As filed with the Securities and Exchange Commission on December 3, 1997
Registration No. 333-36873
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GAY ENTERTAINMENT TELEVISION, INC.
(Name of Small Business Issuer in its Charter)
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NEW YORK 7812 13-3693919
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification No.)
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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, CHIEF EXECUTIVE OFFICER
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:
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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
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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: [ ]
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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
---------------- ------------- ------------------ ------------------ ----------------
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Units (consisting of one 2,350,000 $4.25 $9,987,500 $3,026.52
share of Common Stock and
one Redeemable Warrant)
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 $6.375 $1,498,125 $453.98
Common Stock 235,000 ___ ___ ___
included in Underwriters'
Warrants
Warrants included in the 235,000 ___ ___ ___
Underwriters' Warrants
Common Stock 117,500 $7.875 $925,313 $280.40
underlying warrants included
in Underwriters' Warrants(2)(3)
TOTAL........................................................................................ $5,630.22
=========
=============================================================================================================
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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.
ii
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GAY ENTERTAINMENT TELEVISION, INC.
-----------------
Cross Reference Sheet for Prospectus Under Form SB-2
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Form SB-2 Item No. and Caption Caption or Location in Prospectus
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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 Business Business
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Form SB-2 Item No. and Caption Caption or Location in Prospectus
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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
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 3, 1997
GAY ENTERTAINMENT TELEVISION, INC.
2,350,000 UNITS
Each Unit Consists of One Share of Common Stock and
One Redeemable Warrant To Purchase One-Half 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 one (1) Redeemable Common Stock Purchase Warrant ("Warrant"). The
Warrants are not immediately separable from the Units, but will become separable
on or before six months from the closing of the Minimum Offering (the "Initial
Closing"), subject to the earlier separability in the sole 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 thereof. No fractional
Shares shall be issued. The Warrants are redeemable by the Company at $.05 per
Warrant, commencing one year from the Initial Closing, 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
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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 _____________, 199_.
THE AGEAN GROUP, INC.
The date of this Prospectus is December 3, 1997
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(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 $20,000
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 150% 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 ^made payable to UNITED NATIONAL BANK, A COMMERCIAL
BANK, whose address is 5901 Miami Lakes Drive, Miami Lakes, FL 33014
("Escrow Agent") 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. The Initial Closing of the Offering shall occur
the earlier of (a) 90 days from the date of the Prospectus, unless
extended for an additional 90 days upon the mutual consent of the
Representative and the Company, (b) the sale of 1,882,350 Units. The
Final Offering (the "Final Closing") shall occur the earlier of (a) 90
days from the date of the Prospectus, unless extended for an additional
90 days upon the mutual consent of the Representative and the
Underwriters, or (b) the sale of an aggregate of 2,350,000 Units.
Subscribers have no right to demand return of their subscription
payments during the escrow period.
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."
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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
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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) 475,000 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 1,882,350 AND A MAXIMUM OF
2,350,000 WARRANTS INTO APPROXIMATELY 941,175 AND 1,175,000 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, Continuation as an On-Going Concern"
and "Business -Background." The address of the Company's principal executive and
administrative office is 7 East 17th Street, New York, New York 10003 and its
telephone number is (212) 255-8824. Its fiscal year end is September 30.
3
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THE OFFERING
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Common Stock Outstanding
Prior to Offering............................................. 2,775,000
Securities Offered by the Company(1)
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(2)
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(3)
Units......................................................... GETU
Common Stock.................................................. GETC
Warrants...................................................... GETW
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(1) No current or prospective officer, director or affiliate of the Company
has indicated that he or she intends to purchase any of the Units
offered hereby, but any of them may do so in order to attain completion
of the Minimum Offering. See "Risk Factors - No Firm Commitment to
Purchase Units" and "Underwriting."
(2) This amount assumes no exercise of (i) the Underwriters' Warrants, (ii)
options to purchase up to (A) 475,000 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 1,882,350 and a maximum of 2,350,000 Warrants into
approximately 941,175 and 1,175,000 Shares, respectively, upon the
exercise of the Warrants issued in connection with this Offering.
(3) 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
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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.
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 $128,420 and $33,299, and $39,793 and $37,923 for the eleven months
ended September 30, 1997 and 1996 and for the years ended October 31, 1996 and
1995, respectively. Additionally, the Company has an accumulated deficit at
September 30, 1997 of $276,156. 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.
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.
The explanatory paragraph also states that, 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."
NO FIRM COMMITMENT TO PURCHASE UNITS; "Best Efforts", Minimum/Maximum Offering.
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
5
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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 six 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. Additionally, there can be no assurances that
even if the Minimum Offering is attained, that any of the additional 467,650
Units offered will be sold, which could impact on the Company's operation and
use of proceeds. See "Use of Proceeds."
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") (which control a number of individual cable systems in
different locations, which MSOs include companies such as Time Warner,
Continental Cable and Century Communications) and, as such, the Network competes
for a limited number of spaces with a larger number of well-established
programmers 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. See "Business Revenues."
6
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DEPENDENCE ON RELATIONSHIP WITH WESTERN INTERNATIONAL MEDIA (WIM). The Company
is highly dependent on the efforts of Western International Media (WIM), the
largest independent media management firm and buyer of spot television, radio,
outdoor (billboard), newspapers, Hispanic broadcast, and Asia media in the
United States and a subsidiary of The Interpublic Group of Companies (NYSE:IPG)
with whom the Company has established an alliance. See "Business - Strategy."
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.
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. See "Business- Revenues."
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.
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
7
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programming because it may be considered too much outside mainstream
programming. See "Business - Programming."
Management Discretion as to 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. See "Use
of Proceeds."
Control of the Company by Management. Immediately following the Final 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.
Additionally, while no current or prospective officer, director or affiliate of
the Company has indicated that he or she intends to purchase any of the Units
offered hereby in order to attain completion of the Minimum Offering, certain of
these individuals may do so. The purchase of a significant number of Units by
any of these persons could restrict the breadth and scope of the market for the
Company's securities by limiting the distribution of the Company's securities.
See "Underwriting." Additionally, any such purchases would also increase the
control of the Company by Management. See "Management" and "Principal
Shareholders."
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, however, the
Representative has participated in the selling group in thirty four (34) public
offerings and five (5) private placements since April 1, 1995. 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."
Fluctuations in Television Network Revenues. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
8
<PAGE>
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. See "Business - Government
Regulations."
RISK ASSOCIATED WITH THE ENTERTAINMENT INDUSTRY. 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 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
9
<PAGE>
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 "Business - Competition."
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. See "Business - Intellectual Property."
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 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.
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 Final 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."
10
<PAGE>
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 Initial Closing 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 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
11
<PAGE>
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
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
12
<PAGE>
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 $6.375 per Unit and the Warrants
underlying the Underwriters' Warrants will entitle the holder to purchase one
share of Common Stock at $7.875 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 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."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET. 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."
LEASE OF CURRENT EXECUTIVE OFFICES FROM COMPANY'S CHIEF EXECUTIVE OFFICER.
Currently, the Company leases approximately 3,200 square feet of space in a rent
stabilized building at a rate of $1,455 per month in New York City which is also
the residence of Marvin Schwam, the Company's Chief Executive Officer. Mr.
Schwam reimburses the Company the amount $727.50 per month for his portion of
the rent (representing 50% of the rent). To the extent that Mr. Schwam were to
lose his lease or were no longer affiliated with the Company, the Company would
likely be unable to lease its executive offices from Mr. Schwam. Subsequent to
the Initial Closing of this Offering, however, the Company will seek to lease a
facility for its executive offices as well for its production studios. See
"Business - Facilities" and "Certain Relationships and Related Transactions."
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
13
<PAGE>
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 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."
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<PAGE>
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:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
ANTICIPATED USE MINIMUM OFFERING MAXIMUM OFFERING
OF NET PROCEEDS AMOUNT PERCENTAGE OFFERING PERCENTAGE
- --------------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C>
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%
Facilities $125,000 1.80% $125,000 1.44%
Website Development $20,000 .29% $20,000 .23%
======= ==== ======= ====
Working Capital(4) $885,989 12.73% $1,615,125 18.60%
======== ====== ========== ======
TOTAL $6,959,989 100.00% $8,689,125 100.00%
</TABLE>
(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 (for an aggregate of $212,500). 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, including
salaries, and reserves.
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<PAGE>
Except as set forth in footnote (3) above, none of the net proceeds of this
Offering (through the repayment of debt or otherwise) will be paid, in the
aggregate, to NASD members, affiliates, associated persons or related persons.
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.
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<PAGE>
DILUTION
At September 30, 1997, the Company had a net tangible book value of
($230,747), or approximately ($.08) 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 one (1) Warrant to purchase one-half (1) share of Common Stock,
provided that no fractional Shares shall be issued (after deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company), the net tangible book value of the Company at September 30, 1997,
would have been approximately $6,449,242 (assuming the Minimum Offering) and
$8,178,370 (assuming the Maximum Offering) or $1.39 and $1.60 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:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
OFFERING OFFERING
<S> <C> <C>
Initial public offering price per share and warrant $4.25 $4.25
Net tangible book value per share,
before the offering $(.08) $(.08)
Increase attributable to new investors $1.47 $1.68
----- -----
Proforma net tangible book value after the offering $1.39 $1.60
Dilution to new investors $2.86 $2.65
Percentage of dilution to new investors 67.29% 62.35%
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM OFFERING
SHARES PURCHASED CONSIDERATION PAID AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
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
<CAPTION>
SHARES PURCHASED CONSIDERATION PAID AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
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
September 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
SEPTEMBER 30, 1997 ADJUSTED FOR SHARES SOLD(1)
------------------ ---------------------------
<S> <C> <C> <C>
DEBT:
Loans Payable $287,000 -0- -0-
SHAREHOLDER'S EQUITY
Common Stock, par value $.0001,
2,775,000 shares issued and
outstanding, actual 4,652,350 and
5,120,000 shares issued and
outstanding, as adjusted(2) 278 $513 $466
Paid-in Capital 45,131 8,453,743 6,724,654
Accumulated Deficit (276,156) (276,156) (276,156)
Total Capitalization $56,253 $8,178,100 $6,448,964
- --------------
</TABLE>
(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.
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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 following tables set forth below contain financial data as of and
for the dates indicated which have been derived from the Company's financial
statements, which have been audited by Spear, Safer, Harmon & Co., P.A.,
independent auditors, for the years ended October 31, 1995 and 1996, whose
report with respect thereto is included elsewhere in this Prospectus. The
statement of operations data for the eleven months ended September 30, 1996 and
1997, and the balance sheet data at September 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 eleven
months ended September 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.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, ELEVEN MONTHS ENDED SEPTEMBER 30,
1995 1996 1996 1997
--------------------------- ---------------------------------
<S> <C> <C> <C> <C>
EARNINGS DATA (UNAUDITED) (UNAUDITED)
Revenues $99,096 $68,982 $62,204 $ 14,087
Cost of Operations 96,227 62,653 55,294 5,147
General and Administrative
Expenses 40,792 46,122 40,209 137,360
Net Loss (37,923) (39,793) (33,299) (128,420)
Net Loss per Common Share (0.02) (.02) (.01) (.05)
Weighted Average Shares
Outstanding 2,335,000 2,335,000 2,335,000 2,493,795
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL BALANCE SHEET DATA
PERIOD ENDED SEPTEMBER 30, 1997
AS ADJUSTED
PERIOD ENDED (UNAUDITED) (UNAUDITED)
OCTOBER 31, 1996 SEPTEMBER 30, 1997 MAXIMUM MINIMUM
-------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Working Capital $(91,479) $(112,707) $7,875,479 $6,146,343
Total Assets 13,178 81,538 7,972,916 6,243,780
Total Long-Term Liabilities 59,788 165,114 7,114 7,114
Stockholders' Deficiency (164,574) (230,747) 8,178,100 6,448,964
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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. The
Commission has issued Staff Legal Bulletin No. 5 (CF/IM) stating that public
operating companies should consider whether there will be any anticipated costs,
problems and uncertainties associated with the Year 2000 issue, which affects
many existing computer programs that use only two digits to identify a year in
the date field. The Company anticipates that its business operations will
electronically interact with third parties very minimally, if at all, and the
issues raised by Staff Legal Bulletin No. 5 are not applicable in any material
way to the Company's business or operations. Additionally, the Company intends
that any computer systems that the Company may purchase or lease that are
incident to the Company's business will have already addressed the "Year 2000"
issue.
RESULTS OF OPERATIONS
Fluctuations in Television Network Revenues 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.
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%
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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.
ELEVEN MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Gross revenues decreased at September 30, 1997 as compared to September
30, 1996 by $48,117 or 88% from $62,204 to $14,007, 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 September 1996 from $55,294 to
$5,147 in September 1997, a decrease of $50,147 or 91%, for the reasons set
forth above.
General and administrative costs increased from $40,209 at September
30, 1996 to $137,360 at September 1997, an increase of $97,151 or 242%. 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. In addition,
the Company issued shares of stock for past services. The majority of these
shares were issued to newly appointed executives of the Company, with
Compensation totalling approximately $45,000. The Company also issued shares of
stock to a former employee as a settlement for past compensation and expenses
totalling approximately $42,000. (See Note 4 to Financial Statement)
CAPITAL AND LIQUIDITY
At September 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 $231,000 which
represents several years of cumulative losses.
A large part of the deficit ($195,000) is represented by both long term
and short term notes, payable to various parties, for operating capital.
Furthermore, the Company secured a loan from Richard P. Moorehead, a Director
of the Company, in the principal amount of $200,000 of which 100,000 had been
advanced at September 30, 1997, 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 of 8% and has
received 176,000 shares of Common Stock from the Company's Chief Executive
Officer and Chairman, Marvin Schwam.
Although the Company has entered into various employment contracts as
well as two consulting agreements, all payments under these agreements are
subject to the completion of this
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public offering. The Company has made provisions for the payments under these
contracts in the use of proceeds section of this registration statement. Upon
the Initial Closing, the Company has made certain commitments under employment
agreements including the following to: (i) Mr. Marvin Schwam, the Company's
Chief Executive Officer and Chairman, the Company is obligated to pay Mr. Schwam
an annual salary of $155,000 plus benefits, including stock options; (ii) Mr.
William G. Barker, the Company's Chief Financial Officer, an annual salary of
$100,000 plus benefits, including stock options; (iii) Joseph F. Lovett,
Executive Vice President, Programming and Production, an annual salary of
$125,000 plus benefits including stock options; (iv) Jim Arnoff, Senior Vice
President, Program Development and Acquisitions, $100,000 plus benefits
including stock options; and (v) Michael Ingersoll, Senior Vice President,
Public Affairs, $80,000 plus benefits including stock options. See "Management -
Employment Agreements." Additionally, upon the Initial Closing and in connection
with its consulting agreement with Mr. David Mayer, a Director of the Company,
the Company has agreed to pay him $100,000 per year for a period of five years,
or as otherwise agreed upon between Mr. Mayer and the Company in connection with
certain services to be performed or which have been performed on behalf of the
Company. See "Certain Relationships and Related Transactions." Additionally, the
Company and the Representative have entered into a three year financial advisory
and consulting agreement in the amount of $105,000, payable at the Final
Closing. See "Underwriting."
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.
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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 Final 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 Final 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.
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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 Final Closing of this Offering, assuming the Maximum Offering, the Company
intends to produce four hours of original programming. 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, (ii) to provide
twenty-four hour programming on a dedicated channel through GET within three
years from the Final Closing of this Offering, and (iii) to establish a website
to complement its programming. See "Use of Proceeds." 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
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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"), the largest and most diversified full service media management
company and purchaser of spot television, radio, outdoor (billboard),
newspapers, Hispanic broadcast and Asian media in the United States. WIM, a
subsidiary of The Interpublic Group of Companies (NYSE:IPG) expects to purchase
approximately $4.4 billion in advertising during 1997 for its diversified client
base which includes Walt Disney Corp., American Honda Motor Co. - Acura
Division, Home Depot and Bell South, among others. WIM also purchases
advertising time slots for sale on individual shows, as well as time from
networks between shows. The Company anticipates that WIM will help the Company
implement its distribution strategy, although there are no assurances that the
Company will be able to enter into relationships that will be advantageous to
the Company. WIM will ^undertake to purchase time on behalf of the Company 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
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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 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,
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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 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
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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 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 Final 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
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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:
/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
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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 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."
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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
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 Final 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 Final 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
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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.
<TABLE>
<CAPTION>
TOTAL # TOTAL # OF TOTAL # OF # OF
MARKET OF SYSTEMS HOUSEHOLDS GET SYSTEMS HOUSEHOLDS
<S> <C> <C> <C> <C>
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 MARKETS 103 27,720,000 65 20,709,000
</TABLE>
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.
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To aid in GET's ability to secure leased access, the Company has formed
an alliance with Western International Media (WIM), the largest buyer of spots
for television, radio, and newspaper advertising in the United States. With
WIM's buying power (projected U.S. billings in 1997 of $4.4 billion), solid
knowledge of the cable industry, and the Network's flexible program schedule,
the Company believes that the joint efforts 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. Additionally, 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.
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 Final 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 Final 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
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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
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 Final Closing of the Offering, of the
12 minutes of commercial time available per hour, it is
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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, 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.
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<PAGE>
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.
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
36
<PAGE>
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.
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. mail users will be afforded
the capability of contacting organizations, elected representatives and GET's
management, staff, talent and advisers to express their views.
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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,
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.
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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.
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.
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FACILITIES
Currently, the Company leases approximately 3,200 square feet of space
in a rent stabilized building at a rate of $1,455 per month in New York City
which is also the residence of Marvin Schwam, the Company's Chief Executive
Officer. Mr. Schwam reimburses the Company in the amount of $727.50 per month
for his portion of the rent (representing 50% of the rent). Subsequent to the
Initial 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.
Marvin A. Schwam, David Mayer and Richard Moorehead currently serve as
members of the Board of Directors of the Company and Mr. Schwam currently serves
as the Company's Chief Executive Officer. The remaining individuals noted below
will become directors and executive officers of the Company upon the Initial
Closing of this Offering.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Marvin A. Schwam 55 Chairman of the Board and Chief Executive Officer
William G. ("Pete") Barker, Jr. 64 Chief Financial 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
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<CAPTION>
David Mayer 56 Director
Shelly Meyers 38 Director
Richard Moorehead 55 Director
Seymour Wishman 55 Director
Deb Zeyen 50 Director
</TABLE>
- ---------
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. ("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.
WILLIAM G. BARKER, JR., 64, will become the Company's Chief Financial Officer
upon the Initial Closing of this Offering with responsibilities for all
financial and administrative functions, including accounting/reporting, cash
management, financial control, management information systems, administration,
taxes, human resources and internal audit. He will also be responsible for
financial analysis and reporting to the Securities and Exchange Commission and
shareholders. Mr. Barker's business career spans many aspects of the
entertainment and information industries including: tours at CBS as Vice
President, Corporate Planning from December 1971 to April 1974, Vice President,
Development - Columbia Group from April 1974 to May 1976 and Vice President,
Finance & Planning, Television Stations from May 1976 to March 1982; a decade
from March 1982 until July 1991, as Senior Vice President, Chief Financial
Officer of the CBS/Fox Company (home video) which included involvement in the
product acquisition process and the management of the CBS/Fox Studios; and
venture management/consulting with the National Health Network (January 1996 -
March 1997), the American Transportation Television Network
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(August 1992 - February 1993), Statewide Media Group (July 1991 - December
1991), Jankowski Communications Systems (December 1991 - March 1996) and several
entertainment and sports projects for presentation on the Internet. Earlier in
his career, Mr. Barker served in various senior financial, planning and
management positions with the Sun Oil Company (December 1962 - December 1971)
and was associated with McKinsey & Company (July 1959 - November 1962) and Price
Waterhouse (July 1955 - July 1956). As an officer in the U.S. Army, he served as
an instructor in military finance and as a paratrooper. Mr. Barker serves on the
Boards of Directors of four mutual funds. He is a Distinguished Alumnus of
Dartmouth College and holds on MBA degree from the Amos Tuck School of Business
Administration.
JOSEPH F. LOVETT, 52, shall serve as the Company's Executive Vice President,
Programming and Production upon the Initial 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 Initial 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.
MICHAEL INGERSOLL will serve as the Company's Senior Vice President, Public
Affairs upon the Initial Closing of this Offering, where he will have the
primary responsibility for representing the
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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 Initial 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 Initial 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 Initial 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.
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DAVID MAYER has served as a Director of the Company since May 1997 and has
entered into a five (5) year consulting agreement with the Company to perform
certain services on behalf of the Company. See "Certain Relationships and
Related Transactions." 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 one of
the United States' first pay television company, Telebeam, Inc.
SHELLY MEYERS will serve as a Director of the Company upon the Initial 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 has served as a member of the Board of Directors of the
Company since October 2, 1997. 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
Initial 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."
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DEB ZEYEN will serve as a Director of the Company upon the Initial 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, however, certain of the Directors,
including David Mayer and Richard Moorehead, have material relationships with
the Company. See "Certain Relationships and Related Transactions."
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 Initial 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 Initial 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 Initial Closing
of this Offering. Its members will be Marvin A. Schwam, Deb Zeyen, and Shelly
Meyers. The Nominating
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Committee makes recommendations with respect to qualified individuals to become
members of the Company's Board of Directors.
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 Initial 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
Initial 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:
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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 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).
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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.
EXECUTIVE COMPENSATION
CASH COMPENSATION
For the years ended October 31, 1996, 1995, and 1994, and the eleven
months ended September 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 written three-year employment agreement with the Company's Chief
Executive Officer and Chairman, Marvin A. Schwam which shall commence upon the
Initial 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 first anniversary of the Initial Closing of
this Offering, and the remaining options shall vest one-third and one-third on
the second and third anniversary of the Initial Closing. Mr. Schwam shall also
be entitled to a bonus, as determined by the Company's Board of Directors and to
medical and vacation benefits, as well as to an initial automobile allowance of
$1,000 per month.
Under the terms of the Agreement, the Company's may terminate Mr.
Schwam's employment either with or without cause. If Mr. Schwam is terminated by
the Company without cause, the Company would be obligated to pay that executive
an amount equal to not less than two (2) times Mr. Schwam's then current annual
compensation (including base salary and bonus). Additionally, Mr. Schwam would
be entitled to participate in, and accrue medical benefits for, a period of two
years after the date of termination without cause (by the Company) or for good
cause (by Mr. Schwam). To the extent that Mr. Schwam is terminated for cause or
if Mr. Schwam resigns, no severance benefits shall be paid.
William G. "Pete" Barker, Jr., Chief Financial Officer. The Company has
entered into an oral three-year employment agreement with the Company's Chief
Financial Officer, Pete Barker, which shall commence upon the Initial Closing of
this Offering. Pursuant to the terms and conditions of his employment agreement,
Barker shall receive an initial annual base salary of $100,000 plus options to
purchase up to 100,000 shares of common stock at an exercise price of $4.25 for
a period of 3 years from the date of vesting, of which options to purchase up to
50,000 Shares shall vest on the first anniversary of the Initial Closing of this
Offering, options
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to purchase up to an additional 25,000 Shares shall vest on the second
anniversary of the Initial Closing and the remaining options to purchase up to
25,000 Shares shall vest on the third anniversary of the Initial Closing. Mr.
Barker shall also be entitled to a bonus, as determined by the Company's Board
of Directors and to medical and vacation benefits.
JOSEPH F. LOVETT, EXECUTIVE VICE PRESIDENT, PROGRAMMING AND PRODUCTION.
The Company has entered into an oral three-year employment agreement with the
Company's Executive Vice President, Programming and Production, which shall
commence upon the Initial Closing of this Offering. Pursuant to the terms and
conditions of his employment agreement, Mr. Lovett shall receive an initial
annual base salary of $125,000 plus 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 first anniversary of the
Initial Closing of this Offering, and the remaining options shall vest one-third
on the second (13,333) and third (13,334) anniversary of the Initial Closing.
Mr. Lovett shall also be entitled to a bonus, as determined by the Company's
Board of Directors and to medical and vacation benefits.
JIM ARNOFF, SENIOR VICE PRESIDENT, PROGRAM DEVELOPMENT AND
ACQUISITIONS. The Company has entered into an oral three-year employment
agreement with the Company's Senior Vice President, Program Development and
Acquisitions, which shall commence upon the Initial Closing of this Offering.
Pursuant to the terms and conditions of his employment agreement, Mr. Arnoff
shall receive an initial annual base salary of $100,000 plus 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
first anniversary of the Initial Closing of this Offering, and the remaining
options shall vest one-third and one-third on the second (10,000) and third
(10,000) anniversary of the Initial Closing. Mr. Arnoff shall also be entitled
to a bonus, as determined by the Company's Board of Directors and to medical and
vacation benefits.
MICHAEL INGERSOLL, SENIOR VICE PRESIDENT, PUBLIC AFFAIRS. The Company
has entered into an oral three-year employment agreement with the Company's
Senior Vice President, Public Affairs, which shall commence upon the Initial
Closing of this Offering. Pursuant to the terms and conditions of his employment
agreement, Mr. Ingersoll shall receive an initial annual base salary of $80,000
plus 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 first anniversary of the Initial Closing of this
Offering, and the remaining options shall vest one-third and one-third on the
second (10,000) and third (10,000) anniversary of the Initial Closing. Mr.
Ingersoll 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 eleven
months ended September 30, 1997, there were no options granted to the Company's
President and Chief Executive Officer, Marvin A. Schwam.
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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 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
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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 275,000 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 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.
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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 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 and Chairman of the Board.
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).
52
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Alan N. Cohen, a shareholder of the Company and who shall become a
member of the Board of Directors upon the Initial 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 received a loan in the principal amount
of $200,000 from Richard P. Moorehead, currently 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 Final 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, currently 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 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 will become a member of the Board of Directors of the
Company upon the Initial Closing of this Offering, 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, a member of 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.
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PRINCIPAL SHAREHOLDERS
At November 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
Initial 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.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING CLASS OF
NAME AND ADDRESS AMOUNT OF COMMON STOCK OWNED
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PRIOR TO OFFERING MINIMUM MAXIMUM
- ------------------- -------------------- ----------------- ------- -------
<S> <C> <C> <C> <C>
Marvin A. Schwam(1) 2,050,000 74.3% 44.1% 40.0%
William G. Barker(2) 25,000 .9% .5% .5%
Joseph F. Lovett(3) 75,000 2.7% 1.6% 1.5%
Jim Arnoff(4) 100,000 3.6% 2.1% 1.9%
Michael Ingersoll(5) 50,000 1.8% 1.1% 1.0%
Jon R. Allen (6) -0- -0- -0-
Alan N. Cohen(6) 25,000 .9% .5% .5%
Ira Laufer (6) -0- -0- -0-
David Mayer(7) 185,000 6.7% 4.0% 3.6%
Shelly Meyers (6) -0- -0- -0-
Richard Moorehead(8) 176,000 6.3% 3.8% 3.4%
Seymour Wishman (6) -0- -0- -0-
Deb Zeyen (6) -0- -0- -0-
All Officers and
Directors as a group
(eleven (11) persons) 2,686,000 96.8% 57.7% 52.4%
</TABLE>
- -----------
(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 first
anniversary of the Initial Closing of this Offering, and the remaining
options shall vest one-third and one-third on the second and third
anniversary of the Initial Closing of this Offering.
(2) Does not include options to purchase 100,000 shares of common stock at
an exercise price of $4.25 $4.25 for a period of 3 years from the date
of vesting, of which fifty percent (50% or 50,000) shall vest on the
first anniversary of the Initial Closing of this Offering, and the
remaining options shall vest twenty-five percent (25% or 25,000) and
twenty-five percent (25% or 25,000) on the second and third anniversary
of the Initial Closing of this Offering.
(3) 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 first
anniversary of the Initial Closing of this Offering, and the remaining
options shall vest one-third and one-third on the second and third
anniversary of the Initial Closing of this Offering.
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<PAGE>
(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 first
anniversary of the Initial Closing of this Offering, and the remaining
options shall vest one-third and one-third on the second and third
anniversary of the Initial Closing of this Offering.
(5) 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 first
anniversary of the Initial Closing of this Offering, and the remaining
options shall vest one-third and one-third on the second and third
anniversary of the Initial Closing of this Offering.
(6) 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."
(7) 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 Initial
Closing of this Offering, and shall be exercisable for a period of five
(5) years from the date of vesting. See "Directors' Compensation."
(8) 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 Initial 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 one (1) Redeemable Common Stock Purchase Warrant
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. The Warrants are not immediately separable from the Units, but
will become separable on or before six months from the Initial Closing, subject
to the earlier separability in the sole discretion of the Representative. 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
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<PAGE>
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.
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.
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<PAGE>
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 applicable date of closing (depending upon which
closing the purchaser purchased his or her Units) and continuing until five
years from the date of this Prospectus. The Warrants are redeemable by the
Company for $.05 per Warrant, at any time, commencing one year from the date of
this Prospectus 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 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
57
<PAGE>
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 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
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<PAGE>
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
STOCK OPTIONS
Currently, there are options to purchase up to aggregate of 487,500
shares of Common Stock at $4.25 per Share. Of these options, options to purchase
up to 275,000 shares are exercisable for a period of 3 years from the date of
vesting, of which options to purchase up to 108,333 shares shall vest on the
first anniversary of the Initial Closing of this Offering, 83,333 options shall
vest on the second anniversary of the Initial Closing and the remaining 83,334
options shall vest on the third anniversary of the Initial Closing. 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."
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
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<PAGE>
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.
Notwithstanding the foregoing, all of the Company's holders of Common
Stock prior to the Initial 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.
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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. Up to 2,350,000 Units
=====================
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 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.
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 $20,000 has been advanced to date. The
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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, provided that any unaccounted for portion of the $20,000
advanced to the Representative for non-accountable expenses will be returned to
the Company in the event that this Offering is not consummated. 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. The Company has also agreed to grant the Representative the right to
appoint an advisor to attend the meetings of the Board, in a non-voting
capacity, however that person has not yet been identified by the Representative.
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 United National
Bank, a commercial bank meeting the qualifications to act as Escrow Agent
("Escrow Agent") as required by the Commission, and 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. All funds will be invested in funds permissible by the Commission.
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 Initial Closing of this Offering shall occur at such time as the
Minimum Offering has been attained. Thereafter there may be additional
closing(s) at such time as additional gross proceeds in tranches of $500,000
shall have been received. The final closing ("Final Closing") shall occur the
earlier (a) of _______, 199__ (90 days from the date of this Prospectus unless
extended for an additional 90 days upon the mutual consent of the Company and
the Underwriter) or (b) at such time as 2,350,000 Units have been sold.
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
62
<PAGE>
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.
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 each 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 in connection
with that closing. The Representative's Warrants will be exercisable for a
five-year commencing one year from the date of this Prospectus. The initial
exercise price of each Representative Warrant shall be $6.375 per share (150% of
the public Offering price). The initial exercise price of each Representative
Warrant shall be $6.375 per Underlying Warrant (150% of the public Offering
price). Each Underlying Warrant will be exercisable for a three
63
<PAGE>
(3) year period commencing on the date of this Prospectus to purchase one share
of Common Stock at an exercise price of $7.875 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 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 Initial Closing of
this Offering, and which is consummated after the Initial 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
64
<PAGE>
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.
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. No beneficial owner of the Company's unregistered securities
has any direct or indirect affiliation or association with any NASD member.
Additionally, no NASD member intending to participate in the Offering has a
conflict of interest with the Company.
While no current or prospective officer, director or affiliate of the
Company has indicated that he or she intends to purchase any of the Units
offered hereby in order to attain completion of the Minimum Offering, certain of
these individuals may do so. The purchase of a significant number of Units are
purchased by any of these persons could limit the breadth and scope of the
market for the Company's securities. Any such purchases will be made for
investment purposes only, and not for redistribution. See "Risk Factors - No
Firm Commitment to Purchase Units."
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 sheet of the Company as of October 31, 1996, 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,
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.
65
<PAGE>
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 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.
66
<PAGE>
<TABLE>
<CAPTION>
GAY ENTERTAINMENT TELEVISION, INC.
Index to Financial Statements
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants................................................. F-2
Balance Sheets as of October 31, 1996 and September 30,
1997 (unaudited)................................................................................ F-3
Statements of Income for the year ended October 31, 1995 and 1996 and
the eleven months ended September 30, 1996 and 1997 (unaudited)................................. F-4
Statements of Cash Flows for the years ended October 31, 1995 and 1996 and
the eleven months ended September 30, 1996 and 1997 (unaudited)................................. F-5
Statements of Shareholders' Equity for the years ended October 31, 1994, 1995 and 1996
and the eleven months ended September 30, 1996 and 1997 (unaudited)............................. F-6
Notes to Financial Statements...................................................................... F-7
</TABLE>
F-1
<PAGE>
[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 & CO.
Miami, Florida
August 19, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
AS OF AS OF
SEPTEMBER 30, 1996 OCTOBER 31, 1996
------------------ ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 5,393 $ 3,711
Due from shareholder 4,020 30,753
--------- ---------
Total Current Assets 9,413 34,464
--------- ---------
Equipment 7,179 7,179
Less accumulated depreciation (3,591) (4,907)
--------- ---------
3,588 2,272
--------- ---------
Organization costs, net of accumulated amortization
of $483 and $604 in 1996 and 1997, respectively 177 56
--------- ---------
Deposits and other assets -- 5,290
--------- ---------
Offering costs -- 39,456
--------- ---------
$ 13,178 $ 81,538
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable $ 87,000 $ 129,000
Accounts payable 2,392 2,546
Accrued expenses 11,500 15,625
--------- ---------
Total Current Liabilities 100,892 147,171
--------- ---------
Long-Term Debt 58,000 158,000
--------- ---------
Accrued Expenses 1,788 7,114
--------- ---------
Shareholder's Deficiency:
Common stock, $.0001 par value, 40,000,000 shares
authorized, 2,335,000 and 2,775,000 shares,
respectively, issued and outstanding 234 278
Additional paid-in capital -- 45,131
Deficit accumulated during the development stage (147,736) (276,156)
--------- ---------
Total Shareholder's Deficiency (147,502) (230,747)
--------- ---------
$ 13,178 $ 81,538
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Statements of Operations
ELEVEN ELEVEN
YEAR ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 99,096 $ 68,982 $ 62,204 $ 14,087
Cost of Sales 96,227 62,653 55,294 5,147
----------- ----------- ----------- -----------
Gross Profit 2,869 6,329 6,910 8,940
General and Administrative Expenses 40,792 46,122 40,209 137,360
----------- ----------- ----------- -----------
Net Loss $ (37,923) $ (39,793) $ (33,299) $ (128,420)
=========== =========== =========== ===========
Net Loss per Common Share $ (.02) $ (.02) $ (.01) $ (.05)
=========== =========== =========== ===========
Weighted Average Shares Outstanding 2,335,000 2,335,000 2,335,000 2,493,795
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Statements of Cash Flows
ELEVEN ELEVEN
YEAR ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED
OCTOBER 31, OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
----------- ------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (37,923) $ (39,793) $ (33,299) $(128,420)
Adjustments to reconcile net loss to
net cash:
Depreciation and amortization 1,568 1,568 1,546 1,437
Issuance of note payable for services -- -- -- 42,000
Issuance of common stock for services -- -- -- 45,175
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable 17,569 -- -- --
Due from shareholder -- (4,020) -- (26,733)
Increase (decrease) in:
Accounts payable (6,290) 1,373 1,373 154
Accrued expenses 3,779 6,288 5,477 9,451
Due to affiliates (2,695) -- -- --
Deposits and other assets -- -- -- (5,290)
--------- --------- --------- ---------
Net Cash Used by Operating Activities (23,992) (34,584) (24,903) (62,226)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Receipt of loans receivable from affiliates 2,250 -- -- --
Borrowing under notes payable - other 25,000 58,000 55,000 100,000
(Repayment of) borrowing under
shareholder advances, net (3,689) (18,023) (28,815) --
Offering costs -- -- -- (39,456)
--------- --------- --------- ---------
Net Cash Provided by Financing Activities 23,561 39,977 26,185 60,544
--------- --------- --------- ---------
Net Increase (Decrease) in Cash (431) 5,393 1,282 (1,682)
Cash Beginning of Period 431 -- -- 5,393
--------- --------- --------- ---------
Cash End of Period $ -- $ 5,393 $ 1,282 $ 3,711
========= ========= ========= =========
Supplemental Disclosure of Non-Cash
Investing and Financing Activities:
Common stock issued for services $ -- $ -- $ -- $ 45,175
Note payable issued for services -- -- -- 42,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Statements of Changes in Shareholders' Deficiency
COMMON STOCK
-------------------------
ADDITIONAL DURING THE
SHARES PAID-IN DEVELOPMENT
ISSUED AMOUNT CAPITAL STAGE TOTAL
--------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1994 2,335,000 $ 234 $ -- $ (70,020) $ (69,786)
Net Loss - 1995 -- -- -- (37,923) (37,923)
--------- --------- --------- --------- ---------
Balance at October 31, 1995 2,335,000 234 -- (107,943) (107,709)
Net Loss - 1996 -- -- -- (39,793) (39,793)
--------- --------- --------- --------- ---------
Balance at October 31, 1996 2,335,000 234 -- (147,736) (147,502)
Issuance of Common Stock 440,000 44 45,131 -- 45,175
Net Loss for the Eleven Months
Ended September 30, 1997
(Unaudited) -- -- -- (128,420) (128,420)
--------- --------- --------- --------- ---------
Balance at September 30,
1997 (Unaudited) 2,775,000 $ 278 $ 45,131 $(276,156) $(230,747)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited) With Respect to September 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.
INTERIM FINANCIAL STATEMENTS - It is management's opinion that the
interim financial information presented reflects all adjustments
necessary for a fair presentation of the results of its operations for
the interim periods. All adjustments are of a normal and recurring
nature.
F-7
<PAGE>
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 10)
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 251,880
----------
Net Loss $(147,736)
==========
F-8
<PAGE>
<TABLE>
<CAPTION>
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
COMMON STOCK
------------------------- DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
SHARES PAID-IN DEVELOPMENT
ISSUED AMOUNT CAPITAL STAGE TOTAL
--------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at November 12,
1992 2,335,000 $ 234 $ -- $ -- $ 234
Net Loss - 1993 -- -- -- (19,133) (19,133)
--------- --------- --------- --------- ---------
Balance at October 31,
1993 2,335,000 234 -- (19,133) (18,899)
Net Loss - 1994 -- -- -- (50,887) (50,887)
--------- --------- --------- --------- ---------
Balance at October 31,
1994 2,335,000 234 -- (70,020) (69,786)
Net Loss - 1995 -- -- -- (37,923) (37,923)
--------- --------- --------- --------- ---------
Balance at October 31,
1995 2,335,000 234 -- (107,943) (107,709)
Net Loss - 1996 -- -- -- (39,793) (39,793)
--------- --------- --------- --------- ---------
Balance at October 31,
1996 2,335,000 234 -- (147,736) (147,502)
Issuance of Common
Stock 440,000 44 45,131 -- 45,175
Net Loss for the
Eleven Months
Ended September 30,
1997 (Unaudited) -- -- -- (128,420) (128,420)
--------- --------- --------- --------- ---------
Balance at
September 30,
1997 (Unaudited) 2,775,000 $ 278 $ 45,131 $(276,156) $(230,747)
========= ========= ========= ========= =========
</TABLE>
F-9
<PAGE>
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 $(147,736)
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 (132,002)
---------
Cash Flows from Investing Activities:
Acquisition of Equipment (7,179)
---------
Cash Flows from Financing Activities:
Organization costs (660)
Issuance of common stock 234
Borrowings under notes payable 145,000
---------
Net Cash Provided by Financing Activities 144,574
---------
Net Increase in Cash 5,393
Cash Beginning of Period --
Cash End of Period $ 5,393
=========
F-10
<PAGE>
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, SEPTEMBER 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 79,000
-------- --------
$ 87,000 $129,000
======== ========
During September 1997, the Company and a holder of a $12,000 note payable
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.
Interest expense on the above notes was $4,500 for each of the years ended
October 31, 1995 and 1996, and $4,125 for the eleven months ended September
30, 1996 and 1997.
NOTE 5 - LONG-TERM DEBT
Long term debt consists of various notes payable as follows:
OCTOBER 31, SEPTEMBER 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
Note payable (see (a) below) -- 100,000
-------- --------
$ 58,000 $158,000
======== ========
F-11
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Notes to Financial Statements (Continued)
NOTE 5 - LONG-TERM DEBT (CONTINUED)
(a) 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 (see Note 10).
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 Company issued 176,000
shares of common stock to the lender. Upon closing of the
offering, this individual will become a director of the Company.
Interest expense on the above notes for the year ended October 31, 1996
and for the eleven months ended September 30, 1996 and 1997 was
approximately $1,800, $1,364 and $4,826, respectively.
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, SEPTEMBER 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 benefit 5.9
Benefit of net operating loss carryforward (39.9)
----
Effective Income Tax Rate - %
====
F-12
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Notes to Financial Statements (Continued)
NOTE 7 - COMMON STOCK
In January 1997, the Company issued an aggregate of 71,500 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 an individual, 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.
In May 1997, the Company issued an aggregate of 185,000 shares to 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.
In July 1997, the Company issued an aggregate of 5,000 shares to the
Company's legal council as compensation for services rendered.
NOTE 8 - INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS
On July 31, 1997, the Company's Directors, 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.
As of the balance sheet date, 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.
NOTE 9 - 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.
F-13
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A Development Stage Company)
Notes to Financial Statements (Continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 eleven months ended September 30,
1996 and 1997 was $8,016 and $5,093, respectively.
NOTE 10 - INITIAL PUBLIC OFFERING
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 one (1)
redeemable warrant (Warrant). The exercise of one (1) Warrant entitles
the holder to purchase one-half 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. No
fractional Shares will be issued. 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.
NOTE 11 - OTHER MATTERS
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-14
<PAGE>
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 52
Principal Shareholders...................... 54
Description of Securities................... 55
Restricted Shares Eligible for Future Sale 60
Underwriting................................ 61
Legal Matters............................... 65
Experts .................................... 65
Additional Information...................... 66
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.
<PAGE>
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.
<PAGE>
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.
<TABLE>
<S> <C>
Securities and Exchange Commission/Registration fee and other documents*........................... $5,630.22
NASD filing fee*................................................................................... 2,309.50
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
NASDAQ filing fee*................................................................................. 9,700.00
Printing and engraving expenses*................................................................... 20,000.00
Accounting fees and expenses*...................................................................... 50,000.00
Legal fees and expenses*........................................................................... 150,000.00
Blue Sky fees and expenses*........................................................................ 20,000.00
Underwriter's non-accountable expense allowance.................................................... 239,999.62
Transfer Agent fees and expenses* ................................................................. 10,000.00
Miscellaneous* .................................................................................... 12,416.36
==========
Total ............................................................................................. $520,055.70
==========
</TABLE>
*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 71,500 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 the eight
individuals to whom an aggregate of 71,500 shares were issued, six individuals
were non-accredited investors (representing an aggregate of 21,500 shares
issued) and two individuals were accredited investors (representing an aggregate
of 50,000 shares issued). Each of these individuals were provided with or had
access to information, including financial, concerning the Company. Of the
74,000 shares issued, 25,000 shares were issued to Alan Cohen, an accredited
investor, who will become a Director of the Company upon the Initial 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, all of the 74,000 shares of Common Stock
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, a Director of the Company, 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
II-3
<PAGE>
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.
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 $1,000. The law firm, an accredited investor, 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.
In September 1997, the Company and a holder of a $12,000 note payable
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 2,5000 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. The individual is a non-accredited
investor who was provided with or otherwise had access to information, including
financial, concerning the Company. Accordingly the 2,500 shares of Common Stock
were issued 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(3)
1.3 Form of Selling Group Agreement(3)
1.3(a) Selected Dealers Agreement(3)
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 Amended and Restated Bylaws(2)
4.1 Form of Warrant Agent Agreement(2)
4.2 Form of Warrant Certificate(2)
4.3 Form of Representative's Warrant(2)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(2)
10.1 Stock Option Plan(1)
10.2 Directors Stock Option Plan(1)
10.3 Form of 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)
10.6 Form of Financial Advisory and Consulting Agreement(2)
10.7 Form of Escrow Agreement(2)
II-4
<PAGE>
21 Subsidiaries of Registrant(1)
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. ( included
in its opinion filed as Exhibit 5.1)(2)
23.2 Consent of Spear, Safer, Harmon & Co., P.A. (2)
27 Financial Data Schedule(2)
- --------------------
(1) Previously filed
(2) Filed herewith
(3) To be filed by amendment
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 each
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
II-5
<PAGE>
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 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
<PAGE>
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 this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Manhattan, State of New York, on this
3rd day of December, 1997.
GAY ENTERTAINMENT TELEVISION, INC.
By: /S/ MARVIN A. SCHWAM
------------------------------
Marvin A. Schwam, 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ MARVIN A. SCHWAM Chief Executive December 3, 1997
- ----------------------- Officer and Director
Marvin A. Schwam (Principal Executive Officer)
/S/WILLIAM G. BARKER Chief Financial December 3, 1997
- ------------------------ Officer
William G. Barker
/S/ IRA LAUFER Director December 3, 1997
- ------------------------
Ira Laufer
/S/ DAVID MAYER Director December 3, 1997
- ------------------------
David Mayer
/S/ RICHARD MOOREHEAD Director December 3, 1997
- ------------------------
Richard Moorehead
/S/ SEYMOUR WISHMAN Director December 3, 1997
- ------------------------
Seymour Wishman
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement
3.2 Company's Amended and Restated Bylaws
4.1 Form of Warrant Agent Agreement
4.2 Form of Warrant Certificate
4.3 Form of Representative's Warrant
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.3 Form of Employment Agreement between the Company and
Marvin A. Schwam
10.6 Form of Financial Advisory and Consulting Agreement
10.7 Form of Escrow Agreement(2)
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included
in its opinion filed as Exhibit 5.1)
23.2 Consent of Spear, Safer, Harmon & Co., P.A.
27 Financial Data Schedule
EXHIBIT 1.1
GAY ENTERTAINMENT TELEVISION, INC.
7 East 17th Street
New York, New York 10003
FORM OF - UNDERWRITING AGREEMENT
_________, 1997
The Agean Group, Inc.
One South Ocean Drive
Boca Raton, Florida 33432
Dear Sirs:
The undersigned, Gay Entertainment Television, Inc., a New York
corporation (the "Company"), hereby confirms its agreement with The Agean Group,
Inc. (being referred to herein as "you" or the "Underwriter"), as follows:
1. INTRODUCTION. The Company proposes to engage you to sell on its
behalf, a minimum of 1,882,350 and a maximum of 2,350,000 units (each a "Unit"),
each Unit consisting of one share of Common Stock (a "Share") and one Redeemable
Common Stock Purchase Warrant (a "Warrant"). The Shares and Warrants are
hereinafter referred to as the "Firm Securities." The Company also proposes to
issue and sell to you, pursuant to the terms of the Underwriter's Warrant
Agreement, warrants (the "Underwriter's Warrants") for the purchase of up to an
additional 235,000 Units, each Unit consisting of one Share of Common Stock and
one Redeemable Common Stock Purchase Warrant. The Underwriter's Warrants shall
be exercisable during the four year period commencing on the first anniversary
of the issuance of such Underwriter's Warrants at an exercise price of 120% of
the Offering Price per Unit, subject to adjustments in the number of Units
issuable upon the exercise thereof and in the exercise price of the
Underwriter's Warrants as a result of certain events, including subdivisions and
combinations of the Common Stock. The Units, the Warrants, the Shares and the
Underwriter's Warrants are more fully described in the Registration Statement
and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriter that:
a. The Company has filed with the Securities and Exchange
Commission (the "SEC") a registration statement and an amendment or amendments
thereto, on Form SB-2 (No. 333-36873), including any related preliminary
prospectus (the "Preliminary Prospectus"), for the registration of the Units,
the Shares, and the Shares of Common Stock issuable upon exercise of the
Warrants and the Underwriter's Warrants (the "Common Shares"), under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the
<PAGE>
rules and regulations (the "Regulations") of the SEC promulgated under the Act.
The Company will promptly file a further amendment to said registration
statement, which has been similarly prepared, in the form heretofore delivered
to you and will not, before the registration statement becomes effective, file
any other amendment thereto to which you shall have reasonably objected after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the SEC at the
time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein and all information deemed a part thereof
as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations, is
hereinafter called the Registration Statement," and the form of prospectus, in
the form first filed with the SEC pursuant to Rule 424(b) of the Regulations, is
hereinafter called the "Prospectus."
b. On the date upon which the Registration Statement is
declared effective by the SEC (the "Effective Date") and all times subsequent
thereto up to the Closing Date (as such term is defined in Section 3(d) hereof),
the Registration Statement and the Prospectus will comply in all material
aspects with the applicable provisions of the Act and the Regulations; neither
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. When any Preliminary Prospectus was first filed with the SEC
(whether filed as a part of the Registration Statement for the registration of
the securities or any amendment thereto or pursuant to Rule 424 (a) of the
Regulations) and when any amendment thereof or supplement thereto was first
filed with the SEC, such Preliminary Prospectus complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and did not and will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The representation and warranty made in this Section
2(b) does not apply to statements made or statements omitted in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriter by the Underwriter expressly for use in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
c. This Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement (as defined in Section 5(v) hereof) have been (or as of the
Closing Date will have been) duly and validly authorized by the Company, and
this Agreement constitutes and the Underwriter's Warrant Agreement and
Consulting Agreement, when executed and delivered pursuant to this Agreement,
will (assuming due execution by the Underwriter) each constitute a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and the discretion of the court before
which any proceeding therefor may be brought. The Units, the Warrants, the
Shares the
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Underwriter's Warrants and the Shares issuable upon exercise of the Warrants and
the Underwriter's Warrants to be issued and sold by the Company pursuant to this
Agreement, have been duly authorized and, when issued and paid for, will be
validly issued, fully paid and non-assessable; the holders thereof are not and
will not be subject to personal liability by reason of being such holders; the
Units, the Warrants, the Shares and the Underwriter's Warrants are not and will
not be subject to the preemptive rights of any holders of any security of the
Company or similar contractual right granted by the Company; and all corporate
action required to be taken for the authorization, issuance and sale of the
Units, the Warrants, the Shares and the Underwriter's Warrants has been duly and
validly taken. The Underwriter's Warrants constitute valid and binding
obligations of the Company, enforceable in accordance with their terms, to issue
and sell, upon exercise in accordance with the terms thereof, the number and
type of the Company's securities called for thereby; except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought.
d. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the issuance and sales of all such securities complied in all respects with
applicable federal and state securities laws; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company.
e. The Company has good and marketable title, to or valid and
enforceable contractual or leasehold estate in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free and clear of
all liens, encumbrances, claims, security interests, defects and restrictions of
any material nature whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable.
f. There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding pending or threatened
against, or involving the properties or business of the Company which might
materially and adversely affect the financial position, or prospects, or
business of the Company, except as referred to in the Prospectus.
g. All contacts and other documents required to be described
in the Registration Statement or the Prospectus fairly present the financial
position and the results of operations of the Company at the dates and for the
periods to which they apply; and such financial statements have been prepared in
conformity with generally accepted accounting principles, consistently applied
throughout the periods involved. There has been no material adverse change in
financial condition or results of operations of the Company or development
involving a prospective change in the condition or prospects of the Company,
financial or
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otherwise, since the date of the financial statements included in the
Prospectus, except as disclosed therein.
h. Spear, Safer, Harmon & Co., Inc., whose report is filed
with the SEC as part of the Registration Statement, are independent accountants
as required by the Act and the Regulations.
i. The Company has no subsidiaries. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of its state of incorporation. Except as otherwise set forth in the
Prospectus, the Company does not own, directly or indirectly, an interest in any
corporation, partnership, joint venture, trust or other business entity. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which operations require such qualification
or licensing. The Company has all requisite corporate power and authority, and
the Company has all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials and
bodies, to own or lease its properties and conduct its business as described in
the Prospectus, and the Company is and has been doing business in compliance
with all such material authorizations, approvals, orders, licenses, certificates
and permits and all federal state and local laws, rules and regulations. The
Company has all requisite corporate power and authority to enter into this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement and
to carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained. No consent, authorization or order of, and no filing with, any court
government agency or other body is required for the issuance of the Shares, the
Common Shares and the Underwriter's Securities, pursuant to the Agreement, and
the Underwriter's Warrant Agreement, and as contemplated by the Prospectus,
except with respect to applicable federal and state securities laws.
j. The outstanding debt, the property and the business of the
Company, conform in all material respects to the descriptions thereof contained
in the in the Registration Statement and Prospectus.
k. The Shares, the Underwriter's Warrants, the Underwriter's
Securities and other securities issued or to be issued by the Company on or
before the Closing Dates described herein conform, or will conform when issued,
in all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus.
l. No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
deed of trust, note, loan or credit agreement, or any other agreement or
instrument evidencing instrument to which the Company , is a party or by which
the Company may be bound or to which any of the property or assets of the
Company, is subject.
m. The Company is not violation of any term or provision of
its respective certificate of Incorporation or By-laws. Neither the execution
and delivery of this Agreement,
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nor the issue and sale of the Shares, the Underwriter's Warrants, the Common
Shares and the Underwriter's Securities, nor the consummation of any of the
transactions contemplated herein, nor the compliance by the Company with the
terms and provisions hereof has materially conflicted with or will materially
conflict with, or has resulted in or will result in a material breach of, any of
the terms and provisions, of, or has constituted or will constitute a material
default under, or has resulted in or will result in the creation or imposition
of any lien, charge or encumbrance upon the property or assets of the Company,
pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company is
a party or by which the Company is or may be bound or to which any of the
property or assets of the Company, is subject; nor will such action result in
any material violation of the provisions of the respective Certificate of
Incorporation or the By-laws of the Company or any contract or agreement, or any
statute or any order, rule or regulation applicable to the Company or any
Subsidiary or any other regulatory authority or other governmental body having
jurisdiction over the Company.
n. All taxes which are due from the Company have been paid in
full, and the Company, has no tax deficiency or claim outstanding, proposed or
assessed against it.
o. Subsequent to the respective dates as of which information
is given in the most recently circulated Preliminary Prospectus included as a
part of the Registration Statement, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not issued any securities
(except for the issuance of securities described under the caption
"Capitalization"), or (ii) declared or paid any dividend or made any other
distribution on or in respect to its capital stock; and the Company has not (i)
incurred any liability or obligation, direct or contingent, for borrowed money;
or (ii) entered into any transaction other than in the ordinary course of
business.
p. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or part thereof.
q. On the Effective Date, (i) the authorization of capital
stock of the Company is as set forth in Registration Statement, and (ii) not
more than an aggregate of _____ shares of Common Stock shall be issued and
outstanding (including any and all (A) securities with equivalent rights as the
Common Stock, (B) _________ shares of Common Stock, or such equivalent
securities, issuable upon exercise of options, warrants and other contract
rights, and (C) securities convertible directly or indirectly into shares of
Common Stock or such equivalent securities, and excluding any stock, options or
warrants issuable to the Underwriter in connection with the public offering of
the Shares).
r. Except for the registration rights granted under the
Underwriter's Warrant Agreement, no holders of any securities of the Company or
of any options, warrants or convertible of exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the
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Company in the registration Statement or any registration statement to be filed
by the Company.
s. The Company has entered into employment agreement with
Marvin Schwam in the form filed as Exhibit 10.4 to the Registration Statement,
and intends to procure a keyman life insurance policies in the amount of
$1,000,000 on Mr. Schwam's life.
t. Assuming that there will be two "market makers" for the
Shares, at least 300 beneficial owners of the Shares and a sufficient "public
float" of the Shares, and that the Company's registration of the Shares pursuant
to the Securities Exchange Act of 1934, as amended ( the "Exchange Act") becomes
effective (all as contemplated by the requirements of the National Association
of Securities Dealers, In.), the Common Stock is eligible for quotation on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"). The Company has filed a registration statement with the Commission
pursuant to Section 2(g) of the Exchange Act, and has used its best efforts to
have same declared effective by the Commission on an accelerated basis on the
Effective Date. In addition, the Company has taken all actions necessary to
qualify the Units, Shares and Warrants for listing on the NASDAQ system on the
Effective Date.
u. Except as described in the Prospectus, there are no claims,
payment, issuances, arrangement or understandings for services in the nature of
a finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, commitments,
payment or issuances of securities with respect to the Company that may affect
the Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
v. Neither the Company nor any of its officers, directors or
partners, nor, to the knowledge of the Company, any of its employees, agents or
any other person action on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer, supplier or official or
governmental agency or instrumentality of any government )domestic or foreign)
or other person who was, is, or may be in a position to help or hinder person
who was, is, or may be in a position to help or hinder the business of the
Company) or assist it in connection with any actual or proposed transaction)
which (i) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) if not given in the
past, might have had a materially adverse effect on the assets, business or
operations of the Company as reflected in any of the financial statements
contained in the Prospectus, or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
w. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names, patents
and patent applications, copyrights, methods, protocols, techniques,
technologies, procedures and other rights (collectively the )"intangibles")
described as owned or used by the Company in the Registration Statement. There
is no claim, action or proceeding by any person pending or, to the Company's
knowledge
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threatened which pertains to or challenges the rights of the Company with
respect to any Intangibles used in the conduct of the business of the Company,
except as described in the Prospectus. To the Company's knowledge, the Company's
current products, services and processes do not infringe on any Intangibles held
by any third party.
x. Except as set forth in the Registration Statement, the
Company is under no obligation to pay royalties or fees of any kind whatsoever
to any third party with respect to Intangibles it has developed, uses, employees
or intends to use or employ.
y. The Company has generally enjoyed a satisfactory
employer/employee relationship with is respective employees and is in compliance
in all material respects with all federal, state and local laws and regulations
respecting the employment of their respective employees and employment
practices, terms and conditions o employment wages and hours relating thereto.
There are no pending or, to the Company's knowledge, threatened investigations
involving the Company by the U.S. Department of labor, or any other governmental
agency responsible for the enforcement of such federal, state or local laws and
regulations. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, threatened against or involving the Company, or any
predecessor entity, and none has occurred. No representation question exists
respecting the employees of the Company. No collective bargaining agreement or
modification thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company.
z. The Company, to the Company's knowledge, any of its
employees, directors or stockholders has taken, directly or indirectly, no
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
aa. The Company does not maintain or has not maintained,
sponsored or contributed to any program or arrangement that is an "employee
pension benefit plan, " and "employee welfare benefit plan" or a "Multi-employer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"), except for the Company's 1997restricted stock option plan. The
Company does not presently maintain or contribute or at any time in the past,
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA. The Company has never completely or partially withdrawn from a
"multi-employer plan."
ab. Except as set forth in the Prospectus under "Certain
Transactions," the Company is not a party to any agreement with any officer,
director or stockholder of the Company, or any affiliate or associate of any
such person or entity which is required to be disclosed in the Prospectus
pursuant to Regulation S-B. Except as set forth in the Prospectus, to the
Company's knowledge, no officer, director or stockholder of the Company or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the
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<PAGE>
Regulations) of any such person or entity or the Company, has or has had, either
directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchased from or sells
or furnishes to the Company, any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected.
ac. The minute books of the Company have been made available to
counsel to the Underwriter and contain a complete summary of all meetings and
actions by unanimous consent of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
ad. The number of Shares to be offered to the public pursuant to
the Registration Statement represents at least ___% of the issued and
outstanding shares of the Common Stock after giving effect to the conversion of
all convertible securities and the exercise of all outstanding options and
warrants (excluding the Overallotment Option and the Underwriter's Warrant), and
any securities issued with the Underwriter's prior written consent.
3. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants to the Company that it is a member of the National
Association of Securities Dealers, Inc. ("NASD") and registered as a
broker/dealer with the Commission. There are no past, pending or, to the best of
the Underwriter's knowledge, threatened proceedings involving the NASD, the
Commission or any state regulatory authority which would impair the ability of
the Underwriter to conduct the Offering contemplated hereunder.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND UNDERWRITER'S
WARRANTS.
a. On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriter a minimum of 1,882,350 and a maximum of
2,350,000 Units, and the Underwriter agrees to purchase from the Company such
minimum of 1,882,350 or maximum of 2,350,000 Units at a purchase price of $3.825
per Unit and at the time described herein to be sold by the Underwriter, on a
best efforts basis, at an initial purchase price of $4.25 per Unit.
b. On Closing Date I, the Company shall issue and sell to the
Underwriter, the Underwriter's Warrants at a total purchase price of $.001,
which warrants shall entitle the holders thereof to purchase an aggregate of up
to 235,000 Units, assuming the Maximum Offering. The Underwriter's Warrant shall
be exercisable for a period of four (4) years commencing one (1) year from the
Effective Date at an initial exercise price of 120% of the Offering Price per
Unit. The Underwriter's Warrant Agreement and form of Warrant Certificate shall
be substantially in the form filed as Exhibit 4.2 to the Registration Statement.
c. Payment for the Underwriter's Warrants shall be made on
Closing Date I. Payment for the Firm Securities shall be made on each of Closing
Date I and Closing Date II,
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respectively, at the Underwriter's election by certified or bank cashier's check
in New York Clearing House funds, payable to the order of the Company at the
offices of the Underwriter or at such other place as agreed upon by the
Underwriter or at such other place as agreed upon by the Underwriter and the
Company by wire transfer, upon delivery of certificates (in form and substance
satisfactory to the Underwriter) representing the Securities or by confirmation
of electronic transfer of the Securities to the Underwriter for the account of
the Underwriter. Delivery and payment for the Firm Securities shall be made at
10:00 a.m. New York time, on or before the fifth business day following each of
the closings or at such other time as shall be agreed upon by the Underwriter
and the Company. The hour and date of delivery and payment for the Firm
Securities are called "Closing Date I." The Firm Securities shall be registered
in such name or names and in such authorized denominations as the Underwriter
may request in writing at lease two (2) full business days prior to Closing Date
I. The Company will permit the Underwriter to examine and package any
certificates representing the Firm Securities for delivery, at least one (1)
full business day prior to Closing Date I.
d. The Company shall not be obligated to sell or deliver Firm
Securities except upon tender of payment by the Underwriter for the Firm
Securities.
5. PUBLIC OFFERING. The Underwriter is to make a public offering of the
Firm Securities, on a best efforts basis. The Securities are to be initially
offered to the public at the offering price set forth on the cover page of the
Prospectus (such price being hereinafter called the "Public Offering Price").
The Underwriter may, at its own expense, enter into one or more agreements as
the Underwriter, in its sole discretion, deems advisable, with one or more
broker-dealers who shall act as dealers in connection with such public offering.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees that it
will:
a. Use its best efforts to cause the Registration Statement to
become effective and will notify the Underwriter immediately and confirm the
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto becomes effective, (ii) of the issuance by the Commission of
any stop order or of the initiation, or the threatening, of any proceeding for
that purpose, (iii) of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Shares, or the
Underwriter's Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, and (iv) of
the receipt of any comments from the Commission. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
anytime, the Company will make every reasonable effort to obtain promptly the
lifting of such order.
b. File the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission in accordance with Rule 424.
c. During the time when a prospectus is required to be
delivered under the Act,
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<PAGE>
use all reasonable efforts to comply with all requirements imposed upon it by
the Act and the Exchange Act, as now and hereafter amended and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Shares and the Underwriter's
Securities in accordance with the provisions hereof and the Prospectus. If at
any time when a prospectus relating to the Shares or Underwriter's Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriter the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated in light of the circumstances under which they were made, not misleading
or if it is necessary at any time to amend the Prospectus to comply with the
Act, the Company will notify the Underwriter promptly and prepare and file with
the Commission an appropriate amendment or supplement in accordance with Section
10 of the Act.
d. Deliver to the Underwriter, without charge, such number of
copies of each Preliminary Prospectus and the Prospectus as the Underwriter may
reasonably request and, as soon as the Registration Statement or any amendment
or supplement thereto becomes effective, deliver to the Underwriter two signed
copies of the Registration Statement, including exhibits, and all post-effective
amendments thereto and copies of all exhibits filed therewith or incorporated
therein by reference and signed copies of all consents of certified experts.
e. Endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the shares and the Underwriter's Securities for offering
and sale under the securities' laws of such jurisdictions as the Underwriter may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Underwriter agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction.
f. Make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following Closing Date I, an earnings statement (which need not be
certified by independent public or independent certified public accounts unless
required by the Act or the Regulations, but which shall satisfy the provisions
of Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
g. For a period of five years from the Effective Date, furnish
to the Underwriter copies of such financial statements and other periodic and
special reports as the Company from time to time furnishes generally to holders
of any class of its securities, and promptly furnish to the Underwriter (i) a
copy of each periodic report the Company shall be required to file with the
Commission, (ii) a copy of each press release and every news item and article
with respect to the Company or any Subsidiary or their respective affairs which
was released by the Company, (iii)
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copies of each Form SR, (iv) a copy of each Form 8K or Schedules 13D, 13G, 14D-1
or13E-4 received or prepared by the Company, and (v) such additional documents
and information with respect to the Company or any Subsidiary and their
respective affairs or any future subsidiaries of the Company as the Underwriter
may from time to time reasonably request.
h. Apply the net proceeds from the offering received by it a
manner consistent with the caption "USE OF PROCEEDS" in the Prospectus.
i. Deliver to the Underwriter, prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and not file any such amendment or supplement to which
the Underwriter shall reasonably object, after being furnished such copy, in
writing with reasonable specificity as to the nature and extent of any
objection.
j. Furnish to the Underwriter as early as practicable prior to
the date hereof and Closing Date I, but not later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the Effective Date) which have been read by the
Company's independent accountants as stated in their letter to be furnished to
the Underwriter pursuant to Section 7(g) hereof.
k. For a period of three (3) years from Closing Date I,
provide the Underwriter, upon its request, at the Company's sole expense, with
access to daily consolidated financial transfer sheets relating to the Common
Stock and designate American Stock Transfer & Trust Company, as transfer agent
for the Company's securities or such other transfer agent mutually agreeable by
the Company and the Underwriter.
l. For a period of three (3) years after the Effective Date,
engage an advisor (the "Advisor") designated in writing by the Underwriter to
the Board of Directors of the Company (the "Board"), if requested by the
Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board of such person is unavailable
to serve, the Company shall notify the Underwriter of each meeting of the Board.
All individual designated by the Underwriter shall receive all notices and other
correspondence and communications sent by the Company to members of the Board.
In addition, such Advisor shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings, including, but not limited
to food, lodging and transportation. The Company further agrees that, during
said three (3) year period, it shall schedule not less than four (4) formal and
"in person" meetings of its Board of Directors in each such year at which
meetings such Advisor shall be permitted to attend as set forth herein; said
meetings shall be held quarterly each year and thirty (30) days advance notice
of such meetings shall be given to the Advisor. Further, during such three (3)
year period, the Company and its principal stockholders shall give notice to the
Underwriter with respect to any proposed acquisitions, mergers, reorganizations
or other similar transactions.
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The Company agrees to indemnify and hold the Underwriter
and such Advisor harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible (without any
additional premium or other related cost to the Company) to include the Advisor
as an insured under such policy.
m. Until the sooner of (i) seven years from the date hereof,
or (ii) the sale to the public of the Underwriter's Securities and the
Underwriter's Warrant Shares, the Company will not take any action or actions
which may prevent or disqualify the Company's use of Form SB-2 (or other
appropriate form) for the registration under the Act of the Underwriter's
Securities.
n. For a period of five years from the date hereof, use its
best efforts to maintain the quotation by NASDAQ of the Common Stock.
o. Supply the Underwriter with one, and Dreier & Baritz,
counsel to the Underwriter, with two (2) bound volumes of the underwriting
materials within a reasonable time after the latest Closing Date.
p. For a period of two years from the Effective Date, not
issue any shares of Common Stock or Preferred Stock or any warrants, options or
other rights to purchase Common Stock or Preferred Stock at a price less than
120% of the initial public offering price without the prior written consent of
the Underwriter; provided, however, that the Company may issue securities upon
the conversion of any securities outstanding on the date hereof pursuant to the
terms thereof and upon the exercise of any warrants or options outstanding on
the date hereof pursuant to the terms thereof.
q. So long as the Shares or Underwriter's Securities are
registered under the Exchange Act, the Company will hold an annual meeting of
stockholders for the election of directors within 180 days after the end of each
of the Company's fiscal years or at such other date as mutually agreed upon by
and between the Underwriter and the Company, and, within 150 days after the end
of each of the Company's fiscal years will provide the Company's stockholders
with the audited financial statements of the Company as of the end of the fiscal
year just completed prior thereto. Such financial statements shall be those
required by Rule 14a-3 under the Exchange Act and shall be included in an annual
report pursuant to the requirements of such Rule.
r. Engage a financial public relations firm satisfactory to
the Underwriter as soon as possible after Closing Date I. Such firm, or an
acceptable substitute firm, shall be continuously engaged from the filing
referred to above to a date twelve (12) months from Closing Date I.
s. Enter into a financial advisory and consulting agreement
(the "Consulting Agreement") with the Underwriter and the Underwriter's Warrant
Agreement in substantially the
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form filed as Exhibits ___ and ___, respectively to the Registration Statement.
t. The Company has or shall purchase term keyman insurance on
the life of Marvin Schwam in the amount of $1,000,000 naming the Company as the
sole beneficiary thereof, as soon as possible after Closing Date I.
u. Grant to the Underwriter a preferential right on the terms
and subject to the conditions set forth in this paragraph, for a period of two
(2) years from the Effective Date, to purchase for its account, or to sell for
the account of the Company or its present or future affiliates or subsidiaries
or any of its stockholders listed in the Prospectus under the caption "PRINCIPAL
STOCKHOLDERS (the "Principal Stockholders"), any securities of the company or
any Principal Stockholders, with respect to which the Company or any of its
present or future affiliates or subsidiaries or its principal Stockholders, on
terms not more favorable to the Company or such present or future affiliate or
subsidiary or its Principal Stockholders than they can secure elsewhere, to
purchase or sell any such securities. If the Underwriter fails to accept in
writing such proposal made by the Company or any of its present or future
affiliates or subsidiaries within five (5) business days or its Principal
Stockholders within ten (10) days after receipt of a notice containing such
proposal, then the Underwriter shall have no further claim or right with respect
to the proposal contained in such notice. If, thereafter, such proposal is
materially modified, the Company, and each present or future affiliate or
subsidiary or its Principal Stockholders shall in all respects have the same
obligations and adopt the same procedures with respect to such proposal as are
provided herein above with respect to the original proposal.
v. Take all necessary and appropriate actions to be included
in Standard and Poor's Corporation Descriptions and Moody's OTC Manual.
7. PAYMENT OF EXPENSES.
a. The Company hereby agrees to pay all reasonable expenses
(other than fees of counsel to the Underwriter, except as provided in (iii)
below) in connection with the offering, including but not limited to, (i) the
preparation, printing, filing and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement and the Prospectus and
the printing and mailing of this Agreement and related documents, including the
cost of all copies thereof and of the Preliminary Prospectus and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriter in quantities of herein above state, (ii) the printing, engraving,
issuance, and delivery of the Units, Shares, Warrants and the Underwriter's
Warrants, including any transfer or other taxes payable thereon, (iii) the
qualification of the Units and the Underwriter's Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," and "Legal Investments Survey,"
if any, and fees of counsel for the Underwriter (which fees shall be payable by
the Company in the sum of up to $20,000) and disbursements of counsel for the
Underwriter, (iv) advertising costs and expenses including but not limited to
the costs and expenses in
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connection with the "road show", information meetings and presentations, bound
volumes and "tombstones" in publications selected by the Underwriter and
prospectus memorabilia, (v) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent counsel
or consultant retained, and all reasonable travel and lodging expenses incurred
by you and/or counsel to the Underwriter in connection with visits to, and
examination of, the Company's premises, (vi) fees and expenses of the transfer
agent and warrant agent, (vii) applications for assignments of a rating of the
Securities by qualified rating agencies, and (viii) the fees payable to NASD and
NASDAQ. The $20,000 payment to counsel for the Underwriter shall not include
fees of special counsel if same is required to be incurred in a merit review
state which may require local counsel. In this connection, Blue Sky applications
shall be made in such states and jurisdictions as shall be requested by the
Underwriter. Payments with regard to items (iii), (iv), and (v) shall be made on
each of Closing Date I and Closing Date II. The Underwriter shall provide the
Company with a written statement itemizing such expenses.
b. NON-ACCOUNTABLE EXPENSE ALLOWANCE. The Company shall pay to
the Underwriter an aggregate non-accountable expense allowance, in addition to
the expenses payable, pursuant to this Section 6(a), equal to three percent (3%)
of the gross proceeds received by the Company from the sale of Securities and,
on its part, the Underwriter agrees to deduct from the said three percent (3%)
allowance $15,000 previously paid by the Company to the Underwriter as an
advance against payment due pursuant to the provisions of this Section 6(b). In
the event that the Underwriter terminates the offering or is unable to
consummate the offering within nine (9) months of the date hereof, the advances
toward the non-accountable expense allowance shall become accountable and shall
be returnable to the Company to the extent its out-of-pocket expense are less
than the $15,000 advanced.
8. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Securities, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date, to the
accuracy of the statements of officers of the Company made pursuant to the
provisions hereof and to the performance by the Company of its obligations
hereunder and to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by you, and, at each of the
Closing Dates, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Dreier & Baritz, counsel to the
Underwriter.
b. At Closing Date I, the Underwriter shall have received the
favorable opinion of Atlas, Pearlman, Trop & Borkson, P.A., counsel to the
Company dated Closing Date I, addressed to the Underwriter and in form and
substance satisfactory to Dreier & Baritz, counsel to the Underwriter, to the
effect that:
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(1) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its state
of incorporation, (B) is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires
such qualifications, and (C ) has all requisite power and authority to
own or lease its properties and conduct its business as described in
the Prospectus;
(2) the Units, Shares, Warrants, Underwriter's Warrants, the
Common Shares and the Underwriter's Securities have been duly
authorized and are, or in the case of the Underwriter's Securities,
will be, upon exercise and payment therefor, validly issued, fully paid
and non-assessable securities of the Company, and the holders thereof
are not and will not be subject to personal liability by reason of
being such holders; none of the Units, Shares, Warrants, Underwriter's
Warrants, the Common Shares, or the Underwriter's Securities (i) are
subject to any preemptive or similar contractual rights of any
stockholder of the Company by reason of the Company's certificate of
incorporation, as amended, or any applicable statute; or (ii) are
subject to any preemptive, or, to such counsel's knowledge, similar
contractual rights of any stockholder of the Company by reason of any
agreement to which the Company is a party; all corporate action
required to be taken for the authorization, issue and sale of such
securities has been duly and validly taken; if issued, the
Underwriter's Securities shall constitute, valid and binding
obligations of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company
called for thereby; and the certificates representing the Units,
Shares, Warrants and the Underwriter's Warrant are in due and proper
form;
(3) except as described in the Prospectus, to such counsel's
knowledge, the Company does not own an interest in any corporation,
partnership, joint venture, trust or other business entity.
(4) this Agreement, the Consulting Agreement and the
Underwriter's Warrant Agreement have each been duly and validly
authorized, executed and delivered by the Company, assuming due
execution by the parties thereto other than the Company, and are valid
and binding agreements of the Company, enforceable against the Company
in accordance with their respective terms, except (A) as such
enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (B) as
enforceability of any indemnification provision may be limited under
the federal and state securities laws, and (C ) that the remedy of
specific performance and injunctive and other forms or equitable relief
may be subject to the equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought;
(5) to such counsel's knowledge, there are no contracts or
other documents required to be described in the Prospectus or to be
filed as exhibits to the Registration Statement other than those
described and filed as required, and to such counsel's knowledge, there
are no statutes, rules or regulations or legal governmental
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proceedings required to be described in the Prospectus which are not
described as required and no legal or governmental proceedings pending
or threatened which could materially adversely affect the business or
financial conditions of the Company which have not been disclosed in
the Prospectus;
(6) the Registration Statement is effective under the Act, and
to such counsel's knowledge, no proceedings for a stop order are
pending or, to such counsel's knowledge threatened under the Act;
(7) all consents, approvals, authorizations or orders of any
court or governmental agency or body (other than such as may be
required under Blue Sky laws, as to which no opinion need be rendered)
required in connection with the consummation of the transactions
contemplated by this Agreement have been obtained and are in effect;
(8) neither the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement or the Consulting Agreement, nor the
issue and sale of the Units, Shares, Warrants, Underwriter's Warrants,
the Common Shares or the Underwriter's Securities, nor the consummation
of the transactions contemplated hereby, nor the compliance by the
Company with the terms and provisions hereof, constitute a default
under, any agreement that the Company is a party to, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any
mortgage, deed of trust, note, indenture or loan or credit agreement or
any other agreement or instrument known to such counsel (after due
inquiry) to which the Company is a party or by which the Company may be
bound or which any of the property or assets of the Company is subject;
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or the By-laws of the Company, or any
statute or any order, rule or regulation applicable to the Company of
any court or of any federal, state or other regulatory authority or
other governmental body having jurisdiction over the Company;
(9) the Registration Statement, each preliminary Prospectus
and the Prospectus and any post-effective amendments or supplements
thereto (other than the financial statements included therein, as to
which no opinion need be rendered) comply as to form in al material
respects with the requirements of the Act and Regulations. Such counsel
shall state that such counsel has participated in conferences with
officers and other representatives of the Company, representatives of
the independent public accounts for the Company and representatives of
the Underwriter at which the contents of the Registration Statement,
the Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which
lead them to believe that either the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective or the Prospectus as of the date of such opinion
contained any untrue statement of a material fact or omitted to
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state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that
such counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus);
(10) the terms and provisions of the Shares, the Underwriter's
Warrants, the Common Shares the Underwriter's Securities and all other
securities issued or issuable by the Company conform in all material
respects to the description thereof contained in the Registration
Statement and the Prospectus;
(11) to such counsel's knowledge, the Company is not in breach
of, or in default under, any term or provision of any indenture,
mortgage, deed of trust, lease, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a
party or by which the Company or any of their respective properties may
be bound or affected; the Company is not in violation of any term or
provision of its Certificate of Incorporation or By-laws, and the
Company is not in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation, except as
referred to in the Prospectus;
(12) the statements in the Prospectus under "RISK FACTORS",
"BUSINESS", CERTAIN TRANSACTIONS", "MANAGEMENT" and "DESCRIPTION OF
SECURITIES" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions are correct in all material
aspects;
(13) the authorized and outstanding capital stock of the
Company is as set forth under the caption stock of the Company is as
set forth under the caption "CAPITALIZATION" in the Prospectus; all of
the issued and outstanding capital stock, options and warrants of the
Company have been duly authorized and validly issued and all of the
issued and outstanding shares of capital stock of the Company are fully
paid and non-assessable; and none of such securities or interests were
issued in violation of the preemptive rights or similar rights of any
holder of any security of interest of the Company or of any applicable
federal or state securities law;
(14) to such counsel's knowledge, the Company is conducting
its operations in compliance with applicable federal, state and local
laws, statutes, rules and regulations;
(15) to such counsel's knowledge, the Company has good and
marketable title to, or valid and enforceable leasehold estates in the
item of real and personal property stated in the Prospectus to be owned
or leased by it as lessee, free and clear of all liens, encumbrances,
claims, security interests, defects and restrictions of any material
nature whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
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(16) to such counsel's knowledge, the Company owns or
possesses the requisite licenses or other rights to use the Intangibles
necessary to conduct the business of the Company, and there is no claim
or action by any person pertaining to, or proceeding pending, or
threatened, which challenges such rights of the Company, with respect
to any such Intangibles used in the conduct of the business of the
Company.
(17) except as and to the extent set forth in the Prospectus,
to such counsel's knowledge, the Company is not under any obligation to
pay to any third party royalties or fees of any kind whatsoever with
respect to any technology or intellectual properties developed,
employed or used;
(18) to such counsel's knowledge, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements agreements, understandings, payments or issuances that may
affect the Underwriter's compensation, as determined by the NASD;
(19) to such counsel's knowledge, persons listed under the
caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the respective
"beneficial owners' (As such phrase is defined in Regulation 13d-3
under the Exchange Act) of the shares of Common Stock set forth
opposite their respective names thereunder as and to the extent set
forth herein;
(20) to such counsel's knowledge, other than as set forth in
the Prospectus, no person, corporation, trust, partnership, association
or other entity has the right to include and/or register any securities
of the Company in the Registration Statement therefore;
(21) to such counsel's knowledge, the Company, nor any of its
respective officers, nor, to the Company's knowledge, any of their
respective employees, agents or any other person acting on behalf of
any of the Company has directly or indirectly, given or agreed to give
any money, gift or similar benefit (other than legal price concessions
to customers, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency or instrumentality of
any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is,
or may be in a position to help or hinder the business of any of the
Company (or assist it in connection with any actual or proposed
transaction) which (a) might subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or
proceeding, (b) if not given in the past, might have had a materially
adverse effect on the assets, business or operations of the Company as
reflected in any of the financial statements contained in the
Registration Statement, or (c ) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the
Company.
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(22) the minute books of the Company have been made available
to counsel to the Underwriter and contain a complete summary of all
meetings and actions by unanimous consent of directors and stockholders
since the time of incorporation and reflect all transactions referred
to in such minutes accurately in all material respects; and
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such option, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriter's counsel) of other counsel reasonably acceptable to Underwriter's
counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates and written statements of responsible
officers of the Company and certificates or other written statements of officers
of departments of various jurisdictions having custody of documents respecting
the corporate existence or good standing of the Company, provided that copies of
any such statements or certificates shall be delivered to Underwriter's counsel
if requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
At Closing Date II, the Underwriter shall have received the
favorable opinion of Atlas, Pearlman, Trop & Borkson, P.A., counsel to the
Company, dated Closing Date II, addressed to the Underwriter and in form and
substance satisfactory to Dreier & Baritz, counsel to the Underwriter,
confirming as of Closing Date II, the statements made by Atlas, Pearlman, Trop &
Borkson, P.A. in their opinion deliver on Closing Date I.
c. On or prior to each of Closing Date I and Closing Date II,
counsel for the Underwriter shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in Section 8(b), or
in order to evidence the accuracy, completeness or satisfaction of any of the
representation, warranties or conditions herein contained.
d. Prior to each of Closing Date I and Closing Date II, (i)
there shall have been no material adverse change nor development involving a
prospective change in the condition or prospects of the business activities,
financial or otherwise, of the Company from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company; (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company wherein any unfavorable result or decision could
materially, adversely affect any of their respective properties
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or business before or by any court or federal or state commission, board or
other administrative agency wherein an unfavorable decision, ruling or finding
may materially adversely affect the business, operations, prospects of financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; (vi) no stop order shall have been issued under the
Act and no proceedings thereof shall have been initiated or threatened by the
Commission; and (vii) the market for securities in general or for the Company's
Shares in particular, or political, financial or economic conditions shall have
materially changed from those reasonably foreseeable as of the date hereof as to
render it impracticable in the Underwriter's judgment to make a public offering
of the Shares, or there has been a material adverse change in market levels for
securities in general (or those of the Company in particular) or financial or
economic conditions which render it inadvisable in the Underwriter's judgment to
proceed.
e. At each of Closing Date I and Closing Date II, the
Underwriter shall have received a certificate of the Company signed by the
Chairman of the Board or the President and Secretary of the Company, dated
Closing Date I and Closing Date II, respectively, to the effect that the
conditions set forth in subsections (d) (i) through (vi) above have been
satisfied and that, as of Closing Date I and Closing Date II, respectively, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct.
f. By Closing Date I, the Underwriter shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
g. At the time this Agreement is executed, and at each of
Closing Date I and Closing Date II, the Underwriter shall have received a
letter, addressed to the Underwriter and in form and substance satisfactory in
all respects (including the non-material nature of the changes or decreases, if
any, referred to in clause (iii) below) to the Underwriter and to Dreier &
Baritz, counsel for the Underwriter, from Spear, Safer & Harmon dated,
respectively, as of the date of this Agreement and as of each of Closing Date I
and Closing Date II:
(1) confirming that they are independent accounts with
respect to the Company within the meaning of the Act and the applicable
Regulations;
(2) stating that in their opinion the financial statements
of the Company included in the Registration Statement and Prospectus
comply as to form in all material respects with the applicable
accounting requirements of the Act and the published Regulations
thereunder;
(3) stating that, on the basis of a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the board of directors of the Company,
consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which
would lead them to believe that
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(A) either the audited financial statements for the years ended
_______________ of the Company in the Registration Statement do not
comply as to form in all material respects with the applicable
accounting requirements of the Act, and the Regulations or are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the
audited consolidated financial statements of the Company included in
the Registration Statement, (B) at a date not later than five (5) days
prior to the Effective Date, there was any change in the capital stock
or long-term debt of the Company, or any decrease in the stockholders'
equity of the Company as compared with amounts shown in the
_______________ balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any decrease, setting forth the amount of
such decrease, and (C) during the period from ____________ to a
specified date not more than five (5) days prior to the Effective Date
there was any decrease in net revenues, increase in net losses or
increases in net losses per common share of the Company, in each case
as compared with the corresponding period beginning ______________
other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount
of such decrease;
(4) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
account records, including worksheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement; and
(5) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably
request.
h. All proceedings taken in connection with the authorization,
issuance or sale of the Shares, the Underwriter's Warrants, the Common Shares
and the Underwriter's Securities as herein contemplated shall be satisfactory in
form and substance to the Underwriter and to Dreier & Baritz, counsel to the
Underwriter.
i. On each of Closing Date I and Closing Date II, there shall
have been duly tendered to you for your account the appropriate number of
Securities and individually for your own account the Underwriter's Warrants.
j. No order suspending the sale of the Securities in any
jurisdiction designated by you pursuant to Section 5(d) hereof shall have been
issued on either Closing Date I or Closing Date II (unless requested by the
Underwriter), and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
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Any certificate signed by any officer of the Company and
delivered to the Underwriter or to counsel to the Underwriter shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein. If any condition to the Underwriter's obligations
hereunder to be fulfilled prior to or at any Closing Date is not so fulfilled,
the Underwriter may terminate this Agreement or, if the Underwriter so elects,
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
8. INDEMNIFICATION.
(1) The Company shall indemnify and hold the Underwriter, and
each person, if any, who controls the Underwriter ("Controlling Person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act),
harmless against any and all liabilities, claims, lawsuits, including any and
all awards and/or judgments to which it may become subject under the Act, the
exchange Act or any other federal or State statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are in connection with the Registration Statement,
Prospectus and related Exhibits filed under the Act, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of acts or
omissions of the Underwriter. In addition, the Company shall also indemnify and
hold the Underwriter. In addition, the Company shall also indemnify and hold the
Underwriter harmless against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing.
The Underwriter shall give the Company prompt notice of any
such liability, claim or lawsuit which the Underwriter contends is the subject
matter of the Company's indemnification, and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Underwriter shall indemnify and hold the Company, and each
Controlling Person, if any, who controls the Company with the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, harmless against any and all
liabilities, claims, lawsuits, including any and all awards and/or judgments to
which it may become subject under the Act, the Exchange Act or any other federal
or state statute, at common law or otherwise, insofar as said liabilities,
claims and lawsuits (including awards and/or judgments) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
required to be stated or necessary to make the statement therein, not
misleading, which statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the Underwriter for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. In addition, the Underwriter shall also indemnify and hold
the Company harmless against any and all costs and expenses, including
reasonable counsel fees, incurred or elating to the foregoing.
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The Company shall give to the Underwriter prompt notice of any
such liability, claim or lawsuit which the Company contends is the subject
matter of the Underwriter's indemnification and the Underwriter thereupon shall
be granted the right to take any and all necessary and proper action, at its
sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
In order to provide for just and equitable contribution under
the Act in any case in which (i) any person entitled to indemnification under
this Section 8 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person n circumstances for which indemnification is such person in
circumstances for which indemnification is provided under this Section 8, then,
and in each such case, the Company and the Underwriter shall contributed to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after any contribution from others) in such proportion taking into
consideration the relative benefits received by each party from the offering
covered by the Prospectus (taking into account the portion of the proceeds of
the offering realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was assessed,
the opportunity to correct and prevent any statement or omission and other
equitable considerations appropriate under the circumstances; provided, however,
that notwithstanding the above in no event shall the Underwriter be required to
contribute any amount in excess of 8% of the initial pubic offering price of the
Securities; and provided, that, in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11 (f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Within fifteen (15) days after receipt of any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relive it from any liability which it may
have to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a contributing party of his or its representatives of the commencement thereof
within the aforesaid fifteen (15) days, the contributing party will be entitled
to participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The indemnification provisions contained in
this Section 8 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
23
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9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise required, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates and such representations, warranties and
agreements of the Underwriter and the Company, including the indemnity
agreements contained in Section 8 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any of
the Underwriter, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriter until the earlier of the expiration of any applicable statue of
limitations and the seventh anniversary of Closing Date II, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.
(1) This Agreement shall become effective at 9:30 a.m., New
York time, on the first full business day following the day on which the
Registration Statement becomes effective or at the time of the initial pubic
offering by the Underwriter of the Securities, whichever is earlier. The time of
the initial public offering, for the purpose of this Section 10, shall mean the
time, after the Registration Statement becomes effective, of the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities or the time, after the
Registration Statement becomes effective, when the Securities are first released
by the Underwriter for offering by the Underwriter or dealers by latter or
telegram, whichever shall first occur. The Underwriter may prevent this
Agreement from becoming effective without liability to any other party, except
as noted below, by giving the notice indicated below in this Section 10 below
the time this Agreement becomes effective. The Underwriter agrees to give the
undersigned notice of the commencement of the offering described herein.
(2) The Underwriter shall have the right to terminate this
Agreement if any of the conditions enumerated in Section 7 are not fulfilled or
waived by the Underwriter on or before any Closing Date.
(3) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be notified on the same day as such election is made by
the Underwriter by telephone or telegram, confirmed by letter.
(4) Anything herein to the contrary notwithstanding, if this
Agreement shall not be carried out within the time specified herein, or any
extensions thereof granted by the Underwriter, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied then, in addition to the
obligations assumed by the Company pursuant to Section 6(a) hereof, the
Underwriter shall retain the initial $25,000 expense allowance previously paid.
Notwithstanding any contrary provision contained in this
agreement, any election
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hereunder or termination of this Agreement, and whether or not this Agreement is
otherwise carried out, the provisions of Section 8 shall not be in any way
affected
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
Witnesses: GAY ENTERTAINMENT TELEVISION, INC.
________________________ By: ________________________
Name: ________________________
________________________ Title: ________________________
THE AGEAN GROUP, INC.
________________________ By: ________________________
Name: ________________________
________________________ Title: ________________________
25
EXHIBIT 3.2
AMENDED AND RESTATED
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
<PAGE>
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.
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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
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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
<PAGE>
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
<PAGE>
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
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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 Chief Executive Officer, who shall also serve as the Chairman of the
Board of the Corporation, unless otherwise agreed upon between the Board of
Directors and the 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
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<PAGE>
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 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.
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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
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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
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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:
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(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
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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.
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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.
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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
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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.
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EXHIBIT 4.1
WARRANT AGENT AGREEMENT
THIS WARRANT AGENT AGREEMENT ("Agreement") is made and entered into as
of this ___ day of ____________, 1997, by and between GAY ENTERTAINMENT
CORPORATION , a corporation organized and existing under the laws of the State
of Florida ("Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a national
banking association, as warrant agent ("Warrant Agent").
RECITALS
A. The Company is 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 one (1) Redeemable Common Stock Purchase Warrant
("Warrant"). The Warrants are not immediately separable from the Units, but will
become separable on or before six months from Closing Date 1, which shall be the
Initial Closing as defined in the Company's registration statement on Form SB-2,
File Number 333-36873 and filed with the Securities and Exchange Commission (the
"Prospectus"), subject to the earlier separability, at the sole discretion of
The Agean Group, Inc. (the "Representative"), the representative of the several
underwriters ("Underwriters").
B. 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. No fractional
Shares shall be issued. The Warrants are redeemable by the Company at $.05 per
Warrant, commencing one year from the closing of the Minimum Offering (the
"Initial Closing"), 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.
C. The Company desires the Warrant Agent to act on behalf of the Company, and
the Warrant Agent is willing so to act, in connection with the issuance,
registration, registration of transfer, exchange and exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act an agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
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2. FORM OF WARRANTS. The text and the terms of the Warrants, and the
form of election to purchase shares of Common Stock appearing on the reverse
side thereof shall be substantially as set forth in EXHIBIT A attached hereto
and made a part hereof. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the president or a vice president of the
Company and by the manual or facsimile of the secretary or assistant secretary
of the Company under its corporate seal, affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial date
of issuance thereof, and upon transfer or exchange, the Warrant shall be dated
as of such subsequent issuance date.
3. SEPARABILITY. The Warrants are not immediately separable from the
Units, but will become separable on or before six months from Closing Date 1,
subject to the earlier separability, at the sole discretion of the
Representative.
4. REGISTRATION AND COUNTERSIGNATURE. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. Upon the initial
issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective registered holders, and upon subsequent
issuance, such Warrants shall be registered in the names of the respective
succeeding registered holders. The Warrants shall be countersigned by the
Warrant Agent (or by any successor to the Warrant Agent then acting as warrant
agent under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the Warrant Agent
(or by its successor as warrant agent) and be delivered by the Warrant Agent,
notwithstanding that the persons whose manual or facsimile signature appear
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery. Until a Warrant is transferred
on the books of the Warrant Agent, the Company and the Warrant Agent may treat
any registered holder of Warrants as the absolute owner thereof for all
purposes, notwithstanding any notice to the contrary.
5. REGISTRATION OF TRANSFERS AND EXCHANGES. The Warrant Agent shall
transfer any outstanding Warrants on the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer, properly endorsed
or accompanied by appropriate instructions for transfer with proper documentary
stamps affixed thereto, if requested. Upon any such transfer, a new Warrant
shall be issued to the transferee, and the surrendered Warrant shall be canceled
by the Warrant Agent. Warrants so canceled shall be delivered by the Warrant
Agent to the Company from time to time. Warrants may be exchanged at the option
of the holder thereof when surrendered at the office of the Warrant Agent, for
another Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
and deliver the Warrants in accordance with the provisions of this Paragraph 4,
and the Company, whenever required by the Warrant Agent, will supply the Warrant
Agent with Warrants duly executed on behalf of the Company for such purpose.
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6. EXERCISE OF WARRANTS. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which right may be
exercised as in such Warrants expressed, to purchase from the Company, and the
Company shall issue and sell to such registered holder of Warrants, the number
of fully paid and non-assessable shares of Common Stock specified in such
Warrants, upon surrender to the Company at the office of the Warrant Agent, with
the form of election to purchase on the reverse side thereof duly completed and
signed, and upon payment to the Warrant Agent for the account of the Company of
the Exercise Price for the number of shares of Common Stock in respect of which
such Warrants are then exercised. Payment of such Exercise Price may be made in
cash or by certified check, bank draft, or postal or express money order,
payable in United States dollars, to the order of the Company. Subject to the
provisions of Paragraph 8 hereof, upon such surrender of Warrants and payment of
the Exercise Price as aforesaid, the Company, acting through the Warrant Agent,
shall issue and cause to be delivered with all reasonable dispatch to or upon
the written order of the registered holder of such Warrants and in such name or
names as such registered holder may designate, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificates shall be deemed to have been issued, and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Common Stock, as of the date of surrender of such Warrants and
payment of the Exercise Price, as aforesaid; provided, however, that if, at the
date of surrender of such warrants and the payment of such Exercise Price, the
transfer books for the Common Stock purchasable upon the exercise of such
Warrants shall be closed, the certificates for the shares in respect of which
such Warrants are then exercised shall be issuable as of the date on which such
books shall next be opened, and until such date the Company shall be under no
duty to deliver any certificate for such shares; provided further, however, that
the transfer books aforesaid, unless otherwise required by law, shall not be
closed at any one time for a period longer than 20 days. The right of purchase
represented by the Warrants shall be exercisable, at the election of the
registered holders thereof, either as an entirety or, from time to time, for
part only of the shares specified therein, and in the event that any Warrant is
exercised in respect of less than all of the shares specified therein at any
time prior to the date of expiration of the Warrants, a new Warrant or warrants
will be issued for the remaining number of Common Stock specified in the Warrant
so surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Paragraph 5 and of Paragraph 3 of this Agreement, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrants duly executed on behalf of the Company for such purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Common Stock in connection therewith would
constitute a violation of the registration provisions of federal or state
securities laws.
Upon thirty (30) days' prior written notice to all holders of the
Warrants and subject to the prior approval of the Representative, the Company
shall have the right to reduce the exercise price and/or extend the term of the
Warrants in compliance with the requirements of Rule 13e-4 to the extent
applicable.
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The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a recapitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter shall
mean said price as adjusted from time to time in accordance with the provisions
hereof. No such adjustment shall be made unless such adjustment would change the
then purchase price per share by Ten Cents ($.10) or more; provided, however,
that all adjustments not so made shall be deferred and made when the aggregate
thereof would change the then purchase price per share by Ten Cents ($.10) or
more. No adjustment made pursuant to any provision hereof shall have the effect
of increasing the total consideration payable upon exercise of any of the
Warrants.
7. ADJUSTMENTS IN CERTAIN CASES. In case the Company shall at any time
prior to the exercise or termination of any of the Warrants effect a
recapitalization or reclassification of such character that its Common Stock
shall be changed into or become exchangeable for a larger or smaller number of
shares, then, upon the effective date thereof, the number of shares of Common
Stock that the holders of the Warrants shall be entitled to purchase upon
exercise thereof shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in such number of shares of Common Stock
by reason of such recapitalization or reclassification on, and the purchase
price per share of such recapitalized or reclassified Common Stock shall, in the
case of an increase in the number of shares, be proportionately decreased and,
in the case of a decrease in the number of shares, be proportionately increased.
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Common Stock
cash, evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings, then,
in any such case, the holders of the Warrants shall be entitled to receive, upon
exercise thereof, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities or
assets that such holder would have been entitled to receive with respect to the
Common Stock as a result of the happening of such event, had the Warrants been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (without giving effect to any restriction upon such
exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a condition
precedent to such transaction, cause effective provision to be made so that the
holders of the Warrants, upon the exercise thereof after the effective date of
such transaction, shall be entitled to receive the kind and amount of shares,
evidences of indebtedness, and/or other property receivable on such transaction
by a holder of the number of shares of Common Stock as to which the Warrants
were exercisable immediately prior to such transaction (without giving effect to
any restriction upon such exercise); and, in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
thereof to the effect that the provisions of the Warrants shall thereafter be
applicable (as nearly as may be practicable) with
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respect to any shares, evidences of indebtedness, or other securities or assets
thereafter deliverable upon exercise of the Warrants.
Whenever the number of shares of Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing setting forth the computation and the
adjusted number of shares of Common Stock or other securities or assets
purchasable hereunder resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to each of the registered holders of the
Warrants. Any such certificate or letter shall be conclusive evidence as to the
correctness of the adjustment or adjustments referred to therein and shall be
available for inspection by the holders of the Warrants on any day during normal
business hours.
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Common Stock, then, wherever appropriate, all references
herein to Common Stock shall be deemed to refer to and include such shares,
evidences of indebtedness, or other securities or assets, and thereafter the
number of such shares, evidences of indebtedness, or other securities or assets
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions hereof.
8. REDEMPTION. The Warrants may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant at any time commencing one
(1) year from the closing of the Minimum Offering, upon thirty (30) days' prior
written notice, if (i) the average closing price or bid price of the Common
Stock, as reported by the principal exchange on which the Common Stock is
traded, the NASDAQ Small Cap Market or the National Quotation Bureau,
Incorporated, as the case may be, equals or exceeds $6.50 per share for any
twenty (20) consecutive trading days ending within thirty (30) days prior to the
date of the notice of redemption. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants
represented hereby except to receive the $.05 per Warrant upon surrender of this
Warrant Certificate. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$.05 per Warrant upon surrender of this Warrant Certificate.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes,
if any, attributable to the initial issuance of securities upon the exercise of
the Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes that may be payable in respect of any transfer involved in the
issue or delivery of any securities in a name other than that of the registered
holder of Warrants in respect of which such securities are issued and, in such
case, neither the Company nor the Warrant Agent shall be required to issue or
deliver any certificate representing such securities or any Warrant until the
person requesting the same has paid to the Company or the Warrant Agent the
amount of such tax or has established to the Company's satisfaction that such
tax has been paid.
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10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Warrant Agent may countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Warrant Agent of
such loss, theft or destruction of such Warrants and indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrants shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
11. RESERVATION OF COMMON STOCK. Prior to the issuance of any Warrants,
there shall have been reserved, and the Company shall at all times keep reserved
out of the authorized and unissued Common Stock, a number of shares of Common
Stock sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the transfer agent for the Common Stock and
every subsequent transfer for any of the Company's Common Stock issuable upon
the exercise of any of the rights of purchase aforesaid are hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued Common Stock as shall be requisite for such purpose. The Company agrees
that all Common Stock issued upon exercise of the Warrants shall be, at the time
of delivery of the certificates representing such Common Stock, validly issued
and outstanding, fully paid and non-assessable. The Company will keep a copy of
this Agreement on file with the transfer agent for the Common Stock and with
every subsequent transfer agent for the Company's Common Stock issuable upon the
exercise of the right of purchase represented by the Warrants. The Warrant Agent
is hereby irrevocably authorized to requisition from time to time from such
transfer agent stock certificates required to honor outstanding Warrants that
have been exercised. The Company will supply such transfer agent with duly
executed stock certificates for such purpose. All Warrants surrendered in the
exercise of the rights thereby evidenced shall be canceled by the Warrant Agent
and shall thereafter be delivered to the Company, and such canceled Warrants
shall constitute sufficient evidence of the number of shares of Common Stock
that have been issued upon the exercise of such Warrants. All Warrants
surrendered for transfer, exchange or partial exercise shall be canceled by the
Warrant Agent and delivered to the Company. Promptly after the date of
expiration of the Warrants, the Warrant Agent shall certify to the Company the
total aggregate amount of Warrants then outstanding and, thereafter, no Common
Stock shall be subject to reservation in respect of such Warrants.
12. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. Unless otherwise
instructed by the Company in writing, the Warrant Agent shall account promptly
to the Company with respect to Warrants exercised and shall promptly deposit in
an account for the benefit of the Company, in a bank designated by the Company,
all monies received by the Warrant Agent for the purchase of Common Stock
through the exercise of such Warrants.
13. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any
corporation or company that may succeed to the business of the Warrant Agent by
merger or consolidation or otherwise to which the Warrant Agent shall be a
party, or any corporation or company or otherwise succeeding to the business of
the Warrant Agent shall be the successor to the Warrant
6
<PAGE>
Agent hereunder without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provision of Paragraph 14 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement or in case at any time the name of the Warrant Agent shall be changed,
and any of the Warrants shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrants so countersigned; and in case
at the time any of the Warrants shall not have been countersigned, the successor
to the Warrant Agent may countersign such Warrants, either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent; and in
all such cases, such Warrants shall have the full force provided in the Warrants
and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and if at that time any of the Warrants
shall not have been countersigned, the Warrant Agent may countersign such
Warrants either in its prior name or in its changed name; and in all such cases,
such Warrants shall have the full force provided in the Warrants and this
Agreement.
14. DUTIES OF THE WARRANT AGENT.
(a) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company shall be bound:
(i) The statements contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same, except such as
describe the Warrant Agent or action or actions taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of the
Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise any
of the rights or powers hereby vested in it or perform any duty hereunder,
either itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company), and the Warrant
Agent shall incur no liability or responsibility to the Company or to any holder
of any Warrant in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or advice of such
counsel, provided the Warrant Agent shall have exercised reasonable care in the
selection and continued employment of such counsel.
7
<PAGE>
(v) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
(vi) The Company agrees to pay the Warrant Agent
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement; to reimburse the Warrant Agent for all expenses,
taxes, governmental charges and other charges of any kind and nature incurred by
the Warrant Agent in the execution of this Agreement; and to indemnify the
Warrant Agent and save it harmless from and against any and all liabilities,
including judgments, costs and reasonable attorneys' fees for anything done or
omitted by the Warrant Agent in the execution of this Agreement, except as a
result of the Warrant Agent's negligence or bad faith.
(vii) The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding, or to take any other action
likely to involve expense, unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity. All rights of action under this Agreement or under any of the
Warrants or in the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any recovery of judgment
shall be for the benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(viii) The Warrant Agent and any shareholder,
director, officer, partner or employee of the Warrant Agent may buy, sell or
deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(ix) The Warrant Agent shall act hereunder solely as
agent, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement, except for its own negligence or bad
faith.
(x) The Warrant Agent shall keep copies of this
Agreement available for inspection by holders of the Warrants during normal
business hours at its principal office in New Jersey.
15. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing of said notice. The Warrant Agent may be
8
<PAGE>
removed at the discretion of the Company by like notice to the Warrant Agent
from the Company and by like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal, or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. After appointment, any successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed, but the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall give notice thereof to
the predecessor Warrant Agent and each transfer agent for the Common Stock, and
shall forthwith give notice to the holders of the Warrants in the manner
prescribed in this section. Failure to file or mail any notice provided for in
this Section 15, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of any successor Warrant Agent, as the case may be.
16. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of any
transfer agent other than the Warrant Agent for the Common Stock of the Company
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
17. NOTICES. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or by the registered holder of any Warrant to the Company
shall be deemed to have been sufficiently given or made if sent by certified
mail, return receipt requested, postage prepaid, addressed (until another
address is filed in writing by the Company with the Warrant Agent) as follows:
To the Company: Gay Entertainment Corporation
7 East 17th Street
New York, NY 10003
To the Warrant Agent: American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
To the Representative: The Agean Group, Inc.
One Ocean South Boulevard
Suite 300
Boca Raton, Florida 33432
9
<PAGE>
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed ln writing
by the Warrant Agent with the Company) to the Warrant Agent as set forth above.
18. STANDARD OF CONDUCT. Notwithstanding any implication to the
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any judgment or to take any action, no such
judgment or action shall be made or taken in bad faith or in any arbitrary or
capricious fashion.
19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may,
from time to time, supplement or amend this Agreement without the approval of
any of the holders of the Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder that the Company and the
Warrant Agent may deem necessary or desirable, that shall not be inconsistent
with the provisions of the Warrants, and that shall not materially adversely
affect the rights of the holders of the Warrants.
20. SUCCESSORS. All of the covenants and provisions hereof by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
21. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not merge
or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual performance
and observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
22. FLORIDA CONTRACT. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Florida and
for all purposes shall be construed in accordance with the laws of said state.
23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any person or corporation, other than the Company, the Warrant
Agent and the registered holders of the Warrants, any legal or equitable right,
remedy or claim under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company and the Warrant Agent and their respective
successors and of the holders of the Warrant Certificates.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
GAY ENTERTAINMENT CORPORATION
By:________________________________
ATTEST:
- ------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:________________________________
ATTEST:
- ------------------------
11
EXHIBIT 4.2
[FORM OF FACE OF WARRANT CERTIFICATE]
____ Warrants
VOID AFTER ___, 200__
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
GAY ENTERTAINMENT CORPORATION
This certifies that FOR VALUE RECEIVED, ____________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Common Stock Redeemable Warrants ("Warrants") specified above. Each two Warrants
represented hereby entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate and the Warrant
Agreement of even date herewith (the "Warrant Agreement"), one fully paid and
nonassessable share of Common Stock, par value $.0001 per share ("Common
Stock"), of GAY ENTERTAINMENT CORPORATION , a New York corporation (the
"Company") at any time commencing _______________, 199__, and expiring on the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse side hereof
duly executed, at the corporate office of American Stock Transfer & Trust
Company, Inc., as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $5.25 per share (subject to adjustment) (the "Purchase
Price") in the lawful money of the United States of America in cash or by
official bank or certified check made payable to the Company. No fractional
shares of Common Stock will be issued.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement by and among the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York Time) on
_______, 200__, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to be closed.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrants represented hereby unless a registration
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a
<PAGE>
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment, with the appropriate transfer fee
per certificate in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.05 per Warrant at any time commencing one
(1) year from the closing of the Minimum Offering, upon thirty (30) days' prior
written notice, if (i) the average closing price of the Common Stock, as
reported by the principal exchange on which the Common Stock is traded, the
NASDAQ Small Cap Market or the National Quotation Bureau, Incorporated, as the
case may be, equals or exceeds $6.50 per share for any twenty (20) consecutive
trading days ending within thirty (30) days prior to the date of the notice of
redemption. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to the Warrants represented hereby except to
receive the $.05 per Warrant upon surrender of this Warrant Certificate. Upon
thirty (30) days' prior written notice to all holders of the Warrants and
subject to the consent of the Company's lead underwriter or representative, the
Company shall have the right to reduce the exercise price and/or extend the term
of the Warrants in compliance with the requirements of Rule 13e-4 to the extent
applicable.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
GAY ENTERTAINMENT CORPORATION
Dated__________________, 199__ By:__________________________
Name:________________________
Title:_______________________
[corporate seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY, INC.
as Warrant Agent
By:_______________________________
Authorized Officer
3
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
and be delivered to
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: ____________________ X_________________________________
Signature
_________________________________
_________________________________
Address
<PAGE>
______________________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF TRANSFEREE
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
___________of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints ____________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated: ____________________ X_________________________________
Signature
_________________________________
_________________________________
Address
______________________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A MEMBER OF THE
MEDALLION STAMP PROGRAM.
EXHIBIT 4.3
THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED
FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT MAY NOT BE ASSIGNED, SOLD OR OTHERWISE TRANSFERRED
OR PLEDGED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, OR IF THE PROPOSED
TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR
REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS AN OPINION
OF COUNSEL TO SUCH EFFECT.
GAY ENTERTAINMENT TELEVISION, INC.
FORM OF - COMMON STOCK WARRANT
No. ___ ________, 199__
VOID AFTER ________, 200__ at 5:00 PM EST
(or earlier upon the occurrence of
certain events described below)
THIS CERTIFIES that, for value received, THE AGEAN GROUP, INC.
or assigns (the "Holder"), shall be entitled to subscribe for and purchase from
GAY ENTERTAINMENT TELEVISION, INC., a New York corporation (the "Corporation"),
that number of Units (the "Warrant Units") of Common Stock, $.0001 par value per
share (the "Common Stock"), and Redeemable Common Stock Purchase Warrants (the "
Stock Warrants") , of the Corporation equal to_____, which Warrant are not
immediately separable from the Units, but will become separable on or before six
(6) months from Closing Date I, subject to earlier separability at the
discretion of the Representative of the several underwriters, pursuant to the
terms and subject to the conditions hereof. This Warrant is being issued in
connection with that certain Underwriters Agreement by and between the
Corporation and the Holder. Capitalized terms used herein but not otherwise
defined herein have the meanings ascribed thereto in the Underwriters Agreement.
SECTION 1. EXERCISE PERIOD. This Warrant may be exercised by
the Holder at any time or from time to time from the date hereof and on or prior
to 5:00 PM Eastern Standard Time _________, 200__ (such period being herein
referred to as the "Exercise Period"); PROVIDED, HOWEVER, that this Warrant may
not be exercised until such time as the Exercise Price shall have been
determined as provided in Section 2.
SECTION 2. EXERCISE PRICE. The exercise price (the "Exercise
Price") at any time for each Warrant Unit shall be $5.10 per Warrant Unit. Each
Underlying Warrant will be exercisable for a three (3) year period commencing on
the date hereof to purchase one-half (.5) share of Common Stock at an exercise
price of $6.30 per share of Common Stock. No fractional shares will be issued.
The Exercise Price shall be subject to adjustment pursuant to Section 5 hereof.
<PAGE>
a. The Holder may elect to instruct the Corporation to
withhold form 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.
SECTION 3. EXERCISE OF WARRANT; WARRANT SHARES.
a. The rights represented by this Warrant may be exercised, in
whole or in any part (but not as to a fractional interest), by (i) the surrender
of this Warrant (properly endorsed) at any office of the Corporation (or at such
other agency or office of the Corporation in the United States of America as it
may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Corporation), (ii) delivery to the Corporation of
a notice of election to exercise in the form of EXHIBIT A attached hereto, and
(iii) payment to the Corporation of the aggregate Exercise Price by cash, wire
transfer funds or check.
b. Each date on which this Warrant is surrendered and on which
payment of the Exercise Price is made in accordance with Section 3(a) above is
referred to herein as an "Exercise Date." Simultaneously with each exercise, the
Corporation shall issue and deliver a certificate or certificates for the
Warrant Units being purchased pursuant to such exercise, registered in the name
of the Holder or the Holder's designee, to such Holder or designee, as the case
may be. If such exercise shall not have been for the full number of the Warrant
Units, then the Corporation shall issue and deliver to the Holder a new Warrant,
registered in the name of the Holder, of like tenor to this Warrant, for the
balance of the Warrant Units that remain after exercise of the Warrant.
c. The person whose name any certificate for shares of Common
Stock is issued upon any exercise shall for all purposes be deemed to have
become the holder of record of such shares as of the Exercise Date, except that
if the Exercise Date is a date on which the stock transfer books of the
Corporation are closed, such person or entity shall be deemed to have become the
holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open. The Corporation shall pay all
documentary, stamp or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon exercise of all or any part of this
Warrant; PROVIDED, HOWEVER, that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the Holder to the extent such taxes would exceed the taxes otherwise
payable if such certificate had been issued to the Holder.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Corporation represents and warrants to the Holder that all shares of Common
Stock that may be issued upon the exercise of this Warrant will, upon issuance,
be validly issued, fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, and free from all taxes, liens and charges
with respect to the issue thereof. The Corporation will from time to time use
its
2
<PAGE>
reasonable efforts to take all such action as may be required to assure that the
stated or par value per share of the Common Stock is at all times no greater the
then effective Exercise Price. The Corporation shall at all times have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of its Common Stock to provide for the exercise of this Warrant. The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon exercise of the Warrant. The
Corporation warrants that the provisions of this Warrant are in compliance with
laws applicable thereto.
SECTION 5. ADJUSTMENT OF EXERCISE PRICE.
a. If, at any time after the date hereof, the number of shares
of Common Stock outstanding is increased by a stock dividend payable in shares
of Common Stock or by a subdivision or split-up of shares of Common Stock, then,
following the record date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the Exercise
Price (upon its determination in accordance with Section 2 of this Warrant)
shall be decreased such that the aggregate number of Warrant Units issuable upon
exercise of this Warrant as of such record date shall be increased in proportion
to such increase in outstanding shares.
b. If, at any time after the date hereof, the number of shares
of Common Stock outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for such combination,
the Exercise Price (upon its determination in accordance with Section 2 of this
Warrant) shall be increased such that the aggregate number of Warrant Units
issuable upon exercise of this Warrant as of such record date shall be decreased
in proportion to such decrease in outstanding shares.
c. If, at any time after the date hereof, any capital
reorganization, or any reclassification of the capital stock of the Corporation
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision or
split-up or combination of shares) shall be consummated, then this Warrant shall
be exercisable after such reorganization or reclassification into the kind and
number of shares of stock or other securities or property of the Corporation to
which the holder of the number of shares of Common Stock (immediately prior to
the time of such reorganization or reclassification) issuable upon exercise of
this Warrant would have been entitled upon such reorganization or
reclassification. The provisions of this subsection (c) shall similarly apply to
successive reorganizations or reclassifications.
d. All calculations under this Section 5 shall be made to the
nearest one-thousandth of a cent ($.001) or the nearest one-thousandth of a
share, as the case may be.
e. On any Exercise Date, the Corporation shall give written
notice thereof to the Holder, or any adjustment in the Exercise Price setting
forth in reasonable detail and certifying the calculation of such adjustment.
3
<PAGE>
SECTION 6. REGISTRATION RIGHTS. For a period of seven (7)
years from the date hereof, the Holders have the right to include the Warrant
Units and/or the shares of Common Stock issuable upon exercise of this Warrant
and/or the Underlying Warrants on any registration statement or similar offering
document filed by the Corporation. Additionally, upon the request of 50% of more
of the holders of the Warrant Units and registrable securities during the period
commencing one (1) year from the commencing of trading of the Corporation's
Common Stock and expiring four (4) years thereafter, the Corporation will
register the Warrant Units and/or any of the securities issuable upon their
exercise.
SECTION 7. NO SHAREHOLDER RIGHTS. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Corporation.
SECTION 8. RESTRICTIONS ON TRANSFER. This Warrant, the Warrant
Units and all rights hereunder will not be transferable for one (1) year from
the commencement of trading of the Corporation's Common Stock, except to (i)
officers of the Representative, other Underwriters, and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law. Thereafter, this Warrant, the Warrant Units and all rights hereunder are
transferable, in whole or in part, at the agency or office of the Corporation
referred to in Section 3 hereof, by the Holder, in person or by duly authorized
attorney, upon (x) surrender of this Warrant properly endorsed, and (y) delivery
of a notice of transfer in the form of EXHIBIT B hereto. Each transferee and
holder of this Warrant, by accepting or holding the same, consents that this
Warrant, when endorsed, the holder hereof shall be treated by the Corporation
and all other persons dealing with this Warrant as the absolute owner hereof for
any purposes and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Corporation, any
notice to the contrary notwithstanding; PROVIDED, HOWEVER, that until each such
transfer is recorded on such books, the Corporation may treat the registered
holder hereof as the owner hereof for all purposes.
SECTION 9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If
this Warrant is lost, stolen, mutilated or destroyed, the Corporation shall, on
such terms as to indemnity or otherwise as it may in its reasonable discretion
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
SECTION 10. NOTICES. All notices or other communications which
are required or permitted hereunder shall be made as specified in the Note.
SECTION 11. GOVERNING LAW. This Warrant shall be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to principles of conflicts or laws).
SECTION 12. HEADINGS. The headings of the various sections
contained in this
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<PAGE>
Warrant have been inserted for convenience of reference only and should not be
deemed to be a part of this Warrant.
SECTION 13. AMENDMENT AND WAIVER. This Warrant may not be
modified or amended, or any of the provisions hereof waived, except by written
agreement of the Corporation and the Holder.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to
be executed by its duly authorized officers as of the date first written above.
GAY ENTERTAINMENT TELEVISION, INC.
By: __________________________
Name: __________________________
Title: __________________________
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<PAGE>
EXHIBIT A
FORM OF NOTICE OF ELECTION TO EXERCISE
[To be executed only upon exercise
of the Warrant to which this form is attached]
To Gay Entertainment Television, Inc.:
The undersigned, the holder of the Warrant to which this form
is attached, hereby irrevocably elects to exercise the right represented by such
Warrant to purchase ___________ Units of GAY ENTERTAINMENT TELEVISION, INC., and
herewith tenders the aggregate payment of $__________ in the form of cash, wire
transfer funds or check in full payment of the purchase price for such Units.
The undersigned requests that a certificate for such shares be issued in the
name of _______________________, whose address is _____________________________
_____________________________________________, and that such certificate be
delivered to___________________, whose address is_____________________________.
If such number of Units is less than all of the Units
purchasable under the current Warrant, the undersigned requests that a new
Warrant, or like tenor as the Warrant to which this form is attached,
representing the remaining balance of the Units purchasable under such current
Warrant be registered in the name of _____________________, whose address is
__________________________________________________________________, and that
such new Warrant be delivered to __________________, whose address is _________
______________________________________________________________________________.
Signature: ______________________________________________
(Signature must conform in all respects to the
name of the holder of the Warrant as specified
on the face of the Warrant)
Date: ________________
<PAGE>
EXHIBIT B
FORM OF NOTICE OF TRANSFER
[To be executed only upon transfer
of the Warrant to which this form is attached]
For value received, the undersigned hereby sells, assigns and
transfers unto _____________________, all of the rights represented by the
Warrant to which this form is attached to purchase _____________ shares of
Common Stock of GAY ENTERTAINMENT TELEVISION, INC. (the "Corporation"), to which
such Warrant relates, and appoints ______________________ as its attorney to
transfer such right on the books of the Corporation, with full power of
substitution in the premises.
Signature:______________________________________________
(Signature must conform in all respects to the
name of the holder of the Warrant as specified
on the face of the Warrant)
Address: ______________________________________________
______________________________________________
Date: ________________
Signed in the presence of :
__________________________
EXHIBIT 5.1
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
December 3, 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 one (1) common stock
redeemable purchase warrant (the "Warrant") to purchase one-half share of Common
Stock at $5.25 per share to be sold by the Company. No fractional shares will be
issued.
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.
<PAGE>
Gay Entertainment Television, Inc.
December 3, 1997
Page 2
Based upon the foregoing, we are of the opinion that the Units, the
Common Stock, the 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.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November ___, 1997 by and between GAY ENTERTAINMENT TELEVISION, INC., a
corporation organized and existing under the laws of the State of New York and
having its executive offices at 7 East 17th Street, New York, New York 10003
("Company"), and MARVIN A. SCHWAM, residing at 7 East 17th Street, New York, New
York 10003 ("Mr. Schwam").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Mr. Schwam is currently serving as President and Chief
Executive Officer of the Company and as Chairman of the Company's Board of
Directors (the "Board"); and
WHEREAS, the Company desires to secure for itself the continued
availability of Mr. Schwam's services; and
WHEREAS, for purposes of securing for the Company Mr. Schwam's
services, the Board has approved and authorized the execution of this Agreement
with Mr. Schwam on the terms and conditions set forth herein; and
WHEREAS, Mr. Schwam is willing to continue to make his services
available to the Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Company and Mr. Schwam
hereby agree as follows:
SECTION 1. EMPLOYMENT
The Company hereby agrees to continue the employment of Mr. Schwam and
Mr. Schwam hereby agrees to continue such employment during the period and upon
the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD.
Except as otherwise provided in this Agreement to the contrary, the
terms and conditions of this Agreement shall be and remain in effect during the
period of employment ("Employment Period") established under this Section 2. The
Employment Period shall be for a term of three (3) years commencing on the later
of November 14, 1997 and the initial closing of any public offering of the
<PAGE>
Company's securities (the "IPO") and shall automatically be extended for each
successive year thereafter unless (i) the parties mutually agree in writing to
alter or amend the terms of the Agreement; or (ii) one or both of the parties
exercises their right, pursuant to this Agreement, to terminate this employment
relationship.
SECTION 3. DUTIES
Mr. Schwam shall serve as President and Chief Executive Officer of the
Company. Mr. Schwam's responsibilities, duties and authority as President and
Chief Executive Officer of the Company shall, subject to the direction of the
Board and the By-laws of the Company and any applicable provisions of the
Business Corporation Law of the State of New York, be those commonly associated
with such position and shall include, but shall not be limited to, the
employment, general supervision and direction of all operating officers, the
employment, general supervision and direction of the Company's personnel and
planning for the Company's long-term needs and objectives. Mr. Schwam shall be
responsible for the general supervision and management of the business affairs
of the Company, and, under authority given to him by the Board, shall execute
documents in the name of the Company and do such other official acts on behalf
of the Company as are appropriate and permitted by the By-laws of the Company.
Mr. Schwam shall serve as President and Chief Executive Officer of any and all
subsidiaries hereafter created by the Company during the Employment Period
without additional compensation therefor.
SECTION 4. COMPENSATION
(a) In consideration for the services rendered by Mr. Schwam under this
Agreement, the Company shall pay to Mr. Schwam a salary at an annual rate equal
to One Hundred Fifty-Five Thousand Dollars ($155,000.00). The annual salary
payable under this Section 4(a) shall be paid in approximately equal
installments in accordance with the Company's customary payroll practices.
(b) In addition to the salary provided under Section 4(a), Mr. Schwam
shall be entitled to receive a bonus at the times and in the amounts and
determined in such reasonable manner as may be prescribed by the Board from time
to time.
Section 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
(a) Mr. Schwam shall be entitled to a minimum of four (4) weeks of paid
vacation in each calendar year, all of which shall be deemed accrued, earned and
available for use on the first day of the year.
(b) The Company shall purchase or lease for Mr. Schwam's exclusive use
a new, domestic or imported luxury-class automobile of his choice and shall
replace such automobile, at Mr. Schwam's request, not more frequently than once
in any period of two (2) years.
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<PAGE>
(c) The Company shall also purchase or lease for Mr. Schwam's exclusive
use a beeper and cellular telephone of his choice and shall pay, or reimburse
Mr. Schwam for his payment of, all charges relating thereto.
(d) Except as otherwise provided in this Agreement, Mr. Schwam shall,
during the Employment Period, be entitled to participate in and receive benefits
under the Company's group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans, and
such other employee benefit plans and programs, including, but not limited to,
any pension plans, incentive compensation plans or programs (whether or not
employee benefit plans or programs), and any stock option and appreciation
rights plan, employee stock ownership plan and restricted stock plan, as may
from time to time be maintained by, or cover executive and/or employees of, the
Company, in accordance with the terms and conditions of such benefit plans and
programs and compensation plans and programs and with the Company's customary
practices.
SECTION 6. INVESTMENTS AND OTHER BUSINESS INTERESTS.
Mr. Schwam may engage in personal business and investment activities
for his own account including, without limitation, serving on boards of
directors and engaging in charitable and community affairs; provided, however,
that such personal business and investment activities shall not materially
interfere with the performance of his duties under this Agreement and shall in
all events be subject to the provisions of Section 10 hereof.
SECTION 7. WORKING FACILITIES AND EXPENSES.
Mr. Schwam's principal place of employment shall be at the Company's
executive offices at the address first above written, or at such other location
as the Company and Mr. Schwam may mutually agree upon. The Company shall provide
Mr. Schwam at his principal place of employment with a private office,
secretarial services and other support services and facilities suitable to his
position with the Company and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Company shall
reimburse Mr. Schwam for his ordinary and necessary business expenses,
including, without limitation, fees for memberships in one business or social
club of his choice (up to maximum cost of $5,000 per year) and in such other
clubs and organizations as Mr. Schwam and the Company shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement upon presentation to the Company of an itemized account of
such expenses in such form as the Company may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH COMPANY LIABILITY
(a) In the event that Mr. Schwam's employment with the Company shall
terminate during the Employment Period on account of:
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<PAGE>
(i) Mr. Schwam's voluntary resignation from employment with
the Company within ninety (90) days after the occurrence, without the
express written consent of Mr. Schwam, of any of the following:
(A) the failure of the Company's Board to appoint or
re-appoint or elect or re-elect Mr. Schwam to the offices of President
and Chief Executive Officer (or a more senior office) of the Company;
(B) the failure of the stockholders of the Company to
elect or re-elect Mr. Schwam as Chairman of the Board and a Director of
the Company;
(C) a material failure of the Company, whether by
amendment of the Company's Certificate of Incorporation or By-laws,
action of the Board or the Company's stockholders or otherwise, to vest
in Mr. Schwam the functions, duties, or responsibilities prescribed in
Section 3 of this Agreement or the By-Laws of the Company or any
significant change in any of the foregoing;
(D) a material breach of this Agreement by the
Company;
(E) a "Change of Control"(as hereinafter defined) of
the Company; as used herein, a "Change of Control" shall mean:
(a) individuals who as of the date hereof
constitute the Board (the "Incumbent Board") cease for any
reason to constitute a majority of the Board other than
through action by the Board in creating and filling vacancies
on the Board; or
(b) either
(i) the acquisition, after the
completion of the IPO, by any individual, entity or
group (within the meaning of Section 13 (d)(3) or 14
(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person"), of
beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition
causes such Person to own 35% or more of the
outstanding voting securities of the Company
("Securities Acquisition"); or
(ii) the approval by the
stockholders of the Company of a reorganization,
merger or consolidation or sale or other disposition
of all or substantially all of the assets of the
Company ("Business Combination"),
unless pursuant to such Securities Acquisition or Business
Combination (A) all or substantially all of the individuals
and entities who were the beneficial owners of the outstanding
voting securities of the Company prior to the Securities
Acquisition or
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<PAGE>
Business Combination beneficially own more than
66-2/3 % of the then outstanding voting securities of the
Company (if it is the surviving corporation) or the surviving
corporation (if it is other than the Company) in substantially
the same proportions as their ownership immediately prior to
the Securities Acquisition or Business Combination, and (B) at
least a majority of the members of the Board of the surviving
corporation were members of the Incumbent Board immediately
prior to the Securities Acquisition or Business Combination;
(F) a five percent (5%) reduction in Mr. Schwam's
compensation below the salary in effect immediately prior to such
reduction;
(G) a material reduction of Mr. Schwam's benefits
under any employee benefit plan, program or arrangement (for Mr. Schwam
individually or as part of a group) of the Company as then in effect or
as in effect on the effective date of the Agreement, which reduction
shall not be effectuated for similarly situation employees of the
Company; or
(H) failure by a successor company to assume the
obligations under the Agreement; or
(ii) the discharge of Mr. Schwam by the Company for any
reason other than for "cause" as provided in Section 9(a);
then the Company shall provide the benefits and pay to Mr. Schwam the amounts
provided for under Section 8(b). Notwithstanding anything contained herein to
the contrary, the Company shall not be liable for the payments and benefits
under Section 8(b) in the case of (a) a resignation described in Section
8(a)(i)(C) or (D) for reasons other than failure to pay compensation due
hereunder unless Mr. Schwam has given written notice to the Company of its
breach and the Company fails to cure such breach within thirty (30) days
thereafter or Mr. Schwam has, within the twelve (12) month period ending on the
date of his resignation, given the Company written notice of a substantially
similar breach which was subsequently cured, or (b) Mr. Schwam's employment with
the Company shall terminate under circumstances described in this Section 8(a)
which Mr. Schwam has directly and willfully caused to occur.
(b) Upon the termination of Mr. Schwam's employment with the Company
under circumstances described in Section 8(a) of this Agreement, the Company
shall pay and provide to Mr. Schwam (or, in the event of his death, to his
estate):
(i) his earned but unpaid salary as of the date of the
termination of his employment with the Company, and his earned but
unpaid bonus as of the date of his termination, pro-rated for the
fiscal quarter during which his termination occurs (based on the number
of days that he was in the Company's employ during such fiscal quarter)
if the termination is other than on the last day of a fiscal quarter;
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<PAGE>
(ii) except as provided in Section 8(b)(iv), the benefits, if
any, to which he is entitled as a former employee under the employee
benefit plans and programs and compensation plans and programs
maintained for the benefit of the Company's officers and employees;
(iii) continued life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to Section
8(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for Mr.
Schwam for the remaining unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled if he
had continued working for the Company during the remaining unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to Mr.
Schwam's termination of employment with the Company;
(iv) within thirty (30) days following his termination of
employment with the Company and in lieu of any monetary payments to
which he may be entitled under any severance pay plan, program or
policy, a lump sum payment, in an amount equal to the present value of
the salary that Mr. Schwam would have earned at the rate set forth in
Section 4(a) if he had continued working for the Company during the
remaining unexpired Employment Period, where such present value is to
be determined using a discount rate of six percent (6%) per annum,
compounded monthly (or the compounding period corresponding to the
Company's regular payroll periods with respect to its officers, if not
monthly), such lump sum to be paid in lieu of all other payments of
salary provided for under this Agreement in respect of the period
following any such termination (other than the additional severance
payment provided for in Section 8(c) as set forth therein);
(v) within thirty (30) days following his termination of
employment with the Company, a lump sum payment in an amount equal to
the excess, if any, of: (A) the present value of the benefits to which
he would be entitled under any benefit plans maintained by, or covering
employees of, the Company if he were 100% vested thereunder and had
continued working for the Company during the remaining unexpired
employment period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to Mr.
Schwam's termination of employment with the Company, over (B) the
present value of the benefits to which he is actually entitled under
any benefit plans maintained by, or covering employees of, the Company
as of the date of his termination, where such present values are to be
determined using a discount rate of six percent (6%) per annum,
compounded monthly;
(vi) within thirty (30) days following his termination of
employment with the Company a lump sum cash payment in the amount of
the payments that would have been made to Mr. Schwam (in cash and
stock) under Section 4(b) of this Agreement if he had continued working
for the Company during the remaining unexpired Employment Period and
6
<PAGE>
had earned an annual bonus payment for each fiscal quarter equal to the
highest amount, if any, actually paid to Mr. Schwam for any fiscal
quarter pursuant to Section 4(b);
(vii) at the election of Mr. Schwam made within thirty (30)
days following his termination of employment with the Company, upon the
surrender of options or appreciation rights issued to Mr. Schwam under
any stock option and appreciation rights plan or program or restricted
stock plan maintained by, or covering employees of, the Company, a lump
sum payment in an amount equal to the product of:
(A) in the case of a stock option or appreciation
rights plan or program:
(I) the excess of (A) the fair market value
of a share of stock of the same class as the stock subject to
the option or appreciation right, determined as of the date of
termination of employment, over (B) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(II) the number of shares with respect to
which options or appreciation rights are being surrendered;
and
(B) in the case of a restricted stock plan:
(I) the fair market value of a share of
stock of the same class of stock granted under such
plan, determined as of the date of Mr. Schwam's
termination of employment; multiplied by
(II) the number of shares which are being
surrendered.
For purposes of this Section 8(b)(vii) and for purposes of determining Mr.
Schwam's right following his termination of employment with the Company to
exercise any options or appreciation rights not surrendered pursuant hereto, Mr.
Schwam shall be deemed fully vested in all options and appreciation rights under
any stock option or appreciation rights plan or program maintained by, or
covering employees of, the Company, even if he is not vested under such plan or
program.
(c) In the event that a termination of employment occurs pursuant to
Section 8(a) on or after November 1, 1999, then in addition to all of the
payments and benefits which the Company shall pay or provide pursuant to Section
8(b), the Company shall also pay to Mr. Schwam (or his estate, as applicable)
within thirty (30) days following his termination of employment, the following
severance payments:
(A) a lump sum cash payment in an amount equal to the
difference between the amounts actually paid relating to Mr. Schwam's
salary under Section 8(b) and an amount
7
<PAGE>
equal to two (2) times Mr. Schwam's annual salary, based upon the
greater of Mr. Schwam's salary (i) immediately prior to the effective
date of termination or (ii) as of ninety (90) days prior to the
effective date of termination; plus
(B) a lump sum cash payment in an amount equal to the highest
annual bonus payment, if any, that was actually paid to Mr. Schwam (in
cash and stock) for any fiscal year pursuant to Section 4(b).
(d) The Company and Mr. Schwam hereby stipulate that the damages which
may be incurred by Mr. Schwam following any termination of employment pursuant
to Section 8(a) are not capable of accurate measurement as of the date first
above written and that the payments and benefits contemplated by Section 8(b)
and 8(c) constitute reasonable damages under the circumstances and shall be
payable without any requirement of proof of actual damage and without regard to
Mr. Schwam's efforts, if any, to damages.
(e) In the event of the death of Mr. Schwam during the Employment
Period of the Agreement, salary shall be paid to Mr. Schwam's designated
beneficiary, or, in the absence of such designation, to the estate or other
legal representative of Mr. Schwam for a period of up to the date of death.
Other death benefits will be determined in accordance with the terms of the
Company's benefit programs and plans.
(f) In the event of Mr. Schwam's disability, as hereinafter defined,
Mr. Schwam shall be entitled to compensation in accordance with the Company's
disability compensation practice for senior executives, including any separate
arrangement or policy covering Mr. Schwam, but in all events Mr. Schwam shall
continue to receive Mr. Schwam's salary for a period, at the annual rate in
effect immediately prior to the commencement of disability, of not less than 180
days from the date on which the disability has been deemed to occur as
hereinafter provided below. "Disability" for the purposes of this Agreement,
shall be deemed to have occurred in the event (A) Mr. Schwam is permanently
unable by reason of sickness or accident to perform Mr. Schwam's duties under
this Agreement for a continuous period of 180 days. Termination due to
disability shall be deemed to have occurred upon the first day of the month
following the determination of disability as defined in the preceding sentence.
(g) In the event of termination as a result of Mr. Schwam's death or
disability, and in addition to the payments set forth in Sections 8(e) or 8(f),
as the case may be, Mr. Schwam (or his estate) shall also be paid his earned but
unpaid bonus as of the date of his termination, pro-rated for the fiscal quarter
during which his termination occurs (based on the number of days he was in the
Company's employ during such fiscal quarter) if the date of termination is other
than on the last day of a fiscal quarter; and the provisions of such other
benefits, if any, to which he is entitled as a former employee under this
Agreement and the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Company.
SECTION 9. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
8
<PAGE>
In the event that Mr. Schwam's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of Mr. Schwam for "cause" which, for purposes of this
Agreement, shall mean his repeated and gross negligence in the fulfillment of,
or repeated failure of Mr. Schwam to fulfill, his material obligation under this
Agreement, in either event after due written notice thereof (which notice
requirement shall be deemed satisfied if due written notice of a substantially
similar act or omission shall have been given within three (3) months prior to
such discharge), or willful misconduct by Mr. Schwam in respect of his
obligations hereunder, or his conviction of a felony under the laws of the
United States or any State, but only if such gross negligence, repeated failure,
willful misconduct or conviction materially impairs his ability to effectively
perform his duties under this Agreement; provided, however, that cause shall not
include, without limitation:
(i) the refusal by Mr. Schwam of an assignment not
consistent with the status, titles and reporting requirements set
forth herein or contemplated hereby; or
(ii) bad judgment or negligence of Mr. Schwam; or
(iii) any act or omission (other than one constituting a
material breach of trust committed in willful and reckless disregard of
the interests of the Company and undertaken for personal gain) in
respect of which a determination could properly have been made by the
Board that Mr. Schwam met the applicable standard of conduct prescribed
for indemnification or reimbursement under the By-Laws of the Company
or the laws of the State in which the Company is then chartered, in
each case in effect at the time of such act or omission; or
(iv) any act or omission with respect to which notice of
termination is given more than three (3) months after the earliest date
on which any non-employee director of the Company who was not a party
to such act or omission knew or should have known of such act or
omission; or
(b) Mr. Schwam's voluntary resignation from employment with the Company
for reasons other than those specified in Section 8(a)(i);
then the Company shall have no further obligations under this Agreement, other
than the payment to Mr. Schwam of his earned but unpaid salary as of the date of
the termination of his employment; his earned but unpaid bonus as of the date of
his termination, pro-rated for the fiscal quarter during which his termination
occurs (based on the number of days he was in the Company's employ during such
fiscal quarter) if the date of termination is other than on the last day of a
fiscal quarter; and the provisions of such other benefits, if any, to which he
is entitled as a former employee under this Agreement and the employee benefit
plans and programs and compensation plans and programs maintained by, or
covering employees of, the Company.
SECTION 9A. SEVERANCE AT EXPIRATION OF EMPLOYMENT PERIOD.
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In the event that at the expiration of the Employment Period, Mr.
Schwam's employment is not continued for any reason, then the Company shall pay
to Mr. Schwam (or his estate, as applicable) his earned but unpaid salary as of
the date of the termination of his employment and his earned but unpaid bonus,
if any, as of the date of his termination, pro-rated for the fiscal quarter
during which his termination occurs (based on the number of days he was in the
Company's employ during such fiscal quarter) if the date of termination is other
than on the last day of a fiscal quarter; shall provide to Mr. Schwam all of the
benefits, if any, to which he is entitled as a former employee under this
Agreement and the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Company; and, in addition,
shall pay to Mr. Schwam an amount equal to the aggregate of the highest salary
and bonus earned by Mr. Schwam during any calendar year during the Employment
Period.
SECTION 10. COVENANT NOT TO COMPETE.
Mr. Schwam hereby covenants and agrees that, during the Employment
Period and in the event of his termination of employment with the Company prior
to the expiration of the Employment Period, for a period of one (1) year
following the date of his termination of employment with the Company (or, if
less, for the remaining unexpired Employment Period), he shall not, without the
written consent of the Company, become an officer, employee, consultant,
director or trustee of any entity, or any direct or indirect subsidiary or
affiliate of any such entity, that directly or indirectly competes with this
Company in providing services to the gay community in any market area in which
it is active; provided, however, that this Section 10 shall not apply if Mr.
Schwam's employment is terminated for the reasons set forth in Section 8(a);
and, provided, further, that if Mr. Schwam's employment shall be terminated on
account of disability as provided in Section 9(d) of this Agreement, this
Section 10 shall not prevent Mr. Schwam from accepting any position or
performing any services if (a) he first offers, by written notice, to accept a
similar position with, or perform similar services for, the Company on
substantially the same terms and conditions and (b) the Company declines to
accept such offer within ten (10) days after such notice is given.
SECTION 11. CONFIDENTIALITY; PROPRIETARY INFORMATION.
(a) Unless he obtains the prior written consent of the Company (which
consent shall not be unreasonably withheld), Mr. Schwam shall keep confidential
and shall refrain from using for the benefit of any person or entity other than
the Company or any entity which is a subsidiary of the Company or of which the
Company is a subsidiary, any material document or information obtained from the
Company, or from its parent or subsidiaries, in the course of his employment
with any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or published
information or trade sources or has otherwise been made available to the public
through no fault of his own) until the same ceases to be material (or becomes so
ascertainable or available); provided, however, that nothing in this Section 11
shall prevent Mr. Schwam, with or without the Company's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
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(b) Mr. Schwam acknowledges that during the course of his employment
with the Company he may develop or otherwise acquire papers, files or other
records involving or relating to confidential or secret processes, formulas,
discoveries, inventions, machinery, plans, design information of any kind,
devices, material, research, new product development, customers or customer
lists. All such papers, files and other records shall be the exclusive property
of the Company and shall, together with any and all copies thereof, be returned
to the Company upon Mr. Schwam's termination of employment.
SECTION 12. SOLICITATION.
Mr. Schwam hereby covenants and agrees that in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one (1) year following his termination of
employment with the Company (or, if less, the remaining unexpired Employment
Period), he shall not, without the written consent of the Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company (other than a member of
Mr. Schwam's family) or any subsidiary of the Company to terminate his or her
employment and accept employment or become affiliated with, or provide services
for compensation in any capacity whatsoever to, any entity that directly or
indirectly competes with this Company in any market area in which it is then
active;
(b) provide any information, advice or recommendation with respect to
any officer or employee of the Company (other than a member of Mr. Schwam's
Family) or any subsidiary of the Company to any entity engaged or to be engaged
in the same or competing business with the Company that is intended, or that a
reasonable person acting in like circumstances would expect, to have the effect
of causing any such officer or employee to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any entity that directly or
indirectly competes with the Company in any market area in which it is then
active; provided, however, that nothing in this Section 12(b) shall be construed
as prohibiting Mr. Schwam from serving as a reference if so requested by an
officer or employee of the Company or subsidiary of the Company;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Company with which Mr. Schwam has had substantial contact to terminate an
existing business or commercial relationship with the Company;
provided, however, that this Section 12 shall not apply if Mr. Schwam's
employment is terminated for any of the reasons set forth in Section 8(a).
Nothing in this Section 12 shall prevent Mr. Schwam from directly or indirectly
advertising employment opportunities or disseminating marketing materials
through newspapers of general circulation or other mass media.
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SECTION 13. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Mr. Schwam's employment during the term of this
Agreement or thereafter, whether by the Company or by Mr. Schwam, shall have no
effect on the rights and obligations of the parties hereto, which shall continue
for a period of two (2) years after Mr. Schwam's termination under the Company's
pension plan, group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans or such
other employee benefit plans or programs, or compensation plans or programs
(whether or not employee benefit plans or programs) and any stock option and
appreciation rights plan, employee stock ownership plan and restricted stock
plan, as may be maintained by, or cover employees of, the Company from time to
time.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Company shall provide Mr. Schwam with payment of legal fees and
indemnification to the maximum extent permitted from time to time by the New
York General Corporation Law or other applicable laws or regulations. Mr. Schwam
shall continue to be covered by the Certificate of Incorporation and/or the
Bylaws of the Company with respect to matters occurring on or prior to the date
of termination of Mr. Schwam's employment with the Company, subject to all the
provisions of New York and Federal law and the Certificate of Incorporation and
Bylaws of the Company then in effect. The Company shall indemnify and hold
harmless Mr. Schwam against reasonable costs, including, without limitation,
legal fees and expenses, incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved to defend or enforce
the terms of this Agreement, without regard to whether Mr. Schwam is the
prevailing party in such action, suit or proceeding. Such reasonable expenses,
including attorneys' fees that may be covered by the Certificate of
Incorporation and/or Bylaws of the Company shall be paid by the Company on a
current basis in accordance with such provision, the Company's Certificate of
Incorporation and applicable law. To the extent that any such payments by the
Company pursuant to the Company's Certificate of Incorporation and/or Bylaws may
be subject to repayment by Mr. Schwam pursuant to the provisions of the
Company's Certificate of Incorporation or Bylaws, or pursuant to applicable law,
such repayment shall be due and payable by Mr. Schwam to the Company within
twelve (12) months after the termination of all proceedings, if any, which
relate to such repayment and to the Company's affairs for the period prior to
the date of termination of Mr. Schwam's employment with the Company and as to
which Mr. Schwam has been covered by such applicable provisions.
SECTION 15. EXCISE TAX.
(a) If, in connection with the termination of Mr. Schwam's employment,
Mr. Schwam shall be liable for the payment of an excise tax under Section 4999
of the Code with respect to any payment of money or property made by the
Company, the Company shall pay to Mr. Schwam an amount to indemnify Mr. Schwam
against such excise tax and against any additional income and excise taxes
imposed on him as a result of such indemnification. With respect to any payment
that is made to Mr. Schwam under the terms of this Agreement in the year of his
termination of
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employment and on which an excise tax under Section 4999 of the Code will be
assessed, the payment determined under this Section 15(a) shall be made to Mr.
Schwam not later than thirty (30) days following his termination of employment.
With respect to any payment made under the terms of this Agreement in any other
year and on which an excise tax under Section 4999 of the Code will be assessed,
the payment under this Section 15(a) shall be made to Mr. Schwam not later than
December 31st of the year in which the payment on which such excise tax will be
assessed is made to Mr. Schwam or, if earlier, the date on which such tax is
required to be remitted to the Internal Revenue Service. The payments made by
the Company under this Section 15(a) shall be determined by the Company on the
basis of advice from the firm of independent certified public accountants
regularly retained by the Company to audit its books and shall be subject to
subsequent adjustment as provided in Section 15(b).
(b) In the event that Mr. Schwam's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount paid for such year pursuant to Section 15(a), Mr.
Schwam or the Company, as the case may be, shall pay to the other party at the
time that the amount of such excise tax is finally determined, an appropriate
amount, plus interest, such that the payment made under Section 15(a), when
increased by the amount of the payment made to Mr. Schwam under this Section
15(b) by the Company, or when reduced by the amount of the payment made to the
Company under this Section 15(b) by Mr. Schwam, equals the amount finally
determined to have been properly payable to Mr. Schwam under Section 15(a). The
interest paid under this Section 15(b) shall be determined at the rate provided
under Section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if
any, was paid to Mr. Schwam under this Section 15, Mr. Schwam shall furnish to
the Company a copy of each tax return which reflects a liability for an excise
tax payment under Section 4999 of the Code with respect to a payment made by the
Company, at least twenty (20) days before the date on which such return is
required to be filed with the Internal Revenue Service. If Mr. Schwam fails to
furnish any such return by the prescribed date, then (i) the Company's payment
obligation hereunder shall be deferred until twenty (20) days after the date on
which such return is actually furnished and (ii) the Company shall have no
liability to indemnify Mr. Schwam against any excess tax payment which the
Company reasonably believes to have been made in error.
SECTION 16. SUCCESSORS AND ASSIGNS; SURVIVORSHIP.
This Agreement will inure to the benefit of and be binding upon Mr.
Schwam, his legal representatives, heirs and assigns, and the Company, its
respective successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the respective assets and business of the
Company may be sold or otherwise transferred.
SECTION 17. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this
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Agreement must be made in writing, designated as a waiver, and signed by the
party against whom its enforcement is sought. Any waiver or relinquishment of
any right or power hereunder at any one or more times shall not be deemed a
waiver or relinquishment of such right or power at any other time or times.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Mr. Schwam:
7 East 17th Street
New York, New York 10003
with copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Attention: ROY M. KORINS, ESQ.
If to the Company:
Gay Entertainment Television, Inc.
7 East 17th Street
New York, New York 10003
Attention: CORPORATE SECRETARY
with copy to:
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
Attention: CHARLES B. PEARLMAN, ESQ.
SECTION 19. SEVERABILITY.
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A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 21. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles.
SECTION 22. HEADINGS AND CONSTRUCTION
The headings of Sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any Section. Any
reference to a Section number shall refer to a Section of this Agreement, unless
otherwise stated.
SECTION 23. SURVIVAL.
The rights and obligations of the Company and Mr. Schwam under Sections
10, 11, 12, 14 and 15 of this Agreement shall survive the termination or
expiration of this Agreement, notwithstanding anything contained herein to the
contrary.
SECTION 24. EQUITABLE REMEDIES.
The Company and Mr. Schwam hereby stipulate that monetary damages shall
be an inadequate remedy for violations of Sections 10, 11 and 12, of this
Agreement and agree that equitable remedies, including, without limitation, the
remedies of specific performance and injunctive relief, shall be available with
respect to the enforcement of such provisions.
SECTION 25. ENTIRE AGREEMENT, MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or rep- representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and Mr. Schwam has hereunto set his hand, all as of the day and year
first above written.
-----------------------------------------
MARVIN A. SCHWAM
ATTEST: GAY ENTERTAINMENT TELEVISION, INC.
By: ___________________________ By:______________________________________
Secretary Name:
Title:
16
EXHIBIT 10.6
FORM OF FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This FINANCIAL ADVISORY AND CONSULTING AGREEMENT (the "Agreement") is entered
into as of the ___ day of ____________, 1997, by and between GAY ENTERTAINMENT
TELEVISION, INC., with its principal offices located at ___________________, New
York, New York (the "Company") and THE AGEAN GROUP, INC., with its principal
offices located at One South Ocean Drive, Suite 300, Boca Raton, Florida 33432
("Agean").
WHEREAS, Company is a New York corporation which conducts business and
related services at its principal office location, and
WHEREAS, Agean is a Florida corporation which is in the business of
providing, among other things, general management, financial advisory and
business consulting services, and
WHEREAS, Company wishes to engage Agean to perform certain management,
financial advisory and business consulting services and Agean wishes to perform
such services.
NOW, THEREFORE, in consideration of the mutual promises and covenants
provided for herein, the parties hereto agree as follows:
1. ENGAGEMENT
Agean will provide Company with general financial advisory and business
consulting services in connection with the growth and development of its
business. Such services will include, but not be limited to, assisting the
Company with, the management of its relationships with the investment banking
and broker/dealer community, including advising the Company with respect to
potential mergers and/or acquisitions and other financing proposals,
development, implementation and coordination of a financial management system,
general marketing strategies and ongoing market access and capital demands.
2. TERM
The term of this Agreement shall be for three (3) years, commencing on
___________, 1998.
3. COMPENSATION
Company agrees to pay Agean a one-time non-refundable advisory fee
equal to $105,000 which sum shall be paid at the Final Closing of the Company's
Initial Public Offering.
In addition to such advisory fee, the Company shall reimburse Agean for
all of its direct and indirect out-of-pocket expenses incurred in the
performance of its duties hereunder. Such reimbursable expenses shall include,
but not be limited to, travel, lodging meals, entertainment, postage, photo
copying and long distance telephone. Agean shall timely provide reasonable
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documentation of such reimbursable expenses which shall be paid by the Company
within 15 days of transmittal.
It is understood and agreed that Agean is an independent contractor and
not an employee of the Company and will receive no other benefits, as such are
and may be provided to its employees, except such advisory fee, as provided
herein.
4. CONFIDENTIALITY
The parties acknowledge that they will have access to certain
confidential and proprietary information of the other and that such information
constitutes valuable, special and unique property of each. The parties further
acknowledge and agree that they will not, at any time during or after the term
hereof, in any fashion, form or manner, either directly or indirectly, divulge,
disclose or communicate the terms and conditions of this Agreement or any
information of any kind concerning matters affecting or relating to the business
of the other.
5. REPRESENTATIONS AND WARRANTIES
a. The parties acknowledge their respective authority to enter into
this Agreement and represent that there are no impediments whatsoever to the
performance obligations provided for hereunder.
b. The parties represent that they are not subject to any restriction
that would prohibit them from entering into this Agreement, that each is fully
able to perform as provided for hereunder, and that neither is restricted in any
way from entering into or performing any of its obligations hereunder.
6. INDEMNITY
Company hereby agrees to indemnify, defend and hold Agean, its
directors, officers, principals, employees, agents and affiliates and any
employees thereof, harmless from and against any and all costs, losses, claims,
demands and liabilities, including reasonable attorneys' fees and costs, which
arise out of or relate to any breach by the Company of any of the terms and
conditions of this Agreement; any negligent or intentional wrongful act of the
Company or its principals, directors, officers, employees, representatives or
agents, or any other act by the Company or its principals, directors, officers,
employees, representatives or agents outside the scope of this Agreement. The
terms and conditions of this Section shall survive termination of this
Agreement.
7. BOARD REPRESENTATION
In connection with the financial advisory and related services to be
provided hereunder, Agean will have the right to appoint an advisor to attend
all meetings of the Board of Directors
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of the Company, in a non-voting capacity.
8. ASSIGNMENT
This Agreement may not be assigned by Company without the prior written
consent of Agean. This Agreement may be assigned by Agean, in whole or in part,
in its sole and absolute discretion.
9. MISCELLANEOUS
a. EXCLUSIVITY Nothing herein shall prevent Agean from providing the
same or similar services to any other individual or entity and nothing herein
shall prevent the Company from engaging other consultants, provided however, in
the event the Company wishes to engage the services of another consultant to
perform the same or similar services, it may only do so with the prior written
consent of Agean.
b. COOPERATION The parties recognize that certain disputes may arise
with third parties, the resolution of which may require the cooperation of the
other, including, but not limited to, providing factual information and giving
depositions and testimony. Accordingly, at all times during the term of this
Agreement and after its termination, the parties agree to cooperate with the
other to allow such party to advance its position with respect to such dispute
or disputes.
c. COMMITMENTS BINDING ONLY UPON WRITTEN CONSENT It is expressly
understood and agreed that Agean shall not have the right to make any contracts
or commitments for or on behalf of the Company without the prior written consent
of the Company.
d. ENTIRE AGREEMENT This Agreement represents the entire Agreement
between the parties and supersedes all prior and contemporaneous agreements.
This Agreement may only be amended by the mutual written consent of Company and
Agean.
e. WAIVER No waiver or modification of this Agreement shall be valid
unless in writing and duly executed by the parties hereto.
f. GOVERNING LAW/JURISDICTION This Agreement and performance hereunder
shall be construed and enforced, and all lawsuits, actions or proceedings
arising out of or related hereto shall be conducted in accordance with the laws
and within the jurisdiction of the State of Florida.
g. SEVERABILITY In the event any provision of this Agreement is held to
be unenforceable or invalid under the laws of the United States or of the state
of Florida, the parties hereto agree that such provision shall automatically be
deemed modified for purposes of performance of this Agreement to the extent
necessary to render it lawful and enforceable, or if such modification is not
possible without materially affecting the intent of the parties hereto, that
such provision shall automatically be deemed severed from this Agreement,
without affecting the
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enforceability of the remainder of this Agreement.
h. NOTICES All notices, requests, demands or other communications
required or permitted hereunder shall be deemed to have been fully given, if
personally delivered or mailed, certified mail return receipt requested, to the
respective party at the address as provided above or to such other place as the
parties may notify each other in writing, pursuant to this Section.
i. MEDIATION/ARBITRATION If a dispute arises out of or relates to this
Agreement, or the breach thereof, and if said dispute cannot be settled through
direct discussion, the parties agree to first endeavor to settle the dispute in
an amicable manner by mediation under the Commercial Mediation Rules of the
American Arbitration Association before resorting to arbitration. Thereafter,
any unresolved controversy or claim arising out of or relating to this Agreement
or a breach thereof shall be settled by arbitration in accordance with the Rules
of the American Arbitration Association, and judgment upon the award rendered by
the Arbitrator may be entered in any court having jurisdiction thereof. Any
provisional remedy which would be available from a court of law shall be
available to the parties to this Agreement from the Arbitrator pending
arbitration. This Agreement shall be governed by the laws of the State of
Florida, and any arbitration arising therefrom shall be venued in Palm Beach
County, Florida.
j. BINDING EFFECT This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
subject to the restriction on assignment set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as
of the date set forth above.
COMPANY ADVISOR
GAY ENTERTAINMENT TELEVISION, INC. THE AGEAN GROUP, INC.
By: _______________________ By:____________________
Name:______________________ Name:__________________
Title:_____________________ Title:_________________
4
EXHIBIT 10.7
FORM OF ESCROW AGREEMENT
THE UNDERSIGNED, in order to designate UNITED NATIONAL BANK, A COMMERCIAL BANK,
whose address is 5901 Miami Lakes Drive, Miami Lakes, FL 33014 ("Escrow Agent"),
as the Escrow Agent of the undersigned for the purposes and upon the terms and
conditions herein set forth ("Escrow Agreement"), does hereby enter into this
Escrow Agreement with United National Bank on the effective date of the
Registration Statement on Form SB-2 (the "Registration Statement") for Gay
Entertainment Television, Inc., a New York corporation (the "Company").
1. United National Bank hereby is appointed depository for the undersigned with
respect to the subject matter of this agreement. Escrow Agent is not required to
post bond for any activity of Escrow Agent described in this Escrow Agreement.
2. This Escrow Agreement is being executed in connection with that certain offer
for sale to subscribers ("Subscribers") of a minimum of 1,882,350 units (the
"Minimum Offering") and a maximum of 2,350,000 units (the "Maximum Offering")
offered by the Company, pursuant to and as described in the Registration
Statement. Pursuant to the offer, and concurrently with the execution and
delivery hereof, undersigned have agreed to deposit with Escrow Agent, as
custodian and depository all moneys until the Minimum Offering amount is
satisfied collected pursuant to this offer from Subscribers, and direct that
same be held and disposed of by Escrow Agent as herein provided.
3. Escrow Agent is directed and authorized to hold the deposited funds in a
demand deposit account at United National Bank, designated GAY ENTERTAINMENT
TELEVISION, INC. ESCROW ACCOUNT.
The undersigned hereby directs the Escrow Agent to immediately
distribute the deposited funds thereon to the Company pursuant to the following
escrow requirements:
a. All funds received from Subscribers will be deposited into Escrow
Account at United National Bank and shall be invested in funds permissible by
the Securities and Exchange Commission.
b. Escrow Agent will promptly return to a Subscriber their portion of
the escrowed funds, without interest, if a Subscriber is subsequently rejected
by the Company or The Agean Group, as representative (the "Representative") of
the Company's underwriters, in whole or in part, as set forth in the Prospectus
or if a Subscriber rescinds that Subscriber's subscription agreement; provided
that such rescission shall be of any force and effect if rescission is permitted
under the laws of the State to which such Subscriber is domiciled. The Company
or the Representative will immediately notify Escrow Agent in writing of any
rejected Subscriber or a rescission by a Subscriber. Escrow Agent will then,
upon collection of that Subscriber's moneys, refund the rejected amount to that
Subscriber.
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c. Escrow Agent shall promptly return to each investor their portion of
the escrow funds, without interest in the event the Escrow Agent fails to
receive aggregate escrowed funds in the amount of Seven Million, Nine Hundred
Ninety Nine Thousand, Nine Hundred Eighty Seven and 50/100 ($7,999,987.50)
Dollars on or before ninety (90) days from the effective date of the Prospectus
("Termination Date"), unless the offering is extended by the Company and the
Representative, at their sole option, for an additional ninety (90) days (for a
total of 180 days from the effective date of the Prospectus and the Company will
promptly notify Escrow Agent in writing of any extension of the offering.
d. Escrow Agent will promptly deliver the escrowed funds to the Company
with accrued interest if:
(1) the escrowed funds are in the aggregate amount of not less
than Seven Million, Nine Hundred Ninety Nine Thousand, Nine Hundred Eighty Seven
and 50/100 ($7,999,987.50) Dollars ("Minimum Subscription") on or before
Termination Date or any extension thereof.
(2) In the case of a distribution under the proceeding
subparagraph 3c(1) above, the Company may continue to deposit checks made
payable to Gay Entertainment Television, Inc. Escrow Account into the Escrow
Account and Escrow Agent will cause the Escrow Account to remain open for a
period not to exceed the Termination Date, unless the offering is extended
pursuant to subparagraph 3b(2). During said period, all such deposits shall be
considered funds of the Company received by Escrow Agent for collection and upon
receipt of collected funds on each such deposit. Upon written notice from the
Company and the Representative, after release of the Minimum Subscription, the
Escrow Agent shall release such amount of additional funds as directed in such
additional written notice(s).
ESCROW AGENT SHALL BE PROTECTED IN RELYING ON THE SOLE WRITTEN ASSERTIONS OF THE
COMPANY FOR EACH OF THE ITEMS IN THIS PARAGRAPH 3.
4. Escrow Agent is not a party to, nor is it bound by nor need it give
consideration to the terms or provisions of any other agreement or undertaking
between the undersigned or between any of the undersigned and other persons, or
any agreement or undertaking which may be evidenced by or disclosed by any items
included among the deposited funds, and Escrow Agent assents to and is to give
consideration only to the terms and provisions of this Escrow Agreement. Unless
it is specifically provided otherwise herein, Escrow Agent has no duty to
determine or inquire into the happening or occurrence of any event or
contingency or the performance or failure of performance of any of the
undersigned with respect to arrangements or contracts with each other or with
others, and the Escrow Agent's sole duty hereunder is to hold the deposited
funds and to dispose of and deliver the same in accordance with instructions
given to it in the form and tenor provided in this Escrow Agreement. The Company
represents and warrants that each Subscriber has been advised of this Escrow
Agreement and its availability.
5. Escrow Agent shall not be responsible or liable to any person in any manner
whatever for
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the sufficiency, correctness, genuiness, effectiveness or validity of any of the
deposited funds or for the form or execution thereof, or for the identity or
authority of any person executing or depositing it. If any of the undersigned
are acting as agent for others, all of the undersigned represent and warrant
that such agent is authorized to make and enter into this Escrow Agreement. This
Escrow Agreement is a personal one between the undersigned and the Escrow Agent
only, and in connection therewith Escrow Agent is authorized by each of the
undersigned to rely upon the representations, both actual and implied, of the
undersigned and all other persons connected with this Escrow Agreement and the
deposited funds, as to marital status, authority to execute and deliver this
Escrow Agreement, notifications, receipts, or instructions hereunder, and
relationships among persons,including persons authorized to receive delivery
hereunder, and Escrow Agent shall not be liable to any person in any manner for
such reliance. The duty of Escrow Agent hereunder shall only be to the
undersigned, their successors, and assigns and to no other person or persons
whomsoever.
6. Escrow Agent may act upon any written notice, request, waiver, consent,
certificate, receipt, authorization, power of attorney or other instrument or
document, from the Company and Escrow Agent may consider such to be genuine and
to be what it purports to be. Escrow Agent shall be liable as a depository only
and shall not be responsible for the sufficiency or accuracy of the form,
execution or validity of documents deposited hereunder, or any description of
funds or other thing therein, nor shall it be liable in any respect on account
of the identity, authority, or rights of the persons executing or delivering or
purporting to execute or deliver any such document or paper. The undersigned
parties, jointly and severally, agree to indemnify and hold harmless Escrow
Agent from and against any and all liabilities, including attorney's fees,
incurred in connection with this Escrow Agreement.
7. Whenever under the terms of this Escrow Agreement the performance date of any
provision hereof shall fall on a holiday of the Escrow Agent, the performance
thereof on the next succeeding business day of Escrow Agent shall be deemed to
be in full compliance. Whenever Escrow Agent is required by the terms hereof to
take action upon the occurrence of any event or contingency, the time prescribed
for such actions shall in all cases be a reasonable time after written notice to
the Escrow Agent of the happenings of such event or contingency provided,
however, that this provision shall not be deemed to limit or reduce the time
allowed Escrow Agent for action as provided in Paragraph 12 of this Agreement.
8. Anything in this Escrow Agreement to the contrary notwithstanding, Escrow
Agent shall not be liable to any person for anything which it may do or refrain
from doing in connection with this Escrow Agreement, unless Escrow Agent is
guilty of gross negligence or willful misconduct.
9. In case of any notice of dispute or disagreement between the parties, or
among them or any other person resulting in adverse claims and demands being
made in connection with, or for, any Escrow Account funds or other funds held
pursuant to the terms of this Escrow Agreement:
a. The Escrow Agent may refuse to comply with the claims or demands as
long as such disagreement continues and in so refusing the Escrow Agent will
make no
3
<PAGE>
delivery or disposition of the Escrow Account funds and the Escrow Agent shall
not be liable or become liable in any way to any person for its failure or
refusal to comply with such conflicting or adverse demands; and it shall be
entitled to continue to refrain from acting and refuse to act until it receives
authorization executed by all parties to the disagreement; or a certified or
file-stamped copy of a court order resolving the disagreement; or a certified or
file-stamped copy of a court order resolving the disagreement or directing a
distribution of all or any portion of the Escrow Account funds. Upon receipt of
any such document the Escrow Agent shall promptly act according to the terms
thereby being relieved of any duty, responsibility or liability arising from the
adverse claims and demands or from the terms of this Escrow Agreement.
b. The Escrow Agent shall have at its option, at any time, the rights
to file an action or bill in interpleader, or similar action for such purpose,
in a court of competent jurisdiction and pay the Escrow Account funds and any
income earned or accrued thereon into said court. In such event, the Escrow
Agent's duties, responsibilities and liabilities with respect to the Escrow
Account fund, proceeds therefrom and this Escrow Agreement shall terminate,
provided however, that all costs and expenses, including attorney's fees, which
the Escrow Agent incurs in any such action shall be the responsibility of and
paid by the Company.
10. The death, disability, bankruptcy, insolvency or absence of any of the
undersigned shall not affect or prevent performance or exercise by Escrow Agent
of its obligations and rights hereunder.
11. Escrow Agent may from time to time advise with legal counsel of its own
choosing in the event of any disagreement, controversy, question or doubt as to
the construction of any of the provisions hereof or its duties and Escrow Agent
will be protected in acting in good faith in accordance with the opinion of such
counsel.
12. Escrow Agent will receive from the Company prior to distribution of the
deposited funds and prior to termination of this Escrow Agreement, fees and
charges for services of Escrow Agent hereunder which are agreed to be $3,000 and
additional amounts sufficient to reasonably compensate Escrow Agent for any
additional services, fees or charges imposed upon Escrow Agent as a result of
additional responsibilities in connection with or arising on account of the
deposits into the Escrow Account, the holding and disposition thereof pursuant
to this Escrow Agreement, or as a result of litigation or threat of litigation.
The Company agrees to reimburse Escrow Agent for reasonable attorney's fees,
disbursement expenses,costs, charges and damages, if any, suffered or incurred
by Escrow Agent in the performance of the duties and responsibilities of Escrow
Agent pursuant to this Escrow Agreement.
13. The full amount of the deposited funds, less any fees and costs as herein
described, shall be paid to the Company by the Escrow Agent pursuant to this
Escrow Agreement. If additional moneys are added to the Escrow Account after the
escrow is broken, Escrow Agent shall not be required to disburse such funds
except pursuant to the provisions of this Escrow Agreement.
4
<PAGE>
Notwithstanding anything to the contrary contained herein, Escrow Agent is under
no duty or responsibility to enforce collection of any checks delivered to
Escrow Agent hereunder.
14. During the term of the escrow, the deposited Escrow Account funds hereunder
shall, by order of the Company, be deposited in an interest bearing account with
United National Bank pursuant to paragraph 3 above.
15. Escrow Agent reserves the right to resign hereunder, upon ten (10) days
prior written notice to the Company. On and after the date of the written notice
of resignation, Escrow Agent is not required to accept any additional deposits
from Subscribers or anyone else for the Escrow Account. In the event of said
resignation, and prior to the effective date thereof, the Company, by written
notice to Escrow Agent, shall designate a successor escrow agent. If the Company
fails to designate such a successor escrow agent within such time period, the
Escrow Agent may deliver any undisbursed funds into the registry of any court
having jurisdiction at the expense of the Company.
16. This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Florida and the laws of the United States applicable to
transactions in Florida.
17. UNITED NATIONAL BANK HAS NOT PARTICIPATED IN THE PLANNING OR STRUCTURING OF
THIS TRANSACTION AND ASSUMES NO RESPONSIBILITY FOR ADVERSE TAX OR OTHER LEGAL
CONSEQUENCES AFFECTING THE UNDERSIGNED, AN SUBSCRIBER OR ANY OTHER PERSON
WHATSOEVER, EACH OR WHOM IS URGED TO DIRECT ALL SUCH QUESTIONS TO COMPETENT
LEGAL COUNSEL OF ANY SUCH PERSON'S CHOICE.
18. This Agreement may be executed in several counterparts, each of which shall
be deemed an original, and such counterparts shall constitute and be one and the
same instrument.
<TABLE>
<CAPTION>
<S> <C>
United National Bank, a chartered bank Gay Entertainment Television, Inc.
By: __________________________ By: ________________________________________
Name: ________________________ Marvin A. Schwam, Chief Executive Officer
Its: _________________________
</TABLE>
5
EXHIBIT 23.2
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of this Amendment 1 of Form SB-2 filed under the
Securities Act of 1933 by Gay Entertainment Television, Inc. of our report dated
August 19, 1997, 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, SAFER, HARMON & CO.
Miami, Florida
November 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,711
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,464
<PP&E> 7,179
<DEPRECIATION> (4,907)
<TOTAL-ASSETS> 81,538
<CURRENT-LIABILITIES> 147,171
<BONDS> 0
0
0
<COMMON> 278
<OTHER-SE> (231,025)
<TOTAL-LIABILITY-AND-EQUITY> 81,538
<SALES> 14,087
<TOTAL-REVENUES> 14,087
<CGS> 5,147
<TOTAL-COSTS> 5,147
<OTHER-EXPENSES> 137,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (128,420)
<INCOME-TAX> 0
<INCOME-CONTINUING> (128,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,420)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
