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 received conditional approval through June 3, 1998, to meet the initial
listing criteria 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.
================================================================================
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Unit ................. $ 4.25 $ .425 $ 3.825
- --------------------------------------------------------------------------------
Total Minimum(2) ......... $ 7,999,987.50 $ 799,998.75 $ 7,199,988.75
- --------------------------------------------------------------------------------
Total Maximum(3) ......... $ 9,987,500.00 $ 998,750.00 $ 8,988,750.00
================================================================================
</TABLE>
(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, 1-800-480-3446, within
three business days of the Initial Closing, and any subsequent closings.
----------------
THE AGEAN GROUP, INC.
(800) 480-3446
The date of this Prospectus is March 20, 1998
<PAGE>
(1) Does not include additional compensation payable to the Representative in
the form of (1) a one-year financial consulting agreement of $145,000, (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 165% 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 commissions and discounts, and a financial
consulting fee payable to the Representative.
(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 Mellon 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 June
18, 1998, 90 days after the date of this Prospectus and which period may
be extended for an additional 90 days, until September 16, 1998, 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, or (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."
FOR RESIDENTS OF NEW JERSEY: THE COMMON STOCK OF GAY ENTERTAINMENT
TELEVISION, INC. MAY BE SOLD IN NEW JERSEY ONLY TO PURCHASERS THAT QUALIFY AS
"ACCREDITED INVESTORS" AS DEFINED AT RULE 501(A) OF REGULATION D UNDER THE
SECURITIES ACT OF 1933. AN ACCREDITED INVESTOR INCLUDES, WITHOUT LIMITATION,
ANY NATURAL PERSON WHOSE INDIVIDUAL NET WORTH, OR JOINT NET WORTH WITH THAT
PERSON'S SPOUSE, AT THE TIME OF HIS OR HER PURCHASE EXCEEDS $1,000,000, OR ANY
NATURAL PERSON WHO HAD AN INDIVIDUAL INCOME IN EXCESS OF $200,000 IN EACH OF
THE TWO MOST RECENT YEARS OR JOINT INCOME WITH THAT PERSON'S SPOUSE IN EXCESS
OF $300,000 IN EACH OF THOSE YEARS, AND HAS A REASONABLE EXPECTATION OF
REACHING THE SAME INCOME LEVEL IN THE CURRENT YEAR.
2
<PAGE>
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. The Company has received oral and written commitments from
a number of entities and individuals pertaining to, among others (i) providing
services including the purchase of leased access time and advertising on behalf
of the Company, (ii) licensing feature films to the Company as part of the
Company's acquired programming at favorable rates, (iii) leasing production and
office facilities in New York and California to the Company on preferential
terms, and (iv) providing talent, scriptwriting, and production services in
connection with the Company's programming. See "Business--Strategic
Partnerships, Programming, Production, and Program Distribution."
GET, a development stage company, had limited operations since its
inception in November 1992 as a New York corporation. In December 1996, the
Company discontinued its production and on-the-air programming 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
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
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 .......................... 1,175,000
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.
Nasdaq SmallCap Market Symbols(3)
Units ............................. GETU
Common Stock ...................... GETC
Warrants .......................... GETW
</TABLE>
- ----------------
(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
<PAGE>
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. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED IN
THE PROSPECTUS AND 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 $114,834 and $33,299 for the eleven months
ended September 30, 1997 and 1996, $39,793 for the year ended October 31, 1996,
and $28,402 and $9,798 for the quarters ended December 31, 1997 and 1996,
respectively. Additionally, the Company had an accumulated deficit at December
31, 1997 of $(290,972). 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 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
June 18, 1998, which is 90 days from date of this Prospectus, or thereafter on
September 16, 1998, 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
5
<PAGE>
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."
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. See "Business--Strategic Partnerships."
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."
6
<PAGE>
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. Moreover,
there can be no assurance that a sufficient number of advertisers will support
the Company's programming because it may be considered too much outside
mainstream programming. 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% (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 vested in management),
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
7
<PAGE>
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."
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 initially be the only network of its kind, there can be no assurances that
other companies are not developing or will not seek to develop similar
networks. If GET is successful, it is possible that other companies may seek to
enter or capitalize on such market and compete directly with the Company. Many
of these companies have substantially greater financing, personnel, technical
and other resources than the Company and have well-established reputations for
success in the development, promotion and marketing of entertainment events.
There can be no assurance that the Company will be able to compete
successfully. See "Business--Competition."
PROPRIETARY PROTECTION AND INFRINGEMENT. The Company's success will
depend, in part, upon its proprietary concepts, methodology and technology. The
Company will rely on a combination of
8
<PAGE>
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 do 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 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, President 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 $2.89 per share (assuming the Minimum Offering) and $2.68 per
share (assuming the Maximum Offering) or approximately 68% or 63%,
respectively, of the initial public Offering price per share, in net tangible
book value of the Company's Common Stock. See "Capitalization" and "Dilution."
POSSIBLE NEED FOR ADDITIONAL FINANCING. While the Company believes that
the net proceeds from the Offering will be sufficient to enable the Company to
carry out its business objectives and continue to operate as a going concern
for the 12 month period following the 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, be 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
9
<PAGE>
public offering price included an evaluation by management of the Company and
the Representative of the history of and prospects for the industry in which
the Company competes, an assessment of the Company's management, the prospects
of the Company, its capital structure (including the loans made by private
investors in the Company prior to this Offering) and certain other factors
deemed relevant. See "Underwriting."
The stock market from time to time experiences significant price and
volume fluctuations that may be unrelated to the operating performance of
specific companies. The trading prices of the securities could be subject to
wide fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors, suppliers or clients and other events or factors which may or
may not be in the Company's control.
SHARES ELIGIBLE FOR FUTURE SALE AND REGISTRATION RIGHTS. All of the shares
of Common Stock outstanding are currently "restricted securities" as that term
is defined under the Securities Act and may only be sold pursuant to a
registration statement or in compliance with Rule 144 under the Securities Act
or other exemption from registration. Rule 144 provides, in essence, that a
person holding restricted Common Stock for a period of one year may sell such
securities during any three month period, subject to certain exceptions, in
amounts equal to the greater of one percent (1%) of the Company's outstanding
Common Stock or the average weekly trading volume of the Common Stock during
the four calendar weeks prior to the filing of the required Form 144. Rule 144
also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who is not an affiliate of the Company and who
has satisfied a two year holding period. Upon the sale of the Common Stock
offered hereby, the Company will have 5,125,000 shares (assuming the Maximum
Offering) and 4,657,350 shares (assuming the Minimum Offering), respectively,
of its Common Stock issued and outstanding, of which 2,775,000 shares are
"restricted securities". Shares of Common Stock held by the Company's existing
shareholders of the Company immediately prior to the date of this Offering, are
subject to an absolute lock-up period of 24 months, commencing on the Effective
Date, whereby the securities held by the existing stockholders cannot be sold,
transferred, pledged, assigned or hypothecated in any way. 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 Securities and
Exchange Commission (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 Nasdaq. Consequently, the
"penny stock" rules may restrict the ability of broker/dealers to sell the
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 23, 1998 certain changes to the entry and maintenance
criteria for listing eligibility on The Nasdaq Stock Market, Inc. became
effective. In addition to increased listing criteria, new maintenance standards
require 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 initial or continuing listing criteria
of Nasdaq 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
10
<PAGE>
the Common Stock may be adversely impacted and an investor may find it
difficult to dispose of, or to obtain accurate quotations as to the market
value of the Common Stock.
UNDERWRITERS' WARRANTS. At the consummation of this Offering, the Company
will sell to the to the Underwriters and/or their designees, for nominal
consideration, warrants (the "Underwriters' Warrants") to purchase up to
235,000 Units (assuming the Maximum Offering, and 188,235 if the Minimum
Offering is sold), which may represent 235,000 shares of Common Stock and
235,000 Warrants to purchase up to 117,500 Shares (188,235 shares of Common
stock and 188,235 Warrants to purchase up to approximately 94,117 Shares if the
Minimum Offering is sold). The Underwriters' Warrants will be exercisable for a
period of four years commencing one year after the date hereof, and will
entitle the Underwriters to purchase Units for $7.0125 per Unit and the
Warrants underlying the Underwriters' Warrants will entitle the holder to
purchase one share of Common Stock at $8.663 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 AND THE COMPANY. 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."
The Representative, for a period of three (3) years after the Effective
Date, may engage an advisor designated in writing by the Representative to the
Board of Directors of the Company. In addition, the Company has engaged the
Representative as financial advisor for a period of one (1) year from the
consummation of this Offering. Accordingly, as a result of the foregoing, the
Representative may, under certain circumstances, be able to influence the
operations of the Company. 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,
President and Chairman. 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 Warrants, but there can be no
assurances
11
<PAGE>
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."
12
<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 $8,988,750.00 ($7,199,988.75 if the
Minimum Offering is sold) after deducting the estimated underwriting discounts
and commissions, but before deducting Offering expenses payable by the Company,
estimated at approximately $280,000 and the financial consulting agreement
payable to the Representative. 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 24.31% $2,500,000 27.80%
Leased Access(2) ................ $1,500,000 20.83% $2,000,000 22.25%
Salaries ........................ $1,500,000 20.83% $1,500,000 16.69%
Acquired Programming(1) ......... $ 750,000 10.41% $ 500,000 5.56%
Repayment of Loans(3) ........... $ 429,000 5.96% $ 429,000 4.77%
Facilities ...................... $ 125,000 1.74% $ 125,000 1.39%
Website Development ............. $ 20,000 .28% $ 20,000 .22%
Working Capital(4) .............. $1,125,988 15.64% $1,914,750 21.30%
---------- ------ ---------- ------
Total ......................... $7,199,988 100.00% $8,988,750 100.00%
========== ====== ========== ======
</TABLE>
- ----------------
(1) This amount is based on four hours of original programming for the initial
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.
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.
13
<PAGE>
DILUTION
At December 31, 1997, the Company had a net tangible book value of
($368,793), or approximately ($.13) 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 December 31,
1997, would have been approximately $6,311,196 (assuming the Minimum Offering)
and $8,040,332 (assuming the Maximum Offering) or $1.36 and $1.57 per share of
Common Stock, respectively, This would represent an immediate increase in the
net tangible book value of $1.49, assuming the Minimum Offering, and $1.70,
assuming the Maximum Offering, to existing shareholders and an immediate
dilution of between $2.89 per Share, assuming the Minimum Offering and $2.68
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 ......... $ (.13) $ (.13)
Increase attributable to new investors ......................... $ 1.49 $ 1.70
------- -------
Proforma net tangible book value after the offering ............. $ 1.36 $ 1.57
Dilution to new investors ....................................... $ 2.89 $ 2.68
Percentage of dilution to new investors ......................... 68.00% 63.06%
</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 December 31, 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.
MAXIMUM OFFERING
<TABLE>
<CAPTION>
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
========= ====== ========== === ======
</TABLE>
MINIMUM OFFERING
<TABLE>
<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
========= ====== ============== === ======
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
December 31, 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."
<TABLE>
<CAPTION>
DECEMBER 31, MAXIMUM MINIMUM
1997 OFFERING OFFERING
-------------- -------------- --------------
ADJUSTED FOR SHARES SOLD(1)
<S> <C> <C> <C>
Debt:
Loans Payable .......................................... $ 387,000 -0- -0-
Shareholder's Equity
Common Stock, par value $.0001, 2,775,000 shares issued
and outstanding, actual 5,120,000 and 4,652,350 shares
issued and outstanding, as adjusted(2) ............... 278 $ 513 $ 466
Paid-in Capital ........................................ 45,131 8,454,021 6,724,931
Accumulated Deficit .................................... (290,972) (290,972) (290,972)
Total Shareholders' Equity ............................. (245,563) 8,163,562 6,434,425
---------- ---------- ----------
Total Capitalization ................................... $ 141,437 $8,163,562 $6,434,425
========== ========== ==========
</TABLE>
- ----------------
(1) After deducting underwriting discounts, commissions and offering expenses
estimated to be $1,320,000 (assuming the Minimum Offering) and $1,578,000
(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.
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.
15
<PAGE>
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, 1996 and for the eleven
months ended September 30, 1997, whose report with respect thereto is included
elsewhere in this Prospectus. 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>
YEAR ENDED ELEVEN MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- --------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
EARNINGS DATA
Revenues .................................... $ 68,982 $ 14,087 $ --
Cost of Operations .......................... 62,653 5,147 --
General and Administrative Expenses ......... 46,122 123,774 28,402
Net Loss .................................... (39,793) (114,834) (28,402)
Net Loss per Common Share ................... (.02) (.05) (.01)
Weighted Average Shares Outstanding ......... 2,335,000 2,493,795 2,775,000
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
PERIOD ENDED PERIOD ENDED DECEMBER 31, 1997
------------------------------- -------------- ----------------------------
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 MAXIMUM MINIMUM
------------- --------------- -------------- ------------- ------------
(UNAUDITED) AS ADJUSTED
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL BALANCE SHEET DATA
Working Capital ........................... $ (91,479) $ (293,029) $ (378,145) $8,154,210 $6,425,075
Total Assets .............................. 13,178 110,680 192,592 8,112,407 6,383,270
Total Long-Term Liabilities ............... 59,788 3,258 -- -- --
Stockholders' (Deficiency)/Equity ......... (147,502) (217,161) (245,563) 8,163,562 6,434,425
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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%.
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 77% from $62,204 to $14,087, as a result of the Company
concluding its test marketing and its determination to concentrate its efforts
to raising sufficient capital to produce up to four hours of original
programming and to acquire not less than two hours of acquired programming for
an aggregate of six hours of programming for transmission on a weekly basis in
up to 20 targeted markets, the results of which is this Offering.
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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 $123,774 at September 1997, an increase of $83,565 or 208%. 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 Notes to Financial Statements."
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) COMPARED TO DECEMBER 31, 1996
(UNAUDITED)
Gross revenues for the three months ended December 31, 1997 decreased from
the three months ended December 31, 1996 by $17,711, or 100% due to the Company
concluding its test marketing and focusing its efforts on raising 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.
Costs of sales decreased $9,981, or 100%, from the three months ending
December 31, 1996 to the three months ending December 31, 1997, for the reasons
mentioned above.
General and administrative expenses increased $10,874 from the three
months ended December 31, 1996 to the three months ended December 31, 1997, or
62%, due to an increased presence at trade shows to promote the Company, and an
increase in interest expense, as the Company has had to finance its operations
through additional borrowings.
CAPITAL AND LIQUIDITY
At December 31, 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 $245,563 which
represents several years of cumulative losses.
A large part of the deficit ($345,000) 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 $200,000 had been
advanced at December 31, 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, President, and Chairman, Marvin Schwam.
Although the Company has entered into various employment agreements with
management as well as two consulting agreements, all payments under these
agreements are subject to the completion of this Offering. The Company has made
provisions for the payments under these contracts in the use of proceeds
section of this Prospectus. Upon the Initial Closing, the Company has made
certain commitments under employment agreements including the following: (i)
Mr. Marvin Schwam, the Company's Chief Executive Officer, President and
Chairman, an annual salary of $155,000 plus benefits, including stock options;
(ii) Mr. William G. Barker, the Company's Senior Vice President and Chief
Financial Officer, an annual salary of $100,000 plus benefits, including stock
options; (iii) Mr. Joseph F.
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Lovett, Executive Vice President, Programming and Production, an annual salary
of $125,000 plus benefits, including stock options; (iv) Mr. Jim Arnoff, Senior
Vice President, Program Development and Acquisitions, an annual salary of
$100,000 plus benefits, including stock options; and (v) Mr. Michael Ingersoll,
Senior Vice President, Public Affairs, an annual salary of $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 one year financial advisory and
consulting agreement in the amount of $145,000, 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.
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 24 hours of network programming. For example, Black Entertainment
Television Network (BET) 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."
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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.
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 seven 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 distribution of six hours of
programming per week focusing on issues relating to the gay and lesbian
lifestyles on cable channels available to targeted markets within six (6)
months of the Final Closing of this Offering, and 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 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
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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 MSO's and
cable 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 members of 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,
tended to own luxury automobiles and subscribed to cable and premium
television. There has been some criticism of the study, having been judged as
being biased, sourcing for respondents from narrow upscale lists, however the
Simmons report remains the benchmark public study.
According to the August 7, 1997 issue of ADVERTISING AGE, visibility of
gays and lesbians has reached a critical mass in corporate America and over the
last several years, mainstream media is beginning to court a demographic group
previously perceived as "risky." Major advertisers including, among others, IBM
Corp., Seagram Americas' Absolut Vodka, America Online, Aetna life and
Casualty, Chase Manhattan Corp., Johnson & Johnson, Lotus Development Corp.,
Merrill Lynch & Co., Samsung Electronics America, Subaru of America, American
Airlines, United Airlines and U.S. West are targeting the gay and lesbian
community and other major corporate names will likely follow suit. There can be
no assurances, however, that the Company will be able to enter into agreements
with any major corporations, including those set forth above.
In the past, most targeted advertising efforts for gays and lesbian have
been limited to print because few options exist in TV. Certain local
cable-access channels in several markets 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.
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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 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, it may imply that he or she is gay or lesbian or has an
interest in a gay or lesbian lifestyle. Because society's perception to these
alternative lifestyles is often less than positive, people often are reticent
to place their name on any mailing list that could subsequently be made
available to other organizations. On the other hand, watching GET's programming
requires nothing more than for a person to turn on the television.
STRATEGIC PARTNERSHIPS
GET expects to establish relationships with two separate groups to succeed
in today's competitive television marketplace--television affiliates and
advertisers--and solidifying these relationships will be an ongoing task for
the Company. The recruitment and maintenance of relationships with television
affiliates and advertisers will be an ongoing task for the Company.
Television affiliates include individual cable systems and Multiple System
Operators ("MSOs"), which, due to the number of individual cable systems such
as Time-Warner Cable, Adelphia Cable, Continental Cablevision, Century
Communications, Cox Cable, TeleCommunications, Inc., Gold Coast Cable, and
Chicago Cable under their domain, control a substantial portion of the program
content aired over cable television. These affiliates will be approached to
carry the Network programming on their respective systems. The general manager
or program director of each cable system or MSO has a finite number of channels
until more are made available through Federal Communication Commission decree
or technological changes. A program manager will typically substitute a channel
which sustains only limited appeal for one that is dynamic so that the systems'
sales people can have an easier time selling the local avails (time slots that
the networks or program providers make available to the cable systems to sell
to 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. The
Company has received commitments from the Western Multicultural Group, a
division of WIM, to include the Company and its programming in its
presentations to potential advertisers who have particularly expressed interest
in reaching the gay and lesbian market.
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.
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CABLE ACCESS
Cable systems and MSOs must make available three different types of access
through their respective systems: (1) broadcast access, (2) public access, and
(3) leased access. Broadcast access carries the major television channels such
as ABC, CBS and NBC and are normally broadcast over the air waves (as opposed
to cable). Systems are also required to carry public access channels which are
to be made available to residents of that licensees locality. The purpose of
public access is to give every citizen free access to the air waves. Because
public access is made available for free, it is a non-commercial venture.
Additionally, every system is also required to have a certain amount of
channels available for leased access, which is made available to any person
(whether or not a resident of the area) who may purchase time and present any
type of suitable programming. The Company intends to start transmitting its
programming through leased access. Systems also have premium channels available
that, for an extra fee, subscribers can have access. Premium channels include
channels such as HBO, Showtime, the Disney Channel, and The Movie Channel.
Systems also have pay per view channels where a system gives the option to
purchase a specific program, such a sporting event, concert or film.
A subscriber is charged a basic monthly fee for cable delivery that
generally includes the broadcast channels, public access channels, leased
access channels and a variety of channels 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 (if different from the
Chief Executive Officer), 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 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."
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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 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. While the Company has had extensive
discussions with a number of individuals to develop certain of these additional
programs, there can be no assurances 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
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(i.e. as inserts for new programming). The Company has also had extensive
discussions with individual talent and talent agents who have committed to
provide both on screen and behind the camera services to the Company, but there
can be no assurances that the Company will be able to engage such talent when
needed.
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. The Company
has received a written commitment from a Director of the Company to license
over 40 films for broadcast on the Network at a fee of $5,000 per title twice
during any given calendar year. The Company has also had discussions with
programming management of film festivals to acquire licenses to broadcast films
and shorts on the Network, but there can be no assurances that the Company will
be able to acquire licenses on favorable terms. Management believes that there
are numerous high-quality programs available, many of which have not previously
had a broadcast outlet. Acquired programming will be presented by an on-air
host with a command of screen history, and is expected to be a cornerstone of
the Network's identity.
Management is also studying a plethora of programming concepts for the
future. Among the subjects being considered are health and fitness, featuring
programs dealing with exercise, AIDS awareness and updates; entertainment
programming featuring celebrity magazine series, Broadway song festival, comedy
and sitcoms, animation, movie reviews and performances; news programming; game
shows and music programs and special events.
PRODUCTION
The Company expects to produce a majority of its own programming. The
Company will lease a sound stage (approximately 50 feet by 75 feet) and to
eventually establish a production staff of approximately 17 persons including
(a) two program producers, (b) three camera operators, (c) two writers, (d)
four segment producers, (e) one researcher, (f) two administrative assistants,
(g) two production assistants, and (h) one technical director. See "Use of
Proceeds."
The Company has elected to tape its programs and forward them to its
affiliates via overnight courier, as opposed to using satellite broadcast. The
Company believes that satellite broadcast is too difficult to control, due in
part, to the fact that GET's programming will air at different times in
different markets and it is easier to sell local advertising, which can be
placed, as required, within the taped programming, as required. Eventually, if
the Channel does become available on a 24 hour, seven day a week basis (and
assuming that the Company's programming is repeated 6 times within one-24 hour
period), the Company will likely utilize satellite transmission, in addition to
the supplemental leased access distribution. Sending tapes to each individual
station affords the Company the opportunity to bring local gay and lesbian
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
25
<PAGE>
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 be available to approximately 75%
of the households in the top 20 markets, while reducing its projected expense
by approximately 37%. There can be no assurances, however, that the Company
will be able to purchase leased access in any of these markets or that the
costs and expenses will be within the Company's budget. While these designated
cities and systems are being chosen because the Company believes that each of
the markets is best for distribution of the Company's programming to the
largest number of households, the Company also intends to explore the
possibility of targeting other cities and systems.
<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 3 686,000
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 systems ......... 103 27,720,000 65 20,709,000
=== ========== == ==========
</TABLE>
- ----------------
SOURCE OF SYSTEMS AND TOTAL NUMBER OF HOUSEHOLDERS: NHI NEILSEN HOUSEHOLD
INDEX, AUGUST 9, 1997
By penetrating the top 20 domestic television markets, management believes
that the Network's programming will be available to 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 Network's early years of
development. Management also believes that
26
<PAGE>
reaching the audience available in these top 20 markets will provide GET access
to a level of gay and lesbian viewership previously reachable only by
mainstream networks on rare occasions, or by public television specials.
To aid in GET's ability to secure leased access, the Company has formed an
alliance with Western International Media (WIM), 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 assure 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 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.
27
<PAGE>
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 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 when 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
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
28
<PAGE>
disposable income and are a very attractive segment of the consumer population.
GET proposes to reach a significant portion of the over-all population and will
provide advertisers with access to this large segment of the population.
Management believes that national advertisers will be very receptive to this
opportunity to reach a highly desirable and large segment of the population
however, the Company has not entered into any definitive agreements with any
advertisers, that it will be able to enter into such agreements in the future,
or if entered into, that these agreements will be on terms that are favorable
to the Company or that will render the Company profitable.
In order for the Company to be successful, the Company intends to initiate
a carefully planned and aggressive marketing strategy geared to cable systems
and MSO's. The owners and operators of the top 10 MSO's across the country will
be the Company's target within the initial 12-18 months of operation. By
succeeding in having these organizations accept the Network in their system
line-up, management anticipates that GET will be able to amass the number of
subscribers needed in order to satisfy commercial advertisers and justify the
Company's advertising rates, but there can be no assurances with the Company
will be successful in attaining these goals. Management estimates that a
minimum launch target of 5 million subscriber households will be necessary in
order to generate the amount of revenues needed to become an ongoing viable
venture.
Recent developments in fiber optic technology, as it pertains to the
"Information Superhighway," has resulted in the need for advertisers to
reassess where they can most effectively place their ad dollars to reach the
niche demographic of the marketplace that they desire. This innovation is known
as "narrowcasting" because it pinpoints a very specific type of consumer and
allows the advertiser to customize its message to them. The Company's ability
to operate and reach this specialized niche is expected to make it easier for
the Network to identify and recruit advertisers since it will be readily
apparent as to the customer base to be solicited.
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.
29
<PAGE>
It is expected that the Website will promote programming and viewership of
GET through publication of the Network's programming schedule, synopses of
program content and by the presentation of still and video clips of individual
personalities and programs. Scheduling the design and composition of the
program line-up will be critical because broadcast times will vary throughout
the approximately 20 markets that have been initially selected for penetration.
The Website will also provide e-mail access to the Network's on-air talent and
staff. Drawing from the general popularity of television viewership's
interaction with on-air personalities, management believes that this audience
will provide strong support for the Network's planned shopping and reference
malls.
The Website's proposed forum for the advertising, promotion and sale of
gay and lesbian oriented products and services is expected to include
participation by local, regional and national travel agents, tour operators,
bars, restaurants, hotels, financial service companies, automobile
manufacturers and retail establishments. These purveyors of products and
services will be afforded access to a concentrated segment of the consumer
markets, and it is anticipated that their advertising will be created to target
those markets. In addition, electronic media advertising will enable
advertisers to create attractive, full color "brochures" which can be updated
on a regular or seasonal basis, without the associated costs of color printing
and dissemination. This forum of the Website will generate revenues through
direct advertising fees and, eventually, through transaction processing fees as
electronic commerce capabilities are added to the Website. Advertisers will be
offered the opportunity to establish "hot-key" links between the Website and
their own websites. This forum will also contain a special events calendar for
the gay and lesbian community, showcasing national, regional and local events
of particular interest to the gay and lesbian community, the schedules of gay
and lesbian pride events in various cities, Gay Games, circuit party events,
support groups and AIDS fund-raisers. Advertisers will have the ability to
sponsor listings and to advertise travel arrangements, including hotel
accommodations, meals, local transportation and social events being made
available to attendees.
It is anticipated that upon completion of forum development, electronic
commerce will become a part of the Website and a significant source of revenues
to the Company. However, at present, numerous difficulties must be overcome.
These difficulties include the lack of clear technological leadership in
providing consumer electronic shopping services, the existing high cost of this
process and significant mistrust about the security of personal financial data
in electronic commerce. Due to these difficulties, management has elected to
delay incorporating electronic shopping as a Website feature. However, as
technology advances, management expects that electronic shopping will become a
secure, commonplace and attractive consumer purchasing alternative.
The offering of a forum for the expression of, and response to, current
events and issues impacting the gay and lesbian community is expected to be
operated by GET and designed to be an important "give-back" to the gay and
lesbian community. This section of the Website will be dedicated to not-for-
profit grass roots organizations seeking alternative methods by which to reach
their target audiences. Topics of available information will include politics,
health-care, financial and legal issues. E-mail users will be afforded the
capability of contacting organizations, elected representatives and GET's
management, staff, talent and advisers to express their views.
COMPETITION
The Company will face intense competition for a finite amount of
viewership from numerous other businesses in the entertainment industry. In
particular, the television programming market is intense and the Company's
programming will compete for distribution on cable systems, for viewers and for
advertising revenue with hundreds 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.
30
<PAGE>
Additionally, the Company will also compete for advertising dollars with
traditional media. While the Company believes that GET will be the only Network
and Channel of its kind, there can be no assurances that other companies are
not developing or will not seek to develop similar networks. If GET is
successful, it is possible that other companies may seek to enter or capitalize
on such market and compete directly with the Company. Many of these companies
have substantially greater financing, personnel, technical and other resources
than the Company and have well-established reputations for success in the
development, promotion and marketing of entertainment events. There can be no
assurance that the Company will be able to compete successfully. See "Risk
Factors--Competition."
Moreover, initially, the Company will compete with other networks and
infomercials who also seek to lease cable access in favorable time slots and on
specific dates. Many of these networks are better capitalized and may have more
leverage to negotiate for these limited numbers of time slots. To the extent
that the Company is unable to purchase leased access on terms and conditions
favorable to the Company, or to purchase leased access for critical time slots,
this inability could have a material impact on the Company's profitability. The
Company is prepared, however, to explore other means of distribution to build
its viewership should the Company be unable to clear certain leased access
markets. It is possible that the Company will buy time on UHF (local low
frequency broadcast) or via local satellite distribution on a limited basis.
Furthermore, because the Company is unable to protect its concept of a
network targeted at the gay and lesbian lifestyle, there can be no assurances
that other companies who may, among other things, have more experience and be
better capitalized, may not also develop programming targeted at the same
market.
INTELLECTUAL PROPERTY
The Company has filed for federal statutory intellectual property
protection for its mark GAY 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 Network is 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, President 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 positions,
certain of which the Company has already filled: (a) ten persons in management
including the (i) Chairman, President and Chief Executive Officer, (ii) Senior
Vice President, Chief Financial Officer, (iii) Executive Vice President,
Programming, (iv) Senior Vice President/Programming and Acquisitions, (v) Vice
President, Affiliate Relations, (vi) Vice President, Marketing, (vii) Vice
President, Public
31
<PAGE>
Affairs, (viii) Vice President, National Ad Sales, (ix) Vice President,
Business Affairs; (b) five support person including a staff accountant; (c) two
persons for the Company's Website operations; (d) 17 in production; and (e)
five in talent. See "Management." The Company also intends to enter into
independent consulting agreements with qualified professionals on an as-needed
basis and to take advantage of using unpaid interns, typical in the television
industry, who will gain experience in connection with the production of the
Company's programming.
FACILITIES
Currently, the Company leases approximately 3,200 square feet of space in
a rent stabilized building at 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,
President and Chairman. 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.
The Company has received a bid proposal for production facilities in New
York and an offer to use the Casablanca studio facilities in Los Angeles,
California at its satellite studio. Both of the proposals and offers are at
preferential rates, however, the definitive terms have not been finalized.
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.
32
<PAGE>
MANAGEMENT
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, President and Chairman. The
remaining individuals noted below will become directors and executive officers
of the Company upon the Initial Closing of this Offering.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----- --------------------------------------
<S> <C> <C>
Marvin A. Schwam ................ 55 Chairman of the Board and Chief
Executive Officer, and President
William G. Barker, Jr. .......... 64 Senior Vice President and
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
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, President and Chairman of the Board 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 became 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 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., 65, will become the Company's Senior Vice
President and 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.
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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 (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 an 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, 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, 47, 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 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
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Affairs Award" in 1992 and the Washington State Cable Communications
Association's "President's 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, 55, 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, 67, 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. (NYSE:MSG) and from 1970 to 1974, was
the Executive Vice President, a member of the Executive Committee and a member
of the Board of Directors of Warner Communications (NYSE:WCI).
IRA LAUFER, 70, 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.
DAVID MAYER, 56, 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." Since July 1997, Mr. Mayer has served as the
President of Andean Engineering and Finance Corp. 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, 38, 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
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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, 55, 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 1987
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, 55, 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."
DEB ZEYEN, 50, 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,
President 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, President 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,
President 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.
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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 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 Vice President,
National Advertising Sales and anticipates that this position will be filled 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:
PHILIP R. BEUTH, 65, is currently the founder 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
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ABC, he initiated and supervised the production of four prime time AIDS
specials under Executive Producer Joe Lovett, the Company's Executive Vice
President, Programming and Production. Mr. Beuth was named a Member of the Year
by the New York Broadcasters Association and currently serves on the Board of
Directors of the United States Committee of UNICEF and the Design Industries
Foundation Fighting AIDS (DIFFA).
KAREN LYNN HERSHEY, 35, is a trial attorney with the New Jersey Department
of Law and Public Safety, Division of Law, New Jersey. Since joining the
Division of Law in 1987, she has provided legal representation to various
agencies within New Jersey State government in the areas of litigation,
appellate advocacy and contract negotiation. Ms. Hershey has also produced and
hosted radio talk shows on public and commercial radio stations. Currently, she
produces a cable television program which airs in 25 cities and towns in New
Jersey.
DIANE LACHEL, 45, has been the President of Tacoma City cable system in
Tacoma, Washington. From January 1989 to August 1996, Ms. Lachel was the
Director of Government and Community Relations with Viacom Cable, in Tacoma,
Washington. From June 1991 to August 1996 Ms. Lachel was the President,
treasurer and a director of the Washington State Cable Communications
Association and a founding member of the Puget Sound chapter for Women in Cable
and Communications.
ROBERT MACK, 55, has been a Financial Analyst and been a part of the
management team that plans development strategies for the Landis Group (Real
Estate) since 1980 and has served as the Vice President-Finance of IntellePro
which develops semi-conductor technology since July 1996 and has served as a
member of its Board of Directors since December 1996.
JOHN R. MORSE, PH.D., 54, has served as the President of JRM
Communications, Inc. a market research consulting company specializing in new
electronic media whose client base includes, among others, America Online,
CNBC, Prime Network, The Learning Channel, The Talk Channel, American Movie
Classics, and TV Guide On Screen. From 1986 to 1991, Dr. Morse was Vice
President, Research for Financial News Network where he created and headed the
marketing research division for TV, cable, radio, videotext and magazine
properties including, FNN, SCORE, TelShop, High Technology Business Magazine,
the Learning Channel, data Broadcasting Corporation and United Press
International. From 1984 to 1986, Dr. Morse was Supervisor, marketing Research
and Planning for ABC where he directed research for all aspects of cable
television for ABC's cable properties (including A&E, ESPN, and Lifetime).
ADVISORY BOARD COMPENSATION
Each of the members of the Company's Advisory Board receive options to
purchase 2,500 shares of Common Stock at $4.25 per Share, which options shall
vest upon the date of grant and shall be exercisable for a period of five years
from the date of vesting.
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, PRESIDENT AND CHAIRMAN. The
Company has entered into a written three-year employment agreement with the
Company's Chief Executive Officer, President 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
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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 Board of Directors 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. BARKER, JR., SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER.
The Company has entered into an oral three-year employment agreement with the
Company's Chief Financial Officer, William Barker, which shall commence upon
the Initial Closing of this Offering. Pursuant to the terms and conditions of
his employment agreement, Mr. 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 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
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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.
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 (for an aggregate of options to purchase up to 35,000 shares).
Options granted under the Stock Option Plan will be exercisable after the
period or periods specified in the option agreement, and options granted under
the Directors Plan are exercisable immediately. Options granted under the Plans
are not exercisable after the expiration of five years from the date of grant
and are not transferable other than by will or by the laws of descent and
distribution. The Plans also authorize the Company to make loans to optionees
to enable them to exercise their options.
As of the date of this Offering, options to purchase 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.
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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.
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
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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, President 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).
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 the 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 and President, plus 185,000
Shares, subject to a lock-up period of twenty-four months from the effective
date of the Offering or such other lock-up period as may be imposed by the
Representative, NASD or any other national exchange. 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
42
<PAGE>
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.
In January 1998, the Company received a commitment from First Run
Features, whose principal is Seymour Wishman, a Director of the Company for the
license to broadcast approximately 40 films of interest to the Company's
targeted market on the Network. The proposed terms of the license would be for
two broadcasts in the United States during any given calendar year for a
license fee of $5,000 per title.
All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties. In the future, the
Company intends to handle transactions of a similar nature on terms no less
favorable to the Company than those available from unaffiliated parties.
43
<PAGE>
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 79.9% 44.0% 40.0%
William G. Barker(2) ................ 25,000 * * *
Joseph F. Lovett(3) ................. 75,000 2.7 1.6 1.5
Jim Arnoff(4) ....................... 100,000 3.6 2.1 2.0
Michael Ingersoll(5) ................ 50,000 1.8 1.1 *
Jon R. Allen ........................ (6) * * *
Alan N. Cohen(6) .................... 25,000 * * *
Ira Laufer .......................... (6) * * *
David Mayer(7) ...................... 185,000 6.7 4.0 3.6
Shelly Meyers ....................... (6) * * *
Richard Moorehead(8) ................ 176,000 6.3 3.8 3.4
Seymour Wishman ..................... (6) * * *
Deb Zeyen ........................... (6) * * *
All Officers and Directors as a group
(thirteen (13) persons) ........... 2,686,000 96.8% 57.7% 52.4%
</TABLE>
- ----------------
* Less than 1%.
(1) Does not include options to purchase 75,000 shares of common stock at an
exercise price of $4.25 per Share 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 per Share 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 per Share 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.
(4) Does not include options to purchase 30,000 shares of common stock at an
exercise price of $4.25 per Share 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 per share 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."
44
<PAGE>
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
1,175,500 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 for one forward stock split,
based upon the Company's initial number of authorized shares being 200, which
amount was subsequently increased to 40,000,000 shares in September 1997. The
Company has also reserved up to 600,000 shares of Common Stock pursuant to its
Stock Option Plan and Directors Plan.
The holders of Common Stock are entitled to one vote per share for the
election of directors and with respect to all other matters submitted to a vote
of shareholders. Shares of Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of such shares voting for the
election of directors can elect 100% of the directors if they choose to do so
and, in such event, the holders of the remaining shares so voting will not be
able to elect any directors.
Upon any liquidation, dissolution or winding-up of the Company, the assets
of the Company, after the payment of the Company's debts and liabilities and
any liquidation preferences of, and unpaid dividends on, any class of preferred
stock then outstanding, will be distributed pro-rata to the holders of the
Common Stock. The holders of the Common Stock do not have preemptive or
conversion rights to subscribe for any securities of the Company and have no
right to require the Company to redeem or purchase their shares. The holders of
Common Stock are entitled to share equally in dividends if, as and when
declared by the Board of Directors of the Company, out of funds legally
available therefor, subject to the priorities accorded any class of preferred
stock which may be issued. A consolidation or merger of the Company, or a sale,
transfer or lease of all or substantially all of the assets of the Company,
which does not involve distribution by the Company of cash or other property to
the holders of Common Stock, will not be deemed to be a liquidation,
dissolution or winding up of the Company.
PREFERRED STOCK
The Company is authorized to issue 2,500,000 shares of preferred stock,
par value $.0001 per share. The Board of Directors of the Company has the
authority, without further action by shareholders, to issue the preferred stock
in one or more series, and to fix for any series the dividend rate, redemption
price, liquidation or dissolution preferences, conversion rights, voting rights
and other preferences and privileges.
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
45
<PAGE>
provisions of the Warrants is qualified in its entirety by reference to the
Warrant Agreement. A form of the certificate representing the Warrants which
form a part of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The Company is offering a minimum of 1,882,350 and a maximum of 2,350,000
redeemable Common Stock Purchase Warrants ("Warrants"). Each two Warrants
entitles the holder to purchase one share of Common Stock at $5.25 per share
("Warrant Exercise Price"), which exercise price has been arbitrarily
determined by the Company and the Representative, subject to certain
adjustments, commencing on the 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. No fractional Shares will be issued.
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 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
46
<PAGE>
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 accordance with the requirements of
the Securities Act or these securities have not been qualified for sale under
the laws of the state where the Warrant holder resides. See "Risk Factors." In
addition, in the event that the Warrants have been called for redemption, such
call for redemption could force the Warrant holder to either (i) assuming the
necessary updating to the Prospectus and state blue sky qualifications have
been effected, exercise the Warrants and pay the exercise price at a time when,
in the event of a decrease in market price from the period preceding the
issuance of the call for redemption, it may be less than advantageous
economically to do so, or (ii) accept the redemption price, which, in the event
of an increase in the price of the stock, could be substantially less than the
market value thereof at the time of redemption.
THE FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSIDERATIONS THAT MAY
INVOLVE A PARTICULAR PURCHASER. ACCORDINGLY, ALL PROSPECTIVE PURCHASERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE
SHARES OF COMMON STOCK AND WARRANTS.
STOCK OPTIONS
Currently, there are options to purchase up to an 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)
47
<PAGE>
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 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.
48
<PAGE>
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.
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.
49
<PAGE>
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):
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- ----------------------------------- ----------------------
<S> <C>
The Agean Group, Inc. .......... Up to 2,350,000 Units
Total ........................ Up to 2,350,000 Units
======================
</TABLE>
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 through the
Representative. In this regard, 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"). 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 also agreed to engage the Representative as a financial
advisor for a period of one (1) year from the consummation of this Offering, at
a fee of $145,000 (of which $20,000 has been advanced to date) and the
remainder payable at the Final Closing of this Offering. In the event that the
Underwriter terminates the Offering or is unable to consummate the Offering
within nine months from the Effective Date, the advance shall be returned to
the Company to the extent its out-of-pocket expenses are less than the $20,000
advanced. 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 of Directors , 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 Mellon United
National Bank, a commercial bank meeting the qualifications to act as Escrow
Agent ("Escrow Agent") as required by the Commission pursuant to Rule 15c2-4 of
the Securities Act of 1934, as amended, and pursuant to the terms of a written
Escrow
50
<PAGE>
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 June 18, 1998 (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 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."
51
<PAGE>
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 four
years, commencing one year from the date of this Prospectus. The initial
exercise price of each Representative Warrant shall be $7.0125 per Underlying
Unit (165% of the public Offering price). Each Underlying Warrant will be
exercisable for a three (3) year period commencing on the date of this
Prospectus to purchase one share of Common Stock for each two warrants at an
exercise price of $8.663 per share of Common Stock. The Representative's
Warrants will not be sold, transferred, assigned or hypothecated for one year
from the commencement of trading of the Company's securities, 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 agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
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 an absolute twenty-four month
lock-up period commencing on the date of this Prospectus, whereby the
securities held by the existing shareholders cannot be sold, transferred,
pledged, assigned or hypothecated in any way.
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
52
<PAGE>
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, September 30,
1997 and December 31, 1997, and the related statements of operations,
statements of shareholders' deficit and cash flows for the year in the period
ending October 31, 1996, the eleven months ended September 30, 1996 (unaudited)
and 1997, and the quarter ended December 1997 (unaudited) and 1996 (unaudited),
included in this Prospectus have been so included in reliance upon the report
of Spear, Safer, Harmon & Co., P.A., independent accountants, given on
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement in
Washington, D.C., on Form SB-2 under the Securities Act of 1933, as amended,
with respect to the securities being offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
exhibits 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.
53
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants ................. F-2
Balance Sheets as of October 31, 1996, September 30, 1997
and December 31, 1997 (unaudited) .................................. F-3
Statements of Operations for the year ended October 31, 1996,
the eleven months ended September 30, 1997 and 1996 (unaudited)
and the three months ended December 31, 1997 (unaudited)
and December 31, 1996 (unaudited) ................................. F-4
Statements of Changes in Shareholder's Deficiency for the year 1996,
the eleven months ended September 30, 1997
and the three months ended December 31, 1997 (unaudited) .......... F-5
Statements of Cash Flows for the year ended October 31, 1996,
the eleven months ended September 30, 1997 and 1996 (unaudited)
and the three months ended December 31, 1997 (unaudited)
and December 31, 1996 (unaudited) ................................. F-6
Notes to Financial Statements ...................................... F-7
</TABLE>
F-1
<PAGE>
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
September 30, 1997 the related statements of operations, changes in
shareholders' deficiency and cash flows for the year ended October 31, 1996 and
the eleven months ended September 30, 1997 (see Note 11). 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 September 30, 1997 and the results
of its operations and its cash flows for the year then ended and for the eleven
months then ended 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 $40,000
in the year ended October 31, 1996 and $115,000 in the eleven months ended
September 30, 1997, 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.
SPEAR, SAFER, HARMON & CO.
Miami, Florida
January 16, 1998
F-2
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF AS OF
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash ..................................................... $ 5,393 $ 3,711 $ 4,076
Due from shareholder ..................................... 4,020 27,843 55,934
---------- ---------- ----------
Total Current Assets ................................... 9,413 31,554 60,010
---------- ---------- ----------
Equipment ................................................. 7,179 7,179 7,179
Less accumulated depreciation ............................. (3,591) (4,907) (5,266)
---------- ---------- ----------
3,588 2,272 1,913
---------- ---------- ----------
Organization costs, net of accumulated amortization
of $483 and $604 in 1996 and 1997, and $637 as of
December 31, 1997 ....................................... 177 56 23
---------- ---------- ----------
Deposits and other assets ................................. -- 5,290 7,416
---------- ---------- ----------
Offering costs ............................................ -- 71,508 123,230
---------- ---------- ----------
$ 13,178 $ 110,680 192,592
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable ............................................ $ 87,000 $ 284,000 $ 387,000
Accounts payable ......................................... 2,392 16,782 21,282
Accrued expenses ......................................... 11,500 23,801 29,873
---------- ---------- ----------
Total Current Liabilities .............................. 100,892 324,583 438,155
---------- ---------- ----------
Long-Term Debt ............................................ 58,000 3,000 --
---------- ---------- ----------
Accrued Expenses .......................................... 1,788 258 --
---------- ---------- ----------
Shareholder's Deficiency:
Common stock, $.0001 par value, 40,000,000 shares
authorized, 2,335,000 issued and outstanding in 1996 and
2,775,000 shares issued and outstanding for all periods
in 1997 ................................................ 234 278 278
Additional paid-in capital ............................... -- 45,131 45,131
Deficit accumulated during the development stage ......... (147,736) (262,570) (290,972)
---------- ---------- ----------
Total Shareholder's Deficiency ......................... (147,502) (217,161) (245,563)
---------- ---------- ----------
$ 13,178 $ 110,680 $ 192,592
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN MONTHS ELEVEN MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997 1996
------------- --------------- --------------- -------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales ......................... $ 68,982 $ 14,087 $ 62,204 $ -- $ 17,711
Cost of Sales ..................... 62,653 5,147 55,294 -- 9,981
---------- ---------- ---------- ---------- ----------
Gross Profit ...................... 6,329 8,940 6,910 -- 7,730
General and Administrative
Expenses ........................ 46,122 123,774 40,209 28,402 17,528
---------- ---------- ---------- ---------- ----------
Net Loss .......................... $ (39,793) $ (114,834) $ (33,299) $ (28,402) $ (9,798)
========== ========== ========== ========== ==========
Net Loss per Common Share ......... $ (.02) $ (.05) $ (.01) $ (.01) $ --
========== ========== ========== ========== ==========
Weighted Average Shares
Outstanding ..................... 2,335,000 2,493,795 2,335,000 2,775,000 2,335,000
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
---------------------- ADDITIONAL DURING THE
SHARES PAID-IN DEVELOPMENT
ISSUED AMOUNT CAPITAL STAGE TOTAL
----------- -------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
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 ............................. -- -- -- (114,834) (114,834)
--------- --- ------- ---------- ----------
Balance at September 30, 1997 .................... 2,775,000 $278 $45,131 $ (262,570) $ (217,161)
========= ==== ======= ========== ==========
Net Loss for the Three Months Ended
December 31, 1997 (unaudited) .................. -- -- -- (28,402) (28,402)
--------- ---- ------- ---------- ----------
Balance at December 31, 1997 (unaudited) ......... 2,775,000 $278 $45,131 $ (290,972) $ (245,563)
========= ==== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN MONTHS ELEVEN MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997 1996
------------- --------------- --------------- -------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss ............................... $ (39,793) $ (114,834) $ (33,299) $ (28,402) $ (9,798)
Adjustments to reconcile net loss to
net cash:
Depreciation and amortization ......... 1,568 1,437 1,546 392 392
Issuance of note payable
for services ........................ -- 42,000 -- -- --
Issuance of common stock
for services ........................ -- 45,175 -- -- --
Changes in operating assets
and liabilities:
Decrease (increase):
Due from shareholder ................. (4,020) (23,823) -- (28,091) 8,750
Deposits and other assets ............ -- (5,290) -- (2,126) --
--------- --------
Increase (decrease) in:
Accounts payable ..................... 1,373 14,390 1,373 4,500 --
Accrued expenses ..................... 6,288 10,771 5,477 5,814 2,663
--------- ---------- --------- --------- --------
Net Cash Used by
Operating Activities .................... (34,584) (30,174) (24,903) (47,913) 2,007
--------- ---------- --------- --------- --------
Cash Flows from Financing Activities:
Borrowing under notes payable .......... 58,000 100,000 55,000 100,000 3,000
(Repayment of) borrowing under
shareholder advances, net ............ (18,023) -- (28,815) -- --
Offering costs ......................... -- (71,508) -- (51,722) --
--------- ---------- --------- --------- --------
Net Cash Provided by
Financing Activities ................... 39,977 28,492 26,185 48,278 3,000
--------- ---------- --------- --------- --------
Net Increase (Decrease) in Cash ......... 5,393 (1,682) 1,282 365 5,007
Cash Beginning of Period ................ -- 5,393 -- 3,711 1,282
--------- ---------- --------- --------- --------
Cash End of Period ...................... $ 5,393 $ 3,711 $ 1,282 $ 4,076 $ 6,289
========= ========== ========= ========= ========
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-6
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
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.
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 $40,000 and $115,000 in 1996 and
1997, 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)
F-7
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
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
September 30, 1997 are as follows:
STATEMENT OF OPERATIONS
NOVEMBER 12, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Net Sales ................................... $ 416,910
Cost of Sales ............................... 303,826
----------
Gross profit ................................ 113,084
General and Administrative Expenses ......... 375,654
----------
Net Loss .................................... $ (262,570)
==========
</TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK 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 ............ -- -- -- (114,834) (114,834)
--------- ----- ------- ---------- ----------
Balance at September 30, 1997 2,775,000 $ 278 $45,131 $ (262,570) $ (217,161)
========= ===== ======= ========== ==========
</TABLE>
F-8
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
NOTE 3--DEVELOPMENT STAGE OPERATIONS--(CONTINUED)
STATEMENT OF CASH FLOWS
NOVEMBER 12, 1992 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss ............................................................. $ (262,570)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization ....................................... 5,511
Issuance of note payable for services ............................... 42,000
Issuance of common stock for services ............................... 45,175
Changes in operating assets and liabilities:
(Increase) in due from shareholder .................................. (27,843)
(Increase) in deposits and other assets ............................. (5,290)
Increase in accounts payable ........................................ 16,782
Increase in accrued expenses ........................................ 24,059
----------
Net Cash Used by Operating Activities ................................. (162,176)
----------
Cash Flows from Investing Activities:
Acquisition of Equipment ............................................. (7,179)
----------
Cash Flows from Financing Activities:
Offering costs ....................................................... (71,508)
Organization costs ................................................... (660)
Issuance of common stock ............................................. 234
Borrowings under notes payable ....................................... 245,000
----------
Net Cash Provided by Financing Activities ............................. 173,066
----------
Net Increase in Cash .................................................. 3,711
Cash Beginning of Period .............................................. --
----------
Cash End of Period .................................................... $ 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>
F-9
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
NOTE 4--NOTES PAYABLE
Current notes payable consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- --------------- -------------
<S> <C> <C> <C>
Demand notes payable with interest ranging from
9% to 10%; uncollateralized ...................... $ 50,000 $ 50,000 $ 50,000
Demand notes payable with no interest;
uncollateralized ................................. 37,000 25,000 25,000
Note payable (see (a) below) ...................... -- 54,000 54,000
Note payable (see (b) below) ...................... -- 100,000 200,000
Note payable to unrelated individuals with maturity
dates between May and October 1998 with interest
of 9% compounded annually and payable in
arrears; uncollateralized ........................ -- 55,000 58,000
-------- -------- --------
$ 87,000 $284,000 $387,000
======== ======== ========
</TABLE>
- ----------------
(a) 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.
(b) 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 81/2%, 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 was $4,500 for 1996, and $10,318 and
$5,484 for the eleven months ended September 30, 1997 and 1996, respectively.
Interest expense was $5,814 and $1,125 for the three months ended December 31,
1997 and 1996, respectively.
NOTE 5--LONG-TERM DEBT
Long term debt consists of various notes payable as follows:
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- --------------- -------------
<S> <C> <C> <C>
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 $ 3,000 $ --
======== ======= ====
</TABLE>
Interest expense on the above note(s) was $1,789 for 1996 and $248 and
$1,359 for the eleven months ended September 30, 1997 and 1996, respectively.
Interest expense was $1,538 for the three months ended December 31, 1996.
F-10
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
NOTE 6--INCOME TAXES
At October 31, 1996 and September 30, 1997, the Company had net operating
loss carryforwards for financial reporting and tax purposes of approximately
$147,000 and $263,000, respectively. The net operating loss carryforwards may
provide future income tax benefits expiring through the year 2016.
The deferred tax asset consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- --------------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards ......... $ (51,000) $ (92,000) $ (102,000)
Valuation allowance ...................... 51,000 92,000 102,000
---------- ---------- ----------
Net Deferred Tax Asset ................... $ -- $ -- $ --
========== ========== ==========
</TABLE>
A reconciliation of income tax at the statutory rate to the Company's
effective rate for 1996 and 1997 is as follows:
<TABLE>
<S> <C>
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 ............................ --%
======
</TABLE>
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
F-11
<PAGE>
GAY ENTERTAINMENT TELEVISION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED) WITH RESPECT TO SEPTEMBER 30, 1996
AND DECEMBER 31, 1997 AND 1996
NOTE 8--INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS--(CONTINUED)
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.
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 was $8,743 for 1996 and $8,003 and $8,016
for the eleven months ended September 30, 1997 and 1996, respectively. Rent
expense of $2,183 was allocated to the Company for the three months ended
December 31, 1997 and 1996.
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-12
<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 ANY 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
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary .................... 3
Risk Factors .......................... 5
Use of Proceeds ....................... 13
Dilution .............................. 14
Capitalization ........................ 15
Dividend Policy ....................... 15
Selected Financial Data ............... 16
Management's Discussion and Analysis of
Financial Condition Results of
Operations ......................... 17
Business .............................. 19
Management ............................ 33
Certain Relationships and
Related Transactions ............... 42
Principal Shareholders ................ 44
Description of Securities ............. 45
Restricted Shares Eligible for
Future Sale ........................ 49
Underwriting .......................... 50
Legal Matters ......................... 53
Experts ............................... 53
Additional Information ................ 53
Index to Financial Statements ......... F-1
</TABLE>
-----------------------------------
UNTIL JUNE 18, 1998 (90 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.
================================================================================
