will provide core content for international sales. Because the Company's library is not of broadcast quality, it will be used for archival purposes (i.e. as inserts for new programming). It is currently anticipated that the two hours per week of acquired programming will consist of films, shorts, series, documentaries and video journals, chosen for their 'camp' value, inherent quality or historic interest. Content will be chosen from the numerous sources of film festivals, community groups, colleges, progressive television networks abroad, independent production studios, student film-makers and local cable channels. Management believes that there are numerous high-quality programs available, many of which have not previously had a broadcast outlet. Acquired programming will be presented by an on-air host with a command of screen history, and is expected to be a cornerstone of the Network's identity. Management is also studying a plethora of programming concepts for the future. Among the subjects being considered are Health and Fitness, featuring programs dealing with exercise, AIDS awareness and updates; Entertainment programming featuring celebrity magazine series, Broadway song festival, comedy and sitcoms, animation, movie reviews and performances; news programming; game shows and music programs and special events. PRODUCTION The Company expects to produce a majority of its own programming. The Company will lease a sound stage (approximately 50 feet by 75 feet) and to eventually establish a production staff of approximately 17 persons including (a) two program producers, (b) three camera operators, (c) two writers, (d) four segment producers, (e) one researcher, (f) two administrative assistants, (g) two production assistants, and (h) one technical director. See "Use of Proceeds." The Company has elected to tape its programs and forward them to its affiliates via overnight courier, as opposed to using satellite broadcast. The Company believes that satellite broadcast is too difficult to control, due in part, to the fact that GET's programming will air at different times in different markets and it is easier to sell local advertising, which can be placed, as required, within the taped programming, as required. Eventually, if the Channel does become available on a 24 hour, seven day a week basis ( and assuming that the Company's programming is repeated 6 times within one-24 hour period), the Company will likely utilize satellite transmission, in addition to the supplemental leased access distribution. Sending tapes to each individual station affords the Company the opportunity to bring local gay and lesbian 30 communities into both the production and program content, as well as to include local advertisers. it will also allow the Company to barter its advertising space with local gay and lesbian publications, utilizing their print space in exchange for on air time in some capacity. PROGRAM DISTRIBUTION Because currently there are a limited number of televisions channels available for programming, the Company has developed a two phase distribution plan for its future programming services. First, GET contemplates securing space in the crowded cable market by leasing access in the top 20 domestic television markets for the first two years of operations following the closing of this Offering. This strategy will enable the Network to establish its name and identity in the market, display the quality of its program content, attract a loyal viewing audience and establish relationships with national advertisers. The Company also believes that after two years of programming, homophobic tendencies that may have been felt by certain affiliates and advertisers may, by then, be allayed. Leased access will also provide the Network with on-air exposure in a manner that will limit its financial outlay during its early years of development. Although leased access provides the Network with on air exposure, the cost does not limit the Company's development during its first years after the closing of this Offering. The Company believes that by limiting its production to six hours per week, by purchasing leased access time instead of competing with dozens of other networks, all vying for the same limited space, the Company believes that it will efficiently and cost-effectively be able to purchase leased access in time slots in highly desirable time slots. The following chart illustrates the 20 target markets and the total number of cable systems and households in each market, as well as the number of cable systems and households that GET anticipates it will reach, however there can be no assurances that GET will attain these goals or that it will be able to enter into agreements on terms that will be profitable to the Company. GET has elected not to broadcast on all systems that service a particular market, because the expense of leased access is determined by the number of (i) hours of programming broadcasted; and (ii) affiliates, regardless of the number of households reached. Instead, the Company will select those systems with the widest distribution and most favorable viewing audience. The last two columns in the chart represent the Company's decision to acquire leased access, if available, generally in the top three carriers in each market. Even with the reduction in affiliates, GET expects to still reach approximately 75% of the households in the top 20 markets, while reducing its projected expense by approximately 37%. There can be no assurances, however, that the Company will be able to purchase leased access in any of these markets or that the costs and expenses will be within the Company's budget. While these designated cities and systems are being chosen because the Company believes that each of the markets is best for distribution of the Company's programming to the largest number of households, the Company also intends to explore the possibility of targeting other cities and systems. 31 TOTAL # TOTAL # OF TOTAL # OF # OF MARKET OF SYSTEMS HOUSEHOLDS GET SYSTEMS HOUSEHOLDS - ------ ---------- ---------- ----------- ---------- New York 7 4,907,000 4 3,528,000 Los Angeles 7 2,817,000 7 2,778,000 Philadelphia 6 2,010,000 3 1,043,000 Boston 6 1,754,000 3 1,259,000 San Francisco 3 1,474,000 3 1,474,000 Chicago 7 1,754,000 3 933,000 Washington, D.C. 4 1,320,000 3 638,000 Seattle 3 1,106,000 3 1,083,000 Detroit 4 1,092,000 3 669,000 Cleveland 7 966,000 3 748,000 Pittsburgh 8 896,000 3 675,000 Tampa 4 996,000 3 848,000 Atlanta 6 1,125,000 3 619,000 Miami 5 919,000 3 685,000 Dallas 4 888,000 3 688,000 Houston 4 832,000 3 642,000 Orlando 5 760,000 3 716,000 Minneapolis 4 747,000 3 454,000 San Diego 3 779,000 3 738,000 Sacramento 6 578,000 3 493,000 TOTAL NUMBER OF 20 MARKS 103 27,720,000 65 20,709,000 SOURCE OF SYSTEMS AND TOTAL NUMBER OF HOUSEHOLDERS: NHI NIELSON HOUSEHOLD INDEX, AUGUST 9, 1997 By penetrating the top 20 domestic television markets, management believes that the Network's programming will reach approximately 20 million households (or 45 million viewers), based upon the Company's belief that the gay population reside in major cities. Reaching the substantial portion of the gay and lesbian community in this manner will substantially curtail the costs of reaching a national audience during the Networks early years of development. Management also believes that reaching the audience available in these top 20 markets will provide GET access to a level of gay and lesbian viewership previously reachable only by mainstream networks on rare occasions, or by public television specials. To aid in GET's ability to secure leased access, the Company has formed an alliance with Western International Media (WIM), believed to be the largest buyer of spots for television, radio, and newspaper advertising. With WIM's buying power (projected U.S. billings in 1997 of $3.673 billion and projected Canadian billings of $60 million), solid knowledge of the cable industry, and the Network's flexible program schedule, the Company believes that the joint efforts 32 of the Company and WIM will be successful in clearing the desired leased access time periods for the Network's programming in the targeted markets. The Company expects to pay WIM a commission of 15% in connection with WIM's ability to purchase leased access time on behalf of the Company, as well as to obtain advertisers for the Company's programming. There can be no assurances, however, that WIM will be able to purchase sufficient leased access space or sell advertising space for the Company's programming or that WIM will enter into agreements on terms and conditions favorable to the Company. See "Risk Factors - Dependence on Advertising Relationships." To facilitate the success of the planned transition to 24-hour per day programming, the Company will actively commence discussions and negotiations with major cable operators and MSOs around the country after the closing of this Offering and may offer participation in the potential success of GET by offering equity interests in the Company in exchange for guaranteed air time. The Company believes that this type of strategic alliance will provide a built-in level of viewership through the cable system's existing subscribers, at a reduced cost, thereby enabling the Company to preserve the funds available to it for program expansion. Additionally, GET will pursue distribution through DBS (Direct Broadcast System) satellite broadcasts, wireless cable services and new distribution offerings from telephone providers such as TeleTV and AmeriWest to the Network's viewer base. During the transition to basic or tiered cable, the Network plans to supplement its viewing audience through continued leased access programming in order to service its existing audience and to retain the support of national advertiser, focusing on those 20 markets selected for the two years of leased access. Since the number of households receiving the Network as a basic or tiered service will be lower than cleared-through (i.e. where the Company's programming appears) leased access, GET will supplement its basic or tiered cable carriage by continuing to purchase enough leased access to insure that at least 12.5 million households receive the Network. The Company believes that this strategy will also assure maximized advertising revenue and avoid disappointing viewers by having the Network dropped from their cable system. Commencing in its third year of operations after the closing of this Offering, the Company intends to market itself as a 24-hour channel, and shift distribution from leased access to basic or extended basic cable service. It is expected, but there can be no assurances, that third year programming will consist of producing and/or acquiring six hours of programming per day, gradually expanding to 12 hours per day in year five, and repeating the program block to complete a 24 hour broadcast day. This strategy will enable GET to align itself with a strategically complementary network which can create a mutually beneficial 24-hour non-repeated service. There can be no assurances, however, that the Company will be able to attain its goal to market itself as a 24-hour channel commencing in its third year of operations, or if at all. Additionally, it is anticipated that the Company will seek to expand its revenue base by offering its program content to providers in over 90 countries not currently serviced by any gay and lesbian oriented production company. Management believes that the advent of increased cable penetration in international markets, together with the privatization of government-operated 33 networks in many countries, provide GET with an untapped market for the Company's planned program content. Management also believes that the Network's existing program library provides a core pool of content which can be repackaged for market distribution internationally, at very little additional cost to the Company. Management believes that the primary international markets for the Company's programming include Australia, Great Britain, Canada, Germany, the Netherlands, Sweden, Philippines, New Zealand, Japan, Spain and South Africa. The Company will seek to syndicate and/or license its concept and programming into these markets. Management has had and will continue to have discussions with representatives of various cable companies and program providers in these and other markets. There can be no assurances, however, that the Company will enter into any agreements with any of markets. ACCESS TO INFORMATION CONCERNING PROGRAMMING Because the Company's programming, at least initially, will be broadcast on different days and in different time slots in various markets, the Company intends to list its programming availability amongst the approximately 250 regional gay and lesbian publications available throughout the United States. The Company may elect to barter with certain publications whereby the publications will trade print space for air time commercials. The Company anticipates that these listing will be provided at no cost to the Company. Additionally, the programming will be listed in local television listings and newspapers. REVENUES The Company anticipates that it will eventually receive revenues from three sources: (1) advertising, (2) sponsorships, and (3) subscriber fees once the Company's programming is broadcast through basic/tiered cable. The Network's projects that its programming will have 12 minutes of commercial time per hour available to sell. GET intends to initially charge $4,800 per minute of advertising, subject to change based on advertising demand. Management believes this rate will be attainable based on (1) current rates charged by competitive cable networks, (2) the rates charged in the past for its television series, PARTY TALK, and (3) the gay and lesbian demographics being reached by the Network that has never been tapped by the television industry. This rate will gradually increase if the Network becomes more established. Beginning in the third year following the closing of the Offering, of the 12 minutes of commercial time available per hour, it is anticipated that 10 minutes will be used for national, regional and local advertising sales, and 2 minutes will be retained by the cable operator and GET. The cable operator will keep their respective revenue generated from such advertising sales. The Company also will seek to obtain sponsorships to underwrite certain of its programming. The Company also anticipates that once its programming appears through basic/tiered cable, it will receive a fee for each subscriber of a cable system. This fee is based upon competitive rates that other networks negotiated from cable companies, and how much the cable companies believe each can earn by carrying a network. There can be no assurances, however, 34 that the Company will be able to attain sufficient revenues, if at all, from any of its projected revenues, or if attained, that such revenues will be sufficient for the Company to be profitable. MARKETING AND ADVERTISING Key milestones in defining the future success of the Company will be (1) growth in the cable television industry; (2) widespread acceptance of GET by cable system operators and advertisers and (3) growing numbers of subscribers who become aware of GET and seek to have it included within local cable systems. Crucial to the Company's ability to generate revenues and expand its air-time to projected levels, will be its facility to successfully attract sponsors for its programming. While most advertisers have been reluctant up to now to associate their products and services with the gay and lesbian community for fear of consumer backlash, advertisers have also recognized the extent of the gay and lesbian population and the need to reach that market as they expand their market in attempts to generate additional revenues. Demographics suggest that the gay and lesbian communities are more affluent than average, have more disposable income and are a very attractive segment of the consumer population. GET proposes to reach a significant portion of the over-all population and will provide advertisers with access to this large segment of the population. Management believes that national advertisers will be very receptive to this opportunity to reach a highly desirable and large segment of the population however, the Company has not entered into any definitive agreements with any advertisers, that it will be able to enter into such agreements in the future, or if entered into, that these agreements will be on terms that are favorable to the Company or that will render the Company profitable. In order for the Company to be successful, the Company intends to initiate a carefully planned and aggressive marketing strategy geared to cable systems and MSO's. The owners and operators of the top 10 MSO's across the country will be the Company's target within the initial 12-18 months of operation. By succeeding in having these organizations accept the Network in their system line-up, management anticipates that GET will be able to amass the number of subscribers needed in order to satisfy commercial advertisers and justify the Company's advertising rates, but there can be no assurances with the Company will be successful in attaining these goals. Management estimates that a minimum launch target of 5 million subscriber households will be necessary in order to generate the amount of revenues needed to become an ongoing viable venture. Recent developments in fiber optic technology, as it pertains to the "Information Superhighway," has resulted in the need for advertisers to reassess where they can most effectively place their ad dollars to reach the niche demographic of the marketplace that they desire. This innovation is known as "narrowcasting" because it pinpoints a very specific type of consumer and allows the advertiser to customize its message to them. The Company's ability to operate and reach this specialized niche is expected to make it easier for the Network to identify and recruit advertisers since it will be readily apparent as to the customer base to be solicited. 35 Management believes that advertisers evaluate two primary categories: the number of potential households that a network reaches and, more importantly, the demographics of that audience. These criteria provide advertisers the factors they need in order to reach a determination as to whether or not to advertise on a network. GET will target the gay and lesbian communities with its network, an area which is ill-served among the current cable networks. Each program will be carefully selected and placed into the Network's anticipated schedule with this select group in mind in order to maximize the potential viewership numbers and commercial advertising revenues. The Company plans to have a significant presence at both the National Cable Television Association (NCTA) annual convention and the California Cable Television Association's annual Western Show. These associations help provide a cohesive source of information, literature, conferences, and meetings each year. Additionally, NCTA also sets the rules, guidelines and standards for the cable industry. There can be no assurances, however, that the funds allocated for marketing by the Company at these conventions will result in revenues to the Company. WEBSITE Integral to its strategy of reaching, informing, educating and entertaining the public concerning all aspects of the gay and lesbian community and lifestyle, the Company plans to initiate an Internet website (the "Website"). Management believes that the origination and development of a high-quality Website will be essential for the Company to remain competitive within its industry, and that the Website can, within a relatively short period, become a profit center for the Company. The primary goals of the Website will be to (a) promote programming and viewership of the Network, (b) provide a forum for the advertisement, promotion, purchase of, and participation in, gay and lesbian themed events, vacations, products and services and local and regional periodicals, and (c) to provide a forum for the expression of, and response to, current events and issues that impact the gay and lesbian community. It is anticipated that the Website will be cross-promoted in on-the-air advertising spots and other forms of marketing and media advertising. Website development will be a staged process, timed to coincide with the development and growth of the Network. It is expected that the Website will promote programming and viewership of GET through publication of the Network's programming schedule, synopses of program content and by the presentation of still and video clips of individual personalities and programs. Scheduling the design and composition of the program line-up will be critical because broadcast times will vary throughout the approximately 20 markets that have been initially selected for penetration. The Website will also provide e-mail access to the Network's on-air talent and staff. Drawing from the general popularity of television viewership's interaction with on-air personalities, management believes that this audience will provide strong support for the Network's planned shopping and reference malls. 36 The Website's proposed forum for the advertising, promotion and sale of gay and lesbian oriented products and services is expected to include participation by local, regional and national travel agents, tour operators, bars, restaurants, hotels, financial service companies, automobile manufacturers and retail establishments. These purveyors of products and services will be afforded access to a concentrated segment of the consumer markets, and it is anticipated that their advertising will be created to target those markets. In addition, electronic media advertising will enable advertisers to create attractive, full color "brochures" which can be updated on a regular or seasonal basis, without the associated costs of color printing and dissemination. This forum of the Website will generate revenues through direct advertising fees and, eventually, through transaction processing fees as electronic commerce capabilities are added to the Website. Advertisers will be offered the opportunity to establish "hot-key" links between the Website and their own websites. This forum will also contain a special events calendar for the gay and lesbian community, showcasing national, regional and local events of particular interest to the gay and lesbian community, the schedules of gay and lesbian pride events in various cities, Gay Games, circuit party events, support groups and AIDS fund-raisers. Advertisers will have the ability to sponsor listings and to advertise travel arrangements, including hotel accommodations, meals, local transportation and social events being made available to attendees. It is anticipated that upon completion of forum development, electronic commerce will become a part of the Website and a significant source of revenues to the Company. However, at present, numerous difficulties must be overcome. These difficulties include the lack of clear technological leadership in providing consumer electronic shopping services, the existing high cost of this process and significant mistrust about the security of personal financial data in electronic commerce. Due to these difficulties, management has elected to delay incorporating electronic shopping as a Website feature. However, as technology advances, management expects that electronic shopping will become a secure, commonplace and attractive consumer purchasing alternative. The offering of a forum for the expression of, and response to, current events and issues impacting the gay and lesbian community is expected to be operated by GET and designed to be an important "give-back" to the gay and lesbian community. This section of the Website will be dedicated to not-for-profit grass roots organizations seeking alternative methods by which to reach their target audiences. Topics of available information will include politics, health-care, financial and legal issues. E-mail users will be afforded the capability of contacting organizations, elected representatives and GET's management, staff, talent and advisers to express their views. COMPETITION The Company will face intense competition for a finite amount of viewership from numerous other businesses in the entertainment industry. In particular, the television programming market is intense and the Company's programming will compete for distribution on cable systems, for viewers and for advertising revenue with hundred of cable and broadcast television networks supplying a variety of entertainment programming. The Company will also compete with various forms of entertainment which provide similar types of programming, 37 including movies, video and audio cassettes, broadcast television, cable programming, special pay-per-view events, sporting events and other forms of entertainment which may be less expensive or provide other advantages to the Company's viewers. The Network and Channel will compete directly with other networks and channels, many of which have a substantial number of viewers, and who are substantially larger, better capitalized, more established and have greater access to resources necessary to produce a competitive advantage. Additionally, the Company will also compete for advertising dollars with traditional media. While the Company believes that GET will be the only Network and Channel of its kind, there can be no assurances that other companies are not developing or will not seek to develop similar networks. If GET is successful, it is possible that other companies may seek to enter or capitalize on such market and compete directly with the Company. Many of these companies have substantially greater financing, personnel, technical and other resources than the Company and have well-established reputations for success in the development, promotion and marketing of entertainment events. There can be no assurance that the Company will be able to compete successfully. See "Risk Factors - Competition." Moreover, initially, the Company will compete with other networks and infomercials who also seek to lease cable access in favorable time slots and on specific dates. Many of these networks are better capitalized and may have more leverage to negotiate for these limited numbers of time slots. To the extent that the Company is unable to purchase leased access on terms and conditions favorable to the Company, or to purchase leased access for critical time slots, this inability could have a material impact on the Company's profitability. The Company is prepared, however, to explore other means of distribution to build its viewership should the Company be unable to clear certain leased access markets. It is possible that the Company will buy time on UHF (local low frequency broadcast) or via local satellite distribution on a limited basis. Furthermore, because the Company is unable to protect its concept of a network targeted at the gay and lesbian lifestyle, there can be no assurances that other companies who may, among other things, have more experience and be better capitalized, may not also develop programming targeted at the same market. INTELLECTUAL PROPERTY The Company has filed for federal statutory intellectual property protection for its mark GET ENTERTAINMENT TELEVISION and its GET logo. It also intends to obtain intellectual property protection for its programming. While the Company has made every effort to protect all of its intellectual property, to the extent such protections are inadequate, the Company could lose a part or all of these rights which, in time, could have an adverse effect on the Company. The Company, will also seek to maintain its proprietary rights by copyright notices, trademark notices, and trade secret protection. There can be no assurance that meaningful proprietary protection can be attained as a result of such filing or notices, and any proprietary rights that the Company could choose to protect through legal action may involve substantial costs. 38 GOVERNMENT REGULATIONS Although the Company's radio and television networks are not generally directly regulated by the Federal Communications Commission (FCC), the cable television systems and other video distributors to which the Company sells its programming are regulated. As a result, the federal laws and FCC regulations that affect these entities indirectly affect the Company. The cable television industry is subject to extensive federal, state and local regulation. Regulation can take the form of rate controls, programming carriage requirements and programming content restrictions. Such regulation could affect the availability of time on local cable television systems for sale by the Company as well as the price at which such time is available. There can be no assurance that material adverse changes in regulations affecting the cable television industry, in general, or the Company, in particular, will not occur in the future. EMPLOYEES Currently, the Company has one employee, the Company's Chief Executive Officer and Chairman, Marvin A. Schwam. Upon the completion of this Offering (assuming the Maximum Offering), the Company intends to actively search for and hire qualified professionals for the following the positions, certain of which the Company has already filled: (a) ten persons in management including the (i) Chairman and Chief Executive Officer, (ii) President, (iii) Executive Vice President, Chief Financial Officer, (iv) Executive Vice President, Production, (v) Senior Vice President/Programming and Acquisitions, (vi) Vice President, Affiliate Relations, (vii) Vice President/Marketing, (viii) Vice President, Public Affairs, (ix) Vice President, National Ad Sales, (x) Vice President, Business Affairs; (b) five support person including a staff accountant; (c) two persons for the Company's Website operations; (d) 17 in production; and (e) five in talent. See "Management." The Company also intends to enter into independent consulting agreements with qualified professionals on an as-needed basis and to take advantage of using unpaid interns, typical in the television industry, who will gain experience in connection with the production of the Company's programming. FACILITIES Currently, the Company leases approximately 3,200 square feet of space in a rent stabilized building at $1,455 per month in New York City which is also the residence of Marvin Schwam, the Company's Chief Executive Officer. Mr. Schwam pays $727.50 per month (representing 50% of the rent). Subsequent to the closing of this Offering, the Company will seek to lease a facility for its executive offices as well for its production studios. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings and, to the best of the Company's information, knowledge and belief, none is contemplated or has been threatened. 39 MANAGEMENT The following persons are, or will become directors and executive officers of the Company as of the closing of this Offering:
EXECUTIVE OFFICERS AND DIRECTORS NAME AGE POSITION - ---- --- -------- Marvin A. Schwam 55 Chairman of the Board and Chief Executive Officer Joseph F. Lovett 52 Executive Vice President, Programming and Production Jim Arnoff 47 Senior Vice President, Program Development and Acquisitions Michael Ingersoll 47 Senior Vice President, Public Affairs Jon R. Allen 55 Director Alan N. Cohen 67 Director Ira Laufer 70 Director David Mayer 56 Director Shelly Meyers 38 Director Richard Moorehead 55 Director Seymour Wishman 55 Director Deb Zeyen 50 Director - -------------
MARVIN A. SCHWAM, 55, the founder of GET, has served as the Company's Chief Executive Officer and Chairman and Director since the Company's inception in 1992. Mr. Schwam produced three ongoing series for the Company airing in six major U.S. television markets including Southern California, San Francisco, Los Angeles, Miami, New York City, and Chicago. In 1968, Mr. Schwam founded M. Schwam Floralart, a display firm that because one of New York City's largest Christmas decorating houses. In 1975, M. Schwam Floralart merged with Flowerental Corporation and changed the name of the company to Florenco Foliage System, Inc. 40 ("FFSI"), where he became its Executive Vice President and Chairman of the Board. In 1987, FFSI declared corporate bankruptcy as a result of certain actions undertaken by Mr. Schwam's partner. In August 1988, the New York bankruptcy court discharged the case and FFSI, along with three of its divisions, was purchased by The Rennoc Corporation. The Rennoc Corporation subsequently sold FFSI, along with one division, back to Mr. Schwam, which was renamed American Floralart and American Christmas Decorations, Inc. As a result of obligations undertaken by Mr. Schwam in connection with certain personal guarantees executed by him on behalf of FFSI, Mr. Schwam filed personal bankruptcy in the New York City, which was discharged in July 1992. From December 1991 to December 1994, Mr. Schwam founded Sayso Communications and Mantalk Agency, both companies involved in the telecommunications industry as information providers for telephone services in connection with events targeted to the gay and lesbian community. JOSEPH F. LOVETT, 52, shall serve as the Company's Executive Vice President, Programming and Production upon the closing of this Offering where his primary responsibility will be for all facets of programming and production for the Network, including supervising on-air talent; budget and expense responsibility for all productions, and scheduling of critical resources. Mr. Lovett will also have the primary responsibility for preparing materials for the Company's programming committee. See "Business - Programming." Mr. Lovett has served as President and Executive Producer of Lovett Productions from April 1989 when he founded the Company, which produces primetime network specials and documentaries as well as educational and independent films. The specials have included AMERICA'S MISSING CHILDREN with Michael Landon for CBS and OUT IN AMERICA, a PBS hour-long special on gay rights, and IN A NEW LIGHT, an ABC primetime outreach special on AIDS produced in collaboration with the Center for Disease Control and Prevention featuring such personalities as Barbara Walters, Rosie Perez, Stephen Baldwin, Linda Lavin, Arsenio Hall and Paula Abdul. From April 1979 to April 1989, Mr. Lovett was a producer of ABC News 20/20 where he produced, among other things, the Barbara Walters' hour specials on Mike Tyson and the Duvaliers, as well as the earliest in-depth network coverage on AIDS. JIM ARNOFF, age 47, will become the Company's Senior Vice President, Program Development and Acquisitions upon the closing of this Offering, where he will work with the creative teams from inception to production, along with the Company's Executive Vice President, Programming and Production. In addition, Mr. Arnoff will be responsible for outreach to community organizations for tie-in opportunities with the Company's programming and actively pursuing co-productions with U.S. and international cable networks, syndicators, home video companies, production companies and motion picture companies. Prior to joining the Company, since March 1989, Mr. Arnoff owned his own agency, working with television producers to create and market programming for network, syndication, cable and home video distribution and providing the television technical crew to the MTV studios. From July 1981 to April 1989, Mr. Arnoff was a television package agent at the William Morris Agency where he packaged among others, THE DR. RUTH SHOW, RICHARD SIMMONS' SLIM COOKING, MOTHER'S DAY with Joan Lunden, LOVING FOR A LIFETIME with Dr. Ruth Westheimer, I FILE with Charlie Rose and two music specials for America Movie Classics channel. 41 MICHAEL INGERSOLL will serve as the Company's Senior Vice President, Public Affairs upon the closing of this Offering, where he will have the primary responsibility for representing the Company and the Network in all areas of communications and public relations. Mr. Ingersoll's goal is to build viewer loyalty, create a heightened awareness of the Company's missions and to support community issues and events which complement's the Company's philosophy. From 1991 to 1997, Mr. Ingersoll was the Director of Affiliate/Public Relations for Summit Communications, Inc., the Northwest's second largest cable operator where his responsibilities included public affair concerns in over 30 regional markets. Mr. Ingersoll was the recipient of Lifetime Television's National Community Affairs Award" in 1992 and the Washington State Cable Communications Association's "President Award" in 1994. Over the past fifteen years, Mr. Ingersoll has created and produced regional and national events including "Comedy Tonight" with Tommy Davidson, "Friends Against Aids" with Dionne Warwick, "A Forum on Domestic Violence" for the City of Seattle and "The National AIDS Housing Conference" in 1996. JON R. ALLEN will serve as a Director of the Company upon the closing of this Offering. From August 1992 to the present, Mr. Allen has served as a director of the British Shoe Corp., one of Europe's largest footwear manufacturer with revenues of approximately $750 million. At the British Shoe Company, Mr. Allen headed all brand and product areas including research, brand development, product design, marketing sourcing, and quality assurance. From 1983 to January 1992, Mr. Allen was President of the sourcing subsidiary of Payless Shoesource, with main board responsibility for global sourcing and product, where he managed a staff of 100 in seven countries. During Mr. Allen's tenure with Payless, turnover increased from 240 million to 1.5 billion as domestic US store count went from 850 to 3200. ALAN N. COHEN will serve as a Director of the Company upon the closing of this Offering. Since 1977, Mr. Cohen has served as Chairman of ANC Sports Enterprises, which provides rotational signage to sporting events. From 1980 to 1996, Mr. Cohen was President of Andal Corp. a small publicly-owned corporation (Nasdaq Bulletin Board: ANDL) that engaged in a variety of businesses. From 1983 to 1993, Mr. Cohen was Vice-Chairman of the Boston Celtics Corp. and Limited Partnership, which owned the Boston Celtics basketball team and later acquired a radio and television station. From May 1, 1974 to December 31, 1977, Mr. Cohen was the Chief Executive Officer and President of Madison Square Garden Corp. and from 1970 to 1974 (NYSE:MSG), was the Executive Vice President, a member of the Executive Committee and a member of the Board of Directors of Warner Communications (NYSE:TWX). IRA LAUFER will serve as a Director of the Company upon the closing of this Offering. Since July 1996, Mr. Laufer has been President and Chief Executive Officer of Thumbs Communications, Inc., an Internet development company, and a division of Western International Media, a subsidiary of Interpublic Group of Companies, Inc. From January 1991 to June 1996, Mr. Laufer was a principal with Freed/Laufer Productions, Inc., which produced the films "Sudie and Simpson" and "Wildflower" for Lifetime television. Mr. Laufer was awarded the 1992 Humanities Award, as Executive Producer for the film "Wildflower" and has won 10 Golden Mikes awards from the Southern California Radio & TV News Association for Best editorial and Best News Commentary. 42 DAVID MAYER has served as a Director of the Company since May 1997. Mr. Mayer had been an independent private investment banker since January 1992. Since July 1997, Mr. Mayer has served as the President of Andean Engineering and Finance Corp., a wholly owned subsidiary of Andean Development Corporation (NASDAQ NMS: "ADCC" and "ADCCW"). From January 1992 to March 1996, Mr. Mayer was a consultant to Premier Artists Services, Inc., Corporate Entertainment Productions, Inc. and Alliance Entertainment, Inc., companies where he consulted with these companies to advise in the implementation of their respective business plans, as well as in connection with mergers and acquisition. In the past, Mr. Mayer has been involved in a number of aspects of television production and broadcast and was a co-founder of the United States' first pay television company, Telebeam, Inc. SHELLY MEYERS will serve as a Director of the Company upon the closing of this Offering. Since January 1996, Ms. Meyers has been the Chairwoman and Chief Executive Officer of Meyers Capital Management, since March 1996, has been Chairwoman of Meyers Investment Trust and the designated manager of Meyers Pride Value Fund. From July 1994 to February 1996, Ms. Meyers was the Assistant Vice-President, Institutional Asset Management, for the Boston Company as an equity research analyst and assistant portfolio manager where she was the lead analyst for the entertainment, communications, apparel, specialty retail, chemical and energy industries. From June 1993 to September 1993, Ms. Meyers was an analyst with the Boston Company and from June 1989 to September 1992, was the Lead Analyst, International Audit with the Chevron Corporation. Ms. Meyers is a certified public accountant in the State of California, is a member of the American Society of Certified Public Accountants, serves on the Executive Board of Directors for the Los Angeles Gay and Lesbian Center and is a member of the Board of Directors of the Camp Laurel Foundation and of Outfest. RICHARD MOOREHEAD will serve as a member of the Board of Directors upon the closing of this Offering. Since January 1995, Mr. Moorehead has been a business consultant to small businesses in connection with developing and implementing their business and strategy plans, installing fiscal and administrative systems to monitor continued growth and direction. In November 1991, Mr. Moorehead sold Container Tooling Corporation to Federal Signal Corporation and remained as President through December 1994. From December 1997 to November 1991, Mr. Moorehead was the owner of Container Tooling Corporation in Neptune, New Jersey, an international container tooling manufacturer or precision tooling for the can industry in the United States, Mexico, Canada, Europe, Asia and Australia. SEYMOUR WISHMAN will serve as a member of the Board of Directors upon the closing of this Offering. Mr. Wishman has been an attorney, practicing in New York and New Jersey for the past 32 years. From January 1994, Mr. Wishman has also served as the president of First Run Features, the largest independent theatrical distributor of art films, home videos, and documentaries in the United States. Mr. Wishman worked for President Carter as a deputy assistant during 1977/78. Mr. Wishman has also published a number of books including "Nothing Personal," Confession of a Criminal Lawyer," Anatomy of a Jury," and Question of Consent." 43 DEB ZEYEN will serve as a Director of the Company upon the closing of this Offering. She has been the Vice President, Network Development at CBS since February 1996 where she is involved with long-range strategic planning of the network's promotion, advertising, publicity and image. From 1993 to 1996, Ms. Zeyen was General Manager of WBZ, the Group W station in Boston in charge of program development for the Group W television stations and from 1989 to 1993, she ran KDKA, the Group W station in Pittsburgh, PA. Of the nine members of the Board of Directors, all of the Directors, with the exception of Marvin Schwam, the Company's Chief Executive Officer and Chairman, are deemed to be outside directors. Officers are elected annually by the Board of Directors and their terms of office are, except to the extent governed by employment contracts, at the discretion of the Board. The officers of the Company devote full time to the business of the Company. The Company is undertaking an executive search to hire a President and Vice President/Chief Financial Officer for the Company and has interviewed a number of qualified candidates, however, the Company has not entered into any formal agreements with any of these individuals. Ira Laufer, a Director of the Company is a first cousin, once removed, to Marvin Schwam, the Company's Chief Executive Officer and Chairman. COMMITTEES The Audit Committee will be established as of the closing of this Offering. The members of the Audit Committee will be Marvin A. Schwam, CEO and Chairman of the Company, David Mayer, Richard Moorehead, and Alan N. Cohen. It is intended that this committee will review the work of the audit staff and direct reports covering such work to be prepared. The audit committee oversees the continuous audit program to protect against improper and unsound practices and to furnish adequate protection to all assets and records. The audit committee also acts as liaison to the Company's independent certified public accountants, and conducts such audit work as is necessary and receives written reports, supplemented by such oral reports as it deems necessary, from the audit firm. The Compensation and Stock Option Committee will be established as of the closing of this Offering. Its members will be Marvin A. Schwam, Ira Laufer, David Mayer, Seymour Wishman, and Jon Allen. The Compensation and Stock Option Committee makes recommendations with respect to compensation of senior officers and granting of stock options and stock awards. The Nominating Committee will be established as of the closing of this Offering. Its members will be Marvin A. Schwam, Deb Zeyen, and Shelly Meyers. The Nominating Committee makes recommendations with respect to qualified individuals to become members of the Company's Board of Directors. 44 ELECTION OF DIRECTORS Each director is elected at the Company's annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his or her successor is elected and qualified. At present, the Company's Bylaws provide for not less than one director. The Bylaws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. DIRECTORS' COMPENSATION Upon the closing of this Offering, outside Directors will receive $1,000 for attendance at each meeting of the Board of Directors, as well as reimbursement of reasonable out-of-pocket expenses incurred in connection with their attendance at the meetings. All outside Directors also receive options to purchase up to 25,000 shares of Common Stock ("Initial Grant") at $4.25 per Share, which options shall vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting. It is also the Company's intention that on each annual meeting date subsequent to each outside Directors election as a Director of the Company, beginning with the First Annual meeting date after the Initial Grant for each such Director, the Company will grant an additional 5,000 shares of common stock at the fair market value upon the date of grant for the following two years (for an aggregate of 35,000 options, assuming reelection). Such options shall vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting, provided however that if a Director terminates or is terminated from the Board for any reason other than cause, the expiration for all vested options will be 90 days from the date of termination. If a Director is terminated for cause, any unexercised options which have vested will immediately expire. Any new Directors will receive a similar number of shares at the fair market value as of the date of vesting. All options granted to outside Directors will be granted pursuant to the Company's Directors Plan. See "Incentive and Nonqualified Stock Option Plans." The Company also intends to purchase D&O insurance for its officers and Directors. Additionally, the Company is actively seeking to hire a President, Chief Financial Officer, and Vice President, National Advertising Sales and anticipates that these positions will commence as soon as practicable after the closing of the Offering. ADVISORY BOARD Management is currently in the process of organizing an advisory board of industry professionals who will provide their skills, talents, and vision on a volunteer basis. These individuals include the following: PHILIP R. BEUTH, 65, is currently the founding and President of Broadcast Consultants, International, which provides consulting services to the entertainment industry. Mr. Beuth served as the President of Early Morning and Late Night Entertainment for ABC from 1986 to 1995 45 including overall responsibility for GOOD MORNING AMERICA. During his career, Mr. Beuth was President of the ABC affiliate stations in Buffalo, New York, Fresno, California, and Huntington, West Virginia. At ABC, he initiated and supervised the production of four prime time AIDS specials under Executive Producer Joe Lovett, the Company's Executive Vice President, Programming and Production. Mr. Beuth was named a Member of the Year by the New York Broadcasters Association and currently serves on the Board of Directors of the United States Committee of UNICEF and the Design Industries Foundation Fighting AIDS (DIFFA). KAREN LYNN HERSHEY, 35, is a trial attorney with the New Jersey Department of Law and Public Safety, Division of Law, New Jersey. Since joining the Division of Law in 1987, she has provided legal representation to various agencies within New Jersey State government in the areas of litigation, appellate advocacy and contract negotiation. Ms. Hershey has also produced and hosted radio talk shows on public and commercial radio stations. Currently, she produces a cable television program which airs in 25 cities and towns in New Jersey. DIANE LACHEL, 45, has been the President of Tacoma City cable system in Tacoma, Washington. From January 1989 to August 1996, Ms. Lachel was the Director of Government and Community Relations with Viacom Cable, in Tacoma, Washington. From June 1991 to August 1996 Ms. Lachel was the President, treasurer and a director of the Washington State Cable Communications Association and a founding member of the Puget Sound chapter for Women in Cable and Communications. ROBERT MACK, 55, has been a Financial Analyst and been a part of the management team that plans development strategies for the Landis Group (Real Estate) since 1980 and has served as the Vice President-Finance of IntellePro which develops semi-conductor technology since July 1996 and has served as a member of its Board of Directors since December 1996. JOHN R. MORSE, PH.D., 54, has served as the President of JRM Communications, Inc. a market research consulting company specializing in new electronic media whose client base includes, among others, America Online, CNBC, Prime Network, The Learning Channel, The Talk Channel, American Movie Classics, and TV Guide On Screen. From 1986 to 1991, Dr. Morse was Vice President, Research for Financial News Network where he created and headed the marketing research division for TV, cable, radio, videotext and magazine properties including, FNN, SCORE, TelShop, High Technology Business Magazine, the Learning Channel, data Broadcasting Corporation and United Press International. From 1984 to 1986, Dr. Morse was Supervisor, marketing Research and Planning for ABC where he directed research for all aspects of cable television for ABC's cable properties (including A&E, ESPN, and Lifetime). ADVISORY BOARD COMPENSATION Each of the members of the Company's Advisory Board receive options to purchase 2,500 shares of Common Stock at $4.25 per Share, which options shall vest upon the date of grant and shall be exercisable for a period of five years from the date of vesting. 46 EXECUTIVE COMPENSATION CASH COMPENSATION For the years ended October 31, 1996, 1995, and 1994, and the eight months ended June 30, 1997 no compensation was paid to any person, including the Company's President and Chief Executive Officer, Marvin A. Schwam. EMPLOYMENT AGREEMENTS MARVIN A. SCHWAM, CHIEF EXECUTIVE OFFICER AND CHAIRMAN. The Company has entered into a three-year employment agreement with the Company's Chief Executive Officer and Chairman, Marvin A. Schwam which shall commence upon the closing of this Offering. Pursuant to the terms and conditions of his employment Agreement, Mr. Schwam shall receive an initial annual base salary of $155,000 plus options to purchase 75,000 shares of common stock at an exercise price of $4.25 for a period of 3 years from the date of vesting, of which one-third (25,000) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date. Mr. Schwam shall also be entitled to a bonus, as determined by the Company's Board of Directors and to medical and vacation benefits. STOCK OPTIONS For the years ended October 31, 1996, 1995 and 1994 and the eight months ended June 30, 1997, there were no options granted to the Company's President and Chief Executive Officer, Marvin A. Schwam. INCENTIVE AND NONQUALIFIED STOCK OPTION PLANS On July 31, 1997, the Company's Directors, and a majority of the Company's shareholders and a majority of the Company's shareholders adopted the Company's Stock Option Plan (the "Stock Option Plan") and Directors Option Plan (the "Directors Plan"). Under the Stock Option Plan and the Directors Plan, 500,000 shares of Common Stock and 400,000 shares of Common Stock, respectively, are reserved for issuance upon exercise of options. The Plans are designed to serve as an incentive for retaining qualified and competent employees and directors. No options have been issued under the Plans. The Company's Board of Directors, or a committee thereof, administers and interprets the Stock Option Plan and is authorized to grant options thereunder to all eligible employees of the Company, including officers and directors (whether or not employees) of the Company. The Stock Option Plan provides for the granting of "incentive stock options" (as defined in Section 422 of the Internal Revenue Code), non-statutory stock options and "reload options." Options may be granted under the Stock Option Plan on such terms and at such prices as determined by the Board, or a committee thereof, except that in the case of an incentive stock option granted 47 to a 10% shareholder, the per share exercise price will not be less than 110% of such fair market value. The aggregate fair market value of the shares covered by incentive stock options granted under the Plans that become exercisable by a grantee for the first time in any calendar year is subject to a $100,000 limit. The purchase price for any option under the Stock Option Plan may be paid in cash, in shares of Common Stock or such other consideration that is acceptable to the Board of Directors or the committee thereof. If the exercise price is paid in whole or in part in Common Stock, such exercise may result in the issuance of additional options, known as "reload options," for the same number of shares of Common Stock surrendered upon the exercise of the underlying option. The reload option would be generally subject to the same provisions and restrictions set forth in the Stock Option Plan as the underlying option except as varied by the Board of Directors or the committee thereof. A reload option enables the optionee to ultimately own the same number of shares as the optionee would have owned if the optionee had exercised all options for cash. Only non-employee directors are eligible to receive options under the Directors Plan. The Directors Plan provides for an automatic grant of an option to purchase 25,000 shares of Common Stock upon a person's election as a director of the Company and an automatic grant of an option to purchase 5,000 shares of Common Stock at each annual meeting through which a director's term continues. Options granted under the Stock Option Plan will be exercisable after the period or periods specified in the option agreement, and options granted under the Directors Plan are exercisable immediately. Options granted under the Plans are not exercisable after the expiration of five years from the date of grant and are not transferable other than by will or by the laws of descent and distribution. The Plans also authorize the Company to make loans to optionees to enable them to exercise their options. As of the date of this Offering, options to purchase 175,000 Shares have been reserved under the Stock Option Plan and options to purchase 200,000 shares have been reserved under the Directors Plan. INDEMNIFICATION OF OFFICERS AND DIRECTORS Reference is made to Sections 721 through 725 of the Business Corporation Law of the State of New York (the "NYBCL"), which provides for indemnification of directors and officers of New York corporations under certain circumstances. Section 722 of the NYBCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, in connection with actions or proceedings, whether civil or criminal (other than an action by or in the right of the corporation, a "derivation action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action 48 or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to amounts paid in settlement and reasonable expenses (including attorneys' fees) incurred in connection with the defense or settlement of such actions, and the statute does not apply in respect of a threatened action, or a pending action that is settled or otherwise disposed of, and requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. Section 721 of the NYBCL provides that Article 7 of the NYBCL is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, disinterested director vote, shareholder vote, agreement or otherwise. The Company's Amended and Restated Certificate of Incorporation requires the Company to indemnify its officers and directors to the fullest extent permitted under the NYBCL. Furthermore, the Company's By-laws provides that the Company, to the full extent permitted and in the manner required by the laws of the State of New York, may indemnify any officer or director (and the heirs and legal representatives of such person) made, or threatened to be made, a party in an action or proceeding (including, without limitation, one by or in the right of the Company to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that such director or officer, or such director's or officer's testator or intestate, was a director or officer of the Company or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. Section 402(b) of the NYBCL provides that a corporation's certificate of incorporation may include a provision that eliminates or limits the personal liability of the corporation's directors to the corporation or its shareholders for damages for any breach of a director's duty, provided that such provision does not eliminate or limit (1) the liability of any director if a judgment or other final adjudication adverse to the director establishes that the director's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained a financial profit or other advantage to which the director was not legally entitled or that the director's acts violated Section 719 of the NYBCL, or (2) the liability of any director for any act or omission prior to the adoption of a provision authorized by Section 402(b) of the NYBCL. Article 7 of the Company's Amended and Restated Certificate of Incorporation provides that a director of the Company shall not be liable to the Company or its shareholders for any breach of duty in such capacity except for liability in the event a judgment or other final adjudication adverse to a director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained, in fact, a financial profit or other advantage to which he or she was not legally entitled or that such director's acts violated Section 719, or its successor, of the NYBCL. Any amendment to or repeal of the Company's Certificate of Incorporation or by-laws shall not adversely affect any right or protection of a director or officer of the Company for or 49 with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. The Company maintains directors and officers insurance which, subject to certain exclusions, insures the directors and officers of the Company against certain losses which arise out of any neglect or breach of duty (including, but not limited to, any error, misstatement, act, or omission) by the directors or officers in the discharge of their duties, and insures the Company against amounts which it has paid or may become obligated to pay as indemnification to its directors and/or officers to cover such losses. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing, the Company has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company's current executive office is also the residence of Mr. Marvin Schwam, the Company's Chief Executive Officer. Between June 1993 and December 1996, the Company paid 50% of Mr. Schwam's rent (representing $727.50 per month of the total monthly rent of $1,455.00). Alan N. Cohen, a shareholder of the Company and who shall become a member of the Board of Directors upon the closing of this Offering, loaned the Company $12,500, pursuant to a promissory note dated November 4, 1994. The note is payable on written demand by Mr. Cohen, plus interest at a rate of 8% per year. On July 21, 1997, the Company a loan in the principal amount of $200,000 from Richard P. Moorehead, a Director of the Company pursuant to a promissory note. These funds have been allocated to pay for certain expenses related to this Offering. The loan, which bears interest at 8-1/2% per year, will be due the earlier of (1) the closing of this Offering or (2) June 30, 1999. in connection with the loan, Mr. Moorehead also received 176,000 shares of Common Stock, subject to a lock-up period of twenty-four months from the effective date of Offering or such other lock-up period as may be imposed by the Representative, NASD or any other national exchange. In May 1997, the Company entered into a five year consulting agreement with David Mayer, a Director of the Company since May 1997, whereby Mr. Mayer shall perform certain services to and on behalf of the Company including, among other things, (i) advising and consulting within the Company in the preparation and implementation of the Company's business plan; (ii) advising and consulting with the Company concerning financing planning, corporate organization and structure, financial matters concerning the operation of the business of the Company, and private and public equity and debt financing, acquisitions, (iii) acting as a financial 50 public relations person; and (iv) assisting and advising the Company regarding shareholder meetings, and interviews with members of the financial community, including the media. Pursuant to the agreement, the Company has agreed to pay Mr. Mayer $100,000 per year for five (5) years, or as otherwise agreed upon between Mr. Mayer and the Company's Chief Executive Officer, plus 185,000 Shares. The payment of Mr. Mayer's cash compensation will not occur until such time as the Company receives private or public financing of not less than $5 million. The Company has also agreed to indemnify Mr. Mayer in the fulfilling of his duties unless Mr. Mayer has been negligent in the performance of such duties. Ira Laufer, who is a member of the Board of Directors of the Company, is also the CEO and Chairman of Thumbs Up Productions, a division of Western International Media. See "Business - Strategy and Distribution." Dr. John R. Morse, who on the Company's Advisory Board, is also the President of JRM Communications, Inc., a marketing and research company with whom GET has contracted to help prepare business plans and a marketing survey. Since the Company's inception, JRM has received an aggregate of $7,000 from the Company in connection with the services provided by JRM to the Company and an additional $1,500 is due and outstanding to JRM. PRINCIPAL SHAREHOLDERS At September 30, 1997 there were 2,775,000 shares of the Company's Common Stock issued and outstanding. The following table sets forth certain information regarding the Company's Common Stock (currently the sole class of voting securities) beneficially owned at September 30, 1997 (i) by each person who is known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director and officer of the Company as of the closing of this Offering, and (iii) all directors and officers as a group. Unless otherwise set forth, the mailing addresses for the individuals named is 7 East 17th Street, New York, New York 10003.
PERCENTAGE OF OUTSTANDING CLASS OF COMMON STOCK OWNED NAME AND ADDRESS AMOUNT OF ---------------------------------------------- OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PRIOR TO OFFERING MINIMUM MAXIMUM - ------------------- -------------------- ----------------- ------- ------- Marvin A. Schwam(1) 2,075,000 74.8% 44.6% 40.5% Joseph F. Lovett(2) 75,000 2.7% 1.6% 1.5% Jim Arnoff(3) 100,000 3.6% 2.1% 1.9% Michael Ingersoll(4) 50,000 1.8% 1.1% 1.0% Jon R. Allen (5) -0- -0- -0- Alan N. Cohen 25,000 .9% .5% .5% Ira Laufer (5) -0- -0- -0- David Mayer(6) 185,000 6.7% 4.0% 3.6% Shelly Meyers (5) -0- -0- -0- Richard Moorehead(7) 176,000 6.3% 3.8% 3.4% Seymour Wishman (5) -0- -0- -0- 51 Deb Zeyen (5) -0- -0- -0- All Officers and Directors as a group (eleven (11) persons) 2,686,000 96.8% 57.7% 52.4% - -------------- (1) Does not include options to purchase 75,000 shares of common stock at an exercise price of $4.25 for a period of 3 years from the date of vesting, of which one-third (25,000) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date of this Offering. (2) Does not include options to purchase 40,000 shares of common stock at an exercise price of $4.25 for a period of 3 years from the date of vesting, of which one-third (13,333) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date of this Offering. (3) Does not include options to purchase 30,000 shares of common stock at an exercise price of $4.25 for a period of 3 years from the date of vesting, of which one-third (10,000) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date of this Offering. (4) Does not include options to purchase 30,000 shares of common stock at an exercise price of $4.25 for a period of 3 years from the date of vesting, of which one-third (10,000) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date of this Offering. (5) Does not include options to purchase up to 25,000 shares of Common Stock (Initial Grant) at $4.25 per Share, which options shall vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting. See "Directors' Compensation." (6) Includes 185,000 shares issued in connection with Mr. Mayer's consulting agreement with the Company. See "Certain Relationships and Related Transactions." Does not include options to purchase up to 25,000 shares of Common Stock at $4.25 per Share, which options shall vest one year from the date of grant, which shall be the closing of this Offering, and shall be exercisable for a period of five (5) years from the date of vesting. See "Directors' Compensation." (7) Includes 176,000 shares issued in connection with a loan made by Mr. Moorehead to the Company. See "Certain Relationships and Related Transactions." Does not include options to purchase up to 25,000 shares of Common Stock at $4.25 per Share, which options shall vest one year from the date of grant, which shall be the closing of this Offering, and shall be exercisable for a period of five (5) years from the date of vesting. See "Directors' Compensation."
DESCRIPTION OF SECURITIES UNITS The Company is offering a minimum of 1,882,350 Units and a maximum of 2,350,000 Units at $4.25 per Unit (for an aggregate of $7,999,987.50 and $9,987,500, respectively), each Unit consists of one (1) share of Common Stock, par value $.0001 per share and two (2) 52 Redeemable Common Stock Purchase Warrants for an aggregate Minimum Offering of 1,882,350 Shares, 1,882,350 Warrants to purchase approximately 941,175 shares of Common Stock and an aggregate Maximum Offering of 2,350,000 Shares, 2,350,000 Warrants to purchase approximately 1,117,500 Shares. See "Common Stock" and "Warrants." COMMON STOCK The Company is authorized to issue 40,000,000 shares of Common Stock, par value $.0001, of which 2,775,000.shares are issued and outstanding as of September 30, 1997, which are held of record by 18 shareholders. The outstanding shares of Common Stock are fully paid and non-assessable. In September 1997, the Company undertook a 13,875:1 for one forward stock split, based upon the Company's initial number of authorized shares being 200, which amount was subsequently increased to 40,000,000 shares in September 1997. The Company has also reserved up to 600,000 shares of Common Stock pursuant to its Stock Option Plan and Directors Plan. The holders of Common Stock are entitled to one vote per share for the election of directors and with respect to all other matters submitted to a vote of shareholders. Shares of Common Stock do not have cumulative voting rights, which means that the holders of more than 50% of such shares voting for the election of directors can elect 100% of the directors if they choose to do so and, in such event, the holders of the remaining shares so voting will not be able to elect any directors. Upon any liquidation, dissolution or winding-up of the Company, the assets of the Company, after the payment of the Company's debts and liabilities and any liquidation preferences of, and unpaid dividends on, any class of preferred stock then outstanding, will be distributed pro-rata to the holders of the Common Stock. The holders of the Common Stock do not have preemptive or conversion rights to subscribe for any securities of the Company and have no right to require the Company to redeem or purchase their shares. The holders of Common Stock are entitled to share equally in dividends if, as and when declared by the Board of Directors of the Company, out of funds legally available therefor, subject to the priorities accorded any class of preferred stock which may be issued. A consolidation or merger of the Company, or a sale, transfer or lease of all or substantially all of the assets of the Company, which does not involve distribution by the Company of cash or other property to the holders of Common Stock, will not be deemed to be a liquidation, dissolution or winding up of the Company. PREFERRED STOCK The Company is authorized to issue 2,500,000 shares of preferred stock, par value $.0001 per share. The Board of Directors of the Company has the authority, without further action by shareholders, to issue the preferred stock in one or more series, and to fix for any series the dividend rate, redemption price, liquidation or dissolution preferences, conversion rights, voting rights and other preferences and privileges. 53 WARRANTS The Warrants will be issued in registered form pursuant to an agreement dated the date of this Prospectus (the "Warrant Agreement"), between the Company and American Stock Transfer and Trust Company as Warrant Agent (the "Warrant Agent"). The following discussion of certain terms and provisions of the Warrants is qualified in its entirety by reference to the Warrant Agreement. A form of the certificate representing the Warrants which form a part of the Warrant Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Company is offering a minimum of 1,882,350 and a maximum of 2,350,000 redeemable Common Stock Purchase Warrants ("Warrants"). Each two Warrants entitles the holder to purchase one share of Common Stock at $5.25 per share ("Warrant Exercise Price"), which exercise price has been arbitrarily determined by the Company and the Representative, subject to certain adjustments, commencing on the closing of this Offering ("Effective Date") until five years after the Effective Date. The Warrants are redeemable by the Company for $.05 per Warrant, at any time, commencing one year from the closing date of this Offering, upon 30 days' prior written notice, if the average closing bid price of the Common Stock, as reported by the principal exchange on which the Common Stock is traded, equals or exceeds $6.50 per share for 20 consecutive trading days and ending within 30 days prior to the date the notice is given. The Warrants are entitled to the benefit of adjustments in their exercise prices and in the number of shares of Common Stock or other securities deliverable upon the exercise thereof in the event of a stock dividend, stock split, reclassification, reorganization, consolidation or merger. The Warrants may be exercised at any time and continuing thereafter until the close of five years from the date hereof, unless such period is extended by the Company. After the expiration date, Warrant holders shall have no further rights. Warrants may be exercised by surrendering the certificate evidencing such Warrant, with the form of election to purchase on the reverse side of such certificate properly completed and executed, together with payment of the exercise price and any transfer tax, to the Warrant Agent. If less than all of the Warrants evidenced by a warrant certificate are exercised, a new certificate will be issued for the remaining number of Warrants. Payment of the exercise price may be made by cash, bank draft or official bank or certified check equal to the exercise price. Warrant holders do not have any voting or any other rights as shareholders of the Company. The Company has the right at any time beginning one year from the date hereof to redeem the Warrants, at a price of $.05 per Warrant, by written notice to the registered holders thereof, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date. The Company may exercise this right only if the average of the closing bid price for the Common Stock for twenty (20) trading days ending no more than 30 days prior to the date that the notice of redemption is given, equals or exceeds $6.25, subject to adjustment. Any such redemption shall be for all outstanding Warrants. If the Company exercises its right to call Warrants for redemption, such Warrants may still be exercised until the close of business on the day immediately preceding the Redemption Date. If any Warrant called for redemption is not 54 exercised by such time, it will cease to be exercisable, and the holder thereof will be entitled only to the repurchase price. Notice of redemption will be mailed to all holders of Warrants of record at least thirty (30) days, but not more than sixty (60) days, before the Redemption Date. The foregoing notwithstanding, the Company may not call the Warrants at any time that a current registration statement under the Act is not then in effect. The Warrant Agreement permits the Company and the Warrant Agent without the consent of Warrant holders, to supplement or amend the Warrant Agreement in order to cure any ambiguity, manifest error or other mistake, or to address other matters or questions arising thereafter that the Company and the Warrant Agent deem necessary or desirable and that do not adversely affect the interest of any Warrant holder. The Company and the Warrant Agent may also supplement or amend the Warrant Agreement in any other respect with the written consent of holders of not less than a majority in the number of the Warrants then outstanding; however no such supplement or amendment may (i) make any modification of the terms upon which the Warrants are exercisable or may be redeemed; or (ii) reduce the percentage interest of the holders of the Warrants without the consent of each Warrant holder affected thereby. In order for the holder to exercise a Warrant, there must be an effective registration statement, with a current prospectus on file with the Commission covering the shares of Common Stock underlying the Warrants, and the issuance of such shares to the holder must be registered, qualified or exempt under the laws of the state in which the holder resides. If required, the Company will file a new registration statement with the Commission with respect to the securities underlying the Warrants prior to the exercise of such Warrants and will deliver a prospectus with respect to such securities to all holders thereof as required by Section 10(a)(3) of the Securities Act of 1933, as amended. See "Risk Factors - - Necessity to Maintain Current Prospectus" and "State Blue Sky Registration Required to Exercise Warrants." Each Warrant may be exercised by surrendering the Warrant certificate, with the form of election to purchase on the reverse side of the Warrant certificate properly completed and executed, together with payment of the exercise price to the Warrant Agent. The Warrants may be exercised in whole or from time to time in part. If less than all of the Warrants evidenced by a Warrant certificate are exercised, a new Warrant certificate will be issued for the remaining number of Warrants. Holders of the Warrants are protected against dilution of the equity interest represented by the underlying shares of Common Stock upon the occurrence of certain events, including, but not limited to, issuance of stock dividends. If the Company merges, reorganizes or is acquired in such a way as to terminate the Warrants, the Warrants may be exercised immediately prior to such action. In the event of liquidation, dissolution or winding up of the Company, holders of the Warrants are not entitled to participate in the distribution of the Company's assets. For the life of the Warrants, subject to the redemption provision, the holders thereof are given the opportunity to profit from a rise in the market price of the Common Stock of the Company. The exercise of the Warrants will result in the dilution of the then book value of the 55 Common Stock of the Company held by the public investors and would result in a dilution of their percentage ownership of the Company. The terms upon which the Company may obtain additional capital may be adversely affected through the period that the Warrants remain exercisable. The holders of these Warrants may be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain equity capital on terms more favorable than those provided for by the Warrants. In the event that the Warrants are called for redemption, the Warrant holders may not be able to exercise their Warrants in the event that the Company has not updated this Prospectus in accordance with the requirements of the Securities Act or these securities have not been qualified for sale under the laws of the state where the Warrant holder resides. See "Risk Factors." In addition, in the event that the Warrants have been called for redemption, such call for redemption could force the Warrant holder to either (i) assuming the necessary updating to the Prospectus and state blue sky qualifications have been effected, exercise the Warrants and pay the exercise price at a time when, in the event of a decrease in market price from the period preceding the issuance of the call for redemption, it may be less than advantageous economically to do so, or (ii) accept the redemption price, which, in the event of an increase in the price of the stock, could be substantially less than the market value thereof at the time of redemption. THE FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSIDERATIONS THAT MAY INVOLVE A PARTICULAR PURCHASER. ACCORDINGLY, ALL PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE SHARES OF COMMON STOCK AND WARRANTS. STOCK OPTIONS Currently, there are options to purchase up to aggregate of 387,500 shares of Common Stock at $4.25 per Share. Of these options, options to purchase up to 175,000 shares are exercisable for a period of 3 years from the date of vesting, of which one-third (58,333) shall vest on the closing of this Offering, and the remaining options shall vest one-third and one-third on the second and third anniversary of the closing date. These options have been granted to executive officers of the Company and have been reserved pursuant to the Company's Stock Option Plan. Options to purchase up to 200,000 shares of Common Stock vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting. These options were granted to outside Directors of the Company and have been reserved pursuant to the Company's Directors Plan. Additionally, options to purchase an aggregate of 12,500 shares of Common Stock were granted to the Company's Advisory Board, which options vest upon the date of grant, which shall initially be the effective date of this Offering. See "Management - Directors' Compensation and Incentive and Nonqualified Stock Optionee Plans." 56 CERTAIN NEW YORK LEGISLATION New York has enacted legislation that may deter or frustrate takeovers of New York corporations. The New York Control Share Act generally provides that shares acquired in excess of certain specified thresholds will not possess any voting rights unless such voting rights are approved by a majority of a corporation's disinterested shareholders. The New York Affiliated Transactions Act generally requires super majority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). New York law and the Company's Articles and Bylaws also authorize the Company to indemnify the Company's directors, officers, employees and agents. In addition, the Company's Articles and New York law presently limit the personal liability of corporate directors for monetary damages, except where the directors (i) breach their fiduciary duties and (ii) such breach constitutes or includes certain violations of criminal law, a transaction from which the directors derived an improper personal benefit, certain unlawful distributions or certain other reckless, wanton or willful acts or misconduct. RESTRICTED SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this Offering, the Company will have 5,125,000 Shares (assuming the Maximum Offering and 4,657,350 Shares, assuming the Minimum Offering) of Common Stock outstanding (but without giving effect to the exercise of the Warrants) of which 2,775,000 shares of Common Stock outstanding are restricted securities as such term is defined under the Act. Of the shares of Common Stock, assuming the Maximum Offering, 2,350,000 shares (assuming the Maximum Offering, and 1,882,350 shares, assuming the Minimum Offering) sold in this Offering will be freely tradeable without restriction or further registration under the Act, except for any shares purchased by an "affiliate" of the Company (in general, a person who has a control relationship with the Company) which shares will be subject to the resale limitations of Rule 144 under the Act. An additional 1,175,000 shares (assuming the Maximum Offering, and approximately 941,175 shares, assuming the Minimum Offering) of Common Stock have been registered and reserved for issuance upon exercise of the Warrants. In general, Rule 144, promulgated under the Act, permits a shareholder of the Company who has beneficially owned restricted shares of any class of common stock for at least one year to sell without registration, within a three-month period, such number of shares not exceeding the greater of one percent of the then outstanding shares of any class of common stock or, generally, the average weekly trading volume during the four calendar weeks preceding the sale, assuming compliance by the Company with certain reporting requirements of Rule 144. Furthermore, if the restricted shares of any class of common stock are held for at least two years by a person not affiliated with the Company (in general, a person who is not an executive officer, director or principal shareholder of the Company during the three month period prior to resale), such restricted shares can be sold without any volume limitation. Any sales of shares by shareholders pursuant to Rule 144 may have a depressive effect on the price of the Company's Common Stock. 57 Notwithstanding the foregoing, all of the Company's holders of Common Stock prior to the closing of this Offering have agreed not to, directly or indirectly, offer to sell, contract to sell, sell, transfer, assign, encumber, grant an option to purchase or otherwise dispose of any beneficial interest in such securities for a period of 24 months from the date hereof without the prior written consent of the Representative. An appropriate legend referring to these restrictions will be marked on the face of the certificates representing all such securities. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Units, Common Stock and Warrants is American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005. UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below, for whom The Agean Group, Inc. is acting as Representative, have severally agreed to use their best efforts to offer and sell a minimum of 1,882,350 Units on a "best efforts, all or none" basis and an additional 467,650 Units on a "best efforts" basis, for a maximum of 2,350,000 Units at $4.25 per Unit (for an aggregate of $7,999,987.50, assuming the Minimum Offering and $9,987,500, assuming the Maximum Offering): UNDERWRITER NUMBER OF ----------- UNITS --------- The Agean Group, Inc. TOTAL The Units are offered by the Underwriters subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to approval of certain legal matters by counsel and certain other conditions. The Company has been advised by the Representative that Underwriters propose initially to offer the Securities offered hereby to the public at the Offering price set forth on the cover page of this Prospectus. The Representative has advised the Company that the Underwriters propose to offer the Securities through members of the National Association of Securities Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to certain dealers who are members of the NASD and who agree to sell the Securities in conformity with the NASD Conduct Rules. Such concessions shall not exceed the amount of the underwriting discount that the Underwriters are to receive. There is no assurance that any of the Securities offered hereby will be sold, and there is no firm commitment from the Underwriter or any other broker-dealer or person to sell or pay for any Units offered hereby. 58 Officers and directors of the Company may introduce the Representative to persons to consider this Offering and purchase Securities either through the Representative, other Underwriters, or through participating dealers. In this connection, officers and directors will not receive any commissions or any other compensation. The Company has agreed to pay the Representative a commission of ten (10%) percent of the gross proceeds of this Offering ("Underwriting Discount"). In addition, the Company has agreed to pay to the Representative a non-accountable expense allowance of three (3%) percent of the gross proceeds of this Offering, of which $15,000 has been advanced to date. The Representative's expenses in excess of the non-accountable expense allowance will be paid by the Representative. To the extent that the expenses of the Representative are less than the amount of the non-accountable expense allowance received, such excess shall be deemed to be additional compensation to the Representative. The Representative may reallow all or a portion of its selling commissions and expense allowance to any selected dealers in regard to Units sold by them in this Offering. The Company has agreed to engage the Representative as a financial advisor for a period of three (3) years from the consummation of this Offering, at a fee of $105,000, payable at the final closing of this Offering. Pursuant to the terms of a financial advisory agreement, the Representative has agreed to provide, at the Company's request, advice to the Company concerning potential merger and acquisition and financial proposals, whether by public financing or otherwise. All funds received for the sale of the Minimum Offering of 1,882,350 Units offered hereby will be deposited in an escrow account with _________, acting as Escrow Agent ("Escrow Agent") pursuant to the terms of a written Escrow Agreement, to be held until the earlier of (i) the date the Minimum Offering proceeds have been received in such escrow account, or (ii) the 90th day after the Effective Date of this Prospectus (plus an additional 90-day period if extended by mutual consent of the Representative and the Company). In the event the Minimum Offering is not sold during this 90-day period, or 180-day period if extended, the proceeds from the sale of Units in this Offering will be refunded to subscribers promptly in full, without interest thereon or deduction therefrom. Until such time as the proceeds of this Offering have been released from escrow, purchasers will be deemed subscribers and not shareholders of the Company, and they will have no right to demand return of their subscription payments,during the escrow period (except as permission by state rescission laws). After the sale of the Minimum Offering of Units, the Company and the Representative may continue to offer the balance of this Offering for any remainder of the 90-day period, or extended 180-day period of this Offering. The Underwriter has informed the Company that it does not intend to confirm sales of Units offered hereby to any accounts over which its exercises discretionary authority and that the Underwriter and any participating broker-dealer will transmit to the Escrow Agent any funds received from investors by noon of the next business day after receipt. 59 The Company's securities may be considered "penny stock" under a Commission rule that imposes additional sales practice requirements on underwriters and broker-dealers who sell such securities to persons other than established customers and institutional accredited investors (generally institutions with assets in excess of $5 million). For transactions covered by the rule, the underwriter or broker-dealer must make a special suitability determination about the purchaser (which concerns financial and business sophistication previous investment experience and financial condition) and have received the purchaser's written agreement to the transaction prior to the sale. Such underwriters or broker-dealers must also, prior to the sale, provide the customer with a risk disclosure document which identifies risks associated with investing in "penny stocks" and which describes the market therefor as well as a brief description of the broker-dealer's obligations under certain "Penny Stock Rules" and rights and remedies available to customers under federal and state securities laws. The broker-dealer must obtain a signed and dated acknowledgment from its customer demonstrating that the customer has actually received the required risk disclosure document before the first transaction in penny stock. Consequently, such rules will affect the ability of the Representative and any broker-dealers to sell the Company's securities and will affect the ability of purchasers in this Offering to sell their securities in the secondary market, if any. Prior to the Offering, there has been no public market for the Units, or the Common Stock, Warrants, or the shares of Common Stock underlying the Warrants. Consequently, the initial public Offering price for the Securities, and the terms of the Warrants (including the exercise price of the Warrants), have been determined by negotiation between the Company and the Representative. Among the factors considered in determining the public offering price were the history of, and the prospect for, the Company's business, an assessment of the Company's management, its past and present operations, the Company's development and the general condition of the securities market at the time of the Offering. The public offering price does not necessarily bear any relationship to the Company's assets, book value, earnings or other established criterion of value. Such price is subject to change as a result of market conditions and other factors, and no assurance can be given that a public market for the Shares and/or Warrants will develop after the close of the public offering, or if a public market in fact develops, that such public market will be sustained, or that the Shares and/or Warrants can be resold at any time at the Offering or any other price. See "Risk Factors." At the closing of the Offering, the Company will issue to the Representative and/or persons related to the Representative, for nominal consideration, Common Stock Representative Warrants ("Representative's Warrants") to purchase up to 10% of the outstanding units sold. The Representative's Warrants will be exercisable for a three-year period commencing on the date of this Prospectus. The initial exercise price of each Representative Warrant shall be $5.10 per share (120% of the public Offering price). The initial exercise price of each Representative Warrant shall be $5.10 per Underlying Warrant (120% of the public Offering price). Each Underlying Warrant will be exercisable for a three (3) year period commencing on the date of this Prospectus to purchase one share of Common Stock at an exercise price of $6.30 per share of Common Stock. The Representative's Warrants will not be transferable for one year from the commencement of trading of the Company's Securities, Prospectus, except (i) to officers of 60 the Representative, other Underwriters, and members of the selling group and officers and partners thereof; (ii) by will; or (iii) by operation of law. The Representative's Warrants contain provisions providing for appropriate adjustment in the event of any merger, consolidation, recapitalization, reclassification, stock dividend, stock split or similar transaction. The Representative's Warrants contain net issuance provisions permitting the holders thereof to elect to exercise the Representative's Warrants in whole or in part and instruct the Company to withhold from the securities issuable upon exercise, a number of securities, valued at the current fair market value on the date of the exercise to pay the exercise price. Such net exercise provision has the effect of requiring the Company to issue shares of either Common Stock without a corresponding increase in capital. A net exercise of the Representative's Warrants will have the same dilutive effect on the interests of the Company's shareholders as will a cash exercise. The Representative's Warrants do not entitle the holders thereof to any rights as a shareholder of the Company until such Representative's Warrants are exercised and shares of Common Stock are purchased thereunder. The Representative's Warrants and the securities issuable thereunder may not be offered for sale except in compliance with the applicable provisions of the Act. The Company has agreed that if it shall cause a post-effective amendment, a new registration statement, or similar offering document to be filed with the Commission, the holders shall have the right, for five years from the date of this Prospectus, to include in such registration statement or offering statement the Representative's Warrants and/or the securities issuable upon their exercise at no expense to the holders. Additionally, the Company has agreed that, upon request by the holders of 50% or more of the Representative's Warrants and the registrable securities during the period commencing one year from the commencing of trading of the Company's Securities and expiring four years thereafter, the Company will, under certain circumstances, register the Representative's Warrants and/or any of the securities issuable upon their exercise. The Company has also agreed that if the Company participates in any merger, consolidation or other such transactions which the Representative has brought to the Company during a period of five years after the closing of this Offering, and which is consummated after the closing of this Offering (including an acquisition of assets or stock for which it pays, in whole or in part, with Shares or other securities). The Company has agreed to indemnify the Underwriters against any costs or liabilities incurred by the Underwriters by reasons of misstatements or omissions to state material facts in connection with statements made in the Registration Statement and the Prospectus. The Underwriters have in turn agreed to indemnify the Company against any liabilities by reason of misstatements or omissions to state material facts in connection with the statements made in the Prospectus, based on information relating to the Underwriters and furnished in writing by the Underwriters. To the extent that this section may purport to provide exculpation from possible liabilities arising from the federal securities laws, in the opinion of the Commission, such indemnification is contrary to public policy and therefore unenforceable. 61 Pursuant to the Underwriting Agreement, all current shareholders of the Company have agreed not to sell, transfer or otherwise dispose of an aggregate of 2,775,000 shares of Common Stock during a twenty-four month lock-up period commencing on the date of this Prospectus without the prior written consent of the Representative. The Representative does not have a general policy with respect to the release of these shares prior to the expiration of the lock-up. The foregoing is a summary of the principal terms of the agreement described above and does not purport to be complete. Reference is made to copies of each such agreement which are filed as exhibits to the Registration Statement. See "Additional Information." The Underwriter was incorporated in 1992 and commenced business as a Florida based broker-dealer in 1993. This is the first public offering in which it has served as the managing or lead underwriter or exclusive agent for the sale of securities. None of the officers or directors of the Company plan to purchase any of the Units offered hereby. Although affiliates of the Company may purchase Units in this Offering in order to attain completion of the Minimum Offering hereby, the Company is not aware of any such planned purchased by an affiliate. Any such purchases will be made for investment purposes only, and not for redistribution. LEGAL MATTERS Legal matters in connection with the Units, Common Stock, the Warrants, and the Common Stock underlying the Warrants being offered hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale, Florida. Dreier & Baritz, LLP, has acted as counsel to the Underwriter in connection with this Offering. EXPERTS The balance sheets of the Company and subsidiaries as of October 31, 1996 and June 30, 1997, and the related statements of operations, statements of shareholders' deficit and cash flows for each of the two years in the period ending October 31, 1996 and 1995, and the eight months ended June 30, 1997 and 1996, included in this Prospectus have been so included in reliance upon the report of Spear, Safer, Harmon & Co., P.A., independent accountants, given on authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement in Washington, D.C., on Form SB-2 under the Securities Act of 1933, as amended, with respect to the securities being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. For further information about the Company and the securities offered hereby, reference is made to the Registration Statement and to the exhibits 62 filed as a part thereof. The statements contained in this Prospectus as to the contents of any contract or other document identified as exhibits in this Prospectus are not necessarily complete, and in each instance, reference is made to a copy of such contract or document filed as an exhibit to the Registration Statement, each statement being qualified in any and all respects by such reference. The Registration Statement, including exhibits, may be inspected without charge at the principal reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at its Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and at its Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such materials can be obtained from the Public Reference Section of the Commission at its principal office in Washington, D.C. set forth above. Additionally, the Commission maintains a Web sit that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission and the address of such site is (http://www.sec.gov). The Company intends to furnish its shareholders with annual reports containing audited financial statements and such other periodic reports as the Company may from time to time deem appropriate or as may be required by law. 63 [TO COME] INDEX TO FINANCIAL STATEMENTS F-1 [LETTERHEAD] INDEPENDENT AUDITORS' REPORT Board of Directors Gay Entertainment Television, Inc. New York, New York We have audited the accompanying balance sheet of Gay Entertainment Television, Inc. (A Development Stage Company) as of October 31, 1996 and the related statements of operations, changes in shareholders' deficiency and cash flows for each year in the two year period ended October 31, 1995 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gay Entertainment Television, Inc. as of October 31, 1996 and the results of their operations and their cash flows for each of the two years in the period ended October 31, 1995 and 1996 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses of approximately $38,000 and $40,000 for 1995 and 1996, respectively, and has used substantial amounts of working capital in its operations. Such uncertainties raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. /s/ SPEAR SAFER & HARMON - ------------------------ Miami, Florida August 19, 1997 F-2 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Balance Sheets ASSETS AS OF AS OF OCTOBER 31, JUNE 30, 1996 1997 ---------- ----------- (Unaudited) Current Assets: Cash $ 5,393 $ -- Due from shareholder 4,020 30 --------- --------- Total Current Assets 9,413 30 --------- --------- Equipment 7,179 7,179 Less accumulated depreciation (3,591) (4,548) --------- --------- 3,588 2,631 --------- --------- Organization costs, net of accumulated amortization of $483 and $571 in 1996 and 1997, respectively 177 89 --------- --------- $ 13,178 $ 2,750 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current Liabilities: Notes payable $ 87,000 $ 87,000 Accounts payable 2,392 2,556 Accrued expenses 11,500 14,500 --------- --------- Total Current Liabilities 100,892 104,056 --------- --------- Long-Term Debt 58,000 58,000 --------- --------- Accrued Expenses 1,788 5,268 --------- --------- Shareholder's Deficiency: Common stock, $.0001 par value, 40,000,000 shares authorized, 2,473,500 and 2,770,000 shares, respectively, issued and outstanding 247 277 Deficit accumulated during the development stage (147,749) (164,851) --------- --------- Total Shareholder's Deficiency (147,502) (164,574) --------- --------- $ 13,178 $ 2,750 ========= ========= The accompanying notes are an integral part of these fianancial statements. F-3
GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Statements of Operations YEAR ENDED YEAR ENDED EIGHT MONTHS EIGHT MONTHS OCTOBER 31, OCTOBER 31, ENDED ENDED 1995 1996 JUNE 30, 1996 JUNE 30, 1997 ----------- ------------ ------------- ------------- (Unaudited) (Unaudited) Net Sales $ 99,096 $ 68,982 $ 54,523 $ 14,087 Cost of Sales 96,227 62,653 47,704 5,147 ----------- ----------- ----------- ----------- Gross Profit 2,869 6,329 6,819 8,940 General and Administrative Expenses 40,792 46,122 25,273 26,042 ----------- ----------- ----------- ----------- Net Loss $ (37,923) $ (39,793) $ (18,454) $ (17,102) =========== =========== =========== =========== Net Loss per Common Share (.02) (.02) (.01) (.01) =========== =========== =========== =========== Weighted Average Shares Outstanding 2,473,500 2,473,500 2,473,500 2,695,875 =========== =========== =========== ===========
The accompanying notes are an integral part of these fianancial statements. F-4
GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Statements of Changes in Shareholders' Deficiency DEFICIT COMMON STOCK ACCUMULATED ----------------------- DURING THE SHARES DEVELOPMENT ISSUED AMOUNT STAGE TOTAL --------- --------- ------------ ---------- Balance at October 31, 1994 2,473,500 $ 247 $ (70,033) $ (69,786) Net Loss - 1995 -- -- (37,923) (37,923) --------- --------- --------- --------- Balance at October 31, 1995 2,473,500 247 (107,956) (107,709) Net Loss - 1996 -- -- (39,793) (39,793) --------- --------- --------- --------- Balance at October 31, 1996 2,473,500 247 (147,749) (147,502) Issuance of Common Stock 296,500 30 -- 30 Net Loss for the Eight Months Ended June 30, 1997 (Unaudited) -- -- (17,102) (17,102) --------- --------- --------- --------- Balance at June 30, 1997 (Unaudited) 2,770,000 $ 277 $(164,851) $(164,574) ========= ========= ========= =========
The accompanying notes are an integral part of these fianancial statements F-5
GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Statements of Cash Flows YEAR ENDED YEAR ENDED EIGHT MONTHS EIGHT MONTHS OCTOBER 31, OCTOBER 31, ENDED ENDED 1995 1996 JUNE 30, 1996 JUNE 30, 1997 ---------- ----------- ------------- ------------- (Unaudited) (Unaudited) Cash Flows from Operating Activities: Net loss $(37,923) $(39,793) $(18,454) $(17,102) Adjustments to reconcile net loss to net cash: Depreciation and 1,568 1,568 1,045 1,045 amortization Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable 17,569 -- -- -- Due from shareholder -- (4,020) -- 3,990 Increase (decrease) in: Accounts payable (6,290) 1,373 1,373 164 Accrued expenses 3,779 6,288 4,192 6,480 Due to affiliates (2,695) -- -- -- -------- -------- -------- -------- Net Cash Used by Operating Activities (23,992) (34,584) (11,844) (5,423) -------- -------- -------- -------- Cash Flows from Financing Activities: Issuance of common stock -- -- -- 30 Receipt of loans receivable from affiliates 2,250 -- -- -- Borrowing under notes payable - other 25,000 58,000 36,500 -- (Repayment of) borrowing under shareholder advances, net (3,689) (18,023) (22,043) -- -------- -------- -------- -------- Net Cash Provided by Financing Activities 23,561 39,977 14,457 30 -------- -------- -------- -------- Net Increase (Decrease) in Cash (431) 5,393 2,613 (5,393) Cash Beginning of Period 431 -- -- 5,393 -------- -------- -------- -------- Cash End of Period $ -- $ 5,393 $ 2,613 $ -- ======== ======== ======== ========
The accompanying notes are an integral part of these fianancial statements. F-6 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements (Unaudited) With Respect to June 30, 1996 and 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS - Gay Entertainment Television, Inc. (a New York corporation referred to herein as the "Company") was founded in 1992 to promote cable television programming targeted specifically to the gay community. CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with stable, high quality financial institutions. EQUIPMENT - Equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets approximating five years. REVENUE RECOGNITION - The Company recognizes revenues over the period that advertising contracts are effective, normally less than one year. AMORTIZATION - Amortization of organization expense is calculated using the straight-line method over five years. INCOME TAXES - Income taxes are based on the taxable income for the year, as measured by current year tax rates. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities, principally net operating losses, using enacted tax rates in effect in the years in which the differences are expected to reverse. EARNINGS PER SHARE - Earnings (losses) per share are based on the weighted average number of shares outstanding for each period presented. ESTIMATES - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements (Continued) NOTE 2 - GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses of approximately $38,000 and $40,000 in 1995 and 1996, respectively. In addition, the Company has used substantial amounts of working capital in its operations, and has failed to generate sufficient net cash flow from operations. The Company has been able to sustain its operations by obtaining working capital through the issuance of notes payable. In order to expand its operations and become more profitable, management is attempting to raise additional capital by issuing shares of its stock to the public. (See Note 8) NOTE 3 - DEVELOPMENT STAGE OPERATIONS The Company has had limited operations and has devoted substantially all of its efforts to administrative functions, financial planning, raising capital, and identifying and developing products and markets since its formation on November 12, 1992. Since this date, the Company has produced three television shows, some of which have been aired in approximately six markets including New York, Los Angeles, San Francisco, Southern California, Chicago, and Miami. The Company has since ceased such activities and has sought to develop and enhance its original programming concept without generating revenues. Once the Company has perfected its final product and upon raising additional capital, the Company intends to start programming in the above mentioned cities with expansion to approximately 20 additional cities. The Company's statement of operations, changes in shareholders' deficiency, and cash flows for the period November 12, 1992 (inception) to October 31, 1996 are as follows: Statement of Operations November 12, 1992 (Date of Inception) to October 31, 1996 Net Sales $ 402,823 Cost of Sales 298,679 --------- Gross profit 104,144 General and Administrative Expenses 251,893 --------- Net Loss $(147,749) ========= F-8
GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements (Continued) NOTE 3 - DEVELOPMENT STAGE OPERATIONS (CONTINUED) Statements of Changes in Shareholders' Deficiency DEFICIT COMMON STOCK ACCUMULATED ----------------------- DURING THE SHARES DEVELOPMENT ISSUED AMOUNT STAGE TOTAL --------- --------- ----------- --------- Balance at November 12, 1992 2,473,500 $ 247 $ -- $ 247 Net Loss - 1993 -- -- (19,146) (19,146) --------- --------- --------- --------- Balance at October 31, 1993 2,473,500 247 (19,146) (18,899) Net Loss - 1994 -- -- (50,887) (50,887) --------- --------- --------- --------- Balance at October 31, 1994 2,473,500 247 (70,033) (69,786) Net Loss - 1995 -- -- (37,923) (37,923) --------- --------- --------- --------- Balance at October 31, 1995 2,473,500 247 (107,956) (107,709) Net Loss - 1996 -- -- (39,793) (39,793) --------- --------- --------- --------- Balance at October 31, 1996 2,473,500 247 (147,749) (147,502) Issuance of Common Stock 296,500 30 -- 30 Net Loss for the Eight Months Ended June 30, 1997 (Unaudited) -- -- (17,102) (17,102) --------- --------- --------- --------- Balance at June 30, 1997 (Unaudited) 2,770,000 277 $(164,851) $(164,574) ========= ========= ========= =========
F-9 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements (Continued) NOTE 3 - DEVELOPMENT STAGE OPERATIONS (CONTINUED) Statement of Cash Flows November 12, 1992 (Date of Inception) to October 31, 1996 Cash Flows from Operating Activities: Net loss $(147,749) Adjustments to reconcile net loss to net cash: Depreciation and amortization 4,074 Changes in operating assets and liabilities: (Increase) in due from shareholder (4,020) Increase in accounts payable 2,392 Increase in accrued expenses 13,288 ---------- Net Cash Used by Operating Activities (132,015) ---------- Cash Flows from Investing Activities: Acquisition of Equipment (7,179) ---------- Cash Flows from Financing Activities: Organization costs (660) Issuance of common stock 247 Borrowings under notes payable 145,000 ---------- Net Cash Provided by Financing Activities 144,587 ---------- Net Increase in Cash 5,393 Cash Beginning of Period - ---------- Cash End of Period $ 5,393 ========== F-10 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements Continued) NOTE 4 - NOTES PAYABLE Current notes payable consist of the following: OCTOBER 31, JUNE 30, 1996 1997 ---------- ---------- (UNAUDITED) Demand notes payable with interest ranging from 9% to 10%; uncollateralized $ 50,000 $ 50,000 Demand notes payable with no interest; uncollateralized 37,000 37,000 --------- ---------- $ 87,000 $ 87,000 ======== ========= Interest expense on the above notes was $4,500 for each of the years ended October 31, 1995 and 1996, and $3,000 for the eight months ended June 30, 1996 and 1997. NOTE 5 - LONG-TERM DEBT Long term debt consists of various notes payable as follows: OCTOBER 31, JUNE 30, 1996 1997 ---------- ---------- (UNAUDITED) Notes payable to unrelated individual with maturity dates between May and October 1998 with interest of 9% compounded annually and payable in arrears; uncollateralized. $ 58,000 $ 58,000 ======== ======== Interest expense on the above notes for the year ended October 31, 1996 and for the eight months ended June 30, 1996 and 1997 was approximately $1,800, $155 and $3,500, respectively. F-11 GAY ENTERTAINMENT TELEVISION, INC. (A Development Stage Company) Notes to Financial Statements (Continued) NOTE 6 - INCOME TAXES At October 31, 1996, the Company had net operating loss carryforwards for financial reporting and tax purposes of approximately $147,000. The net operating loss carryforwards may provide future income tax benefits expiring through the year 2016. The deferred tax asset consists of the following: OCTOBER 31, JUNE 30, 1996 1997 ---------- --------- (UNAUDITED) Net operating loss carryforwards $ (51,000) $ (57,000) Valuation allowance 51,000 57,000 ---------- --------- Net Deferred Tax Asset $ -- $ -- ========== ========= A reconciliation of income tax at the statutory rate to the Company's effective rate for the year ended October 31, 1996, is as follows: Federal income tax at statutory rate 34.0% State income tax, net of Federal tax 5.9 benefit Benefit of net operating loss carryforward (39.9) Effective Income Tax Rate --% ==== NOTE 7 - COMMITMENTS AND CONTINGENCIES The New York State Department of Labor has issued a determination letter against the Company for alleged unpaid and past due additional unemployment insurance contributions because certain individuals were deemed employees and not independent contractors. The Company has appealed the decision and intends to contest the case vigorously. The amounts relating to the assessment, approximating $3,300 plus 12% interest from the original due date of the alleged additional unemployment insurance contributions, have not been recorded, as the outcome of this particular matter has not yet been determined. The Company occupies space in a rent stabilized building at $1,455 per month in New York City. This space is the location of the Company's principle offices and it is also the residence of the Company's Chief Executive Officer. The president reimburses the Company for one-half of the total monthly rent payments for the portion of the rental space occupied for personal use. Total rent expense allocated to the Company for the years ended October 31, 1995 and 1996 was $7,585 and $8,743, respectively. Rent expense for the eight months ended June 30, 1996 and 1997 was $2,923 and $4,365, respectively. F-12 NOTE 8 - SUBSEQUENT EVENT In July 1997, the Company signed a note for a loan in the aggregate of $200,000 to be used to finance operations until such time as the proceeds of the offering are received. The note is due at the earlier of the closing of the above public offering of its securities or June 30, 1999. The note bears interest at 8 1/2%, payable on the due date of the note. As consideration for the loan, the Company signed an agreement in connection with this note whereby the shareholder of the Company gave 176,000 shares of his common stock to the lender. During September 1997, the Company entered into a financial advisory and investment banking agreement to offer its stock through an offering to the public whereby 2,350,000 units will be offered at a price of $4.25 per unit. Each unit shall consist of one (1) share (Shares) of common stock (Common Stock) with a par value of $.0001, and two (2) redeemable warrants (Warrants). The exercise of two (2) Warrants entitles the holder to purchase one Share of Common Stock at $5.25 per share commencing as of the closing date of the public offering and continuing for a period of three years from the date thereof. The units will be offered on a "best efforts-all or none" basis for 1,882,350 units and on a "best efforts" basis for the remaining 467,650 units, for a total of 2,350,000 units. During September 1997, the Company and a holder of a $12,000 note payable (as disclosed in Note 4) entered into an agreement whereby the Company agreed to execute and deliver a non-interest bearing promissory note in the amount of $54,000 and 2,500 shares of common stock in exchange for the holder's release of the Company from the terms and obligations of the note payable. The $54,000 promissory note is due on the earlier of ten business days after the final receipt of funds from the public offering or September 1, 1999. When the Company was organized in November 1992, it elected to have its fiscal year commence as of November 1. Management now believes that as a public company, a September 30th year end is more appropriate. As a result, effective with the period ended September 30, 1997 the Company has elected to change its fiscal year end from October 31 to September 30. F-13 NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. -------------------- TABLE OF CONTENTS PAGE ---- Prospectus Summary..................................................... 3 Risk Factors........................................................... 5 Use of Proceeds ....................................................... 15 Dilution............................................................... 17 Capitalization......................................................... 18 Dividend Policy........................................................ 19 Selected Financial Data................................................ 19 Management's Discussion and Analysis of Financial Condition Results of Operations............................................... 20 Business............................................................... 23 Management............................................................. 40 Certain Relationships and Related Transactions......................... 50 Principal Shareholders................................................. 51 Description of Securities.............................................. 52 Restricted Shares Eligible for Future Sale............................ 57 Underwriting........................................................... 58 Legal Matters.......................................................... 62 Experts ............................................................... 62 Additional Information................................................. 62 Index to Financial Statements........................................................... F-1 -------------------- UNTIL _________, 199__ (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. MINIMUM OFFERING: 1,882,350 UNITS MAXIMUM OFFERING: 2,350,000 UNITS -------------------- GAY ENTERTAINMENT TELEVISION, INC. -------------------- PROSPECTUS -------------------- THE AGEAN GROUP, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to Sections 721 through 725 of the Business Corporation Law of the State of New York (the "NYBCL"), which provides for indemnification of directors and officers of New York corporations under certain circumstances. Section 722 of the NYBCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, in connection with actions or proceedings, whether civil or criminal (other than an action by or in the right of the corporation, a "derivation action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to amounts paid in settlement and reasonable expenses (including attorneys' fees) incurred in connection with the defense or settlement of such actions, and the statute does not apply in respect of a threatened action, or a pending action that is settled or otherwise disposed of, and requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. Section 721 of the NYBCL provides that Article 7 of the NYBCL is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, disinterested director vote, shareholder vote, agreement or otherwise. The Company's Amended and Restated Certificate of Incorporation requires the Company to indemnify its officers and directors to the fullest extent permitted under the NYBCL. Furthermore, Article XII of the Company's Amended and Restated By-laws provides that the Company, to the full extent permitted and in the manner required by the laws of the State of New York, may indemnify any officer or director (and the heirs and legal representatives of such person) made, or threatened to be made, a party in an action or proceeding (including, without limitation, one by or in the right of the Company to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Company served in any capacity at the request of the Company, by reason of the fact that such director or officer, or such director's or officer's testator or intestate, was a director or officer of the Company or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. Section 402(b) of the NYBCL provides that a corporation's certificate of incorporation may include a provision that eliminates or limits the personal liability of the corporation's directors to the corporation or its shareholders for damages for any breach of a director's duty, provided that such provision does not eliminate or limit (1) the liability of any director if a judgment or other final adjudication adverse to the director establishes that the director's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained a financial profit or other advantage to which the director was not legally entitled or that the director's acts violated Section 719 of the NYBCL, or (2) the liability of any director for any act or omission prior to the adoption of a provision authorized by Section 402(b) of the NYBCL. The Company's Amended and Restated Certificate of Incorporation provides that a director of the Company shall not be liable to the Company or its shareholders for any breach of duty in such capacity except for liability in the event a judgment or other final adjudication adverse to a director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained, in fact, a financial profit or other advantage to which he or she was not legally entitled or that such director's acts violated Section 719, or its successor, of the NYBCL. Any amendment to or repeal of the Company's Certificate of Incorporation or by-laws shall not adversely affect any right or protection of a director or officer of the Company for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. The Company maintains directors and officers insurance which, subject to certain exclusions, insures the directors and officers of the Company against certain losses which arise out of any neglect or breach of duty (including, but not limited to, any error, misstatement, act, or omission) by the directors or officers in the discharge of their duties, and insures the Company against amounts which it has paid or may become obligated to pay as indemnification to its directors and/or officers to cover such losses. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing, the Company has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the Offering described in this Registration Statement. All amounts are estimated except the Registration Fee, NASD Fee and the underwriters' non-accountable expense allowance. Securities and Exchange Commission/Registration fee and other documents*........................................... $5,483.34 NASD filing fee*................................................. II-2 NASDAQ filing fee*............................................... Printing and engraving expenses*................................. Accounting fees and expenses*.................................... Legal fees and expenses*......................................... Blue Sky fees and expenses*...................................... Underwriter's non-accountable expense allowance.................. Transfer Agent fees and expenses ................................ Miscellaneous ................................................... --------- Total ........................................................... $ *Estimated All of the above expenses of this Offering will be paid by the Company. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. THE NUMBERS AND AMOUNTS DESCRIBED BELOW GIVE EFFECT TO A 13,875:1 FORWARD STOCK SPLIT EFFECTIVE IN SEPTEMBER 1997. In January 1997, the Company issued an aggregate of 74,000 shares of Common Stock to several volunteers who performed services on behalf of the Company on a pro-bono basis. Each of these persons were provided with or otherwise had access to information concerning the Company. Of these Shares, 25,000 were issued to Alan Cohen, who will become a Director of the Company upon the closing of this Offering and to whom the Company owes the principal amount of $12,500, plus accrued interest at 8% per year. See "Management" and "Certain Relationships and Related Transactions." Accordingly, these shares were issued pursuant to Section 4(2) of the Securities Act. In May 1997, the Company issued an aggregate of 185,000 Shares to David Mayer, a Director of the Company, in connection with an agreement to perform certain consulting and financial services on behalf of the Company, including assisting in the preparation and implementation of the Company's business plan and strategy. Mr. Mayer, who is an accredited investor, was provided with or had access to information, including financial, concerning the Company. See "Certain Relationships and Related Transactions." Accordingly, the securities were exempt from registration pursuant to Section 4(2) of the Securities Act. In July 1997, the Company issued an aggregate of 176,000 Shares to Richard Moorehead, who will become a Director of the Company upon the closing of this Offering. in connection with a loan made to the Company by Mr. Moorehead in the principal amount of $200,000 to the Company. Mr. Moorehead is an accredited investor who was provided with or had access to information, including financial, concerning the Company. Accordingly, the securities were exempt from registration pursuant to Section 4(2) of the Securities Act. II-3 In July 1997, the Company issued an aggregate of 5,000 Shares to the law firm of Esanu Katsky Korins & Siger, LLP in consideration for legal services in the amount of $2,500. The law firm. The law firm was provided with or had access to information, including financial, about the Company. Accordingly, the securities were exempt from registration pursuant to Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS. EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- ---------------------- 1.1 Form of Underwriting Agreement(2) 1.2 Form of Agreement Among Underwriters(2) 1.3 Form of Selling Group Agreement(2) 1.3(a) Selected Dealers Agreement(2) 1.4 Escrow Agreement(2) 3.1(a) Certificate of Incorporation dated November 12, 1992(1) 3.1(b) Amendment to the Certificate of Incorporation dated November 2, 1993(1) 3.1(c) Amendment to the Certificate of Incorporation dated September 24, 1997(1) 3.2 Company's Bylaws(1) 4.1 Form of Warrant Agreement together with the form of Warrant Certificate(2) 4.2 Form of Representative's Warrant Agreement together with the form of Underwriter's Purchase Warrant Certificate(2) 4.2(a) Form of Representative's Warrant and Registration Rights Agreement together with the revised form of Underwriter's Purchase Warrant Certificate(2) 5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(1) 10.1 Stock Option Plan(1) 10.2 Directors Stock Option Plan(1) 10.3 Employment Agreement between the Company and Marvin A. Schwam(2) 10.4 Consulting Agreement between the Company and David Mayer(1) 10.5 Promissory Note and related documents in connection with $200,000 loan between the Company and Richard Moorehead(1) 21 Subsidiaries of Registrant(1) 23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included in its opinion filed as Exhibit 5.1)(1) 23.2 Consent of Spear, Safer, Harmon & Co., P.A. (1) 27 Financial Data Schedule(1) - -------------- (1) Filed herewith (2) To be filed by amendment
II-4 ITEM 28. UNDERTAKINGS. The undersigned registrant hereby undertakes that: (a) it will file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) include any prospectus required by section 10(a)(3) of the Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) include any additional or changed material information on the plan of distribution; (iv) for determining liability under the Act, it will treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time shall be deemed to be the initial bona fide offering. (v) it will file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the Offering. (vi) it will provide to the Representatives at the Closing of this Offering certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liability arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (i) For determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or II-5 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide Offering thereof. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing the Registration Statement on Form SB-2 and authorizes the Registration Statement to be signed on its behalf by the undersigned, in the City of Boca Raton, State of Florida, on this 1st day of October, 1997. GAY ENTERTAINMENT TELEVISION, INC. By: /s/ MARVIN A. SCHWAM ------------------------------ Marvin A. Schwam, President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, Registration Statement was signed by the following persons in the capacities and on the dates stated. SIGNATURES TITLE DATE ---------- ----- ---- /s/ MARVIN A. SCHWAM President and Chief October 1, 1997 - ---------------------------- Executive Officer and Marvin A. Schwam Director (Principal Executive Officer) /s/ DAVID MAYER - ---------------------------- Director October 1, 1997 David Mayer II-7 EXHIBIT INDEX EXHIBIT DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(a) Certificate of Incorporation dated November 12, 1992 3.1(b) Amendment to the Certificate of Incorporation dated November 2, 1993 3.1(c) Amendment to the Certificate of Incorporation dated September 24, 1997. 3.2 Company's Bylaws 5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. 10.1 Stock Option Plan 10.2 Directors Stock Option Plan 10.4 Consulting Agreement between the Company and David Mayer 10.5 Promissory Note and related documents in connection with $200,000 loan between the Company and Richard Moorehead 21 Subsidiaries of Registrant 23.2 Consent of Spear, Safer, Harmon & Co., P.A. 27 Financial Data Schedule EX-3.1A 2 EXHIBIT 3.1a CERTIFICATE OF INCORPORATION OF GAY ENTERTAINMENT NETWORK, INC. UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW The undersigned, a natural person of the age of eighteen years or over, desiring to form a corporation pursuant to the provisions of Section 402 of the Business Corporation Law of the State of New York, hereby certifies as follows: FIRST: The name of the corporation is: GAY ENTERTAINMENT NETWORK, INC. SECOND: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York, exclusive of any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. THIRD: The office of the Corporation in the State of New York is to be located in the County of New York. FOURTH: This aggregate number of shares which the corporation shall have the authority to issue is: Two Hundred (200) Shares Without Par Value FIFTH: The Secretary of State is designated as the agent of the Corporation upon whom process against the Corporation may be served, and the address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him is: Robert Milner, Esq. 1345 Avenue of the Americas New York, New York 10105 SIXTH: No director of the corporation shall be personally liable to the corporation or its shareholders for damages for any breach of duty in such capacity except where a judgment or other final adjudication adverse to said director establishes: that the director's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that said director personally gained a financial profit or other advantage to which he was not entitled, or the director's acts violated Section 719 of the New York Business Corporation Law. IN WITNESS WHEREOF, I have duly executed and subscribed this certificate and do affirm the foregoing as true under the penalties of perjury this 12th day of November 1992. /s/ MARIE JORCZAK ----------------- Marie Jorczak Incorporator Corporation Service Company 4 Central Avenue Albany, New York 12110 EX-3.1B 3 EXHIBIT 3.1b CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF GAY ENTERTAINMENT NETWORK, INC. UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW The undersigned, being the president and the secretary of Gay Entertainment Network, Inc. does hereby certify and set forth: 1. The name of the corporation is Gay Entertainment Network, Inc. 2. The certificate of incorporation of Gay Entertainment Network, Inc. was filed by the Department of State on the 12th day of November, 1992. 3. Article FIRST of the certificate of incorporation of Gay Entertainment Network, Inc., which sets forth the name of the corporation, is hereby amended to read: FIRST: The name of the corporation is: GAY ENTERTAINMENT TELEVISION, INC. 4. The amendment to the certificate of incorporation of Gay Entertainment Network, Inc. was authorized by the joint unanimous written consent of the sole director and sole shareholder of the corporation. SUBSCRIBED AND AFFIRMED by the undersigned as true under penalties of perjury on November 2, 1993. /s/ MARVIN SCHWAM ----------------- Marvin Schwam, President and Secretary EX-3.1C 4 EXHIBIT 3.1c RESTATED CERTIFICATE OF INCORPORATION OF GAY ENTERTAINMENT TELEVISION, INC. UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW The undersigned, being the Board of Directors of GAY ENTERTAINMENT TELEVISION, INC. (hereinafter the "Corporation"), a New York corporation, do hereby certify and set forth: 1. The name of the corporation is Gay Entertainment Television, Inc. (f/k/a Gay Entertainment Network, Inc. 2. The Certificate of Incorporation of Gay Entertainment Television, Inc. was filed by the Department of State on the 12th day of November, 1992. 3. All Two Hundred (200) shares of the Corporation's authorized Common Stock, without par value, are issued and outstanding. All issued and outstanding shares of Common Stock of the Corporation held by each holder of record on the effective date of this amendment, shall be automatically converted at a rate of thirteen thousand eight hundred seventy-five for one (13,875:1). As of the effective date of this amendment, the Corporation will have 2,775,000 shares of Common Stock, par value $.0001, issued and outstanding and 37,225,000 shares of Common Stock unissued. No fractional share or scrip representing a fractional share will be issued upon the Forward Stock Split. Fractional shares of Common Stock will be rounded up to the next highest share. 4. The Certificate of Incorporation is amended, as authorized by Section 803 of the Business Corporation Law, to: (i) increase the authorized number of shares which the corporation shall have authority to issue from 200 shares of Common Stock, no par value, to 40,000,000 shares of Common Stock, par value $.0001 per share; (ii) authorize to issue 2,500,000 shares of Preferred Stock, par value $.0001; and (iii) change the agent for service of process to Marvin Schwam. To effect the foregoing, the text of the Certificate of Incorporation of the Corporation is hereby restated, as amended, to read as herein set forth in full: FIRST: The name of the corporation is: GAY ENTERTAINMENT TELEVISION, INC. SECOND: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York, exclusive of any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. THIRD: The office of the Corporation in the State of New York is to be located in the County of New York. FOURTH: This Corporation is authorized to issue and have outstanding at any one time the maximum number of Forty Million (40,000,000) shares of Common Stock having a par value of $.0001 per share, and Two Million Five Hundred Thousand (2,500,000) shares of Preferred Stock having a par value of $.0001 per share. Series of the Preferred Stock may be created and issued from time to time, with such designations, preferences, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions providing for the creation and issuance of such series of Preferred Stock as adopted by the Board of Directors pursuant to the authority in this paragraph given. FIFTH: The Secretary of State is designated as the agent of the Corporation upon whom process against the Corporation may be served, and the address to which the Secretary of State shall mail a copy of any process against the Corporation served upon him is: Marvin Schwam 7 East 17th Street New York, New York 10003 SIXTH: The Corporation shall, to the fullest extent permitted by Article 7 of the Business Corporation Law, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said Article from and against any and all of the expenses, liabilities or other matters referred to in or covered by said Article, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which any person may be entitled under any ByLaw, resolution of shareholders, resolution of directors, agreement or otherwise, as permitted by said Article, as to action in any capacity in which he served at the request of the Corporation. SEVENTH: The personal liability of the directors of the Corporation is eliminated to the fullest extent permitted by the provisions of paragraph (b) of Section 402 of the Business Corporation Law, as the same may be amended and supplemented. 5. This Amendment to the Certificate of Incorporation, which supersedes the original Certificate of Incorporation of the Corporation, was authorized by the unanimous written consent of the Board of Directors followed by the unanimous written consent of the shareholders of the corporation. 2 IN WITNESS WHEREOF, this Certificate of Amendment of the Articles of Incorporation of Gay Entertainment Television, Inc., a New York corporation, has been executed this 24 day of September, 1997. /s/ MARVIN A. SCHWAM --------------------------- Marvin A. Schwam, President /s/ DAVID MAYER ---------------------- David Mayer, Secretary 3 EX-3.2 5 EXHIBIT 3.2 BY-LAWS OF GAY ENTERTAINMENT TELEVISION, INC. ARTICLE I SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of the Corporation shall be held on such date, at such time and at such place within or without the State of New York as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may properly be brought before the meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the Corporation may be called at any time by the Board of Directors, the Chairman of the Board or the President, or by written instrument signed by a majority of the Board of Directors and shall be called by the Chief Executive Officer, Chairman of the Board, the President or the Secretary upon the written request of holders of record of at least thirty percent (30%) of the total outstanding shares of all classes entitled to vote at such meeting, which request shall set forth the purpose or purposes for which the meeting is to be called. At a special meeting of the shareholders only such business shall be transacted as is related to the purpose or purposes set forth in the notice of meeting. SECTION 3. PLACE OF MEETING. Each meeting of shareholders shall be held at such place, within or without the State of New York, as may be fixed by the Board of Directors, or, if no place is so fixed, at the principal office of the Corporation in the State of New York; provided, however, that any meeting of shareholders shall be held at such place within or without the State of New York as may be fixed by agreement in writing among all the shareholders of the Corporation. SECTION 4. NOTICE. Written notice of a meeting of shareholders shall be given, personally or by first class mail, to each shareholder entitled to vote at the meeting not less than ten (10) nor more than fifty (50) days before the date of the meeting. Such notice shall state the place, date and hour of the meeting and, unless the meeting is an annual meeting, shall indicate that such notice is being issued by or at the direction of the person or persons calling the meeting and shall state the purpose or purposes for which the meeting is called. If at any meeting action is proposed to be taken which would, if taken, entitle shareholders fulfilling the requirements of Section 623 of the Business Corporation Law of the State of New York to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect and shall be accompanied by a copy of such Section 623 or an outline of its material terms. If mailed, a notice of meeting is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the Secretary a written request that notices to him be mailed to some other address, then directed to him at such other address. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, after the adjournment the Board of Directors fixes a new a record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice hereunder. If any By-Law regulating an impending election of Directors is adopted, amended or repealed by the Board of Directors, the By-Law so adopted, amended or repealed, together with a concise statement of the changes made, shall be set forth in the notice of the next meeting of shareholders held for the purpose of electing Directors. SECTION 5. QUORUM. At any meeting of shareholders, the presence in person or by proxy of the holders of a majority of the shares entitled to vote at such meeting shall constitute a quorum for the transaction of any business, provided, however, when a specified item of business is required to be voted on by the holders of a class or series of the Corporation's shares, voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum for the transaction of such specified item of business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. If a quorum shall not be present in person or by proxy at any meeting of shareholders, the shareholders present may adjourn the meeting despite the absence of a quorum. SECTION 6. ORGANIZATION. The Chief Executive Officer, or in his or her absence, the Chairman of the Board, or in his or her absence, the President, or in his or her absence, a Vice President, shall call every meeting of the shareholders to order, and shall act as chairman of the meeting. In the absence of the Chief Executive Officer, the Chairman of the Board, the President and all Vice Presidents, the holders of a majority of the shares present in person or represented by proxy and entitled to vote at such meeting shall elect a chairman. 2 The Secretary of the Corporation shall act as secretary of all meetings of the shareholders and keep the minutes; in the absence of the Secretary, the Chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 7. VOTING. Unless otherwise provided in the Certificate of Incorporation every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in his name on the record of shareholders of the Corporation. A list of shareholders as of the record date, certified by the Secretary or an Assistant Secretary responsible for its preparation or by a transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. The Board of Directors may prescribe a date not more than fifty (50) nor less than ten (10) days prior to the date of a meeting of shareholders for the purpose of determining the shareholders entitled to notice of or to vote at such meeting or any adjournment thereof. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Every proxy must be signed by the shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. The vote upon any matter as to which a vote by ballot is required by law, and, upon the demand of any shareholder, the vote upon any other matter before the meeting, shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, all elections of Directors shall be decided by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. Treasury shares and shares held by another domestic or foreign corporation of any type or kind if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares. SECTION 8. INSPECTORS. The Board of Directors in advance of every meeting of shareholders may appoint one or more Inspectors to act at such meeting or any adjournment thereof. If Inspectors are not so appointed, the person presiding at a 3 shareholders' meeting may, and on the request of any shareholder entitled to vote thereat, shall, appoint one or more Inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. Each Inspector appointed to act at any meeting of the shareholders before entering upon the discharge of his duties shall take and sign an oath faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to the best of his ability. The Inspectors so appointed shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the Inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. SECTION 9. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any action by vote required or permitted to be taken by the shareholders may be taken without a meeting on written consent, setting forth in the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. This section shall not be construed to alter or modify the provisions of any section of these By-Laws or any provision in the Certificate of Incorporation not inconsistent with the Business Corporation Law of the State of New York under which the written consent of the holders of less than all outstanding shares is sufficient for corporate action. SECTION 10. DETERMINATION OF SHAREHOLDERS OF RECORD FOR CERTAIN PURPOSES. For the purposes of determining the shareholders entitled to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action (other than the determination of the shareholders entitled to notice of and to vote at a meeting of the shareholders), the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders and such date shall not be more than fifty (50) days prior to such action. If no record date is fixed, the record date shall be the close of business on the day on which the resolution of the Board relating thereto is adopted. For the purpose of determining that all shareholders entitled to vote thereon have consented to any action without a meeting, if such record date is fixed by the Board of Directors and no resolution has been adopted by the Board relating thereto, such shareholders shall be determined as of the date or time as of which such consent shall be expressed to be effective. 4 SECTION 11. WAIVERS OF NOTICE. Whenever under the provisions of these ByLaws the shareholders are authorized to take any action after notice to them or the Board of Directors or a committee is authorized to take any action after notice to its members, such action may be taken without notice if at any time before or after such action be completed, the shareholders, Directors or committee members submit a signed waiver of notice. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion thereof the lack of notice of such meeting shall constitute a waiver of notice by him. The attendance of a Director or committee member at a meeting without protesting prior thereto or at its commencement the lack of notice of such meeting shall constitute a waiver of notice by him. ARTICLE II BOARD OF DIRECTORS SECTION 1. NUMBER AND TERM OF OFFICE. The business of the Corporation shall be managed under the direction of a Board of Directors, none of the members of which need be shareholders of the Corporation, but each of whom shall be at least eighteen (18) years of age. The number of Directors constituting the Board of Directors shall be fixed from time to time by resolution adopted by a majority of the entire Board (i.e., the total number of Directors which the Corporation would have if there were no vacancies). Unless a different number is fixed by the Board, the number of Directors constituting the Board of Directors shall be the minimum number provided by law. Except as hereinafter otherwise provided for filling vacancies, the Directors shall be elected at the annual meeting of shareholders to hold office until the next annual meeting, and shall hold office until the expiration of the term for which they were elected, and until their successors have been elected and qualified. SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Any Director may be removed, with or without cause, and the vacancy filled by a vote of the shareholders at any special meeting the notice of which shall state that it is called for that purpose. Any vacancy caused by such removal and not filled by the shareholders at the meeting at which such removal shall have been made, or any vacancy occurring in the Board for any other reason, and newly created directorships resulting from any increase in the number of Directors, may be filled by vote of a majority of the Directors then in office although less than a quorum; provided, however, that the term of office of any Director so elected shall expire at the next succeeding annual meeting of shareholders and when his successor has been elected and qualified, and at such annual meeting the shareholders shall elect a successor to the Director filling such vacancy or newly created directorship. SECTION 3. PLACE OF MEETING. Except as provided in these By-Laws, the Board of Directors may hold its meetings, regular or special, in such place or places within or without the State of New York as the Board from time to time shall determine. 5 SECTION 4. REGULAR MEETINGS. Unless otherwise provided by the Board of Directors, a regular meeting of the Board shall immediately follow each annual meeting of shareholders of the Corporation and shall be held at the place at which such annual meeting is held. No notice shall be required for a regular meeting of the Board of Directors, but a copy of every resolution fixing or changing the time, date or place of a regular meeting shall be mailed to every Director at least five days before the meeting held in pursuance thereof. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board, the President or by any two of the Directors then in office. The Secretary shall give or cause to be given notice of the time and place of holding of each special meeting by mailing the same at least three days before the meeting or by causing the same to be delivered in person or transmitted by telegraph, telefax, telex or telephone at least 24 hours before the meeting, to each Director at the address which he has designated to the Secretary of the Corporation as the address to which notices intended for him shall be mailed. The notice of a meeting need not specify the purpose of the meeting. Any business may be transacted by the Board of Directors is present, although held without notice. SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article II, and except as otherwise expressly required by law, the presence of a majority of the Directors in office shall constitute a quorum for the transaction of business, and the act of a majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. A majority of the Directors present, whether or not a quorum is present, may adjourn a meeting from time to time without notice other than by announcement at the meeting as originally called. SECTION 7. ORGANIZATION. The Chairman of the Board or, in his absence, the President (if he is a Director) or, in his absence the Chief Executive Officer (if he is a Director), shall call every meeting of the Board of Directors to order and shall act as Chairman of the meeting. In the event of the absence of the Chairman of the Board or in the event the President and the Chief Executive Officer are not Directors or in the event of their absence (if he is a Director), a Chairman shall be elected from the Directors present. The Secretary of the Corporation shall act as secretary of all meetings of the Directors and keep the minutes; in the absence of the Secretary, the Chairman of the meeting may appoint any person to act as secretary of the meeting. At all meetings of the Board of Directors business shall be transacted in such order as from time to time the Board may determine. 6 Except as otherwise required by law, at any regular or special meeting of the Board of Directors, the vote of a majority of the Directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board. SECTION 8. COMMITTEES. The Board of Directors may by resolution adopted by a majority of the entire Board designate from among its members committees, each consisting of three or more Directors, and, subject to the provisions of Section 712 of the Business Corporation Law of the State of New York, define the powers and duties of such committees as the Board from time to time may deem advisable. SECTION 9. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, and except when currently the Corporation is insolvent or would thereby be made insolvent, the Board of Directors shall have the power in its discretion from time to time to declare and pay dividends upon the outstanding shares of the Corporation out of surplus only, so that the net assets of the Corporation remaining after such declaration, payment or distribution shall at least equal the amount of its stated capital. SECTION 10. COMPENSATION OF DIRECTORS. A Director may receive compensation for his services as such in such amount as the Board of Directors shall from time to time determine. SECTION 11. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee consent in writing to the adoption of a resolution authorizing the action. The resolutions and the written consents thereto shall be filed with the minutes of the proceedings of the Board or committee. SECTION 12. CONFERENCE TELEPHONE MEETINGS. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. TITLES AND APPOINTMENT. The officers of the Corporation shall be a Chairman of the Board, Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer and such additional officers as the Board of Directors may appoint pursuant to Section 7 of this Article III. All officers shall be elected or appointed by the Board of Directors and shall hold office at the pleasure of 7 the Board. The officers may, but need not, be Directors. The same person may hold any two or more offices, except that the same person shall not be both President and Secretary at the same time. The Board of Directors may require any officer to give security for the faithful performance of his duties and may remove him with or without cause. The election or appointment of an officer shall not of itself create any contract rights and his removal without cause shall be without prejudice to his contract rights, if any. In addition to the powers and duties of the officers of the Corporation set forth in these By-Laws the officers, agents and employees of the Corporation shall have such powers and perform such duties in the management of the Corporation as the Board of Directors may prescribe. SECTION 2. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of all of its business and affairs. In the absence of the Chairman of the Board and President, he shall preside at all meetings of the shareholders and, if a Director, at all meetings of the Board of Directors. SECTION 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall have all powers and shall perform all duties incident to the office of the Chairman of the Board. He shall preside at meetings of shareholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors. SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the chief technical officer of the Corporation and, subject to the control of the Board of Directors and the Chairman of the Board, shall have general charge and control of all its technical operations and shall have all powers and shall perform all duties incident to the office of President. In the absence of the Chairman of the Board, he shall preside at all meetings of the shareholders and, if a Director, at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-laws, the Chairman of the Board or by the Board of Directors. SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President shall have all powers and shall perform all duties incident to the office of Vice President and shall have such other powers and perform other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President. 8 SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the shareholders; he or she shall attend to the giving or serving of notices of the Corporation; he or she shall have custody of the corporate seal of the Corporation and shall affix the same to such documents and other papers as the Board of Directors, the Chief Executive Officer, the Chairman of the Board, or the President shall authorize and direct; he or she shall have charge of the stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President shall direct, all of which shall at all reasonable times be open to the examination of any director, upon application, at the office of the Corporation during business hours; and he or she shall have all powers and shall perform all duties incident to the office of Secretary and shall also have such other powers and shall perform such other duties as may from time to time be assigned by him by these By-Laws or the Board of Directors, the Chief Executive Officer, the Chairman of the Board, or the President. SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall unless otherwise provided by the Board of Directors shall be the chief financial officer of the Corporation. The Treasurer shall receive, have custody of, and when proper shall pay out, disburse or otherwise dispose of, all funds and securities of the Corporation which may come into his or her hands; in the name and on behalf of the Corporation, he or she may endorse checks, notes and other instruments for collection and shall deposit the same to the credit of the Corporation in such bank or banks or depository or depositories as the Board of Directors may designate; he or she shall sign all receipts and vouchers for payments made to the Corporation; he or she shall enter or cause to be entered regularly in the books of the Corporation kept for the purpose, full and accurate accounts of all moneys received or paid or otherwise disposed of by him or her and whenever required by the Board of Directors, the Chief Executive Officer, the Chairman of the Board, or the President shall render statements of such accounts; and he shall have all powers and shall perform all duties incident to the office of Treasurer and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President. SECTION 8. ADDITIONAL OFFICERS. The Board of Directors from time to time may appoint such other officers (who may, but need not, be Directors), including but not limited to Vice Chairman, Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, a Comptroller and Assistant Comptrollers, as the Board may deem advisable and the officers so appointed shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President. In the absence of the Secretary or the Treasurer, upon the direction of the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President, any 9 Assistant Secretary and any Assistant Treasurer, respectively, shall have all the powers and may perform all the duties assigned to the Secretary or the Treasurer. SECTION 9. COMPENSATION OF OFFICERS. The officers of the Corporation shall be entitled to receive such compensation for their services as the Board of Directors from time to time may determine. ARTICLE IV INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. NATURE OF INDEMNITY. Subject to the provisions of Sections 721 through 725 of the Business Corporation Law of the State of New York: (a) The Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any Director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he or she, his or her testator or intestate, was a Director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees actually necessarily incurred as a result of such action or proceeding, or any appeal therein, provided that no indemnification may be made to or on behalf of any such Director or officer if a judgment or other final adjudication adverse to the Director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. The foregoing limitation shall prohibit such indemnification only to the extent that such indemnification is prohibited by Section 721 of the Business Corporation Law of the State of New York, or any successor provision. (b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such Director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation or that he or she had reasonable cause to believe that his or her conduct was unlawful. (c) The Corporation shall also indemnify any person made, or threatened to be made, a party to an action by or in the right of the Corporation to procure a judgment 10 in its favor by reason of the fact that he or she, his or her testator or intestate, is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of any other corporation of any type or kind, domestic or officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein provided that no indemnification may be made to or on behalf of any such Director or officer if a judgment or other final adjudication adverse to the Director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. The foregoing limitation shall prohibit such indemnification only to the extent that such indemnification is prohibited by Section 721 of the Business Corporation Law of the State of New York, or any successor provision; except that no indemnification shall be made in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, unless and only to the extent that the court in which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. (d) For the purpose of this Article IV, the Corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his or her duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan. Excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. SECTION 2. SUCCESSFUL DEFENSE. A person who has been successful, on the merits or otherwise, in the defense of a civil or criminal action or proceeding of the character described in Section 1 of this Article IV shall be entitled to indemnification as authorized in such Section 1. SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Except as provided in Section 2 of this Article IV, any indemnification under Section 1 of this Article IV, unless ordered by a court, shall be made by the Corporation, only if authorized in a specific case: 11 (1) by the Board of Directors, acting by a quorum consisting of Directors who are not parties to such action or proceeding, upon a finding that the Director or officer has met the standard of conduct set forth in Section 1 of this Article IV; (2) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs; (3) by the Board of Directors upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in Section 1 has been met by such Director or officer; or (4) by the shareholders upon a finding that the Director or officer has met the applicable standard of conduct set forth in such Section 1. SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors otherwise determines in a specific case, expenses incurred by a Director or officer in defending a civil or criminal action or proceeding shall be paid by the Corporation in advance of final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount or an appropriate portion thereof if it is ultimately found, under the procedure set forth in this Article IV, that he or she is not entitled to any indemnification or to indemnification to the full extent of the expenses advanced by the Corporation. SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing provisions for indemnification and advancement of expenses shall be deemed to be a contract between the Corporation and each Director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the New York Business Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Director, officer, employee or agent. The indemnification and advancement of expenses provided by this Article IV shall not be deemed exclusive of any other rights to which those indemnified may be entitled, whether contained in the Certificate of Incorporation of the Corporation or these By-laws or, when authorized by (i) the Certificate of Incorporation or these By-laws, (ii) a resolution of shareholders, (iii) a resolution of Directors, or (iv) an agreement providing for such indemnification. The Corporation may enter into an agreement with any of its Directors, officers, employees or agents providing for indemnification and advancement of expenses, including attorneys' fees, that may change, enhance, qualify or limit any right to indemnification or advancement of expenses created by this Article IV, provided that no indemnification may be made to or on behalf of any Director or officer if a 12 judgment or other final adjudication adverse to the Director or officer establishes that his acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled. SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each employee or agent of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article IV that shall not have been invalidated and to the fullest extent permitted by applicable law. SECTION 7. SUBROGATION. In the event of payment of indemnification to a person described in Section 1 of this Article IV, the Corporation shall be subrogated to the extent of such payment to any right of recovery such person may have and such person, as a condition of receiving indemnification from the Corporation, shall execute all documents and do all things that the Corporation may deem necessary or desirable to perfect such right of recovery, including the execution of such documents necessary to enable the Corporation effectively to enforce any such recovery. SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under this Article IV to make any payment in connection with any claim made against a person described in Section 1 of this Article IV to the extent such person has otherwise received payment (under any insurance policy, by-law or otherwise) of the amounts otherwise payable as indemnity hereunder. ARTICLE V SHARES SECTION 1. CERTIFICATES FOR SHARES. Certificates for shares of the Corporation shall be in such form, not inconsistent with law and with the Certificate of Incorporation, as the Board of Directors shall approve. All certificates shall be signed by the Chief Executive Officer, the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be sealed with the seal of the Corporation or a facsimile thereof, and shall not be valid unless so signed and sealed. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or one of its employees. No person shall sign a certificate for shares of the Corporation in two capacities. 13 In case any officer who has signed or whose facsimile signature has been placed upon a certification for shares of the Corporation shall have ceased to be such officer of the Corporation before the certificate is issued by the Corporation, the certificate may nevertheless be issued by the Corporation with the same effect as if he or she were such officer at the date of its issue. All certificates for shares shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the Corporation's books. Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be canceled, and no new certificates shall be issued, until the former certificates for the same number of shares have been surrendered and canceled. SECTION 2. TRANSFER OF SHARES. Shares of the Corporation shall be transferred on the books of the Corporation by the holder thereof, in person or by his attorney thereunto duly authorized in writing, upon surrender and cancellation of certificates for the number of shares to be transferred, except as provided in the succeeding section. SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person owning a certificate for shares of the Corporation alleges that it has been lost, stolen or destroyed, such person shall file in the office of the Corporation an affidavit setting forth, to the best of the person's knowledge and belief, the time place and circumstances of the loss, theft, or destruction, together with a bond of indemnity sufficient in the opinion of the Board of Directors to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate and with one or more sufficient sureties approved by the Board of Directors. Thereupon the Board of Directors may cause to be issued to such person a new certificate or a duplicate of the certificate alleged to have been lost, stolen or destroyed. Upon the stub of every new or duplicate certificate so issued shall be noted the fact of such issue and the number, date, and the name of the registered owner of the lost, stolen or destroyed certificate in lieu of which the new or duplicate certificates is issued. SECTION 4. REGULATIONS. The Board of Directors shall have power and authority to make such other rules and regulations not inconsistent with the Certificate of Incorporation or with these By-Laws as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the Corporation. 14 ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 1. CORPORATE SEAL. The Board of Directors shall provide a suitable seal, containing the name of the Corporation, and the Secretary shall have custody thereof. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. SECTION 3. CONTRACTS. Except as otherwise provided in these By-Laws or by law or as otherwise directed by the Board of Directors, the Chief Executive Officer, the Chairman of the Board, any Vice Chairman of the Board, the President or any Vice President shall be authorized to execute and deliver, in the name and on behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages, notes, obligations and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and the seal of the Corporation, if appropriate, shall be affixed thereto by any such officer or the Secretary or an Assistant Secretary. The Board of Directors, the Chief Executive Officer, the Chairman of the Board, any Vice Chairman of the Board, the President or any Vice President designated by the Board of Directors, the Chief Executive Officer, the Chairman of the Board, any Vice Chairman of the Board or the President may authorize any other officer, employee or agent to execute and deliver, in the name and on behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, notes, obligations and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and, if appropriate, to affix the seal of the Corporation thereto. The grant of such authority by the Board of any such officer may be general or confined to specific instances. SECTION 4. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money shall be signed and, if required by the Board of Directors, countersigned by such officers of the Corporation and/or other persons as the Board of Directors from time to time shall designate. Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depository by the Treasurer and/or such other officers or persons as the Board of Directors from time to time may designate. SECTION 5. LOANS. No loans and no renewals of any loans shall be contracted on behalf of the Corporation except as authorized by the Board of Directors. When authorized, any officer or agent of the Corporation may obtain loans and advances 15 for the Corporation from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. When authorized to do so by the Board, the Chief Executive Officer, the Chairman of the Board, or the President, any officer or agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same. Such authority may be general or confined to specific instances. ARTICLE VII AMENDMENTS These By-Laws other than Article IV may be amended by the Board of Directors of the Corporation at any regular meeting or at any special meeting the notice of which shall state that amendment of the By-Laws is to be one of the purposes of the meeting. Article IV of these By-Laws shall only be amended or repealed and any other provision of these By-Laws or any amendments adopted by the Board may be amended, or repealed by the vote of the shareholders of the Corporation at any annual meeting or at any special meeting the notice of which shall state that amendment of the By-Laws is to be one of the purposes of the meeting, except no amendment of Section 5 of Article IV which retroactively modifies the contract rights of a Director, officer, employee or agent may be effective without the consent of such person. 16 EX-5.1 6 EXHIBIT 5.1 ATLAS, PEARLMAN, TROP & BORKSON, P.A. 200 East Las Olas Boulevard, Suite 1900 Fort Lauderdale, Florida 33301 October 1, 1997 Gay Entertainment Television, Inc. 7 East 17th Street New York, NY 1003 RE: REGISTRATION STATEMENT ON FORM SB-2; GAY ENTERTAINMENT TELEVISION, INC. (THE "COMPANY"). Gentlemen: This opinion is submitted pursuant to the applicable rules of the Securities and Exchange Commission with respect to the registration by the Company of 2,350,000 "Units,", each Unit (the "Unit") consists of one (1) share of Common Stock, $.0001 par value ("Common Stock"), and two (2) warrants (the "Warrant") to purchase one share of Common Stock at $5.25 per share to be sold by the Company. In connection therewith, we have examined and relied upon original, certified, conformed, photostat or other copies of (i) the Amended and Restated Certificate of Incorporation and Bylaws of the Company; (ii) resolutions of the Board of Directors of the Company authorizing the offering and the issuance of the Units, the Common Stock, the Warrants, and the shares of Common Stock underlying the Warrants, and related matters; (iii) the Registration Statement and the exhibits thereto; and (iv) such other matters of law as we have deemed necessary for the expression of the opinion herein contained. In all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to originals or certified documents of all copies submitted to us as conformed, photostat or other copies. In passing upon certain corporate records and documents of the Company, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Company, and we express no opinion thereon. As to the various questions of fact material to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations or certificates of officers or directors of the Company and upon documents, records and instruments furnished to us by the Company, without independently checking or verifying the accuracy of such documents, records and instruments. Based upon the foregoing, we are of the opinion that the Units, the Common Stock, the Gay Entertainment Television, Inc. October 1, 1997 Page 2 Warrants, and the shares of Common Stock underlying the Warrants have been duly and validly authorized. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to use our name under the caption "Legal Matters" in the prospectus comprising part of the Registration Statement. In giving such consent, we do not thereby admit that we are included in with the category of persons whose consent is required under Section 7 of the Act or the rules and regulations promulgated thereunder. Sincerely, /s/ ATLAS, PEARLMAN, TROP & BORKSON, P.A. ----------------------------------------- ATLAS, PEARLMAN, TROP & BORKSON, P.A. EX-10.1 7 EXHIBIT 10.1 GAY ENTERTAINMENT TELEVISION, INC. ----------------------------- 1997 STOCK OPTION PLAN ----------------------------- 1. PURPOSE. The purpose of this Plan is to advance the interests of the GAY ENTERTAINMENT TELEVISION, INC., a New York corporation ("GET/the Company") and each "Subsidiary," as hereinafter defined of GET (GET and Subsidiary collectively referred to as the "Company"), by providing an additional incentive to attract and retain qualified and competent persons who are key employees of the Company, and upon whose efforts and judgment the success of the Company is largely dependent, through the encouragement of stock ownership in the Company, by such persons. 2. DEFINITIONS. As used herein, the following terms shall have the meaning indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Committee" shall mean the stock option committee appointed by the Board pursuant to Section 13 hereof or, if not appointed, the Board. (c) "Common Stock" shall mean the Company's Common Stock, par value $0.0001 per share. (d) "Director" shall mean a member of the Board. (e) "Disinterested Person" shall mean a Director who is not, during the one year prior to his or her service as an administrator of this Plan, or during such service, granted or awarded equity securities pursuant to this Plan or any other plan of the Company or any of its affiliates, except that: (i) participation in a formula plan meeting the conditions in paragraph (c)(2)(ii) of Rule 16b-3 promulgated under the Securities Exchange Act shall not disqualify a Director from being a Disinterested Person; (ii) participation in an ongoing securities acquisition plan meeting the conditions in paragraph (d)(2)(i) of Rule 16b-3 promulgated under the Securities Exchange Act shall not disqualify a Director from being a Disinterested Person; and (iii) an election to receive an annual retainer fee in either cash or an equivalent amount of securities, or partly in cash and partly in securities, shall not disqualify a Director from being a Disinterested Person. (f) "Fair Market Value" of a Share on any date of reference shall be the "Closing Price" (as defined below) of the Common Stock on the business day immediately preceding such date, unless the Committee, in its sole discretion, shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the "Closing Price" of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system, or (iii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the ten preceding days. (g) "Incentive Stock Option" or "ISO" shall mean an incentive stock option as defined in Section 422 of the Internal Revenue Code. (h) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (i) "Non-Statutory Stock Option" or "NSO" shall mean an Option which is not an Incentive Stock Option. (j) "Officer" shall mean the Company's president, principal financial officer, principal accounting officer and any other person who the Company identifies as an "executive officer" for purposes of reports or proxy materials filed by the Company pursuant to the Securities Exchange Act. (k) "Option" (when capitalized) shall mean any option granted under this Plan. (l) "Optionee" shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person. (m) "Plan" shall mean this Stock Option Plan for the Company. (n) "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2 (o) "Share(s)" shall mean a share or shares of the Common Stock. (p) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time the Option is granted, each of the corporations other than the last corporation in the unbroken chain owns 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. SHARES AND OPTIONS. The Company may grant to Optionees from time to time Options to purchase an aggregate of up to Five Hundred Thousand (500,000) Shares from Shares held in the Company's treasury or from authorized and unissued Shares. If any Option granted under the Plan shall terminate, expire or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares. An Option granted hereunder shall be either an Incentive Stock Option or a Non-Statutory Stock Option as determined by the Committee at the time of grant of such Option and shall clearly state whether it is an Incentive Stock Option or Non-Statutory Stock Option. All Incentive Stock Options shall be granted within 10 years from the effective date of this Plan. 4. DOLLAR LIMITATION. Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options only to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of the Internal Revenue Code Section 422(b) are exercisable for the first time by any individual during any calendar year (under all plans of the Company), exceeds $100,000. 5. CONDITIONS FOR GRANT OF OPTIONS. (a) Each Option shall be evidenced by an option agreement that may contain any term deemed necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be those persons selected by the Committee from the class of all regular employees of the Company, including employees who are also Directors or Officers. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver. (b) In granting Options, the Committee may take into consideration the contribution the person has made to the success of the Company and such other factors as the Committee shall determine. The Committee shall also have the authority to consult with and receive recommendations from officers and other personnel of the Company with regard to these matters. The Committee may, from time to time, in granting Options under the Plan, prescribe such other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the 3 date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) relating an Option to the continued employment of the Optionee for a specified period of time, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein. (c) The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment with the Company. Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to employment or continuance of employment by the Company. (d) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, Options may not be granted to a Director or Officer unless the grant of such Options is authorized by, and all of the terms of such Options are determined by, a Committee that is appointed in accordance with Section 14 of this Plan and all of whose members are Disinterested Persons. 6. OPTION PRICE. The option price per Share of any Option shall be any price determined by the Committee but shall not be less than the par value per Share; provided, however, that in no event shall the option price per Share of any Incentive Stock Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted. 7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate option price of the Shares as to which the Option is exercised has been made, and (iii) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for the Optionee's payment to the Company of the amount that is necessary for the Company employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements. Unless further limited by the Committee in any Option, the option price of any Shares purchased shall be paid in cash, by certified or official bank check, by money order, with Shares or by a combination of the above; provided further, however, that the Committee, in its sole discretion, may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercised. The Company, in its sole discretion, may, on an individual basis or pursuant to a general program established by the Committee in connection with this Plan, lend money to an Optionee to exercise all or a portion of an Option granted hereunder. If the exercise price is paid in whole or in part with the Optionee's promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at a rate no less than the rate of interest payable by the Company to its principal lender, and (iv) 4 contain such other terms as the Committee, in its sole discretion, shall require. No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 11 hereof. 8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee shall provide in such Option, except as otherwise provided in this Section 8. (a) The expiration date of an Option shall be determined by the Committee at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the Option. (b) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable: (i) if there occurs any transaction (which shall include a series of transactions occurring within 60 days or occurring pursuant to a plan), that has the result that shareholders of the Company immediately before such transaction cease to own at least 51% of the voting stock of the Company or of any entity that results from the participation of the Company in a reorganization, consolidation, merger, liquidation or any other form of corporate transaction; (ii) if the shareholders of the Company shall approve a plan of merger, consolidation, reorganization, liquidation or dissolution in which the Company does not survive (unless the approved merger, consolidation, reorganization, liquidation or dissolution is subsequently abandoned); or (iii) if the shareholders of the Company shall approve a plan for the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Company (unless such plan is subsequently abandoned). (c) The Committee may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option. (d) Options granted to Officers and Directors shall not be exercisable until the expiration of a period of at least six months following the date of grant. 9. TERMINATION OF OPTION PERIOD. 5 (a) The unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (i) three months after the date on which the Optionee's employment is terminated or, in the case of a Non-Statutory Stock Option, and unless the Committee shall otherwise determine in writing, in its sole discretion, the date on which the Optionee's employment is terminated, in either case for any reason other than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean the termination of the Optionee's employment by reason of the Optionee's wilful misconduct or gross negligence, (B) a mental or physical disability as determined by a medical doctor satisfactory to the Committee, or (C) death; (ii) immediately upon the termination of the Optionee's employment for Cause; (iii) one year after the date on which the Optionee's employment is terminated by reason of a mental or physical disability (within the meaning of Internal Revenue Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee; or (iv) (A) 12 months after the date of termination of the Optionee's employment by reason of death of the employee, or (B) three months after the date on which the Optionee shall die if such death shall occur during the one-year period specified in Subsection 9(a)(iii) hereof. (b) The Committee, in its sole discretion, may, by giving written notice ("Cancellation Notice") cancel, effective upon the date of the consummation of any corporate transaction described in Subsections 8(b)(ii) or (iii) hereof, any Option that remains unexercised on such date. Such cancellation notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after approval of such corporate transaction. 10. RELOAD OPTIONS. The Committee may provide for the grant to any Optionee of additional Options upon the exercise of Options ("Reload Options"), including the exercise of Reload Options, through the delivery of Shares; provided, however, that (i) the Reload Options may be granted only with respect to the same number of Shares as were surrendered to exercise the Options, (ii) the exercise price of the Reload Options will be the Fair Market Value on the date of grant of the Reload Options, (iii) with respect to Optionees who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act, the Reload Option may not be exercised after the date the Options with respect to which such Reload Options were granted expire or terminate and (iv) the provisions contained in this Section may not be amended more than once every 6 six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. 11. ADJUSTMENT OF SHARES. (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event: (i) appropriate adjustment shall be made in the maximum number of Shares available for grant under the Plan, so that the same percentage of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; and (ii) appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate price. (b) Subject to the specific terms of any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the Committee's sole discretion, such adjustments become appropriate by reason of a corporate transaction described in Subsections 8(b)(ii) or (iii) hereof. (c) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to the number of or exercise price of Shares then subject to outstanding Options granted under the Plan. (d) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the 7 Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. 12. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such Option shall not be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each Option shall be exercisable during the Optionee's lifetime only by the Optionee. 13. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares upon exercise of any Option, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation including, but not limited to, the following: (i) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (ii) a representation, warranty and/or agreement to be bound by any legends that are, in the opinion of the Committee, necessary or appropriate to comply with the provisions of any securities law deemed by the Committee to be applicable to the issuance of the Shares and are endorsed upon the Share certificates. 14. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the Committee, which shall consist of not less than two Directors, each of whom shall be Disinterested Persons to the extent required by Section 5(d) hereof. The Committee shall have all of the powers of the Board with respect to the Plan. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. (b) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of the Plan. The Committee's determinations and its interpretation and construction of any provision of the Plan shall be final and conclusive. (c) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Committee. 15. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any other provisions of the Plan to the contrary, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Internal Revenue Code) at the date of grant, stock possessing more than 10% of the 8 total combined voting power of all classes of stock of the Company (or of its subsidiary [as defined in Section 424 of the Internal Revenue Code] at the date of grant) unless the option price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. 16. INTERPRETATION. (a) The Plan shall be administered and interpreted so that all Incentive Stock Options granted under the Plan will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code. If any provision of the Plan should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, but instead the Plan shall be construed and enforced as if such provision had never been included in the Plan. (b) This Plan shall be governed by the laws of the State of New York. (c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan. (d) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. 17. AMENDMENT AND DISCONTINUATION OF THE PLAN. Either the Board or the Committee may from time to time amend the Plan or any Option; provided, however, that, except to the extent provided in Section 11, no such amendment may, without approval by the shareholders of the Company, (a) materially increase the benefits accruing to participants under the Plan, (b) materially increase the number of securities which may be issued under the Plan, or (c) materially modify the requirements as to eligibility for participation in the Plan; and provided further, that, except to the extent provided in Section 9, no amendment or suspension of the Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of such Optionee. 18. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan is the date on which the Board adopts this Plan, which is September 1, 1997, and the Plan shall terminate on the 10th anniversary year of the effective date. GAY ENTERTAINMENT TELEVISION, INC. By:___________________________ Marvin A. Schwam, CEO 9 [NSO GRANT FORM] GAY ENTERTAINMENT TELEVISION, INC. 7 East 17th Street New York, NY 10003 Date: __________ - ---------- - ---------- - ---------- Dear __________: The Board of Directors of Gay Entertainment Television, Inc. (the "Corporation") is pleased to award you an Option pursuant to the provisions of the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option granted to you. Attached to this letter is a copy of the Plan. The terms of the Plan also set forth provisions governing the Option granted to you. Therefore, in addition to reading this letter you should also read the Plan. Your signature on this letter is an acknowledgement to us that you have read and under-stand the Plan and that you agree to abide by its terms. All terms not defined in this letter shall have the same meaning as in the Plan. 1. TYPE OF OPTION. You are granted an NSO. Please see in particular Section 11 of the Plan. 2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set forth, we grant you the right to purchase __________ shares of Stock at $__________ per share, the current fair market value of a share of Stock. The right to purchase the shares of Stock accrues in __________ installments over the time periods described below: The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. 3. TIME OF EXERCISE. The Option may be exercised at any time and from time to time beginning when the right to purchase the shares of Stock accrues and ending when they terminate as provided in Section 5 of this letter. 4. METHOD OF EXERCISE. The Options shall be exercised by written notice to the Chief Financial Officer at the Corporation's principal place of business. The notice shall set forth the number of shares of Stock to be acquired and shall contain a check payable to the Corporation in full payment for the Stock or that number of already owned shares of Stock equal in value to the total Exercise Price of the Option. We shall make delivery of the shares of Stock subject to the conditions described in Section 13 of the Plan. 5. TERMINATION OF OPTION. To the extent not exercised, the Option shall terminate upon the first to occur of the following dates: (a) __________, 199_, being __________ years from the date of grant pursuant to the provisions of Section 2 of this Agreement; or (b) The expiration of three months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan for any reason, other than by reason of death or permanent disability. As used herein, "permanent disability" means your inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or (c) The expiration of 12 months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan, if such employment termination occurs by reason of your death or by reason of your permanent disability (as defined above). 6. SECURITIES LAWS. The Option and the shares of Stock underlying the Option have not been registered under the Securities Act of 1933, as amended (the "Act"). The Corporation has no obligations to ever register the Option or the shares of Stock underlying the Option. All shares of Stock acquired upon the exercise of the Option shall be "restricted securities" as that term is defined in Rule 144 promulgated under the Act. The certificate representing the shares shall bear an appropriate legend restricting their transfer. Such shares cannot be sold, transferred, assigned or otherwise hypothecated without registration under the Act or unless a valid exemption from registration is then available under applicable federal and state securities laws and the Corporation has been furnished with an opinion of counsel satisfactory in form and substance to the Corporation that such registration is not required. 7. BINDING EFFECT. The rights and obligations described in this letter shall inure to the benefit of and be binding upon both of us, and our respective heirs, personal representatives, successors and assigns. 2 8. DATE OF GRANT. The Option shall be treated as having been granted to you on the date of this letter even though you may sign it at a later date. Very truly yours, By: ------------------- President AGREED AND ACCEPTED: - --------------------- 3 Date: ________________ GAY ENTERTAINMENT TELEVISION, INC. 7 East 17th Street New York, NY 10003 - --------------- - --------------- - --------------- Dear _______________: The Board of Directors of Gay Entertainment Television, Inc. (the "Corporation") is pleased to award you an Option pursuant to the provisions of the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option granted to you. Attached to this letter is a copy of the Plan. The terms of the Plan also set forth provisions governing the Option granted to you. Therefore, in addition to reading this letter you should also read the Plan. Your signature on this letter is an acknowledgement to us that you have read and under-stand the Plan and that you agree to abide by its terms. All terms not defined in this letter shall have the same meaning as in the Plan. 1. TYPE OF OPTION. You are granted an ISO. Please see in particular Section 11 of the Plan. 2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set forth, we grant you the right to purchase __________ shares of Stock at $__________ per share, the current fair market value of a share of Stock. The right to purchase the shares of Stock accrues in __________ installments over the time periods described below: The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. 3. TIME OF EXERCISE. The Option may be exercised at any time and from time to time beginning when the right to purchase the shares of Stock accrues and ending when they terminate as provided in Section 5 of this letter. 4. METHOD OF EXERCISE. The Options shall be exercised by written notice to the Chief Financial Officer at the Corporation's principal place of business. The notice shall set forth the number of shares of Stock to be acquired and shall contain a check payable to the Corporation in full payment for the Stock or that number of already owned shares of Stock equal in value to the total Exercise Price of the Option. We shall make delivery of the shares of Stock subject to the conditions described in Section 13 of the Plan. 5. TERMINATION OF OPTION. To the extent not exercised, the Option shall terminate upon the first to occur of the following dates: (a) _____________, 199___, being __________ years from the date of grant pursuant to the provisions of Section 2 of this Agreement; or (b) The expiration of thirty (30) days following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan for any reason, other than by reason of death or permanent disability. As used herein, "permanent disability" means your inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or (c) The expiration of 12 months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan, if such employment termination occurs by reason of your death or by reason of your permanent disability (as defined above). 6. SECURITIES LAWS. The Option and the shares of Stock underlying the Option have not been registered under the Securities Act of 1933, as amended (the "Act"). The Corporation has no obligations to ever register the Option or the shares of Stock underlying the Option. All shares of Stock acquired upon the exercise of the Option shall be "restricted securities" as that term is defined in Rule 144 promulgated under the Act. The certificate representing the shares shall bear an appropriate legend restricting their transfer. Such shares cannot be sold, transferred, assigned or otherwise hypothecated without registration under the Act or unless a valid exemption from registration is then available under applicable federal and state securities laws and the Corporation has been 2 furnished with an opinion of counsel satisfactory in form and substance to the Corporation that such registration is not required. 7. BINDING EFFECT. The rights and obligations described in this letter shall inure to the benefit of and be binding upon both of us, and our respective heirs, personal representatives, successors and assigns. 8. DATE OF GRANT. The Option shall be treated as having been granted to you on the date of this letter even though you may sign it at a later date. Very truly yours, By: --------------------------- President AGREED AND ACCEPTED: - ------------------------- 3 [NSO GRANT FORM WITH RELOAD OPTIONS] GAY ENTERTAINMENT TELEVISION, INC. 7 East 17th Street New York, NY 10003 Date: __________ - ---------- - ---------- - ---------- Dear __________: The Board of Directors of Gay Entertainment Television, Inc. (the "Corporation") is pleased to award you an Option pursuant to the provisions of the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option granted to you. Attached to this letter is a copy of the Plan. The terms of the Plan also set forth provisions governing the Option granted to you. Therefore, in addition to reading this letter you should also read the Plan. Your signature on this letter is an acknowledgement to us that you have read and under-stand the Plan and that you agree to abide by its terms. All terms not defined in this letter shall have the same meaning as in the Plan. 1. TYPE OF OPTION. You are granted an NSO. Please see in particular Section 11 of the Plan. 2. RIGHTS AND PRIVILEGES. (a) Subject to the conditions hereinafter set forth, we grant you the right to purchase __________ shares of Stock at $__________ per share, the current fair market value of a share of Stock. The right to purchase the shares of Stock accrues in __________ installments over the time periods described below: The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. (b) In addition to the Option granted hereby (the "Underlying Option"), the Corporation will grant you a reload option (the "Reload Option") as hereinafter provided. A Reload Option is hereby granted to you if you acquire shares of Stock pursuant to the exercise of the Underlying Option and pay for such shares of Stock with shares of Common Stock already owned by you (the "Tendered Shares"). The Reload Option grants you the right to purchase shares of Stock equal in number to the number of Tendered Shares. The date on which the Tendered Shares are tendered to the Corporation in full or partial payment of the purchase price for the shares of Stock acquired pursuant to the exercise of the Underlying Option is the Reload Grant Date. The exercise price of the Reload Option is the fair market value of the Tendered Shares on the Reload Grant Date. The fair market value of the Tendered Shares shall be the low bid price per share of the Corporation's Common Stock on the Reload Grant Date. The Reload Option shall vest equally over a period of __________ (___) years, commencing on the first anniversary of the Reload Grant Date, and on each anniversary of the Reload Grant Date thereafter; however, no Reload Option shall vest in any calendar year if it would allow you to purchase for the first time in that calendar year shares of Stock with a fair market value in excess of $100,000, taking into account ISOs previously granted to you. The Reload Option shall expire on the earlier of (i) __________ (___) years from the Reload Grant Date, or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with Paragraph 5(c) as set forth herein. If vesting of the Reload Option is deferred, then the Reload Option shall vest in the next calendar year, subject, however, to the deferral of vesting previously provided. Except as provided herein the Reload Option is subject to all of the other terms and provisions of this Agreement governing Options. 3. TIME OF EXERCISE. The Option may be exercised at any time and from time to time beginning when the right to purchase the shares of Stock accrues and ending when they terminate as provided in Section 5 of this letter. 4. METHOD OF EXERCISE. The Options shall be exercised by written notice to the Chief Financial Officer at the Corporation's principal place of business. The notice shall set forth the number of shares of Stock to be acquired and shall contain a check payable to the Corporation in full payment for the Stock or that number of already owned shares of Stock equal in value to the total Exercise Price of the Option. We shall make delivery of the shares of Stock subject to the conditions described in Section 13 of the Plan. 5. TERMINATION OF OPTION. To the extent not exercised, the Option shall terminate upon the first to occur of the following dates: (a) __________, 199_, being __________ years from the date of grant pursuant to the provisions of Section 2 of this Agreement; or 2 (b) The expiration of three months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan for any reason, other than by reason of death or permanent disability. As used herein, "permanent disability" means your inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or (c) The expiration of 12 months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan, if such employment termination occurs by reason of your death or by reason of your permanent disability (as defined above). 6. SECURITIES LAWS. The Option and the shares of Stock underlying the Option have not been registered under the Securities Act of 1933, as amended (the "Act"). The Corporation has no obligations to ever register the Option or the shares of Stock underlying the Option. All shares of Stock acquired upon the exercise of the Option shall be "restricted securities" as that term is defined in Rule 144 promulgated under the Act. The certificate representing the shares shall bear an appropriate legend restricting their transfer. Such shares cannot be sold, transferred, assigned or otherwise hypothecated without registration under the Act or unless a valid exemption from registration is then available under applicable federal and state securities laws and the Corporation has been furnished with an opinion of counsel satisfactory in form and substance to the Corporation that such registration is not required. 7. BINDING EFFECT. The rights and obligations described in this letter shall inure to the benefit of and be binding upon both of us, and our respective heirs, personal representatives, successors and assigns. 8. DATE OF GRANT. The Option shall be treated as having been granted to you on the date of this letter even though you may sign it at a later date. Very truly yours, By: ----------------------------- President AGREED AND ACCEPTED: - ------------------------- 3 EX-10.2 8 EXHIBIT 10.2 GAY ENTERTAINMENT TELEVISION, INC. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN ------------------------------------------ 1. PURPOSE. The purpose of this Non-Employee Director Stock Option Plan (the "Plan") is to advance the interests of GAY ENTERTAINMENT TELEVISION, INC., a New York corporation ("GET/the Company") and each of its "Subsidiaries," as hereinafter defined (GET and Subsidiaries collectively referred to as the "Company"), by providing an additional incentive to attract and retain non-employee directors through the encouragement of stock ownership in the Company by such persons. 2. DEFINITIONS. As used herein, the following terms shall have the meaning indicated: (a) "Annual Meeting Date" shall mean the date of the annual meeting of the Company's shareholders at which the Directors are elected. (b) "Board" shall mean the Company's Board of Directors and the Board of Directors of any Subsidiary. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Common Stock" shall mean the Common Stock, par value $.0001 per share, of the Company. (e) "Director" shall mean a member of the Board. (f) "Eligible Director" means any person who is a member of the Board and who is not an employee, full time or part time, of the Company. For purposes of this Plan, a director who does not receive regular compensation from the Company or its subsidiaries, other than directors' fees and reimbursement for expenses, shall not be considered to be an employee of the Company, even if such director is an officer of a subsidiary of the Company. (g) "Fair Market Value" of the Common Stock on any date of reference shall be the Closing Price on the business day immediately preceding such date of the Common Stock; provided, that for purposes of grants made on the Initial Grant Date to persons who are Eligible Directors on the Effective Date, the term "Fair Market Value" shall mean the initial public offering price per share of Common Stock. For this purpose, the Closing Price of the Common Stock on any business day shall be (i) if such Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System, or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for such day of the Common Stock on such system, or (iii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for the Common Stock on at least five of the ten preceding days. (h) "Initial Grant Date" means (i) in the case persons who are or become Eligible Directors of the Company on the effective date of the Company's Registration Statement on Form SB-2 (the "Effective Date") to be filed with the Securities and Exchange Commission in connection with the Company's initial public offering, the Effective Date and (ii) in all other cases, the date on which a person is elected as a member of the Board. (i) "Option" (when capitalized) shall mean any option granted under this Plan. (j) "Option Agreement" means the agreement between the Company and the Optionee for the grant of an option. (k) "Optionee" shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person. (l) "Parent" means a "parent corporation" as defined in Section 425(e) and (g) of the Code. (m) "Share(s)" shall mean a share or shares of the Common Stock. (n) "Subsidiary" shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. SHARES AND OPTIONS. Subject to Section 9 of this Plan, the Company may grant to Optionees from time to time Options to purchase an aggregate of up to Four Hundred Thousand (400,000) Shares from authorized and unissued Shares. If any Option granted under the Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares. 2 4. GRANTS OF OPTIONS. (a) On the Initial Grant Date, each Eligible Director shall receive the grant of an Option to purchase Twenty-Five Thousand (25,000) Shares which shares shall vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting. (b) Each Eligible Director shall receive an annual grant of an Option to purchase Five Thousand (5,000) Shares on each Annual Meeting Date subsequent to his election as a director of the Company, beginning with the first Annual Meeting Date after the Initial Grant Date for each such Eligible Director; which shares shall vest one year from the date of grant, and shall be exercisable for a period of five (5) years from the date of vesting. (c) Upon the grant of each Option, the Company and the Eligible Director shall enter into an Option Agreement, which shall specify the grant date and the exercise price and shall include or incorporate by reference the substance of this Plan and such other provisions consistent with this Plan as the Board may determine. 5. EXERCISE PRICE. The exercise price per Share of any Option shall be the Fair Market Value of the Shares underlying such Option at the close of business on the date such Option is granted. 6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate exercise price of the Shares as to which the Option is exercised has been made, and (iii) arrangements that are satisfactory to the Board in its sole discretion have been made for the Optionee's payment to the Company of the amount that is necessary for the Company or Subsidiary employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements. The exercise price of any Shares purchased shall be paid in cash, by certified or official bank check or personal check, by money order, with Shares or by a combination of the above. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercised. No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of the Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 9 hereof. 7. EXERCISE SCHEDULE FOR OPTIONS. Each Option granted hereunder shall not be exercisable until after six months following its grant to an Eligible Director. 3 Thereafter, such Option shall be exercisable in full. The expiration date of an Option shall be five years from the date of grant of the Option. 8. TERMINATION OF OPTION PERIOD. (a) The unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (i) three months after the date on which the Optionee ceases to be a Director for any reason other than by reason of (A) "Cause" (which, for purposes of this Plan, shall mean the removal of the Optionee as a Director by reason of any act of (a) fraud or intentional misrepresentations, or (b) embezzlement, misappropriation, or conversion of assets or opportunities of the Company or any Subsidiary, or (B) death; (ii) immediately upon the removal of the Optionee as a Director for Cause; (iii) one year after the date the Optionee ceases to be a Director by reason of death of the Optionee; (b) The Board in its sole discretion may, by giving written notice ("Cancellation Notice"), cancel any Option that remains unexercised on the date of the consummation of any corporation transaction; (i) if the shareholders of the Company shall approve a plan of merger, consolidation, reorganization, liquidation or dissolution in which the Company does not survive (unless the approved merger, consolidation, reorganization, liquidation or dissolution is subsequently abandoned); or (ii) if the shareholders of the Company shall approve a plan for the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Company (unless such plan is subsequently abandoned). Any Cancellation Notice shall be given a reasonable period of time to the proposed date of such cancellation and may be given either before or after shareholder approval of such corporation transaction. 9. ADJUSTMENT OF SHARES. (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any 4 recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event: (i) appropriate adjustment shall be made in the maximum number of Shares available for grant under the Plan, so that the same percentage of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; and (ii) appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price. (b) Subject to the specific terms of any Option, the Board may change the terms of Options outstanding under this Plan, with respect to the exercise price or the number of Shares subject to the Options, or both, when in the Board's sole discretion, such adjustments become appropriate by reason of a corporate transaction described in Subsections 8(b)(i) or (ii) hereof. (c) Except as otherwise expressly provided herein, the issuance by the Company of Shares of its capital stock of any class, or securities convertible into Shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of Shares or obligations of the Company convertible into such Shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of the Shares then subject to outstanding Options granted under the Plan. (d) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. 10. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such Option shall not be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each Option shall be exercisable during the Optionee's lifetime only by the Optionee. 5 11. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares upon exercise of any Option, the Board may require such agreements or undertakings, if any, as the Board may deem necessary or advisable to assure compliance with any such law or regulation including, but not limited to, the following: (a) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (b) a representation, warranty and/or agreement to be bound by any legends that are, in the opinion of the Board, necessary or appropriate to comply with the provisions of any securities law deemed by the Board to be applicable to the issuance of the Shares and are endorsed upon the Share certificates. 12. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board, which shall have the authority to adopt such rules and regulations and to make such determinations as are not inconsistent with the Plan and as are necessary or desirable for the implementation and administration of the Plan. 13. INTERPRETATION. If any provision of the Plan should be held invalid or illegal for any reason, such determination shall not affect the remaining provisions hereof, but instead the Plan shall be construed and enforced as if such provision had never been included in the Plan. The determinations and the interpretation and construction of any provision of the Plan by the Board shall be final and conclusive. This Plan shall be governed by the laws of the State of Florida. Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan. Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. 14. TERM OF PLAN; AMENDMENT AND TERMINATION OF THE PLAN. (a) This Plan shall become effective upon its adoption by the Board which was September 1, 1997, and shall continue in effect until all Options granted hereunder have expired or have been exercised, unless sooner terminated under the provisions relating thereto. No Option shall be granted after 10 years from the date of the Board's adoption of this Plan. (b) The Board may from time to time amend the Plan or any Option; PROVIDED, HOWEVER, that, without approval by the Company's shareholders, no such amendment shall (i) materially increase the benefits accruing to participants under the Plan, (ii) materially increase the number of Shares or other securities reserved for issuance upon the exercise of Options, (iii) materially modify the requirements as to eligibility for participation under the Plan or (iv) otherwise involve any other change or 6 modification requiring shareholder approval under Rule 16b-3 of the Securities Act of 1933, as amended; and, PROVIDED, FURTHER, that, except to the extent otherwise specifically provided for in Section 8, no amendment or suspension of the Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of such Optionee. (c) Notwithstanding anything else contained herein, the provisions of this Plan which govern the number of Options to be awarded to non-employee directors, the exercise price per Share under each such Option, when and under what circumstances an Option will be granted and the period within which each Option may be exercised, shall not be amended more than once every six months (even with shareholder approval), other than to conform to changes to the Code, or the rules promulgated thereunder, and under the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder, or with rules promulgated by the Securities and Exchange Commission. (d) The Board, without further approval of the Company's shareholders, may at any time terminate or suspend this Plan. Any such termination or suspension of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been terminated or suspended. No Option may be granted while the Plan is suspended or after it is terminated. The rights and obligations under any Option granted to any Optionee while this Plan is in effect shall not be altered or impaired by the suspension or termination of this Plan without the consent of such Optionee. 15. RESERVATION OF SHARES. The Company, during the term of the Plan, will at all times reserve and keep available a number of Shares as shall be sufficient to satisfy the requirements of the Plan. 16. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan is the date on which the Board adopts this Plan, which is September 1, 1997, and the Plan shall terminate on the 10th anniversary year of the effective date. GAY ENTERTAINMENT TELEVISION, INC. By: -------------------------- Marvin A. Schwam, CEO 7 GAY ENTERTAINMENT TELEVISION, INC. 7 East 17th Street New York, NY 10003 Date: __________ - ------------------- - ------------------- - ------------------- Dear ______________: The Board of Directors of Gay Entertainment Television, Inc. (the "Corporation") is pleased to award you an Option pursuant to the provisions of the 1997 Non-Employee Director Stock Option Plan (the "Plan"). This letter will describe the Option granted to you. Attached to this letter is a copy of the Plan. The terms of the Plan also set forth provisions governing the Option granted to you. Therefore, in addition to reading this letter you should also read the Plan. Your signature on this letter is an acknowledgement to us that you have read and under-stand the Plan and that you agree to abide by its terms. All terms not defined in this letter shall have the same meaning as in the Plan. 1. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set forth, we grant you the right to purchase __________ shares of Stock at $__________ per share, the current fair market value of a share of Stock. The right to purchase the shares of Stock accrues in __________ installments over the time periods described below: The right to acquire __________ shares accrues on __________. The right to acquire __________ shares accrues on __________. 2. TIME OF EXERCISE. The Option may be exercised at any time and from time to time beginning when the right to purchase the shares of Stock accrues and ending when they terminate as provided in Section 4 of this letter. 3. METHOD OF EXERCISE. The Options shall be exercised by written notice to the Chief Financial Officer at the Corporation's principal place of business. The notice shall set forth the number of shares of Stock to be acquired and shall contain a check payable to the Corporation in full payment for the Stock or that number of already owned shares of Stock equal in value to the total Exercise Price of the Option. We shall make delivery of the shares of Stock subject to the conditions described in Section 11 of the Plan. 8 4. TERMINATION OF OPTION. (a) The unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (i) three months after the date on which the Optionee ceases to be a Director for any reason other than by reason of (A) "Cause" (which, for purposes of this Plan, shall mean the removal of the Optionee as a Director by reason of any act of (a) fraud or intentional misrepresentations, or (b) embezzlement, misappropriation, or conversion of assets or opportunities of the Company or any Subsidiary, or (B) death; (ii) immediately upon the removal of the Optionee as a Director for Cause; (iii) one year after the date the Optionee ceases to be a Director by reason of death of the Optionee; (b) The Board in its sole discretion may, by giving written notice ("Cancellation Notice"), cancel any Option that remains unexercised on the date of the consummation of any corporation transaction; (i) if the shareholders of the Company shall approve a plan of merger, consolidation, reorganization, liquidation or dissolution in which the Company does not survive (unless the approved merger, consolidation, reorganization, liquidation or dissolution is subsequently abandoned); or (ii) if the shareholders of the Company shall approve a plan for the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Company (unless such plan is subsequently abandoned). Any Cancellation Notice shall be given a reasonable period of time to the proposed date of such cancellation and may be given either before or after shareholder approval of such corporation transaction. 5. SECURITIES LAWS. The Option and the shares of Stock underlying the Option have not been registered under the Securities Act of 1933, as amended (the "Act"). The Corporation has no obligations to ever register the Option or the shares of Stock underlying the Option. All shares of Stock acquired upon the exercise of the Option shall be "restricted securities" as that term is defined in Rule 144 promulgated under the Act. The certificate representing the shares shall bear an appropriate legend restricting their transfer. Such shares cannot be sold, transferred, assigned or otherwise hypothecated without 9 registration under the Act or unless a valid exemption from registration is then available under applicable federal and state securities laws and the Corporation has been furnished with an opinion of counsel satisfactory in form and substance to the Corporation that such registration is not required. 6. BINDING EFFECT. The rights and obligations described in this letter shall inure to the benefit of and be binding upon both of us, and our respective heirs, personal representatives, successors and assigns. 7. DATE OF GRANT. The Option shall be treated as having been granted to you on the date of this letter even though you may sign it at a later date. Very truly yours, By: ---------------------------- President AGREED AND ACCEPTED: - -------------------- 10 GAY ENTERTAINMENT TELEVISION, INC. 7 East 17th Street New York, NY 10003 Date: __________ - ---------- - ---------- - ---------- Dear __________: The Board of Directors of Gay Entertainment Television, Inc. (the "Corporation") is pleased to award you an Option pursuant to the provisions of the 1997 Stock Option Plan (the "Plan"). This letter will describe the Option granted to you. Attached to this letter is a copy of the Plan. The terms of the Plan also set forth provisions governing the Option granted to you. Therefore, in addition to reading this letter you should also read the Plan. Your signature on this letter is an acknowledgement to us that you have read and under-stand the Plan and that you agree to abide by its terms. All terms not defined in this letter shall have the same meaning as in the Plan. 1. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set forth, we grant you the right to purchase __________ shares of Stock at $__________ per share, the current fair market value of a share of Stock. 2. TIME OF EXERCISE. The Option may be exercised at any time and from time to time beginning when the right to purchase the shares of Stock accrues and ending when they terminate as provided in Section 4 of this letter. 3. METHOD OF EXERCISE. The Options shall be exercised by written notice to the Chief Financial Officer at the Corporation's principal place of business. The notice shall set forth the number of shares of Stock to be acquired and shall contain a check payable to the Corporation in full payment for the Stock or that number of already owned shares of Stock equal in value to the total Exercise Price of the Option. We shall make delivery of the shares of Stock subject to the conditions described in Section 13 of the Plan. 4. TERMINATION OF OPTION. To the extent not exercised, the Option shall terminate upon the first to occur of the following dates: (a) __________, 199_, being __________ years from the date of grant pursuant to the provisions of Section 2 of this Agreement; or (b) The expiration of three months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan for any 11 reason, other than by reason of death or permanent disability. As used herein, "permanent disability" means your inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or (c) The expiration of 12 months following the date your employment terminates with the Corporation and any of its subsidiaries included in the Plan, if such employment termination occurs by reason of your death or by reason of your permanent disability (as defined above). 5. SECURITIES LAWS. The Option and the shares of Stock underlying the Option have not been registered under the Securities Act of 1933, as amended (the "Act"). The Corporation has no obligations to ever register the Option or the shares of Stock underlying the Option. All shares of Stock acquired upon the exercise of the Option shall be "restricted securities" as that term is defined in Rule 144 promulgated under the Act. The certificate representing the shares shall bear an appropriate legend restricting their transfer. Such shares cannot be sold, transferred, assigned or otherwise hypothecated without registration under the Act or unless a valid exemption from registration is then available under applicable federal and state securities laws and the Corporation has been furnished with an opinion of counsel satisfactory in form and substance to the Corporation that such registration is not required. 6. BINDING EFFECT. The rights and obligations described in this letter shall inure to the benefit of and be binding upon both of us, and our respective heirs, personal representatives, successors and assigns. 7. DATE OF GRANT. The Option shall be treated as having been granted to you on the date of this letter even though you may sign it at a later date. Very truly yours, By: -------------------------- President AGREED AND ACCEPTED: - -------------------------- 12 EX-10.4 9 EXHIBIT 10.4 CONSULTING AGREEMENT THIS AGREEMENT (the "Agreement") is made this 16th day of May, 1997 (the "Effective Date") by and between GAY ENTERTAINMENT TELEVISION, INC., a New York corporation located in New York City, NY (the "Company") and DAVID MAYER, an individual residing in Boca Raton, Florida (the "Consultant"). RECITALS The Consultant provides professional business, corporate finance, and financial public relations, consulting and advisory services designed to inform interested parties as to the business products, management marketing and financial potential of the Consultant's clients; The Company desires to engage the Consultant to perform certain services on behalf of the Company and the Consultant desires to perform such services, as described more fully in this Agreement. NOW, THEREFORE, in consideration of the premises, the terms, covenants and conditions herein and other valuable consideration, the receipt, adequacy and sufficiency of which the parties hereto acknowledge, the parties hereto agree as follows: 1. APPOINTMENT. The Company hereby appoints and retains the Consultant on the terms and conditions of this Agreement. The Consultant accepts such appointment and agrees to perform the services upon the terms and conditions of this Agreement. 2. TERM. Except as otherwise terminated pursuant to Section 8 of this Agreement, the term of this Agreement shall begin on the date hereof and shall terminate on May 15, 2001. The Consultant shall commence providing its services following request by the Company. 3. CONSULTING SERVICES. (a) Consultant shall provide advice to, and consult with, the Company in the preparation of the Company's business plan and business strategy, and the implementation thereof. (b) Consultant shall provide advice to, and consult with, the Company concerning financing planning, corporate organization and structure, financial matters in connection with the operation of the business of the Company, and private and public equity and debt financing, acquisitions and more particularly, (i) research, evaluation, due diligence and negotiations with respect to strategic partners, (ii) evaluate, introduce, negotiate and facilitate the sources of credit, banking relations and related financial opportunities, (iii) negotiate and assist the Company in terms of developing sources for additional programming; and (iv) conduct market surveys and studies and provide general marketing assistance, (v) assist and advise the Company with respect to shareholder and investor relations, and (vi) assist the Company in the preparation of reports to its shareholders and investors. (c) Consultant shall act, generally, as financial public relations counsel, essentially acting (i) as liaison between the Company and its shareholders; (ii) as advisor to the Company with respect to existing and potential market makers, broker-dealers, underwriters and investors as well as being the liaison between the Company and such persons; and (iii) as advisor to the Company with respect to communications and information (e.g., interviews, press releases, shareholder reports, and similar type documents) as well as planning, designing, developing, organizing, writing and distributing such communications and information. (d) The Consultant shall assist in establishing, and advise the Company with respect to: shareholder meetings; interviews of Company officers by the financial media; and interviews of Company officers by analysts, market makers, broker-dealers and other members of the financial community. 4. DUTIES OF THE COMPANY. (a) The Company shall supply the Consultant, on a regular and timely basis, with all approved data and information about the Company, its management, its products and its operations, and the Company shall be responsible for advising the Consultant of any facts which would affect the accuracy of any prior data and information previously supplied to the Consultant so that the Consultant may take corrective action. (b) The Company shall promptly supply the Consultant with: full and complete copies of all filings with all federal and state securities agencies; full and complete copies of all shareholder reports and communications, whether or not prepared with the Consultant's assistance; all data and information supplied to any analyst, broker-dealer, market maker or other member of the financial community; and all product/services brochures, sales materials, etc. (c) The Company shall promptly notify the Consultant of the filing of any registration statement or private placement memorandum for the sale of securities and of any other event which imposes any restrictions on publicity. (d) The Company shall contemporaneously notify the Consultant if any information or data being supplied to the Consultant has not been generally released or promulgated. 5. REPRESENTATION AND INDEMNIFICATION. (a) The Company shall be deemed to make a continuing representation of the accuracy of any and all material facts, material information and data which it supplies to the Consultant and the Company acknowledges its awareness that the Consultant will rely on such continuing representation in disseminating such information and otherwise performing its public relations functions. (b) The Consultant, in the absence of notice in writing from the Company, will rely on the continuing accuracy of material, information and data supplied by the Company. 2 (c) The Company hereby agrees to indemnify the Consultant against, and to hold the Consultant harmless from, any claims, demands, suits, loss, damages, etc. arising out of the Consultant's reliance upon the accuracy and continuing accuracy of such facts, material, information and data, unless the Consultant has been negligent in fulfilling his duties and obligations hereunder. (d) The Company hereby agrees to indemnify the Consultant against, and to hold the Consultant harmless from, any claims, demands, suits, loss, damages, etc. arising out of the Consultant's reliance on the general availability of information supplied to the consultant and the Consultant's ability to promulgate such information, unless the Consultant has been negligent in fulfilling his duties and obligations hereunder. (e) The Company hereby authorizes the Consultant to issue, in the Consultant's sole discretion, corrective, amendatory, supplemental or explanatory press releases, shareholder communications and reports, or data supplied to analysts, broker-dealers, market makers or other members of the financial community. (f) The Company shall endeavor to appoint and nominate the Consultant to be a member of the Company's Board of Directors during the Term. 6. COMPENSATION. (a) As the sole compensation for the services to be performed by the Consultant, the Consultant shall receive: i) The sum of Five Hundred Thousand ($500,000), payable over the Term of this Agreement or as mutually agreed upon by the Consultant and the Chief Executive Officer of the Company, PROVIDED HOWEVER, that no cash payments shall be made by the Company to the Consultant until such time as the Company has received public or private financing in the amount of $5 million has been received by the Company; ii) Thirteen, point three three three three three (13.33333) Shares of Common Stock of the Company, no par value, issued as of the Effective Date. (b) The Consultant, as a Director of the Company, shall be entitled to receive such other compensation as may be given to other outside Directors of the Company. (c) The Consultant shall not be entitled to reimbursement by the Company of out-of-pocket expenses as the Consultant may incur in performing service under this Agreement, unless approved in advance in writing by the Company. 7. RELATIONSHIP OF PARTIES. The Consultant is an independent contractor, responsible for compensation of its agents, employees and representatives, as well as all applicable withholding therefrom and taxes thereon (including unemployment compensation) and all workers' compensation insurance. This Agreement does not establish any partnership, joint venture, or 3 other business entity or association between the parties, and neither party is intended to have any interest in the business or property of the other. 8. TERMINATION. This Agreement may not be terminated by either party prior to the expiration of the term provided in Paragraph 2 above except as follows: (a) Upon failure of the other party to cure a material default under, or a breach of, this Agreement within thirty (30) days after written notice is given as to such breach by the terminating party; provided, however, that there shall be no termination if the defaulting party cures such default within such 30 day period or if such breach or default did not cause a material and continuing damage to the Company. (b) Upon the bankruptcy or liquidation of the other party, whether voluntary or involuntary; (c) Upon the other party taking the benefit of any insolvency law; and/or (d) Upon the other party having or applying for a receiver appointed for all or a substantial part of such party's assets or business. 9. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The Consultant acknowledges that is the policy of the Company to maintain as secret and confidential all valuable information heretofore or hereafter acquired, developed or used by the Company in relation to its business, operations, employees and customers which may give the Company a competitive advantage in its industry (all such information is hereinafter referred to as "Confidential Information"). The parties recognize that, by reason of its duties, the Consultant may acquire Confidential Information. The Consultant recognizes that all such Confidential Information is the property of the Company. In consideration of the Company entering into this Agreement, the Consultant agrees that: (a) it shall never, directly or indirectly, publicly disseminate or otherwise disclose any Confidential Information obtained during its engagement by the Company without the prior written consent of the Company, unless and until such information is otherwise known to the public generally or is not otherwise secret and confidential, it being understood that the obligation created by this subparagraph shall survive the termination of this Agreement; and (b) during the term of its engagement by the Company, the Consultant shall exercise all due and diligent precautions to protect the integrity of any of the Company's documents embodying Confidential Information (which shall be marked "Confidential" by the Company prior to delivery to the Consultant and, if not so marked, shall not be deemed to embody Confidential Information), and upon termination of its engagement, it shall return all such documents (and copies thereof) in its possession or control. 10. DISCLAIMER BY CONSULTANT. The Consultant makes no representation that (a) the price of the company's publicly-traded securities will increase, (b) any person will purchase 4 securities in the Company as a result of the contract, or (c) any investor will lend money to or invest in or with the Company. 11. NON-ASSIGNABILITY. The rights, obligations and benefits established by this Agreement shall not be assignable by either party hereto except with the consent of the other. This Agreement shall, however, be binding upon and shall inure to the benefit of the parties and their successors. 12. COMPLIANCE AND GOVERNING LAW. The Consultant, together with his agents and associates, shall take all necessary, appropriate and reasonable steps to provide the services in accordance with both the securities laws of the United States and the several states, and pursuant to the rules and regulations promulgated thereunder. The terms and provisions of this Agreement shall be governed by and construed under the laws of the State of Florida. 13. NOTICE. Notice hereunder shall be in writing and shall be deemed to have been given (a) at the time when deposited for mailing in a receptacle under the control of the United States Postal Service, by registered or certified mail, prepaid, return receipt requested, or (b) on the business day following deposit with a reputable overnight courier for overnight delivery; each addressed to the respective party at the address of such party first above written or at such other address as such party may fix by notice given pursuant to this paragraph. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute but one agreement. 15. NO OTHER AGREEMENTS. This Agreement supersedes all prior understandings, written or orally given and constitutes the entire Agreement between the parties hereto with respect to the subject matter hereof. No waiver, modification or termination of this Agreement shall be valid unless in writing signed by each of the parties hereto. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the day and year first above written. GAY ENTERTAINMENT TELEVISION, INC. By: /s/ MARVIN A. SCHWAM --------------------- Marvin A. Schwam, Chief Executive Officer CONSULTANT /s/ DAVID MAYER -------------------- David Mayer 5 EX-10.5 10 EXHIBIT 10.5 AGREEMENT In consideration for a loan by Richard P. Moorehead (the "payee") to Gay Entertainment Television, Inc. (GET) a New York Corporation, GET hereby agrees that the principal amount of the loan ($200,000), together with interest, shall be paid from the proceeds of the GET initial public offering on form SB-2 (the "Registration Statement") which the Company intends to file with the Securities and Exchange Commission. This loan shall be evidenced by a Promissory Note between the Company as Maker and the Richard Moorehead as Payee of even date. As additional consideration, the Payee shall receive 150,000 shares of Common Stock, per value $.0001 (the "Class A Common Stock") of GET, subject to a lock up period of one-year from the date of effective date of the Registration Statement or such other lock-up period as may be imposed by the Company's Underwriter or the National Association or Securities Dealers or by any national exchange including the National Association of Securities Dealer Automated Quotation (NASDAQ) System in connection with the Registration Statement provided that in the event that there is a market for the Company's Common Stock par value $.0001 on the 365th day following the effective date of Registration Statement, than such stock shall be subject to the Securities and Exchange Commission Rule 144. If for any reason the Registration Statement is not effective and closed by June 30. 2000, then and in the event payment shall be made by GET. The Company intends to use the proceeds received from the Payee in connection with the costs and expenses related to the Registration Statement. This Agreement shall be governed by the laws of New Jersey and shall be deemed entered into at 3301 A. Highway 66, Neptune, NJ 07753. This Agreement in made this 21 day of JULY, 1997. PAYEE GAY ENTERTAINMENT TELEVISION, INC. /s/ RICHARD MOOREHEAD By: /s/ MARVIN SCHWAM, PRESIDENT - ------------------------- ----------------------------- Marvin Schwam, President PROMISSORY NOTE (An aggregate of $200,000) July 21, 1997 Town River, NJ For value received, Gay Entertainment television, Inc. (the "Mark") promises to pay to the order of Richard P. Moorehead (the "Payee"), at the earlier of (i) the closing of the Maker's underwritten public offering of its securities or (ii) June 30, 1999, the principal sum (of an aggregate of) Two Hundred Thousand ($200,000) Dollars in lawful money of the United States, in hand or at the principal office of the Payee as may from time to time be designated by the Payee. This Note shall bear interest on the unpaid principal balance at the rate of Eight Percent and a half (81/2%), payable at the time of the payment of the principal sum of this Note. In the event of any default in any payment on this Note, then at the option of the Payee, this Note shall bear interest computed from the date of such default at one and one-half percent (1-1/2%) per month, but in any event not in excess of the legally prescribed rate for instruments of this kind. The term "event of default" as used herein, shall mean the failure of Maker to make any payment of the principal or interest due under the Note, which failure shall continue for five (5) days after notice of default, such notice to be delivered to Maker by registered, certified or overnight mail duly recorded at the principal office of the Maker. An provision hereof which may prove unenforceable under any law shall not effect the validity of any other provisions hereof. Maker hereby waives presentment for payment, protest and notice of protest and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. This Note shall be guaranteed by Gay Entertainment Television, Inc. (GET). This Note shall be governed by the laws of the State of New Jersey. GAY ENTERTAINMENT TELEVISION, INC. By:/s/ MARVIN SCHWAM, PRESIDENT ------------------------------- Marvin Schwam, President EX-21 11 EXHDIBIT 21 SUBSIDIARIES OF REGISTRANT The Company has no subsidiaries. EX-23.2 12 EXHIBIT 23.2 [LETTERHEAD] CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in this Form SB-2 being filed under the Securities Act of 1933 by Gay Entertainment Television, Inc. of our report dated August 19, 1977, relating to our examinations of the financial statements of Gay Entertainment Television, Inc. as of October 31, 1996 and 1995 and for the periods then ended appearing in the Prospectus. We also consent to the reference to our firm appearing under the caption "Experts" in the Form SB-2. /s/ SPEAR, SAFTER, HARMON & CO. P.A. - ------------------------------------ SPEAR, SAFER, HARMON & CO. P.A. Certified Public Accountants Miami, Florida September 25, 1997 EX-27 13
5 YEAR YEAR 8-MOS 8-MOS OCT-31-1995 OCT-31-1996 DEC-31-1996 OCT-31-1997 NOV-1-1994 NOV-1-1995 NOV-1-1995 NOV-1-1996 OCT-31-1995 OCT-31-1996 JUN-30-1996 JUN-30-1997 0 5,393 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,413 0 30 0 7,179 0 7,179 0 (3,591) 0 (4,548) 0 13,178 0 2,750 0 100,892 0 104,056 0 0 0 0 0 0 0 0 0 0 0 0 0 247 0 277 0 0 0 0 0 13,178 0 2,750 99,096 68,982 54,523 14,087 99,096 68,982 54,523 14,087 96,227 62,653 47,704 5,147 0 0 0 0 40,792 46,122 25,273 26,042 0 0 0 0 0 0 0 0 (37,923) (39,793) (18,454) (17,102) 0 0 0 0 (37,923) (39,793) (18,454) (17,102) 0 0 0 0 0 0 0 0 0 0 0 0 (37,923) (39,793) (18,454) (17,102) (.02) (.02) (.01) (.01) (.02) (.02) (.01) (.01)
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