<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1997.
REGISTRATION NO. 333-31671
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
------------------------
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
(Exact Name of Small Business Issuer As Specified In Its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 7941 91-1796903
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code No.) I.D. Number)
incorporation or organization)
</TABLE>
20 NORTH ORANGE AVENUE, SUITE 101
ORLANDO, FL 32801
(407) 648-4444
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
JACK YOUNGBLOOD, PRESIDENT
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
20 NORTH ORANGE AVENUE, SUITE 101
ORLANDO, FL 32801
(407) 648-4444
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
GARY A. AGRON, ESQ. JOSEPH NIEBLER, SR., ESQ.
5445 DTC Parkway, Suite 520 Niebler & Muren, S.C.
Englewood, CO 80111 P.O. Drawer 825
(303) 770-7254 Brookfield, WI 53008
(303) 770-7257 (Fax) (414) 784-6630
(414) 784-7630 (Fax)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE OFFERING.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box: / /
[EXHIBIT INDEX LOCATED PAGE OF THIS FILING]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO MAXIMUM PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT PRICE
<S> <C> <C> <C>
Units consisting of two shares of no par value Class A Common
Stock and one Class A Common Stock Purchase Warrant(1)........ 632,500 Units $10.00 $6,325,000
Class A Common Stock, no par value, underlying Class A Common
Stock Purchase Warrants(2).................................... 632,500 Shares $7.50 $4,743,750
Units underlying Representative's Unit Warrant(3)............... 55,000 Units $12.00 $660,000
Class A Common Stock, no par value, underlying Class A Common
Stock Purchase Warrants included in Representative's Unit
Warrant(2).................................................... 55,000 Shares $7.50 $412,500
Class A Common Stock, no par value offered by Selling
Stockholders.................................................. 250,000 Shares $5.00 $1,250,000
Totals.......................................................... $13,391,250
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE
<S> <C>
Units consisting of two shares of no par value Class A Common
Stock and one Class A Common Stock Purchase Warrant(1)........ $1,917
Class A Common Stock, no par value, underlying Class A Common
Stock Purchase Warrants(2).................................... $1,438
Units underlying Representative's Unit Warrant(3)............... $200
Class A Common Stock, no par value, underlying Class A Common
Stock Purchase Warrants included in Representative's Unit
Warrant(2).................................................... $125
Class A Common Stock, no par value offered by Selling
Stockholders.................................................. $379
Totals.......................................................... $4,059(4)
</TABLE>
(1) Includes the overallotment option granted to the Representative of 82,500
Units.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares issuable upon exercise of the Warrants is subject to adjustment in
accordance with the anti-dilution provisions of such Warrants.
(3) Each Unit consists of two shares of Class A Common Stock and one Warrant.
(4) The Registrant previously paid a fee of $3,011. Accordingly $1,048 is
tendered herewith.
------------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED NOVEMBER 13, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
550,000 UNITS
[LOGO]
THE ORLANDO PREDATORS
ENTERTAINMENT, INC.
-----------------
The Orlando Predators Entertainment, Inc. (the "Company") is offering (the
"Offering") through First Midwest Securities, Inc. as the representative (the
"Representative") of the underwriters herein named (the "Underwriters") 550,000
units of the Company's securities ("Unit(s)"), each Unit consisting of two
shares of no par value Class A common stock ("Class A Common Stock") and one
redeemable Class A common stock purchase warrant ("Warrant(s)") at a purchase
price of $10.00 per Unit. The Class A Common Stock and Warrants are separately
transferable as of the date of the Prospectus and will not trade as Units. Each
Warrant is exercisable to purchase one share of Class A Common Stock at $7.50
per share for a period of five years from the date hereof and may be redeemed by
the Company for $.01 per Warrant on 30 days' written notice to the
Warrantholders if the closing price of the Class A Common Stock on the NASDAQ
SmallCap Market ("NASDAQ") is at least $7.50 per share for 20 consecutive
trading days, ending not earlier than five days before the Warrants are called
for redemption. The Unit price and Warrant exercise price have been determined
by negotiations between the Company and the Representative and such prices are
not necessarily related to the Company's financial condition, net worth or other
established criteria of value. For a description of the factors considered in
determining the Unit price and the Warrant exercise price, see "Risk Factors"
and "Underwriting."
There is no trading market for the Class A Common Stock and Warrants and
there can be no assurance that a trading market will develop in these securities
upon completion of the Offering. The Company has applied to list the Class A
Common Stock and Warrants on NASDAQ under the symbols "PRED" and "PREDW,"
respectively.
This Prospectus also covers the sale of 250,000 shares of Class A Common
Stock which may be sold from time to time in open market transactions at
prevailing prices by two stockholders (the "Selling Stockholders"). All
registration expenses associated with the sale of the Selling Stockholders'
shares (excluding sales commissions) will be paid by the Company. See "Selling
Stockholders."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("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
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The securities offered hereby involve a high degree of risk and substantial
dilution and should be considered only by persons able to sustain a total loss
of their investment. See "Risk Factors."
The Units are offered on a "firm commitment" basis by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions, including the right of the
Underwriters to reject orders in whole or in part. It is expected that delivery
of certificates representing the Common Stock and Warrants will be made against
payment therefor in Milwaukee, Wisconsin, on or about three business days from
the date hereof.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Unit........................................... $10.00 1.00 $9.00
Total(3)........................................... $5,500,000 $550,000 $4,950,000
</TABLE>
(1) Excludes (i) a nonaccountable expense allowance payable to the
Representative of $165,000 ($189,750 if the Overallotment Option is
exercised) equal to 3% of the gross proceeds of the Offering, and (ii) the
issuance of warrants to the Representative (the "Representative's Unit
Warrant") to purchase up to 55,000 Units at $12.00 per Unit at any time
after 12 months from the date hereof and for a period of four years
thereafter. The Company has granted certain antidilution and registration
rights with respect to the Units underlying the Representative's Unit
Warrant and has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "1933 Act"). See "Underwriting."
(2) Before deducting costs of the Offering estimated to be $300,000, excluding
the Representative's nonaccountable expense allowance.
(3) Assumes no exercise of the Representative's option, exercisable within 30
days from the date of this Prospectus, to purchase from the Company up to
82,500 Units on the same terms as the Units offered hereby solely to cover
overallotments, if any (the "Overallotment Option"). If the Overallotment
Option is exercised in full, the Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $6,325,000, $632,500 and
$5,692,500, respectively. See "Underwriting."
------------------------------
FIRST MIDWEST SECURITIES, INC.
(414)778-1091
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The Company will furnish annual reports to its stockholders which will
include audited financial statements. The Company may also furnish to its
stockholders quarterly financial statements and such other reports as may be
authorized by its Board of Directors. See "Available Information."
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock and Warrants, including over-allotment, stabilizing and short-covering
transactions in such securities, and the imposition of a penalty bid in
connection with the Offering. For a description of these activities, see
"Underwriting."
FOR CALIFORNIA RESIDENTS
Investment in the securities of the Company described in this Prospectus by
California investors is expressly limited to investors who have an adjusted
gross income of at least $65,000 for the calendar year ended December 31, 1996
and an equal amount of adjusted gross income anticipated for the calendar year
ended December 31, 1997, together with a minimum of $250,000 of liquid net worth
(excluding home, home furnishings and automobile). In the event the California
investor does not have an adjusted gross income of $65,000 and liquid net worth
of $250,000, such investor may nevertheless purchase the Company's securities if
he or she has (i) a liquid net worth of $500,000 or more, (ii) $1,000,000 or
more of total net worth, or (iii) $200,000 of gross annual income for the year
ended December 31, 1996 and an equal amount of gross annual income anticipated
for the year ending December 31, 1997.
[PICTURE OF PREDATOR FOOTBALL PLAYER]
2
<PAGE>
NUMBER OF TV HOUSEHOLDS
IN ARENA FOOTBALL LEAGUE CITIES
1994 11,000,000
1995 13,000,000
1996 20,000,000
1997 27,500,000
<PAGE>
[PICTURE OF ORLANDO ARENA DURING A
PREDATOR FOOTBALL GAME]
ARENA FOOTBALL TEAM GROWTH LEAGUE ATTENDANCE GROWTH
(APPROXIMATE)
1987 -4 1989 150,000
1989 -5 1991 500,000
1991 -8 1993 800,000
1993 -10 1994 875,000
1995 -13 1995 950,000
1997 -14 1996 1,110,000
16 TEAMS SCHEDULED TO PLAY
IN THE 1998 SEASON
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL SHARE AND OTHER INFORMATION IN THIS PROSPECTUS
REFLECT A 1,380 SHARES FOR ONE SHARE FORWARD STOCK SPLIT APPROVED BY THE
COMPANY'S STOCKHOLDERS IN JUNE 1997. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
OVERALLOTMENT OPTION. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WHICH MAY INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
INTRODUCTION
The Orlando Predators Entertainment, Inc. (the "Company") was formed in
March 1997 to acquire, own and operate the Orlando Predators (the "Predators" or
the "team"), a professional Arena Football team of the Arena Football League
(the "AFL" or the "League"). The AFL is a nonprofit membership corporation
organized to govern the Arena Football teams which comprise the League and to
sell team memberships ("Memberships") in major United States markets. In
February 1997, The Monolith Limited Partnership ("Monolith") and Alan N.
Gagleard ("Gagleard") purchased the Predators from the Orlando Predators, Ltd.
("OPL"), a non-affiliated Florida limited partnership which had owned and
operated the Predators since the team's inception in January 1991. Between March
and May 1997, Monolith and Gagleard organized the Company and transferred
ownership of the Predators to the Company in exchange for the issuance by the
Company of an aggregate of 1,380,000 shares of its Common Stock and the issuance
of two promissory notes bearing interest at 8% totalling $1,400,000 payable to
Monolith and Gagleard due the earlier of December 31, 1998 or the closing of the
Offering. See "Use of Proceeds" and "Certain Transactions."
The Company derives substantially all of its revenue from the Arena Football
operations of the Predators. This revenue is primarily generated from (i) the
sale of tickets to the Predators' home games, (ii) the sale of advertising and
promotions to Predator sponsors, (iii) the sale of local and regional broadcast
rights to Predators' games, (iv) the Predators' share of contracts with national
broadcast organizations and expansion team fees paid through the AFL, and (v)
the sale of merchandise carrying the Predators' logos.
The Predators commenced play in the AFL's 1991 season. Having completed its
seventh season, the team has played in the Arena Bowl for the AFL championship
on three occasions. The Predators reported the highest average AFL per game
attendance for the 1995 and 1996 seasons and hold the fifth best all time
won-lost record among 27 current and former AFL teams.
The Company's strategy is to increase revenue by (i) increasing fan
attendance at Predators' home games, (ii) expanding the Predators' advertising
and sponsorship base, and (iii) contracting with additional local and regional
broadcasters to broadcast Predators' games. The Company believes that this
strategy will also increase the market value of the Company's AFL team, should
the Company elect to sell the team in the future.
ARENA FOOTBALL AND THE ARENA FOOTBALL LEAGUE
Arena Football is played in an indoor arena on a padded 50 yard long
football field using eight players on the field for each team. Most of the game
rules are similar to college or other professional football league rules with
certain exceptions intended to make the game faster and more exciting. See
"Arena Football--Rules of Arena Football."
3
<PAGE>
The first Arena Football game was played on April 26, 1986 and the AFL's
first season commenced in 1987. Between 1987 and 1997, the League grew from four
teams to 14 teams with teams in Grand Rapids and Buffalo expected to begin play
in 1998 and 1999, respectively. Announced game attendance by the 14 AFL teams
exceeded 1,050,000 in the 1997 season and game broadcasts include local,
regional, ESPN and ESPN 2 coverage. See "Arena Football."
The Company's principal executive offices are located at 20 North Orange
Avenue, Suite 101, Orlando, Florida 32801 and its telephone number is (407)
648-4444. The Company was incorporated in Florida in March 1997.
THE OFFERING
<TABLE>
<CAPTION>
Securities offered............................ 550,000 Units, each Unit consisting of two
shares of Class A Common Stock and one
Warrant
<S> <C>
Offering price................................ $10.00 per Unit
Common Stock outstanding prior to the
Offering...................................... 1,380,000 shares
Common Stock outstanding after the
Offering(l)................................... 2,480,000 shares
Description of the Warrants................... Each Warrant is exercisable to purchase one
share of Class A Common Stock at $7.50 per
share for a period of five years from the
date hereof and may be redeemed by the
Company for $.01 per Warrant on 30 days'
written notice to the Warrantholders if the
closing price of the Class A Common Stock on
NASDAQ is at least $7.50 per share for 20
consecutive trading days ending not earlier
than five days before the Warrants are
called for redemption.
Use of proceeds............................... Repayment of debt, payment of accounts
payable, marketing expenses and working
capital. See "Use of Proceeds."
NASDAQ symbols................................ PRED (Common Stock)
PREDW (Warrants)
Transfer and Warrant Agent.................... Corporate Stock Transfer, Inc.
</TABLE>
- - ------------------------
(1) Does not include shares issuable upon exercise of (i) the Warrants, the
Overallotment Option and the Representative's Unit Warrant or (ii) 138,000
stock options issued under the Company's 1997 Employee Stock Option Plan.
See "Dilution," "Capitalization" and "Management--1997 Employee Stock Option
Plan."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth certain summary financial data of the
Company. The summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements included elsewhere in this
Prospectus. The summary financial data as of December 31, 1996 and 1995 and
March 31, 1997, and for the years ended December 31, 1996 and 1995 and for the
period February 14 through March 31, 1997, have been derived from the Company's
financial statements, which have been audited by AJ. Robbins, P.C., independent
certified public accountants, and are included elsewhere in this Prospectus.
Interim data for the pro forma nine months ended September 30, 1997 and for the
pro forma year ended December 31, 1996 have been derived from unaudited pro
forma financial statements which are also included herein. Interim data as of
September 30, 1997 and for the period February 14 through September 30, 1997 has
been derived from the unaudited financial statements which are also included
herein. The results of operations for the pro forma nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
year ending December 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED DECEMBER 31,
ENDED YEAR ENDED
FEBRUARY 14, ------------------------
1997-
MARCH 31, 1997 1996 1995
SEPTEMBER 30, FEBRUARY 14, 1997- ----------------- DECEMBER 31, ----------- -----------
1997(1) SEPTEMBER 30, 1997 1996(1)
------------- ------------------ ------------
PRO FORMA UNAUDITED PRO FORMA
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................... $ 2,660,566 $ 2,660,566 $ -- $2,889,383 $ 2,889,383 $ 2,651,577
Net (loss)................. (550,260) (545,748) (77,522) (609,923) (561,307) (653,506)
Weighted average shares
outstanding.............. 2,480,000 1,380,000 1,380,000 2,480,000 1,380,000 1,380,000
Net loss per share......... $ (.22) $ (.40) $ (.06) $ (.25) $ (.41) $ (.47)
</TABLE>
<TABLE>
<CAPTION>
AS
HISTORICAL ADJUSTED(2)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA AT SEPTEMBER 30, 1997 (UNAUDITED):
Working capital (deficit)............................................................ $(2,534,028) $1,950,972
Total assets......................................................................... 2,722,402 4,864,432
Total liabilities.................................................................... 2,780,354 437,384
Stockholders' equity (deficit)....................................................... $ (57,952) $4,427,048
</TABLE>
- - --------------------------
(1) As adjusted to reflect the acquisition of the Predators by the Company and
the completion of the Offering, assuming the transactions had occurred and
were completed at the beginning of the periods presented.
(2) As adjusted to reflect the sale of 550,000 Units offered hereby (after
deducting underwriting discounts and commissions and estimated Offering
expenses) and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following risk factors,
together with the other information contained in this Prospectus, in evaluating
an investment in the securities offered hereby. The following factors and other
information set forth in this Prospectus contain certain forward-looking
statements involving risks and uncertainties. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth in this section and
elsewhere in this Prospectus.
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS. The Company has not
generated any earnings to date and has incurred net losses of approximately
$550,260, $561,307 and $653,506 for the pro forma nine months ended September
30, 1997 and the years ended December 31, 1996 and 1995, respectively. There can
be no assurance that the Company will ever achieve a profitable level of
operations or that profitability, if achieved, can be sustained on an ongoing
basis. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Statements."
DEFICIT IN WORKING CAPITAL AND NET TANGIBLE BOOK VALUE. At September 30,
1997, the Company had a deficit in working capital of $2,534,028 and a deficit
in net tangible book value of $1.56 per share. In the event the Offering is not
completed, the Company may be required to obtain other equity or debt financing
or significantly curtail its operations. See "Financial Statements."
SIGNIFICANT COMPETITION. The Predators compete for sports entertainment
dollars not only with other professional sports teams but also with college
teams and other sports-related entertainment. During parts of the AFL season,
the Predators compete for attendance and fan support in Orlando with a
professional basketball team and in Florida with professional hockey and
baseball teams. In addition, the colleges and universities in central Florida,
as well as public and private secondary schools, offer a full schedule of
athletic events throughout the year. The Predators also compete for attendance
and advertising revenue with a wide range of other entertainment and
recreational activities available in central Florida. On a broader scale, AFL
teams compete with football teams fielded by high schools and colleges, the
National Football League ("NFL"), the Canadian Football League and the World
Football League. See "Business-- Competition."
NEED FOR ADDITIONAL CAPITAL. The continuing operations of the Company's
business may require substantial capital infusions on a continuing basis. The
Company intends to use the net proceeds of the Offering and any cash flow from
operations to finance its operations. Whether or when the Company can achieve
cash flow levels sufficient to support its operations cannot be accurately
predicted. Unless such cash flow levels are achieved, the Company will require
borrowings, the sale of debt or equity securities or some combination thereof,
to provide funding for its operations. In the event the Company cannot generate
sufficient cash flow from its operations, and is unable to borrow or otherwise
obtain additional funds to finance its operations, the Company's financial
condition and results of operations could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Financial Statements."
EXPIRATION OF ORLANDO ARENA LEASE. The Predators play all of their home
games at the Orlando Arena under a lease which expired at the conclusion of the
1997 AFL season. Although the Company has negotiated a new lease for the Orlando
Arena the lease is subject to approval by the Orlando City Council of which
there can be no assurance. The loss of the Orlando Arena lease would
substantially and adversely affect the operations of the Predators and the
Company. See "Business--Orlando Arena."
OFFERING TO BENEFIT INSIDERS. The Company intends to use proceeds of the
Offering to repay promissory notes in the amounts of $2,157,537 and $120,291,
respectively, due to Monolith, a principal stockholder of the Company, and
Gagleard, a 7.5% stockholder and director of the Company. See "Use of Proceeds"
and "Certain Transactions."
6
<PAGE>
SUBSTANTIAL AMOUNT OF PROCEEDS ALLOCATED FOR UNSPECIFIED ACQUISITIONS. The
Company has allocated $1,742,030 of the net proceeds of the Offering for working
capital, including $1,000,000 which may be used to acquire entertainment
companies or businesses related to the Company's Arena Football operations.
There are no current negotiations, understandings or agreements to acquire any
such companies and there can be no assurance that any acquisition agreement will
be reached with anyone. Accordingly, the Company will have broad discretion in
how it applies a significant portion of the net proceeds of the Offering and the
investors in the Offering will have no influence or control over the ultimate
disposition of such net proceeds. See "Use of Proceeds."
BUSINESS CONCENTRATION. Upon completion of the Offering, the business of
the Company will be limited to the ownership and operation of the Predators, and
therefore, the Company will continue to rely upon the Predators for all of its
revenues and profits, if any. See "Use of Proceeds" and "Business."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the continued
services of William G. Meris, its Chairman, Jack Youngblood, its President, and
Alex S. Narushka, its Chief Financial Officer. The loss of the services of any
of these individuals could have a material adverse effect on the Company. The
Company does not have employment agreements with Messrs. Meris or Narushka nor
does it carry key man life insurance on the lives of any executive officers. See
"Management--Executive Officers and Directors."
DEPENDENCE ON COMPETITIVE SUCCESS OF THE PREDATORS. The financial results
of the Company depend in part upon the Predators continuing to achieve game
winning success in the AFL. By achieving and maintaining such success, the
Predators expect to (i) generate greater fan enthusiasm, resulting in higher
ticket and merchandise sales throughout the regular season and (ii) capture
greater shares of local television and radio audiences. Moreover, failure to
participate in the AFL playoffs will deprive the Predators of additional revenue
which results from sales of tickets for home playoff games and from media
contracts. Revenue is significantly adversely affected by a poor game winning
performance, especially involving losses of home games. See
"Business--Performance."
POSSIBLE INCREASES IN PLAYERS' SALARIES. Although AFL player salaries are
considered small compared to other professional sports teams, there can be no
assurance that such salaries will not increase significantly in the future,
thereby increasing the Company's operating expenses and adversely affecting its
financial condition and results of operations.
DEPENDENCE ON TALENTED PLAYERS. The success of the Predators depends, in
part, upon the team's ability to attract and retain talented players. The
Predators compete with other AFL teams as well as teams fielded by the National
Football League, the Canadian Football League and the World Football League,
among others, for available players. There can be no assurance that the
Predators will be able to retain players upon expiration of their contracts or
obtain new players of adequate talent to replace players who retire or are
injured, traded or released. Even if the Predators are able to obtain and retain
players who have had previously successful football careers, there can be no
assurance of the quality of their performance for the Predators. See
"Business--Players."
SEASONALITY. The AFL season begins during April and ends during August. As
a result, the Company realizes a significant portion of its revenues and incurs
a significant portion of its expenses during that period.
ABSENCE OF INSURANCE; RISK OF INJURIES. Player contracts generally provide
that a player is entitled to receive his salary even if, as a result of injuries
sustained from Arena Football-related activities during the course of his
employment, he is unable to play. Although the Company carries occupational
health, accidental death and disability insurance of up to $500,000 per player,
the Company is required to pay the first $35,000 of loss for each player up to
an aggregate loss of $465,000. Payment of the these insurance
7
<PAGE>
premiums as well as payments which must be made directly to injured players
could have an adverse effect upon the Company's financial condition and results
of operations. See "Business--Players."
RISKS ASSOCIATED WITH AFL MEMBERSHIP. Under its membership agreement with
the AFL, the Predators and other members of the AFL are generally liable on a
pro rata basis for the debts and obligations of the AFL. Any failure of other
members of the AFL to pay their pro rata share of any such debts or obligations
could adversely affect the Predators by requiring additional payments to be made
by the Company on behalf of failing or defaulting teams. The success of the AFL
and its members depends in part on the competitiveness of the teams in the AFL
and their ability to maintain fiscally sound operations. Certain AFL teams have
encountered financial difficulties, and there can be no assurance that the AFL
and its respective members will continue to operate. If the AFL is unable to
continue operations, the Predators and the other teams forming the AFL would be
unable to continue their own operations. In addition, the Predators and their
personnel are bound by a number of rules, regulations and agreements, including,
but not limited to, the Charter and Bylaws of the AFL, national television
contracts and the AFL Membership Agreement. Any change to the rules, regulations
and agreements adopted by the AFL will be binding upon the Predators and their
personnel, regardless of whether the Predators agree with such changes, and it
is possible that any such change could adversely affect the Predators. See
"Arena Football."
POSSIBILITY OF INCREASED COMPETITION AS A RESULT OF AFL EXPANSION. It is
currently anticipated that the AFL will add additional teams in the future. In
fact, at least two expansion teams are expected to begin AFL play in the 1998
and 1999 seasons. While such expansion affords the AFL the opportunity to enter
new markets and increase revenues, it also increases the competition for
talented players among AFL teams. Expansion teams are permitted to select in an
expansion draft certain unprotected players playing for existing AFL teams.
There can be no assurance that the Predators will be able to retain all of the
team's key players in the event of an expansion draft or that the rules
regarding the expansion draft will not change to the detriment of the Predators.
In addition, to the extent the AFL teams share equally in the revenue generated
from national television contracts and sale of AFL merchandise, the Company may
receive less revenue from the AFL as the result of League expansion.
UNCERTAINTIES REGARDING RENEWAL OF BROADCAST CONTRACTS; LACK OF
REVENUES. The AFL's contracts with ESPN and ESPN 2 for the national broadcast
of certain AFL games in the United States expired at the end of the 1997 season.
A percentage of the revenue generated from those contracts and any future
national or network media contracts after payment of AFL expenses, has and will
be divided equally among the members of the AFL. There can be no assurance that
ESPN, ESPN 2 or any other national broadcaster will enter into any broadcast
contracts with the AFL. For the years ended December 31, 1995 and 1996, the
Company did not receive any revenue from the AFL because revenue was offset by
League expenses due from the AFL teams.
Further, the Company's television and radio contracts for the local
broadcast of the Predators pre-season, regular season and certain post-season
games also expired at the end of the 1997 season. The failure to renew local
television or radio contracts would have a material adverse effect on the
Company. See "Business--Current Operations."
CONTROL BY PRINCIPAL STOCKHOLDER; AUTHORIZATION AND ISSUANCE OF PREFERRED
STOCK; PREVENTION OF CHANGES IN CONTROL. Upon completion of the Offering,
Monolith will own approximately 1,276,500 shares (51%) of the issued and
outstanding shares of Class A Common Stock and 925 shares (92.5%) of the issued
and outstanding Class B Common Stock. Since each share of Class B Common Stock
votes the equivalent of 10,000 shares of Class A Common Stock, Monolith will
continue to elect all of the Company's directors and control the affairs of the
Company. The Class B Common Stock was issued to Monolith in order to satisfy the
control requirements of the AFL. The Company's Articles of Incorporation
authorize the issuance of up to 1,500,000 shares of Preferred Stock with such
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, under the Articles of Incorporation,
8
<PAGE>
the Board of Directors may, without shareholder approval, issue Preferred Stock
with dividend, liquidation, conversion, voting, redemption or other rights which
could adversely affect the voting power or other rights of the holders of the
Class A Common Stock. The issuance of any shares of Preferred Stock having
rights superior to those of the Class A Common Stock may result in a decrease in
the value or market price of the Class A Common Stock and could further be used
by the Board of Directors as a device to prevent a change in control of the
Company. The Company has no other anti-takeover provisions in its Articles of
Incorporation or Bylaws. Holders of the Preferred Stock may have the right to
receive dividends, certain preferences in liquidation and conversion rights. See
"Principal Stockholders" and "Description of Securities."
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public trading market for the Units, Class A Common
Stock or Warrants. The Offering price of the Units and exercise price of the
Warrants were determined by negotiations between the Company and the
Representative and do not necessarily bear any relationship to recognized
criteria for the valuation of such securities. There can be no assurance that a
regular trading market for the Common Stock or Warrants will develop or continue
after the Offering or, if such a market develops, that the market prices of the
component securities will exceed the Unit price. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. The Offering involves an immediate and
substantial dilution of $4.02 per share of Class A Common Stock, or an 80%
reduction between the Offering price of $5.00 per share of Class A Common Stock
(ascribing no value to the Warrants included in the Units) and the net tangible
book value of $.98 per share of Class A Common Stock upon completion of the
Offering, assuming no exercise of the Warrants, the Overallotment Option, the
Representative's Unit Warrant or other outstanding stock options. See
"Dilution."
NO DIVIDENDS. The Company has not paid any dividends on its Class A Common
Stock and does not intend to pay dividends in the foreseeable future. See
"Description of Securities--Dividends."
POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Class A
Common Stock and Warrants following the Offering may be highly volatile, as has
been the case recently with the securities of other companies completing initial
public offerings. Factors such as the Company's operating results, its win/loss
record or public announcements by the Company or its competitors may have a
significant effect on the market price of the securities. In addition, market
prices for the securities of many small capitalization companies have
experienced wide fluctuations due to variations in quarterly operating results,
general economic conditions and other factors beyond the Company's control.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Class A
Common Stock in the open market or the availability of such shares for sale
following the Offering could adversely affect the market price of the securities
offered hereby. Following the Offering, all 1,100,000 shares of Class A Common
Stock and 550,000 Warrants offered hereby, together with the 250,000 Class A
shares registered hereby on behalf of the Selling Stockholders, may be purchased
and sold in the open market without restriction or further registration under
the 1933 Act. The remaining 1,130,000 shares of Class A Common Stock are
"restricted securities" as that term is defined under Rule 144 of the 1933 Act,
and are eligible for resale in March 1998. However, all of the Company's
stockholders (holding an aggregate of 1,380,000 shares) have agreed, pursuant to
lock-up agreements with the Representative, not to sell or otherwise dispose of
any of their shares of Class A Common Stock (including the 250,000 shares
registered hereby on behalf of the Selling Stockholders) for a period of 12
months from the date of this Prospectus without the prior written consent of the
Representative. There are no arrangements, agreements or understandings with
respect to a release of the lock-up agreements and it is not the
Representative's general policy to grant such a release. Nevertheless, the
Representative will consider requests for such releases on an individual basis
and may in the future grant such requests. See "Description of Securities--Class
A Common Stock Eligible for Future Sale" and "Underwriting."
9
<PAGE>
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Class A
Common Stock and Warrants offered hereby may be sold to customers of the
Representative and the Underwriters. Such customers subsequently may engage in
transactions for the sale or purchase of these securities through or with the
Underwriters. Although it has no obligation to do so, the Representative intends
to make a market or otherwise effect transactions in the securities, although
this market-making activity may terminate at any time. The Representative may
exert a dominating influence on the market, if one develops, for the securities.
The price and liquidity of the securities may be significantly affected by the
degree, if any, of the Underwriters' participation in such market. See
"Underwriting."
LIMITATIONS ON LIABILITY OF DIRECTORS. The Company's Bylaws substantially
limit the liability of the Company's directors to the Company and its
stockholders for breach of fiduciary or other duties to the Company. See
"Description of Securities--Limitation on Liabilities."
REDEMPTION OF WARRANTS. The Warrants may be redeemed by the Company under
certain circumstances upon 30 days' written notice to the Warrantholders at $.01
per Warrant. In such event, the Warrants will be exercisable until the close of
business on the date fixed for redemption in such notice. Any Warrants not
exercised by that time will cease to be exercisable, and the holders will be
entitled only to the redemption price, which is likely to be substantially less
than the market value of the Warrants. Accordingly, such redemption could force
the Warrantholders to exercise the Warrants and pay the exercise price at a time
when it might be disadvantageous for them to do so or sell the Warrants at the
then market price when they might otherwise prefer to hold the Warrants. See
"Description of Securities--Warrants."
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES OF CLASS A COMMON STOCK
UNDERLYING THE WARRANTS. The Warrants are not convertible or exercisable unless,
at the time of exercise, the Company has a current prospectus covering the
shares of Class A Common Stock issuable upon exercise of the Warrants and such
shares of Class A Common Stock have been registered, qualified or deemed to be
exempt under the securities laws of the states of residence of the holders of
such Warrants. There can be no assurance that the Company will have or maintain
a current prospectus or that the securities will be qualified or registered
under any state laws. See "Description of Securities--Warrants."
The Class A Common Stock and the Warrants, which comprise the Units, are
detachable and separately transferable as of the date hereof. Purchasers of the
Warrants may reside in jurisdictions in which the shares of Class A Common Stock
underlying the Warrants are not registered or qualified during the period that
the Warrants are exercisable. In this event, the Company might be unable to
issue Common Stock to those persons desiring to exercise their Warrants unless
and until such shares could be qualified for sale in jurisdictions in which the
purchasers reside, or an exemption from qualification exists in such
jurisdiction. Accordingly, Warrantholders would have no choice but to attempt to
sell the Warrants in a jurisdiction where such sale is permissible, or allow
them to expire unexercised. See "Description of Securities--Warrants."
NO ASSURANCE AS TO FUTURE RESULTS. Prospective purchasers of the Units
should carefully consider the information contained in this Prospectus before
making an investment in the Units. Information contained in this Prospectus
contains "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. See, e.g., "Business--Strategy." No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. Many factors could also cause actual results to
vary materially from the future results covered in such forward-looking
statements.
LISTING AND MAINTENANCE CRITERIA FOR NASDAQ SECURITIES. The Company has
applied for listing on the Nasdaq SmallCap Market and believes it meets the
recently adopted standards for such listing which require: (i) net tangible
assets of $4 million, (ii) a public float of one million shares, (iii) a market
value of
10
<PAGE>
the public float of $5 million, (iv) three market makers, (v) a minimum $4.00
bid price per share of common stock and (vi) at least 300 shareholders.
Nasdaq also adopted new criteria for continued Nasdaq SmallCap Market
eligibility. In order to continue to be included on the Nasdaq SmallCap Market
(thereby exempting a company from the "penny stock" regulations described
below), a company must maintain (i) at least two market makers, (ii) 300 holders
of its common stock, (iii) a minimum bid price of $1.00 per share of common
stock, (iv) net tangible assets of $2 million (unless the Company had net income
of $500,000 in two of the last three years or a market capitalization of $35
million), (v) 500,000 shares in the public float and (vi) a market value of the
public float of $1 million. The Company's failure to meet these maintenance
criteria in the future may result in the discontinuance of its securities on the
Nasdaq SmallCap Market. In such event, trading, if any, in the securities may
then continue to be conducted in the non-Nasdaq over-the-counter market in what
are commonly referred to as the electronic bulletin board and the "pink sheets."
As a result, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the market value of the securities.
DISCLOSURE RELATED TO PENNY STOCKS. The Commission has adopted rules that
define a "penny stock" as equity securities priced at under $5.00 per share
which are not listed for trading on Nasdaq (unless (i) the issuer has a net
worth of $2 million if in business for more than three years or $5 million if in
business for less than three years or (ii) the issuer has had average annual
revenues of $6 million or more for the prior three years). In the event that any
of the Company's securities are characterized in the future as penny stock,
broker-dealers dealing in the securities will be subject to the disclosure rules
for transactions involving penny stocks which require the broker-dealer among
other things to (i) determine the suitability of purchasers of the securities,
and obtain the written consent of purchasers to purchase such securities and
(ii) disclose the best (inside) bid and offer prices for such securities and the
price at which the broker-dealer last purchased or sold the securities. The
additional burdens imposed upon broker-dealers may discourage them from
affecting transactions in penny stocks, which could reduce the liquidity of such
securities.
11
<PAGE>
DILUTION
At September 30, 1997, the net tangible book value (deficit) of the
Company's Class A Common Stock was $(2,159,326), or $(1.56) per share. Net
tangible book value (deficit) per share represents the total amount of tangible
assets of the Company, less the total amount of liabilities of the Company,
divided by the number of shares of Class A Common Stock outstanding. Without
taking into account any changes in net tangible book value after September 30,
1997, other than to give effect to the sale by the Company of the 550,000 Units
offered hereby, less underwriting discounts and commissions and estimated costs
of the Offering, the net tangible book value of the Company at September 30,
1997 would have been $2,427,318, or approximately $.98 per share. This
represents an immediate increase in net tangible book value of $2.54 per share
of Class A Common Stock to existing stockholders and an immediate dilution of
$4.02 per share to new stockholders. "Dilution" per share represents the
difference between the price to be paid by the new stockholders of $5.00 per
share (ascribing no value to the Warrants included in the Units) and the net
tangible book value per share of Class A Common Stock immediately after the
Offering.
The preceding discussion is illustrated in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share of Class A Common Stock
included in the Units...................................... $ 5.00
Net tangible book value (deficit) per share of Class A
Common Stock before the Offering......................... $ (1.56)
Increase in net tangible book value per share of Class A
Common Stock attributable to new investors purchasing in
the Offering............................................. $ 2.54
Net tangible book value per share of Class A Common Stock
after the Offering......................................... $ .98
---------
Dilution of net tangible book value per share of Class A
Common Stock to new investors.............................. $ 4.02
---------
---------
</TABLE>
The following table sets forth the number of shares of Class A Common Stock
purchased, the total consideration and the average price per share paid by
existing stockholders of the Company as of September 30, 1997, and by new
investors purchasing the shares of Class A Common Stock included in the Units
offered hereby:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED ------------------------------------------
----------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
New investors................................... 1,100,000 44.3% $ 5,500,000 91.9% $ 5.00
Existing stockholders........................... 1,380,000 55.7% $ 487,796 8.1% $ .35
---------- ----- ------------ -----
Totals........................................ 2,480,000 100.0% $ 5,987,796 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The preceding discussion and tables do not include shares issuable upon
exercise of (i) the Warrants, the Overallotment Option and the Representative's
Unit Warrant or (ii) 138,000 stock options issued under the Company's 1997
Employee Stock Option Plan. See "Capitalization" and "Management--1997 Employee
Stock Option Plan."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997, and as adjusted to give effect to the sale by the Company of
the 550,000 Units offered hereby and application of the estimated net proceeds,
without giving effect to the exercise of (i) the Warrants, the Overallotment
Option and the Representative's Unit Warrant or (ii) 138,000 stock options
issued under the Company's 1997 Employee Stock Option Plan or (iii) the issuance
of 1,000 shares of Class B Common Stock subsequent to September 30, 1997. See
"Use of Proceeds" and "Description of Securities."
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED
----------- ------------
<S> <C> <C>
Stockholders' equity
Preferred Stock, no par value, 1,500,000 shares authorized, none
issued or outstanding.......................................... $ 0 $ 0
Common Stock, no par value, 15,000,000 shares authorized,
1,380,000 shares of Class A Common Stock issued and
outstanding, 2,480,000 shares of Class A Common Stock issued
and outstanding, as adjusted................................... 487,796 4,972,796
Accumulated (deficit)............................................ (545,748) (545,748)
----------- ------------
Total stockholders' equity (deficit)...........................
Total capitalization......................................... $ (57,952) $ 4,427,048
----------- ------------
----------- ------------
</TABLE>
13
<PAGE>
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be $4,485,000 ($5,202,785
if the Overallotment Option is exercised). The Company intends to apply the net
proceeds of the Offering in the following order of priority:
<TABLE>
<CAPTION>
PERCENT OF
NET
PURPOSE AMOUNT PROCEEDS
- - --------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Repayment of debt(1)................................................. $ 2,342,970 52.2%
Payment of accounts payable.......................................... 150,000 3.3
Marketing expenses................................................... 250,000 5.6
Working capital(2)................................................... 1,742,030 38.9
------------ -----
TOTALS............................................................. $ 4,485,000 100.0%
</TABLE>
- - ------------------------
(1) Represents payment of (i) two promissory notes bearing interest at 8% per
annum in the amounts of $1,295,000 and $105,000, respectively, issued to
Monolith and Gagleard due the earlier of December 31, 1998 or the closing of
the Offering and incurred by the Company in connection with its acquisition
of the Predators from Monolith and Gagleard; (ii) promissory notes bearing
interest at 8% per annum in the amounts of $1,187,463 and $15,291,
respectively, issued to Monolith and Gagleard due the earlier of December
31, 1998 or the closing of the Offering and incurred by the Company for
working capital and, (iii) accrued interest of $65,142 on all of the above
promissory notes. See "Certain Transactions."
(2) The Company intends to reserve up to $1,000,000 of the working capital
allocation for possible acquisitions of entertainment companies or
businesses related to the Company's Arena Football operations, such as radio
or television broadcasters, media firms, sports-related manufacturers,
sports service providers and the like. There are no current negotiations,
understandings or agreements to acquire any such companies and there can be
no assurance that any such arrangements will be reached with anyone. If the
Company does not proceed with an acquisition, the funds will be retained for
working capital. See "Risk Factors--Substantial Amount of Proceeds Allocated
for Unspecified Acquisitions."
The Company estimates that the net proceeds of the Offering, together with
its anticipated operating revenues, will be sufficient to fund its cash
requirements for at least 12 months from the date of the Prospectus. There may
be changes in the Company's proposed use of net proceeds due to modifications in
the Company's plan of operation. Management is not currently aware of any
proposed modifications to its operations. Pending use, the net proceeds will be
invested in bank certificates of deposit and other fully insured investment
grade securities. Any funds received by the Company upon exercise of the
Warrants, the Overallotment Option or the Representative's Unit Warrant will be
added to working capital.
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data of the
Company. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements included elsewhere in this
Prospectus. The selected financial data as of December 31, 1996 and 1995 and
March 31, 1997, and for the years ended December 31, 1996 and 1995 and for the
period February 14 through March 31, 1997, have been derived from the Company's
financial statements, which have been audited by AJ. Robbins, P.C., independent
certified public accountants, and are included elsewhere in this Prospectus.
Interim data for the pro forma nine months ended September 30, 1997 and for the
pro forma year ended December 31, 1996 have been derived from unaudited pro
forma financial statements which are also included herein. Interim data as of
September 30, 1997 and for the period February 14 through September 30, 1997 has
been derived from the unaudited financial statements which are also included
herein. The results of operations for the pro forma nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
year ending December 31, 1997.
<TABLE>
<CAPTION>
FEBRUARY 14, FEBRUARY 14, YEAR ENDED YEARS ENDED DECEMBER 31,
1997- 1997- DECEMBER 31, ------------------------
SEPTEMBER 30, MARCH 31, 1997 1996(1) 1996 1995
1997 -------------- ------------ ----------- -----------
NINE MONTHS -------------
ENDED PRO FORMA
SEPTEMBER 30, UNAUDITED UNAUDITED
-------------
1997(1)
-------------
PRO FORMA
UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 2,660,566 $ 2,660,566 -- $2,889,383 $ 2,889,383 $ 2,651,577
Net (loss)....................... (550,260) (545,748) (77,522) (609,923) (561,307) (653,506)
Weighted average shares
outstanding.................... 2,480,000 1,380,000 1,380,000 2,480,000 1,380,000 1,380,000
Net loss per share............... $ (.22) $ (.40) $ (.06) $ (.25) $ (.41) $ (.47)
</TABLE>
<TABLE>
<CAPTION>
AS
HISTORICAL ADJUSTED(2)
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA AT SEPTEMBER 30, 1997 (UNAUDITED):
Working capital (deficit)................................................................ $ (2,534,028) $ 1,950,972
Total assets............................................................................. 2,772,402 4,864,432
Total liabilities........................................................................ 2,780,354 437,384
Stockholders' equity (Deficit)........................................................... $ (57,952) $ 4,427,048
</TABLE>
- - ------------------------
(1) As adjusted to reflect the acquisition of the Predators by the Company and
the completion of the Offering, assuming the transactions had occurred and
were completed at the beginning of the periods presented.
(2) As adjusted to reflect the sale of 550,000 Units offered hereby (after
deducting underwriting discounts and commissions and estimated Offering
expenses) and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Orlando Predators Entertainment, Inc. (the "Company") was formed in
March 1997 to acquire, own and operate the Orlando Predators (the "Predators" or
the "team"), a professional Arena Football team of the Arena Football League
(the "AFL" or the "League"). The AFL is a nonprofit corporation organized to
govern the Arena Football teams which comprise the League.
The Company derives substantially all of its revenue from the Arena Football
operations of the Predators. This revenue is primarily generated from (i) the
sale of tickets to the Predators' home games, (ii) the sale of advertising and
promotions to Predator sponsors, (iii) the sale of local and regional broadcast
rights to Predators' games, (iv) the Predators' share of contracts with national
broadcast organizations and expansion team fees paid through the AFL, and (v)
the sale of merchandise carrying the Predators' logos. A large portion of the
Company's annual revenue is determinable at the commencement of each football
season based on season ticket sales and contracts with broadcast organizations
and team sponsors.
The operations of the team are year round; however, the majority of revenues
and expenses are recognized during the AFL playing season, from April through
August of each year. The team begins to receive deposits in late September for
season tickets during the upcoming season. From September through April the team
sells season tickets and collects revenue from all such sales. Selling,
advertising and promotions also take place from September through April although
these revenues are not realized until after the season begins. Single game
tickets and partial advertising sponsorships are also sold during the season,
primarily from April to July. Additional revenues are recognized in August from
playoff games, if any.
Prospective purchasers of the Common Stock should carefully consider the
following information as well as other information contained in this Prospectus
before making an investment in the Class A Units. Information contained in this
Prospectus contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g.,
"Business--Strategy." No assurance can be given that the future results covered
by the forward-looking statements will be achieved. Many factors (including
those discussed under "Risk Factors") could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
RESULTS OF OPERATIONS
PERIOD FEBRUARY 14 THROUGH SEPTEMBER 30, 1997
Operations of the Company commenced on February 14, 1997.
The AFL football season extends from April to August of each year. Ticket
sales and broadcasting fees are recorded as revenue at the time the related home
games are played. Team operating expenses (primarily players' and coaches'
salaries, fringe benefits, insurance, game expenses, arena rentals and travel)
are recorded as expenses on the same basis. Accordingly, revenues and operating
expenses for the period ended September 30, 1997 ("1997 period") have been
recognized as the related home games were played over the AFL season. Deferred
revenues at September 30, 1997 were $280,958 and revenues were $2,660,566.
Prepaid team operating expenses at September 30, 1997 were $1,656 and operating
expenses were $3,144,608. The Company's 1997 pre-season football activities were
delayed a few weeks in 1997 as compared to the start date in 1996 due to the
sale of the team to the Company. Pre-season activities include player
recruitment, player travel to Orlando and player housing arrangements.
16
<PAGE>
Net loss for the 1997 period was $545,748. The net loss was primarily
attributable to lower ticket and sponsorship revenues and increased salaries,
professional fees, league assessments and related party interest expense.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenue increased from $2,651,577 to $2,889,383, an increase of $237,806, or
9%, for the year ended December 31, 1996 ("1996") as compared to the year ended
December 31, 1995 ("1995"). This increase was attributable to a 19% increase in
ticket revenues, which resulted from the AFL expanding the regular season from
12 games in 1995 to 14 games in 1996. The team also had a pre-season game added
as a home game in the Orlando Arena in 1996 as compared to one away game at the
Daytona Ocean Center in 1995. This resulted in two additional home games, or a
17% increase in the number of home games in 1996, as compared to 1995. The
Company realizes substantially more revenue for home games because home game
teams retain all ticket sales, advertising, sponsorship and media revenue
whereas visiting teams receive no revenue during the regular season and only
$40,000 (beginning in 1997 the amount increased to $45,000) per away playoff
game. During 1995, there were three away playoff games, which generated revenue
of $120,000, as compared to one away playoff game in 1996, which generated
$40,000 of revenue. The number of season ticket sales decreased from 10,649 in
1995 to 8,245 in 1996 and the number of average paid attendance decreased from
12,926 in 1995 to 10,415 in 1996. The reduction in ticket sales was offset by a
10% average increase in ticket prices in 1996. Average paid ticket prices
increased from $20.35 in 1995 to $22.46 in 1996.
Advertising and promotion revenue increased by $224,798 in 1996 as compared
to 1995 primarily as a result of additional sponsorships sold for higher average
prices than 1995 due to increased marketing efforts generated by executive
officers and the addition of new marketing personnel for the 1996 season.
Increased average sales prices for sponsorships were also due to expanded
coverage for the sponsors because of two additional home games in 1996 as
compared to 1995.
Revenue increases were offset by a $164,277 reduction in expansion fees from
1995 to 1996. Expansion fees paid by new teams are divided among the AFL's
existing teams and the game inventor. Three teams were added in 1995 as compared
to one team added in 1996.
Football operating expenses decreased by $38,125, or 7%, in 1996 as compared
to 1995 due to having one away playoff game in 1996 as opposed to three away
playoff games in 1995. The AFL teams must bear the costs of away playoff game
expenses except for a $40,000 payment from the home team which is used to
partially offset playoff game expenses such as travel and lodging. The 1995
season was three weeks longer than the 1996 season, which resulted in a decrease
of approximately $75,000 in 1996 expenses as compared to 1995. Operating
expenses increased due to the addition of two home games in 1996 as compared to
1995. Due to a higher than normal injury rate in 1995, additional players were
added in mid season. Player salaries were paid to injured players as well as
replacement players.
Selling expenses increased by $69,349 in 1996 as compared to 1995 primarily
due to a $76,000 increase in advertising promoting the two additional home games
played in 1996.
The Board of Directors of the AFL approves an annual budget, which is funded
equally by each AFL team. If the number of teams in the AFL remains the same and
AFL expenses increase, the Company's share of the AFL assessment will also rise.
If AFL expenses remain the same and the number of teams increase, the Company's
share of AFL assessments will decrease. In 1996, the AFL assessments decreased
2%, or approximately $2,000, because the Company's share of the AFL budget was
based on more teams in 1996 than in 1995.
General and administrative expenses increased approximately $107,869 in 1996
as compared to 1995 primarily due to increased legal costs of $27,000, salaries
of $30,000, insurance of $6,000, write-off of
17
<PAGE>
receivables for season ticket sales of $38,000 net of decrease of $13,000 in
credit card fees. Such expenses are expected to remain constant for the year
ending December 31, 1997.
The AFL season extends from April to August of each year. Accordingly, the
Company experiences a seasonal pattern in its operating results. Revenue and
selling and promotional expenses are recognized ratable over the AFL season.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company financed net operating losses primarily with loans
from the team's former managing general partner.
As of September 30, 1997, the Company had issued an aggregate of $2,277,828
of promissory notes to its two stockholders all of which will be repaid
(including $65,142 of interest) from proceeds of the Offering. See "Use of
Proceeds" and "Certain Transactions."
The reduction of indebtedness using proceeds of the Offering will improve
the Company's liquidity by reducing indebtedness required to be repaid in the
future. The Company believes that cash flows from operations along with the net
proceeds of the Offering will be sufficient to satisfy the Company's anticipated
working capital requirements for at least the next 12 months.
ARENA FOOTBALL
ARENA FOOTBALL AND THE ARENA FOOTBALL LEAGUE
In 1985, Jim Foster, a professional football marketing executive, formulated
a plan for an indoor professional football game that included a 50-yard playing
field, an eight player single platoon system and the use of drop kicks and
rebound nets. The first Arena Football game was played in Rockford, Illinois on
April 26, 1986 with a second game played on February 26, 1987 in Chicago,
Illinois.
In March 1987 the U.S. Patent Office issued a U.S. Patent ("Patent") to
Gridiron Enterprises, Inc. an Illinois corporation ("Gridiron") for the Arena
Football Game System and rules of play as well as trademarks for the logo and
names associated with Arena Football. In December 1991, the AFL was incorporated
as a non-profit membership corporation in the state of Delaware. Also in 1991,
Gridiron entered into an exclusive licensing agreement with the AFL to organize,
operate and market Arena Football throughout the United States by selling team
memberships in major markets across the United States. Pursuant to the licensing
agreement, the AFL granted to Gridiron a per team royalty of $20,000 per year in
return for using the game system and rules of play of Arena Football. In January
1991, the AFL sold a Membership to the Predators which allowed the Predators to
operate and market Arena Football within a seventy-five mile radius of Orlando,
Florida. All names and logos of the Orlando Predators are owned by and
registered to Gridiron.
Four teams were fielded for the League's inaugural 1987 season. By 1991, the
League had eight teams and had played exhibition games in London and Paris. In
1992 and 1993, the League fielded 12 teams and 10 teams, respectively, with some
games televised on the ESPN cable network. During the 1997 season, the League
consisted of 14 teams including expansion teams in New York, New Jersey and
Nashville. Teams will begin play in Grand Rapids and Buffalo during the 1998 and
1999 seasons, respectively.
AFL games are generally played in an indoor basketball/hockey sports arena
which offers fans climate-controlled conditions and a more intimate view of the
game. As a result of the smaller playing field, the rebound nets and a general
emphasis on offensive play, Arena Football games are generally high scoring,
fast-paced action contests.
Game attendance has risen consistently over the AFL's ten seasons of play
with over 1,050,000 in total fan attendance announced for the 1997 season. Per
game announced attendance averaged approximately 10,800 during the 1997 season.
"Announced" game attendance represents attendance figures provided by
18
<PAGE>
League teams to the League and the media and cannot be independently verified.
Approximately 66% of AFL viewers are male and 34% are female with 60% of such
viewers under the age of 35 and 40% over the age of 35. In terms of education,
39% have college or graduate degrees, 37% have some college attendance and 24%
hold high school diplomas.
The membership fee for new teams joining the AFL has grown from $120,000 for
the 1990 season to $2,200,000 for the 1997 season with a current League asking
price of $7,000,000 effective for the 1999 season. There are approximately 27
million households with AFL teams in their metropolitan areas, up from 11
million households in 1994. During the 1997 season, ESPN and ESPN 2 cable
networks broadcast a total of 19 games including four playoff games and the
Arena Bowl.
AFL team salaries for the 1997 season ranged from $300,000 to $500,000
compared to approximately $46 million per team for the NFL. Players' salaries
range from $15,000 to $50,000 per season together with a housing provision which
averages approximately $400 per month per player. AFL players sign one-year
contracts with an additional one-year option season granted to the team.
Following the contract year, if the team and a player cannot agree on the option
season salary, the player must either play for the original option year salary
or stay out during the option season, after which the player is free to
negotiate with any team in the League. There are no player drafts, although
expansion teams are allowed to draw from a pool of players designated by
existing AFL teams.
Each player is provided a $500,000 occupational health, accidental death and
disability insurance policy. Each team is required to pay the first $35,000 of
claims for an injured player up to an aggregate of $356,000 for the three
Florida based AFL teams.
RULES OF ARENA FOOTBALL
Arena Football is played in an indoor arena on a field which consists of a
padded surface 85 feet wide and 50 yards long with eight-yard endzones. The
endzone goalposts are nine feet wide with a cross-bar height of 15 feet compared
to NFL goalposts which are 18 1/2 feet wide with a cross-bar height of 10 feet.
Eight feet above each endzone are goal-side rebound nets which are 30 feet wide
by 32 feet high.
There are eight players on the field for each team as part of a 24-man
active roster. Players play both offense and defense with the exception of the
kicker, quarterback, an offensive specialist, two defensive specialists and a
kick returner.
The game is played using an NFL-size football in four 15-minute quarters
with a 15-minute halftime. The game clock stops for out of bounds plays or
incomplete passes only in the last minute of each half, when necessary for
penalties, injuries and time-outs or following points after touchdowns, field
goals and safeties. Accordingly, the average AFL football game is played in
approximately two hours and 25 minutes compared to approximately three hours and
five minutes for an NFL game.
Four downs are allowed to advance the ball ten yards for a first down or to
score. Scoring consists of six points for a touchdown, one point for a
conversion by placekicking after a touchdown, two points for a conversion by
dropkick and two points for a successful run or pass after a touchdown. Three
points are awarded for a field goal by placement or four points for a field goal
by dropkick, with two points for a safety. Punting is illegal. On fourth down a
team may attempt a first down, touchdown or field goal. The receiving team may
field any kickoff or missed field goal that rebounds off the rebound nets.
Although passing rules for the AFL are similar as to outdoor NCAA football,
a unique exception involves the rebound nets. A forward pass that rebounds off a
rebound net is a live ball and is in play until it touches the playing surface.
Overtime periods are 15 minutes during the regular season and the playoffs.
Each team has one possession to score. If, after each team has had one
possession and one team is ahead, that team wins. If the teams are tied after
each has had a possession, the next team to score wins.
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<PAGE>
AFL TEAMS
For the 1997 season, the AFL consisted of the following 14 teams, aligned
into two conferences, with two divisions in each conference:
<TABLE>
<CAPTION>
<S> <C>
AMERICAN CONFERENCE
Western Division Central Division
Anaheim Piranhas Iowa Barnstormers
Arizona Rattlers Milwaukee Mustangs
San Jose SaberCats Portland Forest Dragons
Texas Terror
NATIONAL CONFERENCE
Eastern Division Southern Division
Albany Firebirds Florida Bobcats
Nashville Kats Orlando Predators
New Jersey Red Dogs Tampa Bay Storm
New York CityHawks
</TABLE>
REGULAR SEASON AND PLAYOFFS
Following two pre-season games, the regular AFL season extends from May to
August, with each team playing a total of 14 games against teams from both
conferences. Half of the games are played at home, and half are played away. At
the end of the regular season, the four division champions along with the four
teams with the best winning records, qualify for the AFL playoffs to determine
the AFL's Arena Bowl champion for that season. The playoffs consist of three
single elimination rounds with the third round matching the two remaining teams
playing in the Arena Bowl to determine the League champion. Each round is played
in the home arena of the team with the best winning record.
GATE RECEIPTS, AFL ASSESSMENTS AND DISTRIBUTIONS
AFL teams are entitled to keep all gate receipts from the one pre-season
home game and seven regular season home games, and do not receive any gate
receipts from away games except that visiting teams are provided lodging by the
home team. Each team is required to pay an annual assessment to the AFL which is
generally equal to the team's share of the League's annual operating costs and
each team is contingently liable for other team membership purchases or team
repurchases by the League. Each team's assessment is generally funded by its
share of revenue derived from the League's national television contracts, from
the sale of AFL licensed merchandise and from revenues generated by the League's
sale of expansion team franchises. Each home team participating in the playoffs
pays a fixed payment of $45,000 to the visiting team and provides it with
lodging.
AFL LICENSING
The AFL operates a League licensing program on behalf of its teams. Under
the program, product manufacturers sign agreements allowing them to use the
names and logos of all AFL teams, the AFL itself and AFL's special events
(including playoffs and the Arena Bowl) in exchange for royalty and guarantee
payments. For the years ended December 31, 1996 and 1995, the Company's share of
net revenues from licensing was approximately $40,000 each year, which, in turn,
was credited against the team's AFL assessment for each such period. The
Company's share of net revenue was equal to 1/15 of the AFL's net revenue for
the 1996 season. In addition, each team is permitted to license its club
identified products locally for sale at its arena, at team owned and operated
stores and through team catalogs.
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<PAGE>
SUMMARY OF LEAGUE REVENUE AND EXPENSES
The following table summarizes the Company's share of the revenue derived
from the AFL as well as AFL assessments incurred during the last two regular
seasons:
<TABLE>
<CAPTION>
SEASON
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Expansion team franchise fees....................................... $ 181,250 $ 17,783
----------- -----------
Total revenue................................................... 181,250 17,783
----------- -----------
Assessments:
Operating assessment................................................ 125,000 125,000
Other costs......................................................... 99,622 26,379
----------- -----------
Total assessments............................................... 224,622 151,379
----------- -----------
Net revenue (assessments)........................................... $ (43,372) $ (133,596)
----------- -----------
----------- -----------
</TABLE>
LEAGUE GOVERNANCE
The AFL is generally responsible for regulating the conduct of its member
teams. The AFL establishes the regular season and playoff schedules of the
teams, and negotiates, on behalf of its members, the League's national and
network broadcast contracts. Each of the AFL's members is, in general, liable on
a pro rata basis for the AFL's liabilities and obligations and shares pro rata
in its profits. Under the Bylaws of the AFL, League approval is required to
complete a public offering of any team's securities (including this Offering)
and for the sale or relocation of a team.
The AFL is governed by a Board of Directors, which consists of one
representative from each team. Mr. Youngblood serves as the Predator's
representative on the AFL Board of Directors. The Board of Directors selects the
AFL Commissioner, who administers the daily affairs of the AFL including
interpretation of playing rules and arbitration of conflicts among member teams.
The Commissioner also has the power to impose sanctions, including fines and
suspensions, for violations of League rules. David Baker has been the
Commissioner of the AFL since 1996.
RESTRICTIONS ON OWNERSHIP
The AFL Charter and Bylaws contain provisions which may prohibit a person
from acquiring the Common Stock and affect the value of the Common Stock. In
general, any acquisition of shares of Common Stock which will result in a person
or a group of persons holding 5% or more of the Company's outstanding Common
Stock will require the prior approval of the AFL, which may be granted or
withheld in the sole discretion of the AFL. The prospective purchaser would be
required to submit an AFL application, in form prescribed by the AFL, providing
certain information relating to that person's background. Upon receipt of such
application, the AFL has the right to conduct an investigation of the
prospective purchaser. In addition, the AFL may condition its approval upon the
execution, delivery and performance by the prospective purchaser of such
documents as the Charter or Bylaws shall prescribe. If a prospective purchaser
obtains the AFL's consent to acquire a 5% or more interest in the Company, such
prospective purchaser will be required to acknowledge that the purchaser will be
bound by the applicable provisions of the AFL Charter and Bylaws.
In addition, no person who directly or indirectly owns any interest in an
AFL team, may own, directly or indirectly, a 5% or more interest in any other
team, without the prior approval of the AFL. The AFL Bylaws also contain
provisions which prohibit team owners from engaging in certain activities, such
as
21
<PAGE>
wagering on any game in which an AFL team participates. AFL players and referees
and employees of the AFL and its member clubs (other than the Company) are not
eligible to purchase or hold Common Stock. The AFL could in the future adopt
different or additional restrictions which could adversely affect the
shareholders.
The grant of a security interest in any of the assets of the Company or the
Predators or any direct or indirect ownership interest in the Company, of 5% or
more, requires the prior approval of the AFL, which may be withheld in the AFL's
sole discretion. AFL rules limit the amount of debt that may be secured by the
assets of, or ownership interests in, an AFL team and require that the parties
to any secured loan that is approved execute an agreement limiting the rights of
the lenders and the team (or stockholder) under certain circumstances, including
upon an event of default or foreclosure. These limitations may adversely affect
the rights of the team (or stockholder) under certain circumstances.
Failure by a holder of a 5% or more interest in the Company to comply with
these restrictions may result in a forced sale of such holder's interest in the
Company or the repurchase of such interests by the Company. The Company's Bylaws
provide that the Company may redeem, at the lower of fair market value or cost,
shares held by any person or entity who becomes the owner of 5% or more of the
Company's Common Stock without the approval of the AFL. These restrictions will
be contained in a legend on each certificate issued evidencing shares of Common
Stock.
Neither the AFL, any of its affiliates or members nor any of their
respective officers, employees or representatives, other than the Company,
assume any responsibility for the accuracy of any representations made by the
Company in this Prospectus.
22
<PAGE>
BUSINESS
CURRENT OPERATIONS
The Company derives substantially all of its revenue from the Arena Football
operations of the Predators. This revenue is primarily generated from (i) the
sale of tickets to the Predators' home games, (ii) the sale of advertising and
promotions to Predator sponsors, (iii) the sale of local and regional broadcast
rights to Predators' games, (iv) the Predators' share of contracts with national
broadcast organizations obtained through the AFL, and (v) the sale of
merchandise carrying the Predators' logos. The information contained hereunder
and elsewhere in the Prospectus includes the operations of the Predators when
the team was owned by the Orlando Predators, Ltd. through March 1997. In March
1997 the Company was formed to acquire, own and operate the team.
TICKET SALES. The Predators played seven home games and seven away games
during the 1997 AFL regular season together with one home and one away
pre-season exhibition games. Under the AFL Bylaws, the Company receives all
revenue from the sale of tickets to regular season and pre-season home games and
no revenue from the sale of tickets to regular season and pre-season away games.
The Predators play all home games at the Orlando Arena, which holds
approximately 16,000 spectators. During the last two seasons, the Company sold
an average of approximately 6,800 season tickets and had an average paid
attendance of approximately 9,500 per game. Ticket prices for regular season
home games during the 1997 season at the Orlando Arena ranged from $10 to $100
per game with an average paid ticket price of approximately $24.
The following table sets forth certain information relating to the
Predators' regular season revenue generated by the sale of tickets for the 1996
and 1997 seasons:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE AVERAGE
SEASON TICKET PER GAME PAID AVERAGE PAID TICKET REVENUE
SEASON HOLDERS ATTENDANCE TICKET PRICE PER GAME
- - --------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
1997............................. 5,401 8,523 $ 24.32 $ 207,233
1996............................. 8,245 10,415 $ 22.46 $ 233,880
</TABLE>
The Company believes that the attendance drop of approximately 18% in 1997
was a result of (i) the increased price of tickets sold in 1997 and (ii) a late
start in promoting season ticket sales as a result of current management's
acquisition of the Predators in 1997.
ADVERTISING AND PROMOTION. The Company generates revenue from the sale of
advertising displayed on signs located throughout the Orlando Arena, and through
other promotions utilizing the team's name or logos. In addition, the Company
markets team "sponsorships" to local and regional businesses which provide a
combination of advertising rights, promotional rights and VIP ticket privileges.
Advertising rights include the use of corporate logos within the Orlando Arena,
commercials on radio and television, advertisements in the ARENABALL magazine,
display of the sponsor's name on the Jumbotron located in the center of the
Orlando Arena, public address announcements, the inclusion of customer names on
team posters and the like. Promotional rights include banners displayed in the
team's VIP room at the Orlando Arena, availability of blocks of seats in the
upper bowl endzone for specific games, the use of the team's logos and
autographed helmets. VIP privileges include high priority seating selections,
parking passes, VIP room passes and travel packages which include attendance at
team away games.
LOCAL AND REGIONAL TELEVISION, CABLE AND RADIO BROADCASTS. The Company had
a two-year television contract with the Sunshine Network ("Sunshine") and a one
year radio contract with Paxson Communications, Inc. (WQTM radio) ("Paxson")
both of which expired in the 1997 season. The contracts granted rights to
broadcast Predator games on television, cable and radio pursuant to which the
Company received
23
<PAGE>
approximately $89,000 and $87,000 for the 1996 and 1997 seasons, respectively.
The Company is negotiating new contracts with Sunshine and Paxson although there
can be no assurance it will reach agreements with these or any other local
broadcast company.
NATIONAL TELEVISION. For the 1997 season, the AFL granted ESPN and ESPN 2
exclusive commercial over-the-air television rights to broadcast a total of 14
AFL regular season games, four playoff games and the Arena Bowl, within the
United States. The Company did not receive revenue for these television
broadcast rights in 1996 or 1997 as all such revenue was offset by AFL operating
expenses assessed against the League's teams. The AFL's national broadcast
agreement with ESPN and ESPN 2 expired at the end of the 1997 season. The AFL is
negotiating a new national broadcast agreement with ESPN and ESPN 2 but there
can be no assurance that any such agreement will be entered into with these or
any other national broadcaster.
SALE OF MERCHANDISE. The Company generates additional revenue from the sale
of merchandise carrying the Predator logos (primarily athletic clothing such as
sweatshirts, T-shirts, jackets and caps) at the Orlando Arena and at the
Company's corporate offices in downtown Orlando. Revenue from the sale of such
merchandise was approximately $63,000 for the 1996 season.
STRATEGY
The Company's strategy is to increase revenue by (i) increasing fan
attendance at Predators' home games, (ii) expanding the Predators' advertising
and sponsorship base, and (iii) contracting with additional local and regional
broadcasters to broadcast Predators' games.
The Company believes that fan attendance will increase based upon the game
winning success (if any) of the Predators in the AFL and by increasing media
exposure of the team in the central Florida area. In order to recruit players,
the Company employs a recruiting team which includes the Company's head coach
and Director of Player Personnel. In order to generate increased media interest
in the team in central Florida, the Company employs a marketing staff of two
individuals who call upon the media, corporate sponsors and other central
Florida organizations in an attempt to increase team sponsorship. This marketing
staff also calls directly upon central Florida businesses to solicit advertising
and sponsorship funds on behalf of the team. The Predators participate in a
number of charitable events during the year as a part of a community relations
and recognition program and maintain an Internet web site at
www.predators.inspace.com.
In a broader sense, the Company's strategy includes maintaining and building
community support for, and recognition of, the team as an ongoing valuable
entertainment institution in central Florida and throughout the state. The
Company believes that the value of the Predators as a sports team will increase
if community support and recognition are maintained. In this regard, the
Predators completed their seventh AFL season and have played in the Arena Bowl
for the AFL championship in three of the prior eleven championship games. The
Predators hold the fifth best all-time won-lost record among 27 current and
former AFL teams and recorded the highest announced average AFL per game
attendance for the 1995 and 1996 seasons.
PERFORMANCE
The following table describes the performance of the Predators during the
last three AFL seasons:
<TABLE>
<CAPTION>
SEASON RECORD FINISH IN DIVISION PLAYOFF RESULTS
----------------- ------------------- -------------------------------
<S> <C> <C> <C>
1995...................... 7-5 2nd Lost in Arena Bowl
1996...................... 9-5 2nd Lost in first playoff game
1997...................... 10-4 1st Lost in second playoff game
</TABLE>
24
<PAGE>
TEAM MANAGEMENT
PRESIDENT. Jack Youngblood, a 14-year veteran of the NFL, is President of
the Predators and was appointed the Company's President in April 1997. Mr.
Youngblood directs and oversees all aspects of the Predators' organization,
including operations, administration, marketing, sponsorship, television, radio,
public relations and ticket sales. Prior to joining the team, from 1993 to 1995,
he was a radio talk show host in the Sacramento metropolitan area. During the
1991 and 1992 AFL seasons, he was director of marketing operations for the
Sacramento Surge ("Surge") of the World League of American Football and he also
handled color commentary on Surge radio and television broadcasts. His duties
with Surge included directing front office operations in the area of
sponsorships, ticket sales, corporate sales, advertising and marketing services.
From 1985 to 1991, Mr. Youngblood was employed by the Los Angeles Rams ("Rams")
of the NFL. He also worked as a color analyst on Rams broadcasts, while handling
player relations, public relations, community relations and marketing services.
Mr. Youngblood is considered one of the best defensive ends of his era having
played professional football with the Rams from 1971 to 1984. A first round
draft pick in 1971, he played in all 14 games of his rookie season and by 1973
was a full-time starter for the Rams. Mr. Youngblood set a Rams team record by
playing in 201 consecutive games and his 151 1/2 sacks rank as third on the
all-time NFL list behind Deacon Jones and Reggie White. He earned all-NFC honors
six times, played in seven Pro Bowls and was named to the SPORTING NEWS NFC
all-star team six times. He was twice the NFC's defensive player of the year.
Mr. Youngblood was an all-American defensive end for the University of Florida.
COACHES. Jay Gruden, age 30, was retained by the Company as the Predators'
head coach in August 1997. Coach Gruden replaced Perry Moss who had been the
team's head coach for the previous seven seasons. Coach Gruden quarterbacked the
Tampa Bay Storm for six seasons from 1991 to 1996. During his tenure, he set AFL
records for career pass completions (1,182), passing yards (15,514) and passing
touchdowns (280). He led Tampa Bay to Arena Bowl championships four times,
including back-to-back titles in 1995 and 1996. A two-time All-Arena selection,
Coach Gruden also was the League's Most Valuable Player in 1992.
Coach Gruden retired as a player following the 1996 season to become
offensive coordinator of the AFL expansion Nashville Kats. Nashville won an
expansion team record 10 games and qualified for the AFL playoffs. Coach Gruden
was credited with developing Nashville's quarterback, Andy Kelly, into one of
the League's top quarterbacks. Kelly finished the season with an AFL-leading 82
touchdown passes and was the League's fifth rated quarterback. Under Coach
Gruden, the Nashville offense finished third in the AFL in scoring at 52.9
points per game and was fourth in total offense at 285.2 yards per game. Coach
Gruden's offenses produced victories in the 1997 season over eventual league
champion Arizona (56-49), two wins over the Predators (45-36 in Orlando and
74-55 at Nashville) and wins over two other playoff teams.
A Tampa native, Coach Gruden began his professional career with the NFL
Arizona Cardinals in 1989. He moved to the World League of American Football in
1990, where he played for the Sacramento Surge and the Barcelona Dragons, before
signing with the Tampa Bay in 1991.
In his final season as quarterback for Tampa Bay in 1996, he completed 70
touchdown passes, while setting career highs for attempts (447), completions
(275) and yards (3,626). In six post-season campaigns as Tampa Bay's
quarterback, Coach Gruden delivered four championship titles and led Tampa Bay
to an overall record of 12-2. He completed 253 of 425 post-season passes (60%),
for 4,410 yards and 52 touchdowns. Coach Gruden was Arena Bowl Most Valuable
Player in 1993. As Tampa Bay's quarterback, he compiled an overall record of
68-17 (.800)--the best six-year winning percentage in AFL history.
At the University of Louisville under Head Coach Howard Schnellenberger,
Coach Gruden set school passing marks in a number of categories and won Most
Valuable Player honors in both 1987 and 1988. Following his senior season, he
accepted invitations to both the East-West Shrine Game and the Blue-Gray
all-star games.
25
<PAGE>
Coach Gruden's staff includes five other assistant coaches including
offensive and defensive coaches, a director of player personnel and an
administrative coach.
PLAYERS
In general, the rules of the AFL permit each team to maintain an active
roster of 24 players during the regular season. The following table sets forth
certain information concerning the Predators' roster during the 1997 season.
<TABLE>
<CAPTION>
YEARS
NO. NAME POSITION(1) HT. WT. BIRTHDATE IN AFL
- - --------- ------------------------ -------------- --------- --- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 David Pool WR/DB 5-9 182 12/20/66 Rookie
2 Jeff Parker WR/DB 5-10 183 7/26/69 4th Season
4 John Clark* FB/LB 6-3 250 8/16/68 4th Season
5 Chris Barber DS 6-1 190 1/15/64 6th Season
9 Scott Semptimphelter QB 6-1 215 5/15/72 Rookie
12 Franco Grilla Kicker 5-11 180 7/21/70 2nd Season
17 Pat O'Hara QB 6-4 212 9/27/68 3rd Season
21 Bruce LaSane WR/LB 6-4 225 8/30/66 6th Season
23 Corris Ervin DS 5-11 185 8/30/66 2nd Season
28 Curtis Cotton DS 6-1 210 10/15/69 Rookie
33 Michael McClenton FB/LB 5-11 252 12/9/69 2nd Season
34 Jerry Odom FB/LB 5-10 220 11/7/68 6th Season
42 Alex Shell WR/DB 6-4 220 2/24/68 5th Season
44 Paul McGowan FB/LB 6-0 220 1/13/66 5th Season
55 Jerry Sharp OL/DL 6-3 290 10/8/69 3rd Season
62 Vance Hammond* OL/DL 6-7 300 12/4/67 2nd Season
65 Eric Drakes OL/DL 6-5 265 1/24/69 6th Season
73 Ricky Schaaf OL/DL 6-5 285 5/11/70 4th Season
78 Webbie Burnett OL/DL 6-3 285 11/7/67 6th Season
80 Maclin "Mac" Cody OS 5-7 170 8/7/72 Rookie
82 Barry Wagner WR/DB 6-3 215 11/24/67 6th Season
87 Victor Hall OL/DL 6-2 265 12/4/68 4th Season
93 Kelvin Ingram OL/DL 6-2 285 10/25/70 Rookie
95 Samuel Hairston OL/DL 6-4 260 11/9/69 Rookie
96 Skip McClendon OL/DL 6-7 300 4/19/64 3rd Season
98 Jeff Faulkner OL/DL 6-4 300 4/4/64 2nd Season
</TABLE>
- - ------------------------
* Injured Reserve
(1) WR--Wide Receiver; DB--Defensive Back; FB--Fullback; LB--Lineback; DS--
Defensive Specialist; OS--Offensive Specialist; QB--Quarterback;
OL--Offensive Line; DL--Defensive Line
Player salaries range from $15,000 to $50,000 per season together with a
housing provision which averages approximately $400 per month per player. AFL
players sign one-year contracts with an additional one-year option season
granted to the team. Following the contract year, if a team and player cannot
agree on the option season salary, the player must either play for the original
option year salary or stay out during the option season, after which he is free
to negotiate with any team in the League. There are no player drafts, although
expansion teams are allowed to draw from a pool of players designated by each
AFL team.
26
<PAGE>
ORLANDO ARENA
The Predators play in the Orlando Arena, which has a seating capacity of
approximately 16,000. Under the terms of the Predators' previous lease, which
expired at the end of the 1997 season, the Predators paid a rental which was the
higher of $7,500 per game or 8.5% of ticket sales for such game, up to a maximum
of $15,000 per game. The team did not share in any other arena revenue, such as
parking fees or concession sales. The Company has negotiated a new lease with
the Orlando Arena for the 1998 season (subject to approval by the Orlando City
Council) which provides the Company with an approximately 20% share of revenue
generated from food and beverage concessions in exchange for the Company
reducing ticket prices by approximately 15%. Although the Company believes it
will be able to enter into a mutually acceptable three to five year renewal
lease, there can be no such assurance. The loss of use of the Orlando Arena
would substantially and adversely affect the operations of the Predators and the
Company.
COMPETITION
The Predators compete for sports entertainment dollars not only with other
professional sports teams but also with college athletics and other
sports-related entertainment. During parts of the AFL season, the Predators
compete in the city of Orlando with professional basketball and in the state of
Florida with professional hockey and professional baseball. In addition, the
colleges and universities in central Florida, as well as public and private
secondary schools, offer a full schedule of athletic events throughout the year.
The Predators also compete for attendance and advertising revenue with a wide
range of other entertainment and recreational activities available in central
Florida. On a broader scale, AFL teams compete with football teams fielded by
high schools and colleges, the NFL, the Canadian Football League and the World
Football League.
EMPLOYEES
In addition to its 24 active players, the Company employs eight football
personnel and nine non-football personnel. During the AFL season, the Company
also uses part-time employees from time to time. None of the Company's
employees, including its players, are covered by collective bargaining
agreements. The Company considers its relations with its employees to be good.
PROPERTIES
The Company leases its executive offices from First Union Bank on a
month-to-month basis. The rental rate, valued at $4,167 per month, is satisfied
through a trade-out with First Union Bank for Predator season tickets and other
advertising considerations.
Under the terms of the Predators' previous Orlando Arena lease, which
expired during the 1997 season, the Predators paid a rental which was the higher
of $7,500 per game or 8.5% of ticket sales for such game, up to a maximum of
$15,000 per game. The team did not share in any other arena revenue such as
parking fees or concession sales. Although the Company has negotiated a renewal
lease, it is subject to approval by the Orlando City Council, of which there can
be no such assurance. See "The Company-- Orlando Arena." The loss of use of the
Orlando Arena would substantially and adversely affect the operations of the
Predators and the Company. See "Risk Factors--Expiration of Orlando Arena
Lease."
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows.
<TABLE>
<CAPTION>
OFFICER/DIRECTOR
NAME AGE POSITION SINCE
- - ------------------------------------------------ --- ----------------------------------------- -----------------
<S> <C> <C> <C>
William G. Meris................................ 31 Chairman of the Board of Directors 1997
Jack Youngblood................................. 47 President and Director 1997(1)
Alex S. Narushka................................ 36 Secretary, Treasurer and Chief 1997(1)
Financial Officer
Robert G. Flynn................................. 32 Chief Operating Officer 1997
Edgar J. Allen.................................. 50 Vice President--Sales and Marketing 1997
Alan N. Gagleard................................ 44 Director 1997
Thomas F. Winters, Jr., M.D..................... 44 Director 1997
</TABLE>
- - ------------------------
(1) Although newly elected executive officers of the Company, Messrs. Youngblood
and Narushka have held management positions with the Predators for three
years and four years, respectively.
Directors are elected at the Company's annual meeting of shareholders and
serve a term of one year or until their successors are elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board of Directors, subject to the bylaws of the Company.
Following the Offering, the Company will establish an Audit Committee and
Compensation Committee composed of a majority of independent directors. The
Audit Committee will review the engagement and independence of the Company's
independent accountants, the audit and non-audit fees of the independent
accountants and the adequacy of the Company's internal accounting controls. The
Compensation Committee will consider the compensation and incentive arrangements
of the Company's executive officers.
The Company has agreed with the Representative that, for a period of 24
months from the date of closing of the Offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. The observer will have no voting
rights, will be reimbursed for out-of-pocket expense incurred in attending
meetings and will be indemnified against any claims arising out of participation
at the meetings, including claims based on liabilities arising under the
securities laws.
The principal occupation of each director and executive officer of the
Company, for at least the past five years, is as follows:
WILLIAM G. MERIS was appointed the Company's Chairman in March 1997. Since
April 1996, Mr. Meris has also served as Chairman of the Board of Directors of
Interhealth Nutritionals, Inc., a privately-held nutrition supplement
manufacturer. He is also a Director of Gum Tech International, Inc., a
publicly-held specialty chewing gum manufacturer. Since June 1995, Mr. Meris has
been President and sole stockholder of WGM Corporation, which acts as the
General Partner of the Monolith Limited Partnership, a limited partnership which
is a principal stockholder of the Company. From January 1995 to June 1995, he
was also a co-manager of Meris Financial, Inc., a private investment and
consulting company. From October 1994 until March 1995, Mr. Meris was a co-owner
of Cyberia, Inc., a virtual reality entertainment firm. Mr. Meris was employed
by Prudential Securities, Inc., as a retail stockbroker from 1989 to April 1994.
Subsequently, he worked in the same capacity at Franklin-Lord, Inc. between May
and August of 1994. Mr. Meris earned a Bachelor of Science degree in Business
Administration from Arizona State University. During the AFL season, he devotes
approximately 60% of his time to the affairs of the Company and during the
remainder of the year devotes approximately 25% of his time to the affairs of
the Company.
28
<PAGE>
JACK YOUNGBLOOD, a 14-year veteran of the NFL, is in his third season with
the Predators. He was appointed Vice President of the Predators in February 1995
and President of the Company in April 1997. Mr. Youngblood directs and oversees
all aspects of the Predators' organization, including operations,
administration, marketing, sponsorship, television, radio, public relations and
ticket sales. From 1993 until he joined the team in 1995, Mr. Youngblood was a
radio talk show host in the Sacramento metropolitan area. During the 1991 and
1992 AFL seasons, he was director of marketing operations for the Sacramento
Surge ("Surge") of the World League of American Football and he also handled
color commentary on Surge radio and television broadcasts. His duties with Surge
included directing front office operations in the area of sponsorships, ticket
sales, corporate sales, advertising and marketing services. From 1985 to 1991,
Mr. Youngblood was employed by the Los Angeles Rams ("Rams") of the NFL. He also
worked as a color analyst on Rams broadcasts, while handling player relations,
public relations, community relations and marketing services. Mr. Youngblood is
considered one of the best defensive ends of his era having played professional
football with the Rams from 1971 to 1984. A first round draft pick in 1971, he
played in all 14 games of his rookie season and by 1973 was a full-time starter
for the Rams. Mr. Youngblood set a Rams team record by playing in 201
consecutive games and his 151 1/2 sacks rank as third on the all-time NFL list
behind Deacon Jones and Reggie White. He earned all-NFC honors six times, played
in seven Pro Bowls and was named to the SPORTING NEWS NFC all-star team six
times. He was twice the NFC's defensive player of the year. Mr. Youngblood was
an all-American defensive end for the University of Florida.
ALEX S. NARUSHKA joined the Company as the Predators' Assistant General
Manager in April 1994 and was appointed the Company's Secretary, Treasurer and
Chief Financial Officer in April 1997. From 1992 to 1994, he was employed by the
former Managing General Partner of the Predators. Mr. Narushka was the Director
of Finance for the Orlando Thunder of the World Football League in 1991 and was
Controller of the Orlando Renegades of the United States Football League from
1984 to 1986. He graduated from Auburn University with a degree in Business
Administration.
ROBERT G. FLYNN joined the Predators in September 1991, was appointed its
Director of Operations in 1995 and the Company's Chief Operating Officer in
April 1997. In these capacities, he oversees all game operations, merchandising,
internship program, game system maintenance, sponsorships and travel. He is
Director of the Winter Park YMCA and serves as chairman for the Alumni Sports
Committee of Trinity Preparatory School. Mr. Flynn earned a Masters degree in
Sports Administration from the University of Florida.
EDGAR J. ALLEN joined the Company as its Vice President--Sales and Marketing
in June 1997. From September 1996 until June 1997, Mr. Allen acted as an
independent sports consultant. From 1989 to 1996, he was Director of Sponsorship
and Broadcast Sales for the Orlando Magic of the National Basketball Association
where he was responsible for building sponsorship and broadcast sales revenue.
From 1974 to 1976, Mr. Allen was general manager of WHLQ-FM radio station and
from 1977 to 1980, was a regional executive for the Radio Advertising Bureau
(the commercial trade association of the radio business). From 1980 to 1983, he
was responsible for sales and marketing for Capital Broadcasting, a six-radio
station holding company based in Mobile, Alabama. From 1983 to 1989, Mr. Allen
was self-employed as a broadcast operating consultant.
ALAN N. GAGLEARD has been a practicing attorney since 1979 specializing in
tax law, employee benefits related law, pension and profit sharing plans, and
general civil litigation. He was also licensed as a certified public accountant
in the State of Michigan in 1973. Mr. Gagleard was employed by Coopers and
Lybrand and Price Waterhouse and Company, two major national accounting firms
prior to and during law school. In 1997, Mr. Gagleard became the President and
Chief Executive Officer of Sunwest P.E.O. Inc., a professional employer
organization based in Arizona. Mr. Gagleard graduated from the Detroit College
of Law in 1979.
THOMAS F. WINTERS, JR., M.D. A graduate of Brown University, Dr. Winters
received his medical degree in 1980 from the University of Connecticut. He
completed an internship in internal medicine at the
29
<PAGE>
Medical College of Virginia in Richmond, Virginia, a year of general surgery at
St. Francis Hospital and Medical Center in Hartford, Connecticut and an
orthopedic residency was at the University of Connecticut Health Center in
Farmington, Connecticut. Dr. Winters completed an A.O. Fellowship in Trauma in
Hanover, West Germany, followed by Fellowships in Sports Medicine and Adult
Reconstructive Surgery at the Brigham and Women's Hospital of Harvard Medical
School. At the Harvard Medical School he served as Assistant Team Physician for
the Department of Athletics of Harvard University. He has been involved with
teaching at both Harvard and now at Orlando Regional Medical Center. Dr. Winters
currently serves as Team Physician for the Orlando Predators; a designated
consultant for Major League Baseball, Inc.; Orthopedic Consultant for the Kansas
City Royals Baseball Organization, Orlando International Aquatic Center and
Brown's Gymnasium. He also works closely with area college and high school
athletes. Dr. Winters has concentrated on adult orthopedics, specifically,
Sports Medicine and Adult Reconstruction, which includes Total Joint
Replacement, since 1986. He has received patents for the design of rotational
components for total knee replacements, and for meniscal cartilage repair
following knee injuries.
EXECUTIVE COMPENSATION
The Company was organized in March 1997 to acquire, own and operate the
Predators. See "Prospectus Summary--Introduction." Accordingly, all of the
Company's executive officers commenced their employment with the Company in
March 1997, although Messrs. Youngblood and Narushka previously held
non-executive officer positions with Orlando Predators, Ltd. ("OPL"), the prior
owner of the Predators and Mr. Youngblood earned compensation from OPL of
approximately $100,000 for the year ended December 31, 1996. No executive
officer (except Mr. Youngblood) is expected to earn in excess of $100,000 in
salary and other compensation for the year ending December 31, 1997. The table
below reflects anticipated annual compensation payable to the Company's Chairman
and President for the year ending December 31, 1997, which will be the Company's
first year of operations.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------------------------
(A) (E) (F)
NAME AND PRINCIPAL (B) (C) (D) STOCK OTHER ANNUAL
POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
- - --------------------------------------------------------- --------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
William G. Meris......................................... 1997 0 0 5,000 $ 40,000(1)
Chairman
Jack Youngblood.......................................... 1997 60,000 (2) 34,500 (2)
President
</TABLE>
- - ------------------------
(1) Represents housing, automobile and travel allowances provided to Mr. Meris.
(2) In July 1997, the Company entered into a three-year employment agreement
with Mr. Youngblood providing for annual salaries of $60,000, $65,000 and
$70,000 over the ensuing three-year period. Mr. Youngblood will also receive
a commission ranging from 7% to 10% of all "Sponsorship Income" of the team,
which is defined as gross revenues generated in cash or by tradeout for any
expense that would constitute an expense on the Company's statement of
operations. In 1996, Mr. Youngblood received a commission of $45,000 based
upon total Sponsorship Income for the year ended December 31, 1996 of
$450,000. Under Mr. Youngblood's employment agreement, he was also granted
stock options to purchase up to 34,500 shares of the Company's Class A
Common Stock at $2.00 per share vesting over a three-year period and
exercisable until July 2007.
The Company's directors do not receive compensation for attending Board
meetings but are reimbursed for out-of-pocket expenses incurred in connection
therewith.
30
<PAGE>
1997 EMPLOYEE STOCK OPTION PLAN
In April 1997, the Company's stockholders adopted the Company's 1997
Employee Stock Option Plan (the "Plan"), which provides for the grant of stock
options intended to qualify as "incentive stock options" and "nonqualified stock
options" (collectively "stock options") within the meaning of Section 422 of the
United States Internal Revenue Code of 1986 (the "Code"). Stock options are
issuable to any officer, director, key employee or consultant of the Company.
The Company has reserved 150,000 shares of Class A Common Stock for issuance
under the Plan. The Plan is administered by the full Board of Directors, which
determines which individuals shall receive stock options, the time period during
which the stock options may be exercised, the number of shares of Class A Common
Stock that may be purchased under each stock option and the stock option price.
The per share exercise price of incentive stock options may not be less than
the fair market value of the Class A Common Stock on the date the option is
granted. The aggregate fair market value (determined as of the date the stock
option is granted) of the Class A Common Stock that any person may purchase
under an incentive stock option in any calendar year pursuant to the exercise of
incentive stock options may not exceed $100,000. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option, more than
10% of the total combined voting power of all classes of stock of the Company is
eligible to receive incentive stock options under the Plan unless the stock
option price is at least 110% of the fair market value of the Class A Common
Stock subject to the stock option on the date of grant.
No incentive stock options may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the stock option may only be exercisable by the optionee. Stock
options may be exercised only if the stock option holder remains continuously
associated with the Company from the date of grant to the date of exercise. The
exercise date of a stock option granted under the Plan cannot be later than ten
years from the date of grant. Any stock options that expire unexercised or that
terminate upon an optionee's ceasing to be employed by the Company become
available once again for issuance. Shares issued upon exercise of a stock option
will rank equally with other shares then outstanding.
As of the date of this Prospectus, 138,000 stock options have been granted
under the Plan, including an aggregate of 79,500 stock options granted to
officers and directors of the Company exercisable at $2.00 per share.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's Class A and Class B Common Stock as of the date of
the Prospectus, by (i) each person who is known by the Company to own of record
or beneficially more than 5% of the Company's Class A and Class B Common Stock,
(ii) each of the Company's directors and (iii) all directors and officers of the
Company as a group. The stockholders listed in the table have sole voting and
investment powers with respect to the shares of Class A and Class B Common Stock
and their addresses are in care of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NUMBER OF SHARES ----------------------
BENEFICIALLY PRIOR TO AFTER
NAME OWNED OFFERING OFFERING
- - -------------------------------------------------------------------------- ----------------- --------- -----------
<S> <C> <C> <C>
William G. Meris*(1)...................................................... 18,800 1.3% .8%
The Monolith Limited Partnership*(1)(4)................................... 1,276,500 92.5% 51.4%
Jack Youngblood(2)........................................................ 34,500 2.4% 1.4%
Alan N. Gagleard(3)(4).................................................... 122,300 8.7% 4.9%
Thomas F. Winters, Jr., M.D............................................... 5,000 .4% .2%
All directors and officers as a group (7 persons)(1)(2)(3)................ 1,478,300 100.0% 57.3%
</TABLE>
- - ------------------------
* May be deemed to be "founders" and "promoters" of the Company as those terms
are defined under the 1933 Act.
(1) The Monolith Limited Partnership ("Monolith") is a privately-held, Delaware
limited partnership which owns 1,276,500 shares of the Company's Class A
Common Stock as indicated above. The General Partner of Monolith is WGM
Corporation, a Delaware Corporation ("WGM"), of which William G. Meris is
the President and sole stockholder. The amount shown held by Mr. Meris
represents stock options to purchase up to 5,000 shares of the Company's
Class A Common Stock at $2.00 per share under the Company's 1997 Stock
Option Plan granted to Mr. Meris and stock options to purchase 13,800 shares
at $2.00 per share assigned to Meris Financial, Inc. by Monolith. See
"Certain Transactions."
(2) Includes stock options to purchase up to 34,500 shares of the Company's
Class A Common Stock at $2.00 per share until July 2007, which have not yet
vested.
(3) Includes (i) 103,500 shares of Class A Common Stock, (ii) stock options to
purchase an additional 13,800 shares of the Company's Class A Common Stock
from Monolith at $2.00 per share, and (iii) stock options to purchase up to
5,000 shares of the Company's Class A Common Stock at $2.00 per share under
the Company's 1997 Stock Option Plan.
(4) In addition to the Class A Common Stock set forth above, the Company has
issued and outstanding 1,000 shares of Class B Common Stock owned 925 shares
by Monolith (92.5%) and 75 shares by Gagleard (7.5%). See "Description of
Securities."
SELLING STOCKHOLDERS
The Company is registering by this Prospectus and at its expense 231,182
shares of Class A Common Stock held by Monolith and 18,818 shares of Class A
Common Stock held by Gagleard, the Company's largest stockholder and a director
of the Company, respectively. The Class A Common Stock may be sold from time to
time after the date hereof in public or private open market transactions
directly to purchasers or through brokerage firms at prevailing market prices
less customary commissions. The Underwriters and Selling Stockholders have no
plans, proposals, arrangements or understandings with respect to any
transactions involving the Selling Stockholders' securities. If there are
changes to the stated plan of distribution, including any plans, proposals,
arrangements or understandings involving the Underwriters or the distribution of
the Class A Common Stock, a post-effective amendment with current information
will
32
<PAGE>
first be filed with and declared effective by the Commission. Information
concerning the Selling Stockholders is set forth below. The Selling Stockholders
may be deemed to be "underwriters" within the meaning of the 1933 Act. All
registration expenses associated with the sale of the Selling Stockholders'
shares (excluding sales commissions) will be paid by the Company. The Selling
Stockholders' shares are subject to a 12 month lock-up agreement with the
Representative. See "Description of Securities--Class A Common Stock Eligible
for Future Sale."
<TABLE>
<CAPTION>
PERCENT OF CLASS TO
BE OWNED AFTER
PERCENT OF CLASS NUMBER OF OFFERING AND SALE OF
NUMBER OF OWNED PRIOR TO SHARES OFFERED SELLING
NAME OF SELLING STOCKHOLDER SHARES OWNED OFFERING FOR SALE STOCKHOLDERS' SHARES
- - -------------------------------------------- ------------- ----------------- -------------- ---------------------
<S> <C> <C> <C> <C>
The Monolith Limited Partnership............ 1,276,500(1) 92.5% 231,182 42.1%
Alan N. Gagleard............................ 122,300(2) 8.7% 18,818 4.1%
</TABLE>
- - ------------------------
(1) Monolith owns 1,276,500 shares of the Company's Class A Common Stock as
indicated above. The General Partner of Monolith is WGM Corporation, a
Delaware Corporation ("WGM"), of which William G. Meris is the President and
sole stockholder.
(2) Includes (i) 103,500 shares of Class A Common Stock, (ii) stock options to
purchase an additional 13,800 shares of the Company's Class A Common Stock
from Monolith at $2.00 per share, and (iii) stock options to purchase up to
5,000 shares of the Company's Class A Common Stock at $2.00 per share under
the Company's 1997 Stock Option Plan.
CERTAIN TRANSACTIONS
In February 1997, The Monolith Limited Partnership ("Monolith") purchased
92.5% and Alan N. Gagleard ("Gagleard") purchased 7.5% of the Predators from
Orlando Predators, Ltd. ("OPL"), a non-affiliated Florida limited partnership
for a purchase price of $2,325,000 including $1,875,000 in cash, $180,000 in the
form of a promissory note payable to OPL and the issuance of $225,000 of
Monolith limited partnership interests to OPL. In March 1997, Monolith organized
the Company and transferred its 92.5% ownership of the Predators to the Company
in exchange for the issuance by the Company of 1,276,500 shares of its common
stock to Monolith (valued at $.34 per share), the issuance of a promissory note
bearing interest at 8% per annum payable to Monolith in the amount of $1,295,000
due the earlier of December 31, 1998 or the closing of the Offering and the
assumption by the Company of the $180,000 promissory note obligation to OPL. At
the same time, Gagleard transferred his 7.5% ownership of the Predators to the
Company in exchange for 103,500 shares of its common stock (valued at $.48 per
share) and the issuance of a promissory note payable to Gagleard in the amount
of $105,000 carrying the same terms as the Monolith promissory note. Also in
March 1997, Mr. Meris, the President of WGM Corporation, the corporate general
partner of Monolith, became the Chairman of the Company and Gagleard became a
director.
In June 1997, the Company paid the $180,000 promissory note due OPL and
Monolith repurchased the $225,000 of Monolith limited partnership interests from
OPL for $225,000 in cash. At the same time, Monolith borrowed $112,500 from
Gagleard, evidenced by a non-interest bearing promissory note due the earlier of
December 31, 1998 or the closing of the Offering. As additional consideration
for the loan, Monolith granted Gagleard an option to purchase 13,800 shares of
the Company's common stock owned by Monolith for $2.00 per share.
Meris Financial, Inc., an affiliate of William G. Meris, the Company's
Chairman, earned a consulting fee of $5,000 plus reimbursement of its expenses
for providing administrative assistance to the Company in connection with the
Offering.
33
<PAGE>
Between March and November 1997 Monolith and Gagleard loaned the Company
$862,537 and $120,291, respectively for working capital evidenced by promissory
notes bearing interest at 8% per annum due the earlier of December 31, 1998 or
the closing of the Offering. See "Use of Proceeds."
In November 1997 the Company (i) issued 1,276,500 shares of its Class A
Common Stock and 925 shares of its Class B Common Stock to Monolith in exchange
for 1,276,500 shares of its then-voting common stock and $4,625 in cash and (ii)
issued 103,500 shares of its Class A Common Stock and 75 shares of its Class B
Common Stock to Gagleard in exchange for 103,500 shares of its then-voting
common stock and $375 in cash. The Class B Common Stock was issued to Monolith
and Gagleard to satisfy the control requirements of the AFL and were issued at
$5.00 per share, the same price as the Offering price per share. Prior to the
exchange, Monolith and Gagleard owned all of the then-voting common stock and
continued to do so following the exchange. The Class B Common Stock was issued
to satisfy the control requirements of the AFL. See "Arena
Football--Restrictions on Ownership" and "Description of Securities."
In July 1997 Monolith granted options to purchase 90,365 shares of the
Company's Common Stock owned by Monolith and exercisable at $2.00 per share to
four persons, including Gagleard (13,800 options) and Meris Financial, Inc.
(13,800 options).
The Company believes the terms of the above transactions were fair,
reasonable and consistent with terms that could be obtained from nonaffiliated
third parties. All future transactions with affiliates of the Company will be
approved by the disinterested members of the Company's Board of Directors.
Moreover, the Company's securities (other than stock options under the Company's
1997 Employee Stock Option Plan) may not be issued to management, promoters or
their respective associates or affiliates without obtaining (i) a fairness
opinion from a qualified brokerage firm or appraiser confirming the fairness of
the consideration to be received by the Company for the issuance of any such
securities and (ii) written approval of the securities issuance by a majority of
the Company's disinterested directors.
DESCRIPTION OF SECURITIES
UNITS
Each Unit offered hereby consists of two shares of Class A Common Stock and
one Warrant. The Common Stock and Warrants have been approved for listing on
NASDAQ and are separately transferable as of the date of this Prospectus. The
Units have not been listed with, and will not trade on, NASDAQ.
CLASS A AND CLASS B COMMON STOCK
The Company is authorized to issue 15,000,000 shares of no par value Common
Stock ("Common Stock"), of which 1,380,000 shares of Class A Common Stock are
outstanding as of the date of this Prospectus held by two stockholders. In
addition, the Company has issued 1,000 shares of no par value Class B Common
Stock. The Class A Common Stock and Class B Common Stock are identical in all
respects except that each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to 10,000 votes. The Class B
Common Stock was issued to satisfy the control requirements of the AFL. See
"Arena Football--Restrictions on Ownership." Upon issuance, shares of Common
Stock are not subject to further assessment or call. Subject to the prior rights
of any series of preferred stock which may be issued by the Company in the
future, holders of Common Stock are entitled to receive ratably such dividends
that may be declared by the Board of Directors out of funds legally available
therefor, and, in the event of the liquidation, dissolution or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights or rights to
convert their Common Stock into any other securities. The outstanding Common
Stock is, and the Common Stock to be outstanding upon completion of the Offering
will be, validly issued, fully paid and nonassessable. The holders of the Class
B Common Stock are entitled to convert each share of Class B Common Stock into
one share of Class A Common Stock.
34
<PAGE>
REDEEMABLE WARRANTS
Each Warrant represents the right to purchase one share of Class A Common
Stock at an initial exercise price of $7.50 per share for a period of five years
from the date hereof. The exercise price and the number of shares issuable upon
exercise of the Warrants are subject to adjustment in certain events, including
the issuance of Class A Common Stock as a dividend on shares of Class A Common
Stock, subdivisions or combinations of the Class A Common Stock or similar
events. The Warrants do not contain provisions protecting against dilution
resulting from the sale of additional shares of Class A Common Stock for less
than the exercise price of the Warrants or the current market price of the
Company's securities.
Warrants may be redeemed in whole or in part, at the option of the Company,
upon 30 days' notice, at a redemption price equal to $.01 per Warrant if the
closing price of the Company's Class A Common Stock on NASDAQ is at least $7.50
per share for 20 consecutive trading days, ending not earlier than five days
before the Warrants are called for redemption.
Holders of Warrants may exercise their Warrants for the purchase of shares
of Class A Common Stock only if a current prospectus relating to such shares is
then in effect and only if such shares are qualified for sale, or deemed to be
exempt from qualification, under applicable state securities laws. The Company
will use its best efforts to maintain a current prospectus relating to such
shares of Class A Common Stock at all times when the market price of the Class A
Common Stock exceeds the exercise price of the Warrants until the expiration
date of the Warrants, although there can be no assurance that the Company will
be able to do so.
The shares of Class A Common Stock issuable upon exercise of the Warrants
will be, when issued in accordance with the Warrants, fully paid and
non-assessable. The holders of the Warrants have no rights as stockholders until
they exercise their Warrants.
For the life of the Warrants, the holders thereof are given the opportunity
to profit from a rise in the market for the Company's Class A Common Stock, with
a resulting dilution in the interest of all other stockholders. So long as the
Warrants are outstanding, the terms on which the Company could obtain additional
capital may be adversely affected. The holders of the Warrants might be expected
to exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital by a new offering of securities on terms more
favorable than those provided by the Warrants.
The Class A Common Stock and Warrants offered hereby have been approved for
listing on the Nasdaq SmallCap Market.
PREFERRED STOCK
The Company is authorized to issue 1,500,000 shares of preferred stock, no
par value (the "Preferred Stock"). The Preferred Stock may, without action by
the stockholders of the Company, be issued by the Board of Directors from time
to time in one or more series for such consideration and with such relative
rights, privileges and preferences as the Board may determine. Accordingly, the
Board has the power to fix the dividend rate and to establish the provisions, if
any, relating to voting rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of Preferred Stock issued in
the future.
It is not possible to state the actual effect of any other authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of Preferred
Stock. The Board's authority to issue Preferred Stock also provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock. Accordingly, the issuance of
Preferred Stock may be used as an "anti-takeover" device without further action
on the part of the stockholders of the Company, and may adversely affect the
holders of the common stock. The Company has not issued any Preferred Stock and
has no current intention to do so.
35
<PAGE>
CLASS A COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 2,480,000 shares of Class A
Common Stock outstanding (excluding shares issuable upon issuance of the
Warrants, the Overallotment Option or the Representative's Unit Warrant), of
which 1,100,000 shares and 550,000 shares underlying the Warrants together with
250,000 shares of Class A Common Stock offered on behalf of the Selling
Stockholders are being registered in the Offering and will be freely tradeable
without restriction subject to the lock-up agreement described below (unless
purchased by "affiliates" of the Company as this term is defined under the 1933
Act). The remaining 1,130,000 shares have not been registered under the 1933 Act
and are therefore "restricted securities" under Rule 144 of the 1933 Act. ("Rule
144")
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period, subject to certain
requirements concerning the availability of public information and the manner
and notice of sale, may sell within any three-month period, a number of shares
which does not exceed the greater of one percent of the then outstanding common
shares (approximately 24,800 shares immediately after the Offering assuming no
exercise of the Warrants, the Overallotment Option or the Representative's Unit
Warrant) or the average weekly trading volume during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares by a person without any quantity limitation, so long as such person is
not an affiliate of the Company, has not been an affiliate for three months
prior to the sale and has beneficially owned the shares for at least two years.
All 1,130,000 shares will be available for resale under Rule 144 in March 1998
subject to the lock-up agreements described below. The Company is unable to
predict the effect that any sales, under Rule 144 or otherwise, may have on the
then prevailing market price of the Class A Common Stock.
All of the Company's stockholders (including the Selling Stockholders) have
agreed in lock-up agreements signed with the Representative not to sell or
otherwise dispose of any of their shares of Class A Common Stock for a period of
12 months from the date of this Prospectus without the prior written consent of
the Representative. No prediction can be made as to the effect, if any, that
sales of Class A Common Stock or the availability of such shares for sale will
have on the market price of the Class A Common Stock. Nevertheless, the
possibility that substantial amounts of Class A Common Stock may be sold in the
public market with the Representative's consent soon after completion of the
Offering, may adversely affect prevailing market prices for the Class A Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
The Company has granted certain demand and piggy-back registration rights to
the Representative with respect to the Representative's Unit Warrant as well as
the Class A Common Stock issuable upon exercise of the Representative's Unit
Warrant. The Company may also register the Class A Common Stock underlying its
1997 Employee Stock Option Plan in the future. See "Management--1997 Employee
Stock Option Plan" and "Underwriting."
TRANSFER AGENT AND WARRANT AGENT
The Company has appointed Corporate Stock Transfer, Inc., 370 17th Street,
Suite 2350, Denver, Colorado 80202, as its transfer agent and warrant agent.
DIVIDENDS
The Company has not paid dividends on its Class A and Class B Common Stock
since inception and does not plan to pay dividends in the foreseeable future.
Earnings, if any, will be retained to finance growth.
36
<PAGE>
LIMITATION ON LIABILITY
The Company's bylaws provide that a director shall not be personally liable
to the Company or its stockholders for any action taken or any failure to act to
the full extent permitted by the Florida Business Corporation Act. The effect of
this provision in the bylaws is to eliminate the rights of the Company and its
stockholders, through stockholders' derivative suits on behalf of the Company,
to recover monetary damages from a director for breach of the fiduciary duty of
care as a director including breaches resulting from negligent or grossly
negligent behavior. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care or to seek
monetary damages for (i) a violation of criminal law, (ii) unlawful payment of
dividends or other distribution under Florida law, (iii) a transaction in which
a director derived an improper personal benefit, (iv) willful misconduct, or (v)
reckless, malicious or wanton acts.
37
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase on a firm commitment basis
from the Company the number of Units set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- - ---------------------------------------------------------------------------------- -----------
<S> <C>
First Midwest Securities, Inc.
Total......................................................................... 550,000
-----------
-----------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the Units purchased by them directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at a maximum price of $____________ per Unit. Any changes in the
price of the Units or selling terms after the initial distribution of the Units
offered hereby will not affect the amount of net proceeds to be received by the
Company as set forth on the cover page of this Prospectus. The Underwriters are
obligated to purchase and pay for all of the Units, if any Units are taken.
After the initial public offering of the Units, the offering price and the
selling terms may be changed by the Underwriters.
The Company has granted the Representative an Overallotment Option,
exercisable within 30 days from the date of this Prospectus, to purchase up to
82,500 Units solely to cover overallotments.
The Underwriters will purchase the Units (including Units subject to the
Overallotment Option) from the Company at a price of $10.00 per Unit. In
addition, the Company has agreed to pay to the Representative a 3%
nonaccountable expense allowance on the aggregate initial public offering price
of the Units, including Units subject to the Overallotment Option. The
Overallotment Option may only be exercised by the Representative.
The offering price of the Units and the exercise price of the Warrants were
determined by negotiations between the Company and the Representative based upon
such factors as the Company's historical revenues and earnings, the percentage
of the Company's outstanding securities to be offered hereby, the experience of
the Company's management and the prospects for the Company and its competitors
within the sports entertainment industry.
The Company has agreed to issue the Representative's Unit Warrant to the
Representative for a consideration of $100. The Representative's Unit Warrant is
exercisable at any time during the four-year period commencing one year from the
date of this Prospectus to purchase up to 55,000 Units for $12.00 per Unit. The
terms of the Warrants comprising a part of the Representative's Unit Warrant are
identical to the terms of the Warrants. The Representative's Unit Warrant is not
transferable for one year from the date of this Prospectus except (i) to an
Underwriter or a partner or officer of an Underwriter or (ii) by will or
operation of law. The Representative's Unit Warrant bears a restrictive legend
describing the restrictions set forth herein and stating the time period for
which the restrictions are applicable. During the term of the Representative's
Unit Warrant, the holders thereof are given the opportunity to profit from a
rise in the market price of the Company's securities. The Company may find it
more difficult to raise additional equity capital while the Representative's
Unit Warrant is outstanding. At any time at which the Representative's Unit
Warrant is likely to be exercised, the Company would probably be able to obtain
additional
38
<PAGE>
equity capital on more favorable terms. Any profit realized on the sale of the
Representative's Unit Warrant or the underlying securities may be deemed
additional underwriting compensation. The Company has registered the Units
underlying the Representative's Unit Warrant under the 1933 Act. If the Company
files a registration statement under the provisions of the 1933 Act at any time
for a period of four years commencing one year from the date of this Prospectus,
the holders of the Representative's Unit Warrant or underlying Units will have
the right, subject to certain conditions, to include in such registration
statement, at the Company's expense, all or part of the underlying Units at the
request of the holders. Additionally, the Company has agreed, for a period of
four years commencing one year from the date of this Prospectus, on demand of
the holders of a majority of the Representative's Unit Warrant or the Units
issued thereunder, to register the Units underlying the Representative's Unit
Warrant one time at the Company's expense. The registration of securities
pursuant to the Representative's Unit Warrant may result in substantial expense
to the Company at a time when it may not be able to afford such expense and may
impede future financing. The Company may find that the terms on which it could
obtain additional capital may be adversely affected while the Representative's
Unit Warrant is outstanding. The number of Units issuable under the
Representative's Unit Warrant and the exercise price are subject to adjustment
under certain events to prevent dilution.
In connection with the Offering, the Underwriters may purchase and sell the
Class A Common Stock and Warrants in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purposes of preventing
or retarding a decline in the market price of the Class A Common Stock and
Warrants; and syndicate short positions involve the sale by the Underwriters of
a greater number of shares of Class A Common Stock or of Warrants than they are
required to purchase from the Company in the Offering. The Underwriters also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Class A Common Stock and Warrants sold
in the Offering for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Class A Common Stock and Warrants, which may be higher than
the price that might otherwise prevail in the open market; and these activities,
if commenced, may be discontinued at any time. These transactions may be
effected on NASDAQ in the over-the-counter market or otherwise.
All of the Company's stockholders including the Selling Stockholders have
agreed, pursuant to lock-up agreements with the Representative, not to sell or
otherwise dispose of any of their shares of Class A Common Stock for a period of
12 months from the date of this Prospectus without the prior written consent of
the Representative. There are no plans, proposals, arrangements or
understandings by or with the Representative to waive or shorten any lock-up
agreements with the Company's stockholders.
The Company has agreed to pay Meris Financial, Inc., an affiliate of William
G. Meris, a consulting fee of $5,000 plus reimbursement of any out of pocket
expenses for providing administrative assistance to the Company in connection
with the Offering. See "Certain Transactions."
The Company has agreed with the Representative that, for a period of 24
months from the date of closing of the Offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. The observer will have no voting
rights, will be reimbursed for out-of-pocket expense incurred in attending
meetings and will be indemnified against any claims arising out of participation
at the meetings, including claims based on liabilities arising under the
securities laws.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Commission. See "Available
Information."
39
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the 1933 Act, or to contribute to
payments that any Underwriter may be required to make in respect thereof. The
Representative does not intend to sell the Units to any accounts over which it
exercises discretionary authority.
LEGAL MATTERS
The validity of the Class A Common Stock and Warrants comprising the Units
offered hereby will be passed upon for the Company by the Law Office of Gary A.
Agron, Englewood, Colorado. Certain legal matters in connection with the
Offering will be passed upon for the Representative by Niebler & Muren, S.C.,
Brookfield, Wisconsin.
EXPERTS
The financial statements of the Company for the period ended March 31, 1997
and for the years ended December 31, 1996 and 1995, appearing in this
Prospectus, have been audited by AJ. Robbins, P.C., independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the 1933 Act with
respect to the Units offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Units,
reference is hereby made to the Registration Statement and such exhibits and
schedules filed as a part thereof, which may be inspected without charge at the
public reference section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission upon payment of
prescribed fees.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may be
inspected at the public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
can be obtained at prescribed rates from the Commission at such address. Such
reports, proxy statements and other information can also be inspected at the
Commission's regional offices at the addresses indicated above.
40
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE ORLANDO PREDATORS ENTERTAINMENT, INC. UNAUDITED PROFORMA FINANCIAL STATEMENTS
Unaudited Proforma Explanatory Headnote.................................................................. F-2
Unaudited Proforma Statements of Operations.............................................................. F-3
Notes to Unaudited Proforma Financial Statements......................................................... F-5
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
Independent Auditors' Report............................................................................. F-6
Financial Statements:
Balance Sheets......................................................................................... F-7
Statements of Operations............................................................................... F-8
Statements of Changes in Stockholders' Equity (Deficit)................................................ F-9
Statements of Cash Flows............................................................................... F-10
Notes to Financial Statements............................................................................ F-11
ORLANDO PREDATORS, A DIVISION OF ORLANDO PREDATORS, LTD.
Independent Auditors' Report............................................................................. F-20
Financial Statements:
Balance Sheet.......................................................................................... F-21
Statements of Operations............................................................................... F-22
Statements of Changes in Division Equity (Deficit)..................................................... F-23
Statements of Cash Flows............................................................................... F-24
Notes to Financial Statements............................................................................ F-25
</TABLE>
F-1
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
UNAUDITED PROFORMA FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
INTRODUCTION
The following unaudited proforma financial statements give effect to the
acquisition of The Orlando Predators, a Division of Orlando Predators, Ltd.
(Predators) by The Orlando Predators Entertainment, Inc. (the Company) and the
completion of the proposed public offering of common stock and is based on the
estimates and assumptions set forth herein and in the notes to such statements.
This proforma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
proforma financial data does not purport to be indicative of the results which
actually would have been obtained had the acquisition been effected on the date
indicated or the results which may be obtained in the future.
Revenues and related game expenses are recorded at the time games are
played. General, administrative, selling and promotional expenses are recognized
as incurred.
The proforma statement of operations for the nine months ended September 30,
1997 includes the operating results of the Company for the period February 14,
1997 to September 30, 1997 and the operating results of the predecessor owners
of the Predators for the period January 1, 1997 to February 13, 1997. The
proforma statement of operations for the year ended December 31, 1996 consists
of the operating results of the predecessor owners of the Predators.
ACQUISITION
On February 13, 1997, the Company acquired substantially all of the assets
and the business of the Orlando Predators, a Division of Orlando Predators, Ltd.
(Predators). The assets consist primarily of the Orlando Arena Football League
(AFL) membership, game and office equipment. The purchase price for the team,
purchased by Monolith Limited Partnership (Monolith) as an agent for the
Company, was $2,325,000 comprised of $1,875,000 in cash, $180,000 note which is
payable in February, 1998, assumption of $45,000 in commissions payable, and
$225,000 of Monolith interests.
The purchase price for the Predators has been allocated as follows:
<TABLE>
<S> <C>
AFL Membership.................................................. $1,989,860
Game equipment system........................................... 225,721
Office equipment................................................ 41,948
Prepaid expenses................................................ 67,471
---------
Total Purchase Price.......................................... 2,325,000
Monolith units.................................................. (225,000)
Note payable.................................................... (180,000)
Commissions payable............................................. (45,000)
---------
Cash paid at closing............................................ $1,875,000
---------
---------
</TABLE>
F-2
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
UNAUDITED PROFORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THE ORLANDO
ORLANDO PREDATORS
PREDATORS FOR ENTERTAINMENT, THE ORLANDO
THE PERIOD ORLANDO INC. FOR THE PREDATORS PROFORMA NINE
JANUARY 1 TO PREDATORS PERIOD FEBRUARY 14 ENTERTAINMENT, INC. MONTHS ENDED
FEBRUARY 13, PROFORMA TO SEPTEMBER 30, PROFORMA SEPTEMBER 30,
1997 ADJUSTMENTS 1997 ADJUSTMENTS 1997
------------- ------------- ------------------ ------------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Ticket revenues............ $ -- $ -- $1,508,127 $ -- $1,508,127
Play-off game ticket
revenues................. -- -- 140,318 -- 140,318
Play-off game revenue
sharing.................. -- -- 45,000 -- 45,000
Local television and radio
broadcast rights......... -- -- 87,632 -- 87,632
Advertising and
promotions............... -- -- 641,651 -- 641,651
Advertising and promotions,
related party............ -- -- 50,000 -- 50,000
League revenue............. -- -- 181,250 -- 181,250
Other...................... -- -- 6,588 -- 6,588
------------- ------------- ------------------ ------- -------------
Total Revenues........... -- -- 2,660,566 -- 2,660,566
------------- ------------- ------------------ ------- -------------
COSTS AND EXPENSES:
Operations................. -- -- 1,825,392 -- 1,825,392
Operations, related
party.................... -- -- 5,362 -- 5,362
Selling and promotional
expenses................. -- -- 399,351 -- 399,351
League assessments......... -- -- 224,622 -- 224,622
General and
administrative........... 65,792 -- 638,246 -- 704,038
Amortization............... 1,172 5,021(2) 30,130 -- 36,323
Depreciation............... 1,469 (632)(2) 21,505 -- 22,342
------------- ------------- ------------------ ------- -------------
Total Costs and
Expenses............... 68,433 4,389 3,144,608 -- 3,217,430
------------- ------------- ------------------ ------- -------------
OPERATING INCOME (LOSS)...... (68,433) (4,389) (484,042) -- (556,864)
------------- ------------- ------------------ ------- -------------
OTHER INCOME (EXPENSE):
Interest expense........... -- -- (67,581) 67,581(3) --
Interest income............ 729 -- 5,875 -- 6,604
------------- ------------- ------------------ ------- -------------
Net Other Income
(Expense).............. 729 -- (61,706) 67,581 6,604
------------- ------------- ------------------ ------- -------------
NET INCOME (LOSS)............ $ (67,704) $ (4,389) $ (545,748) $ 67,581 $ (550,260)
------------- ------------- ------------------ ------- -------------
------------- ------------- ------------------ ------- -------------
NET LOSS PER SHARE........... $ (.22)(6)
-------------
-------------
Weighted Average Number of
Common Shares Outstanding.. 2,480,000(5)
-------------
-------------
</TABLE>
See Accompanying Headnote and Notes to Proforma Financial Statements
F-3
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
UNAUDITED PROFORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ORLANDO
PREDATORS
FOR THE YEAR ORLANDO
ENDED PREDATORS PROFORMA YEAR
DECEMBER 31, PROFORMA ENDED DECEMBER
1996 ADJUSTMENTS 31, 1996
------------ -------------- ----------------
<S> <C> <C> <C>
REVENUES:
Ticket revenues................................................ $1,871,039 $ -- $ 1,871,039
Play-off game revenue sharing.................................. 40,000 -- 40,000
Local television and radio broadcast rights.................... 89,682 -- 89,682
Advertising and promotions..................................... 792,320 43,899(4) 836,219
Advertising and promotions, related parties.................... 43,899 (43,899)(4) --
League revenue................................................. 17,783 -- 17,783
Other.......................................................... 34,660 -- 34,660
------------ -------------- ----------------
Total Revenues............................................... 2,889,383 -- 2,889,383
------------ -------------- ----------------
COSTS AND EXPENSES:
Operations..................................................... 2,180,734 13,023(4) 2,193,757
Operations, related party...................................... 13,023 (13,023)(4) --
Selling and promotional expenses............................... 443,405 -- 443,405
League assessments............................................. 151,379 -- 151,379
General and administrative..................................... 606,222 19,415(4) 625,637
General and administrative, related party...................... 19,415 (19,415)(4) --
Amortization................................................... 10,175 39,572(2) 49,747
Depreciation................................................... 29,662 9,044(2) 38,706
------------ -------------- ----------------
Total Costs and Expenses..................................... 3,454,015 48,616 3,502,631
------------ -------------- ----------------
OPERATING (LOSS) (564,632) (48,616) (613,248)
------------ -------------- ----------------
OTHER INCOME:
Interest income................................................ 3,325 -- 3,325
------------ -------------- ----------------
Net Other Income............................................. 3,325 -- 3,325
------------ -------------- ----------------
NET LOSS......................................................... $ (561,307) $ (48,616) $ (609,923)
------------ -------------- ----------------
------------ -------------- ----------------
NET LOSS PER SHARE............................................... $ (.25)(6)
----------------
----------------
Weighted Average Number of Common Shares Outstanding............. 2,480,000(5)
----------------
----------------
</TABLE>
See Accompanying Headnote and Notes to Proforma Financial Statements.
F-4
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS
NOTE 1--PROFORMA ADJUSTMENTS
The adjustments relating to the statements of operations are computed
assuming the acquisition of the Predators occurred and the proposed public
offering of common stock was completed at the beginning of the periods
presented.
NOTE 2--DEPRECIATION AND AMORTIZATION
Increased depreciation expense reflects the additional costs of assets
acquired. Additional amortization reflects amortization of AFL membership using
the straight-line method over 40 years and the increased cost of the AFL
membership.
NOTE 3--INTEREST EXPENSE
The decrease assumes the completion of the proposed public offering of
common stock which precludes the requirement of debt and related interest
expense.
NOTE 4--RELATED PARTY TRANSACTIONS
Reflects reclassification of transactions with related parties, who are no
longer related parties.
NOTE 5--WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Includes the weighted average shares of the Company's common stock in the
proposed public offering of common stock.
NOTE 6--PROFORMA NET LOSS PER SHARE
Proforma net loss per share is calculated assuming that the 2,480,000 shares
of the Company's common stock are outstanding for the entire period presented.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Orlando Predators Entertainment, Inc.
Orlando, Florida
We have audited the accompanying balance sheet of The Orlando Predators
Entertainment, Inc. as of March 31, 1997, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows from
February 14, 1997 (inception) to March 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 audit provides 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 The Orlando Predators
Entertainment, Inc. as of March 31, 1997 and the results of its operations and
its cash flows for the period ended March 31, 1997, in conformity with generally
accepted accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
May 30, 1997
Except for Note 12 as to
which the date is September 5, 1997
F-6
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1997
------------ SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................... $ 357,982 $ 156,100
Accounts receivable................................................................ 688,956 25,867
Stock subscriptions receivable..................................................... 49,709 --
Inventory.......................................................................... 19,985 32,457
Receivable from employees.......................................................... 7,098 30,246
Prepaid expenses................................................................... 333,982 1,656
------------ -------------
Total Current Assets............................................................. 1,457,712 246,326
PROPERTY AND EQUIPMENT, at cost, net................................................. 266,832 268,294
MEMBERSHIP COST, net................................................................. 1,983,667 1,960,841
OTHER INTANGIBLES, net............................................................... -- 38,889
RESTRICTED INVESTMENT................................................................ 100,000 100,000
DEFERRED OFFERING COSTS.............................................................. -- 101,644
OTHER ASSETS......................................................................... 1,700 6,408
------------ -------------
$ 3,809,911 $ 2,722,402
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............................................. $ 146,767 $ 150,426
Due to League...................................................................... 8,000 6,000
Accrued interest................................................................... 1,023 --
Accrued interest, stockholder...................................................... -- 65,142
Deferred revenue................................................................... 1,858,749 280,958
Note payable....................................................................... 90,098 --
Notes payable, stockholders........................................................ 1,295,000 2,277,828
------------ -------------
Total Current Liabilities........................................................ 3,399,637 2,780,354
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, 1,500,000 shares authorized; none issued or outstanding........... -- --
Common stock, 15,000,000 shares authorized; 1,380,000 issued and outstanding....... 487,796 487,796
Retained earnings (deficit)........................................................ (77,522) (545,748)
------------ -------------
Total Stockholders' Equity (Deficit)............................................. 410,274 (57,952)
------------ -------------
$ 3,809,911 $ 2,722,402
------------ -------------
------------ -------------
</TABLE>
See Accompanying Notes to Financial Statements.
F-7
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 14
TO MARCH 31,
1997
------------- FOR THE
PERIOD
FEBRUARY 14
TO SEPTEMBER
30, 1997
-------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Ticket revenues.................................................................. $ -- $ 1,508,127
Play-off game ticket revenues.................................................... -- 140,318
Play-off game revenue sharing.................................................... -- 45,000
Local television and radio broadcast rights...................................... -- 87,632
Advertising and promotions....................................................... -- 641,651
Advertising and promotions, related party........................................ -- 50,000
League revenue................................................................... -- 181,250
Other............................................................................ -- 6,588
------------- -------------
Total Revenues................................................................. -- 2,660,566
------------- -------------
COSTS AND EXPENSES:
Operations....................................................................... -- 1,825,392
Operations, related party........................................................ -- 5,362
Selling and promotional expenses................................................. 3,140 399,351
League assessments............................................................... -- 224,622
General and administrative....................................................... 68,054 638,246
Amortization..................................................................... 6,193 30,130
Depreciation..................................................................... 837 21,505
------------- -------------
Total Costs and Expenses....................................................... 78,224 3,144,608
------------- -------------
OPERATING INCOME (LOSS)............................................................ (78,224) (484,042)
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense................................................................. (1,023) (67,581)
Interest income.................................................................. 1,725 5,875
------------- -------------
Net Other Income (Expense)..................................................... 702 (61,706)
------------- -------------
NET INCOME (LOSS).................................................................. $ (77,522) $ (545,748)
------------- -------------
------------- -------------
NET INCOME (LOSS) PER SHARE........................................................ $ (.06) $ (.40)
------------- -------------
------------- -------------
Weighted Average Number of Common Shares Outstanding............................... 1,380,000 1,380,000
------------- -------------
------------- -------------
</TABLE>
See Accompanying Notes to Financial Statements
F-8
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD ENDED MARCH 31, 1997
AND THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Stock issued in exchange for ownership of the
Predators................................................... 1,276,500 $ 438,087 $ -- $ 438,087
Stock issued for stock subscription........................... 103,500 49,709 -- 49,709
Net loss...................................................... -- -- (77,522) (77,522)
---------- ---------- ----------- -----------
Balances, March 31, 1997...................................... 1,380,000 487,796 (77,522) 410,274
Net loss (unaudited).......................................... -- -- (468,226) (468,226)
---------- ---------- ----------- -----------
Balances, September 30, 1997 (unaudited)...................... 1,380,000 $ 487,796 $ (545,748) $ (57,952)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See Accompanying Notes to Financial Statements
F-9
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 14
TO MARCH 31,
1997
------------- FOR THE
PERIOD
FEBRUARY 14
TO SEPTEMBER
30, 1997
-------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (77,522) $ (545,748)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization................................................... 7,030 51,635
Changes in assets and liabilities:
Accounts receivable........................................................... -- 663,089
Employee receivables.......................................................... (1,637) (24,785)
Inventory..................................................................... -- (12,472)
Prepaid expenses.............................................................. (241,540) 90,785
Other assets.................................................................. (1,700) (6,408)
Accounts payable and accrued expenses......................................... 102,789 171,007
Deferred revenue.............................................................. 570,562 (1,007,229)
------------- -------------
Net Cash Provided (Used) by Operating Activities............................ 357,982 (620,126)
------------- -------------
CASH FLOWS (TO) INVESTING ACTIVITIES:
Purchase of equipment............................................................. -- (22,130)
Investment in certificate of deposit.............................................. (100,000) (100,000)
Payments for contract purchase.................................................... -- (40,000)
------------- -------------
Net Cash (Used) by Investing Activities..................................... (100,000) (162,130)
------------- -------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans from stockholders........................................................... 100,000 1,040,000
Payment of deferred offering costs................................................ -- (101,644)
------------- -------------
Net Cash Provided by Financing Activities................................... 100,000 938,356
------------- -------------
INCREASE IN CASH.................................................................... 357,982 156,100
CASH, beginning of period........................................................... -- --
------------- -------------
CASH, end of period................................................................. $ 357,982 $ 156,100
------------- -------------
------------- -------------
</TABLE>
- - ------------------------
SEE NOTE 11
See Accompanying Notes to Financial Statements
F-10
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
The Orlando Predators Entertainment, Inc. (the Company), was formed on March
27, 1997, to acquire, own and operate the Orlando Predators, a Division of
Orlando Predators, Ltd. (Predators). The Predators are a professional Arena
Football team and a member of the Arena Football League (AFL). (See Note 3). The
AFL membership was purchased by Monolith Limited Partnership (Monolith) as an
agent for the Company on February 13, 1997 from the Orlando Predators, Ltd.
During March 1997, Monolith organized the Company and transferred ownership of
the Predators to the Company in exchange for 1,276,500 shares of the Company's
common stock (See Note 2).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the period ended September 30, 1997 are presented on a basis consistent with the
audited financial statements and reflect all adjustments, consisting only of
normal recurring accruals, necessary for fair presentation of the results of
such period. The results of operations for the interim period ended September
30, 1997 are not necessarily indicative of the results to be expected for the
period ending December 31, 1997.
Audited financial statements for Orlando Predators, a division of Orlando
Predators, Ltd., the predecessor owner, for the period prior to acquisition,
January 1, 1997 through February 13, 1997, are not presented since no
substantial activities took place during that period.
CASH AND CASH EQUIVALENTS
Cash and equivalents consists primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.
INVENTORY
Inventory consists of team merchandise available for sale. Inventory is
stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation expense is provided
on a straight-line basis using the estimated useful lives of 5-10 years.
Maintenance and repairs are charged to expense as incurred. When assets are
retired or otherwise disposed of, the property accounts are relieved of costs
and accumulated depreciation and any resulting gain or loss is credited or
charged to operations. Depreciation and amortization expense for the periods
ended March 31, 1997 and September 30, 1997 was $837 and $21,505, respectively.
RESTRICTED INVESTMENT
Restricted investment consists of an interest bearing certificate of deposit
with a financial institution, which also provides a letter of credit to the
Company. The certificate of deposit was a condition of awarding the letter of
credit (See Note 10).
F-11
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MEMBERSHIP COST
The AFL membership is recorded at cost of $1,989,860 and is being amortized
on a straight-line basis over 40 years. Amortization expense for the periods
ended March 31, 1997 and September 30, 1997 was $6,193 and $29,019,
respectively.
The Company continually evaluates whether events and circumstances have
occurred that indicate that the remaining estimated useful life of the
membership cost may warrant revision or that the remaining balance of the asset
may not be recoverable. If factors indicate that the membership cost may be
impaired, the Company uses an estimate of the remaining value of the membership
rights in measuring whether the asset is recoverable. Unrecoverable amounts are
charged to operations in the applicable period as required under the provisions
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets". No such charge has been required.
OTHER INTANGIBLE ASSETS
The remainder of the new head coach's contract from his former employer was
purchased for $40,000 and is being amortized on a straight-line basis over the
term of his contract with the Company, 3 years. Amortization expense for the
periods ended March 31, 1997 and September 30, 1997 was $-0- and $1,111,
respectively.
FOOTBALL OPERATIONS
Revenues, principally ticket sales and television and radio broadcasting
fees are recorded as revenues at the time the related game is played. The
Company is entitled to keep all gate receipts from home games but does not share
in the gate receipts from away games. Team expenses (principally player and
coaches salaries, fringe benefits, insurance, game expenses, arena rentals and
travel) are recorded as expenses on the same basis. Accordingly, income and
expenses not earned or incurred are recorded as deferred revenues and prepaid
expenses and are amortized ratably as regular season games are played. General,
administrative, selling and promotional expenses are charged to operations as
incurred.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's anticipated public offering
will be deferred and will be charged against stockholders' equity upon the
successful completion of the offering or charged to expense if not successful.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
The Company sells sponsorships for cash and services. In exchange, the
sponsor receives advertising and various benefits to Predator games. The value
of the services has been estimated in the accompanying
F-12
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements. Management believes these estimates reasonably disclose
the value of services received.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred income taxes are recorded to reflect the tax
consequences in future years of temporary differences between the tax basis of
assets and liabilities and their financial statement amounts at the end of each
reporting period. Valuation allowances will be established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense represents the tax payable for the current period and the change during
the period in deferred tax assets and liabilities. Deferred tax assets and
liabilities have been netted to reflect the tax impact of temporary differences.
Deferred tax assets arise primarily from the net operating loss and
amortization of the membership cost which is not deductible for tax purposes
until the membership is sold. Deferred tax liabilities result when depreciation
for tax purposes exceeds depreciation for book purposes. The net deferred tax
asset at March 31, 1997 and September 30, 1997 is not significant. A valuation
allowance equal to the net deferred tax asset has been recorded since it is more
likely than not that the tax asset will not be realized.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk associated with accounts receivable is limited
due to accounts receivable transactions arising from sponsorship contracts which
have a history of performance. The supply of talented players is limited due to
the competitive nature with other professional football leagues.
The Company maintains all cash in deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced a loss in such
accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of accounts receivable, accounts payable and accrued
expenses approximate fair value because of the short maturity of these items.
The fair value of notes payable to stockholders cannot be determined due to the
related nature of these transactions.
EARNINGS PER COMMON SHARE
Earnings per common share is computed based upon the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Fully diluted and primary earnings per common share are the same amounts for
each of the periods presented.
Common shares which may be issued by the Company immediately preceding a
proposed public offering plus the number of common equivalent shares which
became issuable during the same period pursuant to the grant of warrants and
stock options (using the treasury stock method) at prices substantially less
than the initial public offering price will be included in the calculation of
common stock and common stock equivalent shares as if they were outstanding for
all periods presented.
F-13
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Dilutive common equivalent shares consist of stock options and warrants
(calculated using the treasury stock method). In loss periods, dilutive common
equivalent shares are excluded as the effect would be anti-dilutive.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No.123). Under the provisions of SFAS No. 123, companies can
either measure the compensation cost of equity instruments issued under employee
compensation plans using a fair value based method, or can continue to recognize
compensation cost using the intrinsic value method under the provisions of
Accounting Principles Board Opinion (APB) No. 25. However, if the provisions of
APB No. 25 are continued, proforma disclosures of net income or loss and
earnings or loss per share must be presented in the financial statements as if
the fair value method had been applied. The Corporation intends to recognize
compensation costs under the provisions of APB No. 25 and will provide the
expanded disclosure required by SFAS No. 123.
ADOPTION OF NEW STANDARDS
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS No. 128), was issued in February 1997 (effective for financial statements
ending December 15, 1997). This Statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, Earnings Per
Share, and makes them more comparable to international EPS standards. SFAS No.
128 replaces the presentation of primary EPS with a presentation of basic EPS.
In addition, the Statement requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company has not yet assessed the impact of SFAS No. 128 on its
financial statements.
NOTE 2--ACQUISITION OF PREDATORS
The Predators were purchased by Monolith Limited Partnership (Monolith) as
an agent for the Company on February 13, 1997 from the Orlando Predators, Ltd.
During March, 1997 Monolith organized the Company and transferred ownership of
the Predators to the Company in exchange for 1,276,500 shares of the Company's
common stock.
On February 13, 1997 Monolith acquired substantially all of the assets and
the business of the Orlando Predators, a Division of Orlando Predators, Ltd.
(Predators). The assets consist primarily of the Orlando Arena Football League
(AFL) membership, game and office equipment. The purchase price for the team was
$2,325,000 comprised of $1,875,000 in cash, $180,000 note which is payable in
February, 1998, assumption of $45,000 in commissions payable, and $225,000 of
Monolith Limited Partnership interests (agent for the Company).
F-14
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 2--ACQUISITION OF PREDATORS (CONTINUED)
The purchase price for the Predators has been allocated as follows:
<TABLE>
<S> <C>
AFL Membership.................................................. $1,989,860
Game equipment and system....................................... 225,721
Office equipment................................................ 41,948
Prepaid expenses................................................ 67,471
---------
Total Purchase Price........................................ 2,325,000
Monolith units.................................................. (225,000)
Note payable.................................................... (180,000)
Commissions payable............................................. (45,000)
---------
Cash paid at closing............................................ $1,875,000
---------
---------
</TABLE>
NOTE 3--ARENA FOOTBALL LEAGUE
The AFL is a non-profit corporation, which governs the rules and conduct of
each member team. Each member owns an equal percentage of the AFL and appoints
one board member. A budget for AFL expenses is approved annually by the board
and expenses are shared equally. Revenues from expansion membership fees are
divided equally between all members and a corporation owned by the inventor
(Gridiron) of the Arena Football Game. Revenues and assessments are recognized
when billed by the league. Special assessments for membership repurchases are
recognized in the same periods as membership expansion fees that replace them.
The Company's share of the 1997 season budget is as follows:
<TABLE>
<S> <C>
Revenue:
Expansion membership fees....................................... $ 300,000
---------
Assessments:
Operating assessment............................................ 100,000
Other costs..................................................... 220,000
---------
320,000
---------
Net Assessment.................................................... $ (20,000)
---------
---------
</TABLE>
The Company continues to be contingently liable for its share of AFL
expenses which may exceed AFL revenues.
The AFL is a defendant to a claim for alleged damages for approximately
$2,000,000. The AFL is vigorously defending this action.
The AFL is also a party to a number of lawsuits arising in the normal course
of business. In the opinion of the AFL, the resolution of those matters will not
have a material adverse effect on the AFL's results of operations or financial
position.
Outcomes and expenses of litigation will be divided equally between all
members. Management believes its share of the outcomes will not have a material
adverse effect on the Company's results of operations or financial position.
F-15
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 3--ARENA FOOTBALL LEAGUE (CONTINUED)
LICENSE AGREEMENT
The AFL has licensed the right to operate the Arena Football League and the
use of the Arena Football League logo, trademark and the patented game known as
Arena Football from Gridiron, owner of the logo, trademark and patented game.
The Company is required to pay an annual royalty to Gridiron in the amount of
$20,000 as its share of license fees due to Gridiron.
NOTE 4--PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
(UNAUDITED)
AFL assessment............................................................... $ 93,269 $ --
Professional fees............................................................ 51,984 --
Sales tax.................................................................... 71,000 --
Game expense................................................................. 72,597 --
Other........................................................................ 45,132 1,656
---------- ------
$ 333,982 $ 1,656
---------- ------
---------- ------
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
(UNAUDITED)
Office equipment............................................................. $ 41,948 $ 63,478
Game equipment and system.................................................... 225,721 226,321
---------- -------------
267,669 289,799
Less accumulated depreciation................................................ (837) (21,505)
---------- -------------
$ 266,832 $ 268,294
---------- -------------
---------- -------------
</TABLE>
NOTE 6--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
(UNAUDITED)
Accounts payable............................................................. $ 3,304 $ 124,715
Accrued salaries and payroll................................................. 143,463 25,711
---------- -------------
$ 146,767 $ 150,426
---------- -------------
---------- -------------
</TABLE>
F-16
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 7--NOTE PAYABLE
In connection with the acquisition of the membership, the Company assumed a
$180,000 note agreement with the seller, which is due February 1998, with
interest at 1% above prime (9.25% at March 31, 1997). The outstanding balance
was $90,098 and accrued interest was $1,023 at March 31, 1997. The note was paid
in May, 1997.
NOTE 8--COMMON STOCK
In March 1997 the Company issued 103,500 shares of its common stock to an
individual for $49,709 in stock subscriptions receivable which were paid in May,
1997.
NOTE 9--NOTES PAYABLE, STOCKHOLDERS
The notes payable to stockholders, bearing interest at 8% per annum, are due
the earlier of December 31, 1998 or the completion of the public offering.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LOCAL MEDIA CONTRACTS
The Company had radio and television broadcasting contracts with a local
radio station and a local cable sports network. The contracts required the
Company to provide certain services, goods, and game tickets in exchange for
commercial time, promotional events and the right to broadcast the games. The
Company is negotiating new local media contracts.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with players, the head coach and the
President of the Predators. Certain of these contracts provide for guaranteed
payments which, must be paid even if the employee is injured or terminated. The
player contracts are for a term of one year. If the team does not sign the
player at the end of the contract, he is free to sign with another team.
However, the team has the option of signing the player first. If the player
refuses, he must "sit out" for one year before playing for another team.
The President has a 42 month agreement with annual compensation ranging from
$60,000 to $80,000, commission on sponsorship revenue ranging from 10% to 7%,
tickets to home games and stock options to purchase 34,500 shares of the
Company's common stock with an exercise price of $2.00 through July 2007.
LEASE OBLIGATIONS
The Company leases the Orlando Centroplex arena for all home games and the
Citrus Bowl as a practice field from the City of Orlando. Lease payments are
based upon the greater of a percentage of gross ticket sales or $7,500 per
regular season home game. The lease was assigned from the previous owners of the
team. The lease expired at the end of the 1997 season. The Company is
negotiating for renewal of the lease, under new terms.
In addition, office space is received as trade for a sponsorship from a
financial institution. The total value of the office space is $50,000 and the
lease is renewed annually.
F-17
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments for the year ended December 31, 1997 are $-0-.
SELF INSURANCE
The Company is insured for medical and disability coverage for the players.
Under the terms of the policy, the Company is required to pay the first $35,000
of medical costs for each player. An insurance policy provides reimbursement up
to $465,000 for each player or $1,000,000 in aggregate.
LETTER OF CREDIT
The Company has entered into an agreement with a financial institution for
an irrevocable stand by letter of credit in the amount of $100,000. The letter
of credit is required by the AFL and is available to draw upon, if necessary, by
the AFL after the AFL Board of Directors has given approval. The letter of
credit is guaranteed by a $100,000 certificate of deposit.
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisition of the Predators, the Company executed
notes payable to Monolith for $1,295,000, issued 1,380,000 shares of common
stock valued at $487,796 and assumed liabilities of $1,431,285 in exchange for
the following assets during the period ended March 31, 1997:
<TABLE>
<S> <C>
Accounts receivable..................................................... $ 688,956
Stock subscriptions receivable.......................................... 49,709
Employee receivables.................................................... 5,461
Inventory............................................................... 19,985
Prepaid expenses........................................................ 92,441
Property and equipment.................................................. 267,669
Membership cost......................................................... 1,989,860
---------
$3,114,081
---------
---------
</TABLE>
In addition to the above noncash transactions, during the period ended
September 30, 1997, the Company exchanged notes payable to stockholders of
$212,828 and the receivable for the stock subscription agreement of $49,709, for
the payment of the note payable and accrued interest to the former owners of the
team of $92,537 and the Company reduced the note payable, stockholders by
$170,000.
NOTE 12--SUBSEQUENT EVENTS THROUGH SEPTEMBER 5, 1997
LETTER OF INTENT
On June 16, 1997 the Company entered into a letter of intent with an
underwriter to sell 450,000 units of the Company's securities at $10.00 per
unit. Each unit consists of two shares of common stock and one common stock
purchase warrant to purchase an additional share of common stock at $7.50 per
share for a period of two years from the effective date of the offering. The
warrants may be redeemed at $.01 each if the closing price of common stock
equals or exceeds $7.50 per share on NASDAQ for 20 consecutive trading days.
F-18
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
NOTE 12--SUBSEQUENT EVENTS THROUGH SEPTEMBER 5, 1997 (CONTINUED)
STOCK SPLIT
In June 1997, the Board of Directors approved a 1,380 for 1 forward stock
split. All financial information and per share data has been restated to reflect
this event.
STOCK OPTION PLAN
Effective April 1, 1997, the Company's board of directors adopted the Stock
Option Plan under which 150,000 shares of the Company's common stock were
reserved for issuance at prices not less than fair market value on the date of
grant. The board may grant options to key management employees, officers,
directors and consultants.
Through September 5, 1997, 138,000 options were issued to key management
employees and directors. The options are exercisable for a period of three years
at $2.00 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into various employment agreements with the players
and management. The compensation, granted number of stock options, and terms
vary among the contracts.
NOTE 13--EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
In November 1997, the Company issued 1,380,000 shares of Class A Common
Stock and 1,000 shares of Class B Common Stock in exchange for the 1,380,000
shares of outstanding common stock and $5,000 in cash.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Orlando Predators, Ltd.
Orlando, Florida
We have audited the accompanying balance sheet of the Orlando Predators, a
Division of Orlando Predators, Ltd. as of December 31, 1996 and the related
statements of operations, changes in Division Equity (Deficit) and cash flows
for each of the years in the two year period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides 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 the Orlando Predators, a
Division of Orlando Predators, Ltd. as of December 31, 1996 and the results of
its operations and its cash flows for each of the years in the two year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
May 30, 1997
F-20
<PAGE>
ORLANDO PREDATORS
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash............................................................................ $ 1,337
Accounts receivable............................................................. 15,000
Inventory....................................................................... 20,000
Receivable from employees....................................................... 5,456
Prepaid expenses................................................................ 39,943
---------
Total Current Assets.......................................................... 81,736
PROPERTY AND EQUIPMENT, at cost, net.............................................. 96,854
MEMBERSHIP COST, net.............................................................. 320,719
---------
$ 499,309
---------
---------
LIABILITIES AND DIVISION (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................................... $ 300,289
Accounts payable, related parties............................................... 27,621
Due to League................................................................... 7,394
Deferred revenue................................................................ 397,009
---------
Total Current Liabilities..................................................... 732,313
COMMITMENTS AND CONTINGENCIES
DIVISION (DEFICIT)................................................................ (233,004)
---------
$ 499,309
---------
---------
</TABLE>
See Accompanying Notes to Financial Statements
F-21
<PAGE>
ORLANDO PREDATORS
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Ticket revenues..................................................................... $ 1,871,039 $ 1,578,115
Play-off game revenue sharing....................................................... 40,000 120,000
Local television and radio broadcast rights......................................... 89,682 75,528
Advertising and promotions.......................................................... 792,320 554,421
Advertising and promotions, related parties......................................... 43,899 57,000
League revenue...................................................................... 17,783 182,060
Other............................................................................... 34,660 84,453
------------ ------------
Total Revenues.................................................................... 2,889,383 2,651,577
------------ ------------
COSTS AND EXPENSES:
Operations.......................................................................... 2,180,734 2,181,229
Operations, related party........................................................... 13,023 50,653
Selling and promotional expenses.................................................... 443,405 374,056
League assessments.................................................................. 151,379 153,799
General and administrative.......................................................... 606,222 517,768
General and administrative, related party........................................... 19,415 --
Amortization........................................................................ 10,175 9,775
Depreciation........................................................................ 29,662 25,807
------------ ------------
Total Costs and Expenses.......................................................... 3,454,015 3,313,087
------------ ------------
OPERATING (LOSS)...................................................................... (564,632) (661,510)
------------ ------------
OTHER INCOME:
Interest............................................................................ 3,325 7,915
Other............................................................................... -- 89
------------ ------------
Total Other Income................................................................ 3,325 8,004
------------ ------------
NET (LOSS)............................................................................ $ (561,307) $ (653,506)
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Financial Statements
F-22
<PAGE>
ORLANDO PREDATORS
STATEMENTS OF CHANGES IN DIVISION EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C>
Balance, December 31, 1994....................................................... $ 126,260
Net (loss)....................................................................... (653,506)
Contributions.................................................................... 26,350
Distributions.................................................................... (1,015)
---------
Balance, December 31, 1995....................................................... (501,911)
Net (loss)....................................................................... (561,307)
Contributions.................................................................... 835,398
Distributions.................................................................... (5,184)
---------
Balance, December 31, 1996....................................................... $(233,004)
---------
---------
</TABLE>
See Accompanying Notes to Financial Statements
F-23
<PAGE>
ORLANDO PREDATORS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss)............................................................................ $ (561,307) $ (653,506)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization....................................................... 39,837 35,582
Changes in assets and liabilities:
Accounts receivable............................................................... (8,999) 44,082
Inventory......................................................................... -- 13,724
Prepaid expenses.................................................................. 64,454 (40,945)
Due from League................................................................... (26,395) 78,805
Other assets...................................................................... 2,436 (2,091)
Accounts payable and accrued expenses............................................. (26,500) 70,371
Deferred revenue.................................................................. (302,458) 270,939
----------- -----------
Net Cash (Used) by Operating Activities......................................... (818,932) (183,039)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment................................................................. (14,920) (38,701)
----------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Contributions to the Division......................................................... 835,398 26,350
Distributions from the Division....................................................... (5,184) (1,015)
----------- -----------
Net Cash Provided From Financing Activities..................................... 830,214 25,335
----------- -----------
(DECREASE) IN CASH...................................................................... (3,638) (196,405)
CASH, beginning of period............................................................... 4,975 201,380
----------- -----------
CASH, end of period..................................................................... $ 1,337 $ 4,975
----------- -----------
----------- -----------
</TABLE>
See Accompanying Notes to Financial Statements
F-24
<PAGE>
[Picture of Flame]
PLAYOFFS: 1992, 1993, 1994, 1995, 1996
REGULAR SEASON FRANCHISE WIN PERCENTAGE .720
ARENA BOWL APPEARANCES:
ARENA BOWL VI
ARENA BOWL VII
ARENA BOWL IX
<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Dilution.................................................................. 12
Capitalization............................................................ 13
Use of Proceeds........................................................... 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
Arena Football............................................................ 18
Business.................................................................. 23
Management................................................................ 28
Principal Stockholders.................................................... 31
Selling Stockholders...................................................... 32
Certain Transactions...................................................... 33
Description of Securities................................................. 34
Underwriting.............................................................. 38
Legal Matters............................................................. 40
Experts................................................................... 40
Available Information..................................................... 40
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
550,000 UNITS
THE ORLANDO PREDATORS
ENTERTAINMENT, INC.
---------------------
PROSPECTUS
---------------------
------------------------
, 1997
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) Article XII of the Registrant's Bylaws provides as follows:
"ARTICLE XII
LIMITATIONS ON LIABILITY
Section 1. To the fullest extent permitted by the Florida Business
Corporation Act as the same exists or may hereafter be amended, a director
of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for any action taken or any failure to
take any action as a director. Notwithstanding the foregoing, a direct will
have liability for monetary damages for a breach or failure which involves:
(i) a violation of criminal law; (ii) a transaction from which the director
derived an improper personal benefit, either directly or indirectly; (iii)
distributions in violation of the Florida Business Corporations Act or the
Articles of the corporation (but only to the extent provided by law); (iv)
willful misconduct or disregard for the best interests of the corporation
concerning any proceeding by or in the right of the corporation or a
shareholder; or (v) reckless, malicious or wanton acts or omission
concerning any proceeding other than in the right of the corporation or of a
shareholder. No repeal, amendment or modification of this Article, whether
direct or indirect, shall eliminate or reduce its effect with respect to any
act or omission of a director of the corporation occurring prior to such
repeal, amendment or modification."
(ii) Article XIII of the Registrant's Bylaws provides as follows:
"ARTICLE XIII
INDEMNIFICATION
Section 1. Subject to and in accordance with Florida Business
Corporation Act (Sec. 607.0850) and except as may be expressly limited by
the Articles of Incorporation and any amendments thereto, the corporation
shall indemnify any person:
(i) made a party to any proceeding (other than an action by, or in
the right of, the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the corporation's request, as a director, officer, employee or
agent of another corporation, or other enterprise; or
(ii) who was or is a party to any proceeding by or in the right of
the corporation, to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise.
This indemnification shall be mandatory in all circumstances in which
indemnification is permitted by
law.
Section 2. The corporation may maintain indemnification insurance
regardless of its power to indemnify under the Business Corporation Act.
Section 3. The corporation may make any other or further indemnification
or advancement of expenses of any of the directors, officers, employees or
agents under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and to
II-1
<PAGE>
action in another capacity while holding such office, except an
indemnification against material criminal or unlawful misconduct as set
forth by statute, or as to any transaction wherein the director derived an
improper personal benefit.
Section 4. Except to the extent reimbursement shall be mandatory in
accordance herewith, the corporation shall have the right to refuse
indemnification, in whole or in part, in any instance in which the person to
whom indemnification would otherwise have been applicable, if he
unreasonably refused to permit the corporation, at its own expense and
through counsel of its own choosing, to defend him in the action, or
unreasonably refused to cooperate in the defense of such action."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)(2)
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.............................................................. $ 4,059
NASD Filing Fee................................................................... 1,839
Blue Sky Filing Fees.............................................................. 12,000
Blue Sky Legal Fees............................................................... 25,000
Printing Expenses................................................................. 60,000
Legal Fees and Expenses........................................................... 90,000
Accounting Fees................................................................... 55,000
Transfer Agent.................................................................... 3,000
NASDAQ Application Fee............................................................ 10,000
Miscellaneous Expenses............................................................ 39,102
----------
TOTAL............................................................................. $ 300,000(1)
</TABLE>
- - ------------------------
(1) Does not include the Representative's commission and expenses of $520,000
($598,000 if the Overallotment Option is exercised).
(2) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following shares of its
Common Stock which were not registered under the 1933 Act, as amended.
(i) In March 1997, the Registrant issued 1,276,500 shares of its Common
Stock valued at $.34 per share to The Monolith Limited Partnership
("Monolith") in exchange for transfer by Monolith of all its ownership
interest in the Orlando Predators to the Registrant. See "Certain
Transactions."
(ii) In March 1997, the Registrant issued 103,500 shares of its Common
Stock to Alan Gagleard ("Gagleard") and Nancy Gagleard valued at $.46 per
share in exchange for transfer by the Gagleards of all of their ownership
interest in the Orlando Predators to the Registrant.
(iii) In November 1997 the Registrant (i) issued 1,276,500 shares of its
Class A Common Stock and 925 shares of its Class B Common Stock to Monolith
in exchange for 1,276,500 shares of its then-voting common stock and $4,625
in cash and (ii) issued 103,500 shares of its Class A Common Stock and 75
shares of its Class B Common Stock to Gagleard in exchange for 103,500
shares of its then-voting common stock and $375 in cash. The Class B Common
Stock was issued to Monolith and Gagleard to satisfy the control
requirements of the AFL and were issued at $5.00 per share, the same price
as the Offering price per share. Prior to the exchange, Monolith and
Gagleard owned all of the then-voting common stock.
(iv) From time to time, the Registrant has issued stock options
(currently aggregating 138,000 such stock options) to employees, officers
and directors under its 1997 Employee Stock Option Plan.
II-2
<PAGE>
With respect to the sales made, the Registrant relied on Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). No advertising or general
solicitation was employed in offering the securities. The securities were
offered to a limited number of persons all of whom were business associates of
the Registrant or its executive officers and directors and the transfer thereof
was appropriately restricted by the Registrant. All shareholders were accredited
investors as that term is defined in Rule 501 of Regulation D under the 1933 Act
and were capable of analyzing the merits and risks of their investment and who
acknowledged in writing that they were acquiring the securities for investment
and not with a view toward distribution or resale and understood the speculative
nature of their investment.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- - ------ --------------------------------------------------------------------------
<C> <S>
1.01 Form of Underwriting Agreement(1)
1.02 Form of Agreement Among Underwriters(1)
1.03 Form of Selling Agreement(1)
1.04 Form of Representative's Warrant(1)
1.05 Form of Warrant Agreement(1)
1.06 Form of Lock-up Agreement
1.07 Form of Amended Underwriting Agreement
1.08 Form of Amended Agreement Among Underwriters
1.09 Form of Amended Selling Agreement
1.10 Form of Amended Representative's Warrant
3.01 Articles of Incorporation of the Registrant(1)
3.02 Bylaws of the Registrant(1)
5.01 Opinion of Gary A. Agron, regarding legality of the Common Stock (includes
Consent)(1)
10.01 1997 Employee Stock Option Plan(1)
10.02 Lease Agreement--Orlando Arena(1)
10.03 Arena Football League Licensing Program Update--November 4, 1996(1)
10.04 Bylaws of the Arena Football League(1)
10.05 Membership Agreement with the Arena Football League(1)
10.06 Form of Standard Player Contract(1)
10.07 Employment Agreement with Mr. Moss(1)
10.08 Purchase Agreement for Orlando Predators(1)
10.09 Exchange Agreement for Orlando Predators' Assets(1)
10.10 Employment Agreement with Mr. Youngblood(1)
11.01 Computation of Earnings per Share
11.02 Computation of Earnings per Share
23.01 Consent of AJ. Robbins, P.C.(1)
23.02 Consent of Gary A. Agron (See 5.01, above)(1)
23.03 Consent of AJ. Robbins, P.C.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- - ------ --------------------------------------------------------------------------
<C> <S>
27.01 Financial Data Schedule(1)
27.02 Financial Data Schedule
</TABLE>
- - ------------------------
(1) Previously Filed
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the Commission
heretofore or hereafter duly adopted pursuant to authority conferred in that
section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(g) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Orlando, Florida, on November 10, 1997.
THE ORLANDO PREDATORS
ENTERTAINMENT, INC.
By: /s/ JACK YOUNGBLOOD
-----------------------------------------
Jack Youngblood,
PRESIDENT
Pursuant to the requirements of the 1933 Act, as amended, this Registration
Statement has been signed below by the following persons on the dates indicated.
SIGNATURE TITLE DATE
- - ------------------------------ -------------------------- -------------------
/s/ WILLIAM G. MERIS
- - ------------------------------ Chairman of the Board of November 10, 1997
William G. Meris Directors
/s/ JACK YOUNGBLOOD
- - ------------------------------ President (Chief Executive November 10, 1997
Jack Youngblood Officer) and Director
Secretary, Treasurer and
/s/ ALEX S. NARUSHKA Chief Financial Officer
- - ------------------------------ (Principal Accounting November 10, 1997
Alex S. Narushka Officer)
- - ------------------------------ Chief Operating Officer
Robert G. Flynn
/s/ EDGAR J. ALLEN
- - ------------------------------ Vice President--Sales and November 10, 1997
Edgar J. Allen Marketing
/s/ ALAN N. GAGLEARD
- - ------------------------------ Director November 10, 1997
Alan N. Gagleard
- - ------------------------------ Director
Thomas F. Winters, Jr.
II-5
<PAGE>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- - ------------- ----------------------------------------------------------------------------------------------
<C> <S> <C>
1.06 Form of Lock-up Agreement
1.07 Form of Amended Underwriting Agreement........................................................
1.08 Form of Amended Agreement Among Underwriters..................................................
1.09 Form of Amended Selling Agreement.............................................................
1.10 Form of Amended Representative's Warrant......................................................
11.02 Computation of Earnings per Share.............................................................
23.03 Consent of AJ. Robbins, P.C...................................................................
27.02 Financial Data Schedule.......................................................................
</TABLE>
<PAGE>
Exhibit 1.06
_______________, 1997
First Midwest Securities, Inc.
1233 N. Mayfair Road
Suite 117
Milwaukee, WI 53213
Re: Lock Up Agreement
The undersigned, a beneficial owner of no par value common stock ("Common
Stock") of The Orlando Predators Entertainment, Inc. (the "Company"),
understands that the Company has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 (File No. 333-31671) (the
"Registration Statement") for the registration of up to 632,500 Units of the
Company's securities ("Units") with each Unit consisting of one share of Common
Stock and one redeemable common stock purchase warrant in connection with a
public offering of such Units and underlying securities. The undersigned
further understands that the Company and First Midwest Securities, Inc. (the
"Underwriter") have entered into an underwriting agreement upon the
effectiveness of the Registration Statement (the "Underwriting Agreement"), in
connection with such public offering.
In order to induce the Underwriter to close the transactions contemplated
by such Underwriting Agreement, the undersigned agrees, for the benefit of the
Company and the Underwriter, that he/she will not, without the prior written
consent of the Underwriter, sell, transfer or otherwise dispose of, directly or
indirectly, any of the shares of Common Stock of the Company owned by the
undersigned or purchasable by the undersigned under any current or future stock
option grant as set forth below, for the twelve (12) month period following the
commencement date. Furthermore, the undersigned will permit all certificates
evidencing his/her shares as aforementioned to be endorsed with the appropriate
restrictive legends, and will consent to the placement of appropriate stop
transfer orders with the transfer agent for the Company; PROVIDED, that
notwithstanding the foregoing, without the consent of the Underwriter the
undersigned may (i) transfer such shares to one or more immediate family
member(s), charitable remainder trusts, or to trusts for the primary benefit of,
or partnerships comprised of, immediate family members (collectively, "Permitted
Transferees") upon the condition that any such Permitted Transferee agrees to be
bound by the foregoing restriction in the same manner as it applies to the
undersigned by delivering to the Underwriter a Lock Up Agreement in form and
substance identical to this Lock Up Agreement; and (ii) dispose of such shares
in other private
<PAGE>
First Midwest Securities, Inc.
_______________, 1997
Page 2
transactions, as long as any purchaser or donee in such
transaction agrees to be bound by the terms of this Lock Up Agreement.
Very truly yours,
____________________________________________
Signature
____________________________________________
Name
____________________________________________
Number of Shares of Common Stock
Subject to Lock Up Agreement
____________________________________________
Number of Shares of Common Stock Exercisable
Under Option Plans Subject to Lock Up
Agreement
(Executive Officers and Directors Only)
<PAGE>
Exhibit 1.07
ORLANDO PREDATORS ENTERTAINMENT, INC.
550,000 UNITS
UNDERWRITING AGREEMENT
________ ___, 1997
First Midwest Securities, Inc.
1233 N. Mayfair Road, Suite 117
Milwaukee, WI 53213
Gentlemen:
Orlando Predators Entertainment, Inc., a Florida corporation (the
"Company"), proposes to issue and sell to you (the "Underwriter") pursuant to
this Underwriting Agreement (the "Agreement") an aggregate of 550,000 units (the
"Firm Units"), each unit ("Unit") consisting of two (2) shares of the Company's
no par value Common Stock (the "Common Stock"), and one Redeemable Common Stock
Warrant entitling the holder thereof to purchase for $7.50, one share of Common
Stock for a term of five (5) years from the effective date of the Registration
Statement described below in Section 1(a). The terms of the Units and the
components of the Units shall be as described in the Registration Statement. In
addition, for the sole purpose of covering over-allotments in connection with
the sale of the Firm Units, the Company proposes to grant to the Underwriter an
option to purchase up to an additional 82,500 Units (the "Option Units"). The
Company further agrees to sell and issue to you as Underwriter, five-year
warrants (the "Underwriter's Warrants") to purchase for $12.00 per Unit an
aggregate of 55,000 Units (the "Underwriter's Warrant Units"). Each
Underwriter's Warrant Unit consists of two shares of Common Stock and one
Redeemable Warrant ("Underlying Warrant"). The terms and conditions of the
Underwriter's Warrants, Underwriter's Warrant Units and Underlying Warrants,
including the purchase price thereof, shall be as set forth in the Underwriter's
Warrant filed as an exhibit to the Registration Statement.
The Firm Units, any Option Units purchased pursuant to this Agreement and
the Underwriter's Warrant Units are collectively called herein the "Units" and
the Warrants included in the Units and the Underwriter's Warrants are
collectively called herein the "Warrants." The shares of Common Stock issuable
upon exercise of the Warrants are collectively called the "Warrant Shares" and
the Warrant Shares, together with the shares of Common Stock included in the
Units, are collectively called the "Shares."
You have advised the Company that you intend to purchase the Firm Units,
and that you have been authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the Firm
Units by the Underwriter, as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the Underwriter
that:
(a) A registration statement (File No. 333-___) on Form SB-2 relating to
the public offering of the Units, Warrants and Shares, including a preliminary
form of prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to Rule 430
of the Rules and Regulations. The registration statement (including all
financial schedules and exhibits) as amended at the time it becomes effective
and the final prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the prospectus
first filed by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and
Regulations or otherwise utilized and not required to be so filed shall differ
from said prospectus as then amended, the term "Prospectus" shall mean the
prospectus first filed pursuant to Rule 424(b) or Rule 430A, or so utilized from
and after the date on which it shall have been filed or utilized and (ii) if
such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date (the "Effective Date") of such
registration statement and prior to the Option Closing Date (as defined in
Section 2(b)), the term "Registration Statement" shall include such
registration statement as so amended, and the term "Prospectus" shall include
the prospectus as so amended or supplemented, or both, as the case may be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Option Closing Date (defined above), (i) the
Registration Statement and Prospectus and any amendments or supplements thereto,
will contain all statements that are required to be stated therein in accordance
with the Act, the Rules and Regulations and the Blue Sky Laws and will in all
material respects conform to the requirements of the Act, the Rules and
Regulations and the Blue Sky Laws, (ii) there will be no stop order of the
Commission, any court of competent jurisdiction or the securities administrator
of any state in which the Units, Warrants and Shares have been, or are to be,
registered or qualified, in effect, pending or threatened with respect to the
effectiveness of the Registration Statement or the distribution of the
Prospectus and (iii) neither the Registration Statement nor the Prospectus will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make statements therein not
misleading; provided, however, that the Company makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the heading "Underwriting", and the identity of counsel
to the Underwriter under the heading "Legal Matters" constitute the only
information
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furnished in writing by or on behalf of the Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company has the full power and authority and all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental and regulatory officials and bodies required to own its
properties and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business under the laws of (and is in good
standing as such in) each jurisdiction in which it owns or leases property, has
an office, or in which business is conducted and such qualification is required,
except where the failure to so qualify would not have a material adverse effect
on the business, assets or financial condition of the Company, and no proceeding
has been instituted in any such jurisdiction revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) The authorized capital stock of the Company as of the date of the
Prospectus, as set forth under "Description of Securities" in the Prospectus,
was 10,000,000 shares of Common Stock, no par value per share, of which not more
than 1,380,000 shares will be issued and outstanding or subject to outstanding
options or warrants as of the Effective Date and 1,500,000 shares of Preferred
Stock, no par value per share, of which no shares will be issued and
outstanding. The shares of issued and outstanding capital stock of the Company
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company.
The Preferred Stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and their components upon issuance and delivery and payment
therefor in the manner contemplated by this Agreement will be duly authorized,
validly issued, fully paid and nonassessable. The shares of Common Stock are
not subject to preemptive rights of any security holder of the Company. Neither
the filing of the Registration Statement nor the offering or sale of the Units,
Warrants or Shares, as contemplated in this Agreement and the Underwriter's
Warrant, gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock or
other securities of the Company, except as described in the Registration
Statement.
(f) All offers and sales of the Company's capital stock prior to the date
hereof, other than pursuant to effective registration statements under the Act,
were at all relevant times exempt from the registration requirements of the Act
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws,
or the relevant statutes of limitations have expired, or civil liability
therefor has been eliminated by an offer to rescind.
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(g) This Agreement, including the Underwriter's Warrant, the agreement
between the Company and the warrant agent (the "Warrant Agreement") and the
other agreements of the Company provided for herein, has been duly authorized,
executed and delivered by the Company and constitute the valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except insofar as rights to indemnity and/or contribution may be limited
by federal or state securities laws or the public policy underlying such laws
and except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally, and
be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The Units,
Warrants and Shares have been duly authorized for issuance and sale, and, when
issued pursuant to this Agreement and the Underwriter's Warrant against payment
of the consideration therefor, will be validly issued, fully paid and
nonassessable and not subject to preemptive rights. The Warrant Shares issuable
upon exercise of the Warrants have been duly authorized and reserved for
issuance upon exercise of the Warrants and when issued upon payment of the
exercise price therefor will be validly issued, fully paid and nonassessable
shares of Common Stock and not subject to preemptive rights.
(h) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
(i) violate any provision of the articles of incorporation or by-laws of the
Company (in each case as amended at the time of this Agreement), (ii) result in
the breach, or be in contravention, of any provision of any agreement,
franchise, license, indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which the Company is a party or by which the
Company or its property may be bound or affected, or any order, law, statute,
rule or regulation applicable to the Company of any court or regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its property, or any order of any court or governmental agency
or authority entered in any proceeding to which the Company was or is now a
party or by which it is bound or (iii) result in the creation of any lien,
charge or encumbrance upon any property of the Company. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement by the Company, or the consummation by the Company of the
transactions contemplated hereby, other than under the Act, the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated by
the Commission thereunder, state securities laws and regulations (collectively,
the "Blue Sky Laws") applicable to the public offering of the Units as described
in the Registration Statement and the Prospectus, and/or the rules of the
National Association of Securities Dealers, Inc. ("NASD"). This Agreement has
been duly executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except
insofar as rights to indemnity or contribution may be limited by applicable law
and subject to bankruptcy, insolvency or similar laws generally affecting the
rights of creditors and equitable principles effecting the right to obtain
specific enforcement or similar equitable relief.
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(i) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(j) AJ. Robbins, P.C. which has certified or shall certify certain of the
financial statements filed or to be filed with the Commission as part of the
Registration Statement and Prospectus, are independent certified public
accountants within the meaning of the Act and the Rules and Regulations.
(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in financial position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. The
Company has no material liabilities or obligations, contingent or otherwise,
except as disclosed in the Registration Statement and Prospectus. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved.
(l) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be stated or
contemplated therein: (i) there has not been any material adverse change in the
condition of the Company and its subsidiaries, taken as a whole, financial and
otherwise, or in the earnings, business prospects or current operations of the
Company and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, (ii) there have not been any material transactions
entered into by the Company or any of its subsidiaries which are required to be
disclosed in the Registration Statement, (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock or any material change in the capital stock or material
increase in the long-term indebtedness of the Company; (iv) no action, suit or
proceeding at law or in equity and no governmental or regulatory proceeding has
occurred or is pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
consummation of this Agreement or the business, operations,
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<PAGE>
financial condition, income or business prospects of the Company and its
subsidiaries, taken as a whole and (v) neither the Company nor any of its
subsidiaries has sustained a loss of, or damage to, its properties (whether
or not insured) which would have a material adverse effect on the business,
operations, financial condition, income or business prospects of the Company
and its subsidiaries, taken as a whole.
(m) Except as set forth in the Prospectus, there is not now pending nor,
to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of the
Company exist which might be expected to materially adversely affect the conduct
of the business, property or operations or the financial condition or earnings
of the Company.
(n) The Company is not in violation of its articles of incorporation and
by-laws, or in default or breach under any court or administrative order or
decree, or in default with respect to any provision of any lease, loan
agreement, franchise, license, permit, agreement or other contractual obligation
to which the Company is a party or by which the Company or any of its property
is bound, and there does not exist any state of facts which constitutes an event
of default or breach under such documents or which, upon notice or lapse of time
or both, would constitute such an event of default or breach except those, if
any, described in the Prospectus or such defaults or breaches which,
individually or in the aggregate, are not, and with notice or lapse of time, or
both, would not become, material to the Company. The Company is not in
violation or breach of any law, order, rule, regulation, writ, injunction or
decree of any governmental authority or instrumentality or any court, domestic
or foreign, which violation would have a materially-adverse effect on its
business as described in the Prospectus.
(o) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(p) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects complying therewith and, except as disclosed in the Prospectus, owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, mark registrations, copyrights and licenses necessary for the
conduct of such business and has not received any notice of conflict with the
asserted rights of others in respect thereof. To the best knowledge of the
Company, none of the activities or business of the Company is in violation of,
or cause the Company to violate, any law, rule, regulation or order of the
United States, any state, county or locality, or of any agency or locality, the
violation of which would have a material adverse impact upon the condition
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<PAGE>
(financial or otherwise), business, property, prospective results of operations
or net worth of the Company.
(q) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law, or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(r) On the Closing Dates (as defined in Section 2(c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Units, Warrants and Shares to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(s) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(t) Neither Company nor any of its affiliates, nor any director or officer
of the foregoing, have taken and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in (i) a violation of Rule l0b-6 under the Exchange Act or (ii) the manipulation
of the price of the Units, Warrants and Shares to facilitate the sale or resale
of the Units, Warrants and Shares hereunder.
(u) Except as set forth in the Prospectus, the Company has no
subsidiaries.
(v) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(w) Except as reflected in or contemplated by the Registration Statement
or any amendment thereto, since the respective dates as of which information is
given in the Registration Statement and prior to the Closing Date(s):
(i) the Company neither has nor will have incurred any material
liabilities or obligations, direct or contingent, nor entered into any material
transactions not in the ordinary course of business;
(ii) the Company shall not be delinquent in the payment of principal
or interest on any outstanding debt obligations; and
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(iii) there has not been and will not have been any material
adverse change, or any indication of a prospective material adverse change, in
the business, operations (resulting from litigation or otherwise), property,
prospects, financial condition, net worth or results of operations of the
Company.
(x) As of the effective date of the Registration Statement, the Common
Stock has been duly registered under Section 12(g) of the 1934 Act; the Warrants
have been approved for quotation on the National Association of Securities
Dealers Automated Quotation Small Cap Market ("Nasdaq Small Cap") upon official
notification of issuance; and the Units and Common Stock have been approved for
quotation upon the official National Market System of NASDAQ (the "NASDAQ/NMS")
upon official notice of issuance.
(y) The Company keeps accurate books and records and maintains internal
accounting controls which provide reasonable assurance that (i) transactions are
executed in accordance with management's authorization, (ii) transactions are
recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (iii) access to its assets is permitted
only in accordance with management's authorization and (iv) the reported
accountability for its assets is compared with existing assets at reasonable
intervals.
(z) The Company has not distributed and will not distribute prior to the
Closing Dates any offering material in connection with the offer and sale of the
Units, Warrants or Shares other than as permitted by the Act.
(aa) The Company has not (i) had any material dealings within the twelve
(12) months prior to the date of this Agreement with any member of the NASD, or
any person related to or associated with such member, other than discussions and
meetings relating to the Offering, except as disclosed in writing to you prior
to the date hereof; (ii) entered into a financial or management consulting
agreement except as contemplated hereunder; or (iii) engaged any intermediary
between you and the Company, and/or any of the affiliates of the Company, in
connection with the offering of Units, Warrants or Shares and no person has been
or will be compensated in any manner for such service.
Any certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriter in connection with the Closing shall be deemed
a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $9.00 per Unit at the place and time hereinafter
specified, 550,000 Units.
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Delivery of the Firm Units as well as the Underwriter's Warrant against
payment therefor shall take place at the offices of First Midwest Securities,
Inc., 1233 N. Mayfair Road, Suite 215, Milwaukee, Wisconsin 53213 (or at such
other place as may be designated by agreement between you and the Company) at
9:00 a.m. local time on at such date as you may designate within five business
days of the effective date of the Registration Statement or the date which you
receive the Prospectus in sufficient quantity to send confirmations of sale,
such time and date of delivery for the Firm Units being herein called the "First
Closing Date." Time shall be of the essence and delivery at the time and place
specified in this subsection (a) is a further condition to the obligations of
the Underwriter hereunder. Payment shall be made to the order of the Company on
the First Closing Date.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to you to purchase all or any
part of an aggregate of an additional 82,500 Units at the same price per Unit as
you shall pay for the Firm Units being sold pursuant to the provision of
subsection (a) of this Section 2. This option may be exercised within thirty
(30) days after the First Closing Date upon notice by you to the Company
advising it as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Units are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Units against payment therefor shall take place at the offices of the
Underwriter. Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to your obligations
hereunder. The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of Firm Units referred to in
subsection (a) above.
(c) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company shall sell to you individually, and/or your designated
officers, at the First Closing Date, as defined below, for $100, Underwriter's
Warrants to purchase an aggregate of up to 55,000 Underwriter's Warrant Units.
The price, terms and provisions of the Underwriter's Warrant Units and the
respective rights and obligations of the Company and the holders of the
Underwriter's Warrants and/or Underwriter's Warrant Units and the components
thereof are set forth in the Underwriter's Warrant between the Company and the
Underwriter.
(d) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriter hereunder available to you for
examination at least two full business days prior to the First Closing Date or
the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the
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availability of the certificates at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriter.
Definitive engraved certificates in negotiable form for the Firm Units and
the Option Units to be purchased by the Underwriter hereunder will be delivered
by the Company to you for your account against payment of the purchase price by
you by certified or bank cashier's checks in certified funds, payable to the
order of the Company.
In addition, in the event you exercise the option to purchase from the
Company all or any portion of the Option Units pursuant to the provisions of
subsection (b) above, payment for such Option Units shall be made to or upon the
order of the Company not later than ten (10) business days after the Option
Closing Date by certified checks at the time and date of delivery of such Option
Units as required by the provisions of subsection (b) above, against receipt of
the certificates for such Option Units by you for your account, registered in
such names and in such denominations as you may request.
It is understood that the Underwriter proposes to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the effective date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have objected in writing or which is not in compliance with
the Act and the Rules and Regulations. At any time prior to the later of (i)
the completion by the Underwriter of the distribution of the Shares contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been declared effective) and (ii) 25
days after the Effective Date, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion, may be
necessary or advisable in connection with the distribution of the Shares.
(i) Promptly after you or the Company is advised thereof, you will
advise the Company or the Company will advise you, as the case may be, and
confirm the advice in writing, of the receipt of any comments of the Commission,
of the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
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information with respect thereto, of the issuance by the Commission or any
state or regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or of the suspension of the
qualification of the Shares for offering in any jurisdiction, or the
institution of any proceedings for any of such purposes, and the Company will
use its reasonable efforts to prevent the issuance of any such order and, if
issued, to obtain as soon as possible the lifting thereof.
(ii) The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and selected dealers to use the Prospectus in
connection with the sale of the Units for such period as in the opinion of
counsel of the Underwriter (whether general, special, patent or otherwise) the
use thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in connection
with sales by an underwriter or dealer, of any event of which the Company has
knowledge and which materially affects the Company or the Securities, or which,
in the opinion of counsel for the Company or counsel for the Underwriter, should
be set forth in an amendment to the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units, or in case it shall be necessary to amend
or supplement the Prospectus to comply with the Act or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter.
(iii) The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder in connection with the offering and issuance of
the Shares.
(b) The Company will use its best efforts and shall pay all costs and
expenses to qualify or register ("Blue Sky") the Firm Units and Option Units for
sale under the securities or "blue sky" laws of such jurisdictions as you may
designate and will make such applications
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and furnish such information to counsel for the Underwriter as may be
required for that purpose and to comply with such laws, provided that the
Company shall not be required to qualify as a foreign corporation or a dealer
in securities or to execute a general consent of service of process in any
jurisdiction in any action other than one arising out of the offering or sale
of the Firm Units and Option Units. Blue Sky applications shall be prepared
by the Company's counsel, Gary A. Agron, at the Company's expense. On the
Effective Date of this Agreement as defined in Section 9 below, counsel for
the Company shall deliver to Underwriter's counsel a Blue Sky Memorandum
describing, among other things, all states wherein the Offering has been
qualified or registered for sale, the number of Units registered in each such
state and the period of effectiveness of such qualification or registration.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect
for so long a period as you may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for
any reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including your
accountable expenses, as provided in Section 8(b).
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective concurrently with the
completion of the offering of the Shares or promptly thereafter, but in no event
later than three days after the date of the Prospectus.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to
the holders of its Common Stock, Units and Warrants an annual report (including
financial statements audited by independent public accountants), in reasonable
detail and at its expense, will furnish to you during the period ending five
years from the date hereof, (i) within 90 days of the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, stockholders' equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent auditors; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information as
you may from time to time reasonably request.
(f) In addition to the information and reports set forth in Section 3(e)
above, for a period of two years from the Effective Date, the Company, at its
expense, shall furnish to you (i) unaudited quarterly financial statements on a
timely basis, and (ii) monthly shareholder lists prepared by the Company's
transfer agent.
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(g) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(h) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon order of the Underwriter, from time to time
until the Effective Date, as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriter may
reasonably request. The Company will deliver to the Underwriter on the
Effective Date and thereafter for so long as a Prospectus is required to be
delivered under the Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(i) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later than
90 days after the end of 12 months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date, which shall satisfy the
requirements of Section 11(a) of the Act.
(j) The Company will apply the net proceeds from the sale of the Firm
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Niebler & Muren, S.C., counsel to the Underwriter, may be
reasonably necessary or advisable in connection with the distribution of the
Shares and will use its reasonable efforts to cause the same to become effective
as promptly as possible.
(l) Except as stated below, each of the existing stockholders of the
Company at the date hereof (the "Existing Stockholders"), will execute
agreements ("Lock Up Agreements"), in the form previously delivered, to the
effect that for a period of 12 months from the date of the Prospectus, they will
not sell, assign, hypothecate, pledge or otherwise dispose of, directly or
indirectly, any shares of Common Stock of the Company owned prior to the date
hereof without your prior written consent, and will agree to permit all
certificates evidencing their shares to be endorsed with the appropriate
restrictive legends, and consent to the placement of appropriate stop transfer
orders with the transfer agent for the Company. Further, options of Company
employees shall be excluded from the Lock-Up Agreement. Excluded from the
Lock-Up Agreement shall be those shares of Common Stock that certain Existing
Stockholders are registering for sale as part of the Registration Statement.
The Company further agrees that for
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a period of 12 months from the date hereof, it will not register any shares
of Common Stock underlying any existing stock purchase warrants.
(m) The Company shall immediately make all filings required to seek
approval for the quotation of the Common Stock and Units on the NASDAQ National
Market and the Warrants for quotation on the Nasdaq Small Cap and will use its
reasonable efforts to effect and maintain the aforesaid approval for at least
five years from the date of this Agreement. Within 10 days after the Effective
Date, the Company shall cause the Company to be listed in Standard & Poor's
Financial Relations Program (including S&P Corporate Records, Stock Guide, OTC
Stock Reports and Market Guide) and cause such listing to be maintained for five
years from the date of this Agreement.
(n) All officers, directors, and shareholders of the Company required to
execute the Lock Up Agreement have executed the same.
(o) Prior to the First Closing Date, the Company will not issue, directly
or indirectly, without your prior written consent, a press release or other
communication or hold any press conference with respect to the Company, its
activities or the Offering.
(p) The Company and the Existing Stockholders represent that it or they
have not taken, and agree that it or they will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price of
the Units to facilitate the sale or resale of the Units.
(q) For a period of twenty-four months from the Closing, the Company
shall, at your option, appoint a non-voting observer to the Company's Board of
Directors, designated by you and such observer shall receive notice of and be
entitled to attend all meetings of the Board of Directors. The Company agrees
it shall fully indemnify, defend and hold harmless such observer to the fullest
extent permitted by law with respect to all acts and omissions as an observer to
the Company's Board of Directors.
(r) The Company will reserve and keep available that maximum number of its
authorized but unissued Shares which are issuable upon exercise of the Warrants
and the Underwriter's Warrant (as defined in Section 11).
(s) The Company will not, prior to the First Closing Date, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction other than in the ordinary course of business, except as
disclosed prior thereto in the Prospectus.
(t) For a period of thirty-six (36) months from the Effective Date, you
shall have the right to provide a competitive 401k program to management and all
employees of the Company.
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(u) The Company shall select Common Stock and Warrant certificates and
utilize a stock transfer agent satisfactory to you.
(v) So long as any Warrants are outstanding, the Company shall use its
best efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the 1933 Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriters and each dealer as many copies of
each such Prospectus as the Underwriters or dealer may reasonably request.
4. CONDITIONS OF UNDERWRITER'S OBLIGATION.
The obligations of the Underwriter to purchase and pay for the Units which
it has agreed to purchase hereunder are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than December 1, 1997, 2:00 P.M.,
Milwaukee, Wisconsin time, on the date of this Agreement, or at such later time
or on such later date as to which you may agree in writing; on the Closing
Dates, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or any similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Niebler & Muren, S.C., counsel
to the Underwriter; and no stop order shall be in effect denying or suspending
effectiveness of the Registration Statement nor shall any stop order proceedings
with respect thereto be instituted or pending or threatened under the Act.
(b) Since the dates as of which information is given in the Registration
Statement:
(i) the Company shall not have sustained any material loss or
interference with its business from any labor dispute, fire, explosion, flood or
other calamity (whether or not insured), or from any court or governmental
action, order or decree; and
(ii) there shall not have been any change in the equity ownership,
short-term debt or long-term debt of the Company or a change, or a development
involving a prospective change, in or affecting the ability of the Company to
conduct its business (whether by reason of any court, legislative, other
governmental action, order, decree, or otherwise), or in the general affairs,
management, financial position, members' equity or results of operations of the
Company, whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement and Prospectus, the effect of which on the Company, in
any such case described in clause (i) or (ii) of this Section 4(b), is, in
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your judgment (exercising your sole discretion), so material and adverse as
to make it impracticable or inadvisable to proceed with the distribution of
the Offering or the delivery of the Units, Warrants and Shares on the terms
and in the manner contemplated in the Registration Statement and the
Prospectus.
(c) Between the date hereof and the First Closing Date and the Option
Closing Date if the option is exercised, there shall be no litigation instituted
or threatened against the Company and there shall be no proceeding instituted or
threatened against the Company before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially
adversely affect the business, franchises, licenses, patents, operations or
financial condition or income of the Company considered as an entity.
(d) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Gary A. Agron, counsel for the Company, in form
and substance satisfactory to counsel for the Underwriter, to the effect that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Florida and is
duly qualified or licensed to do business as a foreign corporation in good
standing in each other jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification except
where failure to so qualify would not result in a material adverse effect on the
Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and other
governmental authorizations necessary to the conduct of its business as
described in the Prospectus, (b) such obtained licenses, permits and other
governmental authorizations are in full force and effect, and (c) the Company is
in all material respects complying therewith;
(iii) the authorized capitalization of the Company as of the date
of the Prospectus was as set forth under "Description of Securities" in the
Prospectus; all of the shares of the Company's outstanding stock requiring
authorization for issuance by the Company's Board of Directors have been duly
authorized and validly issued, are fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the outstanding shares of
Common Stock of the Company have not been issued in violation of the preemptive
rights of any stockholder and the stockholders of the Company do not have any
preemptive rights or other rights to subscribe for or to purchase, and there are
no restrictions upon the voting or transfer of, any of the Common Stock; the
Units, Common Stock, Warrants and the Underwriter's Warrants conform to the
respective descriptions thereof contained in the Prospectus; the Units and each
Unit component to be issued as contemplated in the Registration Statement has
been duly authorized and, when paid, will be non-assessable and free of
preemptive rights, and no personal liability will attach to the ownership
thereof; all prior sales of the Company's securities have been made in
compliance with, or under an exemption from, the Act and applicable state
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securities laws; a sufficient number of shares of Common Stock have been
reserved for issuance upon exercise of the Warrants and the Underwriter's
Warrants; and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units as contemplated by
this Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the registration
of the Units;
(iv) the Company has full power and authority to enter into and
perform each of this Agreement, the Underwriter's Warrant, the Warrant Agreement
and the Warrants; all of such agreements, and the performance of the obligations
of the Company hereunder, have been duly authorized by all necessary action and
have been duly executed and delivered by and on behalf of the Company, and
assuming due authorization, execution and delivery of this Agreement by the
Underwriter and of such other agreements by the other parties thereto, all of
such agreements are legal, valid and binding agreements of the Company
enforceable in accordance with their terms; provided that no opinion need be
expressed as to the enforceability of the indemnity provisions contained in
Section 6 or the contribution provisions contained in Section 7 of this
Agreement, and except that rights to identify or contribution may be limited by
applicable law and enforceability of the agreement may be limited by
bankruptcy, (as described in paragraph 1(f) above) insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally; and no
approval, authorization or consent of any court, board, agency or
instrumentality of the United States or of any state or other jurisdiction is
necessary in connection with the execution and delivery of this Agreement, or in
connection with the issue or sale of the Units by the Company pursuant to this
Agreement (other than under the Act, applicable Blue Sky Laws and the rules of
the NASD) or the consummation by the Company of any transaction contemplated by
this Agreement;
(v) the Warrant Shares (including those issuable upon exercise of the
Underwriter's Warrants) and Underwriter's Warrant Units have been duly
authorized and reserved for issuance and, when issued and delivered in
accordance with the terms of this Agreement and the Underwriter's Warrant,
respectively, will be duly and validly issued, fully paid and nonassessable.
(vi) the certificate evidencing the Unit components and the
Underwriter's Warrants are in valid and proper legal form; the Warrants and the
Underwriter's Warrants will be exercisable for shares of Common Stock of the
Company in accordance with the terms of the Warrant Agreement and the
Underwriter's Warrant, respectively; and at the respective prices therein
provided for; the shares of Common Stock of the Company issuable upon exercise
of the Warrants and the Underwriter's Warrants have been duly authorized and
reserved for issuance upon such exercise or conversion, and such shares, when
issued upon such exercise in accordance with the terms of the Warrants and the
Underwriter's Warrants and at the price paid, or upon such conversion, shall be
fully paid and non-assessable;
(vii) such counsel knows of no pending or threatened legal suit,
proceeding, inquiry or investigation to which the property of the Company is
subject, before or brought by any court governmental agency or body or
arbitration tribunal which could materially and
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adversely affect the business, property, financial position/condition, net
worth, operations or prospects of the Company or its affiliates or materially
and adversely affect their respective properties or assets, or which question
the validity of the Units or the components thereof, this Agreement, the
Warrant Agreement or the Underwriter's Warrant or of any action taken or to
be taken by the Company pursuant to this Agreement, the Warrant Agreement or
the Underwriter's Warrant; no such proceedings are known to such counsel to
be contemplated against the Company, or its assets; and there are no
governmental proceedings or regulations known to such counsel required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(viii) to the best knowledge of such counsel, the Company is not in
violation of or default under this Agreement, the Warrant Agreement or the
Underwriter's Warrant, and the execution and delivery hereof and thereof and the
incurrence of the obligations herein and therein set forth and the consummation
of the transactions herein or therein contemplated will not result in a
violation of, or constitute a default under, the certificate or articles of
incorporation or by-laws of the Company, or in the performance or observation of
any material obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or instrument
to which the Company is a party or in a violation of any material order, rule,
regulation, writ, injunction or decree or any government, governmental
instrumentality or court, domestic or foreign;
(ix) the Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is pending before, or threatened by, the
Commission or any "blue sky" or securities authority; to the best knowledge of
such counsel, all descriptions in the Registration Statement and the Prospectus
of statutes, regulations and governmental proceedings are accurate and fairly
present the information disclosed in all material respects, and such counsel
does not know of any legal, governmental or regulatory proceedings, pending or
threatened, required to be described in the Prospectus, nor of any contracts or
documents of a character required to be described in or filed as exhibits to the
Registration Statement, which are not so described or filed;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus, such counsel has no reason to believe
that the Registration Statement or the Prospectus or any amendment or supplement
thereto or any document incorporated by reference therein at the time it became
effective contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading (except, for the financial statements, notes
thereto and other financial information and statistical data contained therein,
as to which such counsel need express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents filed as exhibits to the
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Registration Statement are accurate and fairly present the information
required to be shown, and such counsel is familiar with all contracts and
other documents filed as exhibits to the Registration Statement and the
Prospectus and any such amendment or supplement, or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized, described or filed;
(xii) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units or Unit
components by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking of
any action contemplated herein, or the issuance of the Warrants, Underwriter's
Warrants or the securities underlying the Warrants and the Underwriter's
Warrants, other than registration or qualification of the Units and
Underwriter's Warrants under applicable state or foreign securities or blue sky
laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds,"Management" and "Description of
Securities" have been reviewed by such counsel and, insofar as they refer to
descriptions of agreements, statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all material
respects;
(xiv) to the best knowledge of such counsel, the Company has good
and marketable title to all the property and assets reflected as owned by it in
the Prospectus, subject to no lien, mortgage, pledge, charge or encumbrance of
any kind or nature whatsoever except those, if any, reflected in the Prospectus
or which are not material to the Company and do not materially affect the value
of such property and do not materially interfere with the use made or proposed
to be made of such property; to the best knowledge of such counsel, all property
held or used by the Company under leases, licenses, franchises or other
agreements are held by it under valid, subsisting and enforceable leases,
licenses, franchises or other agreements, subject to bankruptcy, insolvency or
similar laws generally affecting the rights of creditors and equitable
principles effecting the right to obtain specific enforcement or similar
equitable relief;
(xv) to the best knowledge of such counsel, there are no holders of
securities of the Company having rights to the registration of such securities,
and there are no options, warrants or other rights to purchase or otherwise
acquire any equity interest in the Company, or any security convertible such
equity interest, except as disclosed in the Prospectus; and
(xvi) to the best knowledge of such counsel, the Company is not in
violation of its articles of incorporation or by-laws, or other organizational
or charter documents or in default (nor has an event occurred which, with
notice, lapse of time or both, would constitute such a default) in the
performance of any obligation, agreement or condition contained in any bond,
indenture, mortgage, deed of trust, note, bank loan or credit agreement or any
other agreement or instrument to which the Company is a party or by which the
Company or any of its property may be bound or affected, and to the best
knowledge of such counsel, the Company is not in
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violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where such violation or default could have a
material adverse effect on the respective business, property or operations of
the Company.
Such opinion shall also cover such matters including to the transactions
contemplated hereby as you or counsel for the Underwriter shall reasonably
request. In rendering such opinion, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact; and may
rely as to all matters of law other than the law of the United States or the
corporate law of the State of Utah upon opinions of counsel satisfactory to you,
which may also be addressed to you, in which case the opinion shall state that
they have no reason to believe that you and they are not entitled to so rely.
(e) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by Niebler & Muren, S.C.,
counsel to the Underwriter, and you shall have received from such counsel a
signed opinion, dated as of the First Closing Date, with respect to the validity
of the issuance of the Units, the form of the Registration Statement and
Prospectus (other than the financial statements and other financial data
contained therein), the execution of this Agreement and other related matters as
you may reasonably require. The Company shall have furnished to counsel for the
Underwriter such documents as they may reasonably request for the purpose of
enabling them to render such opinion.
(f) At both the time of the execution of this Agreement by the Company and
at the Closing Date, you shall have received letters in form and substance
satisfactory to you, from AJ. Robbins, P.C. (the "Auditors"), dated respectively
as of the date of this Agreement and as of the Closing Date, to the effect that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and published Rules and Regulations, and that the
Registration Statement is correct insofar as it relates to them and stating in
effect that:
(i) In their opinion the audited financial statements and notes of
the Company in the Registration Statement and the Prospectus examined by them
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulation with respect to
registration statements on Form SB-2.
(ii) On the basis of inquiries and procedures conducted by them (not
constituting an examination in accordance with generally accepted auditing
standards), including a reading of the financial information and other data
included in the Registration Statement and the Prospectus in response to Item
310 of Regulation S-B; that on the basis of inquiries of officials of the
Company who have responsibility for financial accounting matters, especially as
to whether there was any adverse change in revenues, net income, or any change
in the capital stock of the Company or any change in the long-term debt or any
increase in bank borrowings or any decreases in total assets, net current assets
or shareholders' equity of the Company; reviewing minutes of all meetings of
shareholders and boards of directors (and various committees thereof) of the
Company since inception and other specified inquiries and
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procedures, nothing has come to their attention as a result of the foregoing
inquiries and procedures that caused them to believe that:
(A) the audited financial statements for the years ended
December 31, 1995 and December 31, 1996, as to the Company, included in the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published Rules and Regulations with
respect to registration statements on Form SB-2; or said financial statements
are fairly presented in conformity with generally accepted accounting
principles; or the amounts included in the Registration Statement and the
Prospectus in response to Item 310 of Regulation S-B are not consistent with the
corresponding amounts in the audited or unaudited financial statements from
which such amounts were derived; or
(B) during the period from December 31, 1996 to a specified date
not more than five (5) days prior to the date of such letter, there has been any
change in the Common Stock or long-term debt of the Company or any increase in
bank borrowings of the Company or any decrease in the shareholders' equity or
working capital of the Company or change in any other item appearing on the
Company's financial statements as to which the Underwriter may request advice,
in each case as compared with amounts shown in the financial statements included
in the Prospectus, except in each case for increases or deficiencies which the
Prospectus discloses have occurred or may occur, or as specified in such letter,
in which case the letter shall be accompanied by an explanation by the Company
of the significance thereof.
(iii) On the basis of certain procedure agreed to by the
Underwriter and the Auditors and described in their letter or letters, certain
numerical data and information included in the Registration Statement and
Prospectus and referred to in their letter were in agreement with specifically
designated records of the Company which were not included in the Registration
Statement and Prospectus but from which information in the Registration
Statement or the Prospectus was derived.
(g) There shall have been furnished to you, on each Closing Date, a
certificate of the principal executive officer and the principal financial
officer of the Company, dated as of such Closing Date, to the effect that:
(i) the representations and warranties of the Company which are set
forth in this Agreement thereof are true and correct as of the date of this
Agreement and as of each Closing Date, as if again made on and as of such
Closing Date, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to such
Closing Date;
(ii) to the best of their knowledge, the Commission has not issued an
order preventing or suspending the use of the Prospectus or any Preliminary
Prospectus filed as part of the Registration Statement or any amendment thereto,
no stop order suspending the effectiveness
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of the Registration Statement or enjoining the use of the Prospectus has been
issued, and no proceedings for that purpose have been instituted or are
pending or contemplated under the Act;
(iii) each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus and, in his
opinion and to the best of his knowledge, information and belief, the
Registration Statement and the Prospectus and any amendments or supplements,
thereto contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations to be stated therein, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented prospectus which has not been so set forth: and
(iv) since the effective date of the Registration Statement, there has
not been any material adverse change or, to their knowledge, a development
involving a prospective material adverse change in the business, properties,
financial conditions, general affairs or earnings of the Company, whether or not
arising from transactions in the ordinary course of business, except as
disclosed in the Registration Statement and Prospectus theretofore amended
including the proposed amendment thereto delivered to you prior to or
contemporaneously with the execution of this Agreement or (but only if you
expressly consent thereto in writing) delivered to you thereafter; since such
date and except as so disclosed, or in the ordinary course of business, the
Company has not incurred any liability or obligation, direct or indirect, or
entered into any material transaction; since such date and except as so
disclosed there has not been any material change in the equity ownership of the
Company or its short-term debt or long-term debt; since such date and except as
so disclosed, no action, suit or proceeding at law shall be pending or
threatened against the Company which would be required to be disclosed in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company before or by any commission, board or administrative agency
in the United States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company; and since such date and except as so disclosed, the Company has not
incurred any material contingent obligations, and no material litigation is
pending or, to their knowledge, threatened against the Company; and, since such
date and except as so disclosed, the Company has not sustained a material loss
or interference with its business from any labor dispute, fire, explosion, flood
or other calamity (whether or not insured) or from any court or governmental
action, order or decree.
The delivery of the certificate provided for in this Section shall be and
constitute a representation and warranty of the Company as to the facts required
in the immediately foregoing clauses (i), (ii), (iii) and (iv) of this Section
to be set forth in said certificate;
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(h) Upon exercise of the option provided for in Section 2(b) hereof, your
obligations to purchase and pay for the Option Units referred to therein will be
subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, no stop order suspending the effectiveness thereof shall have been
issued, and no proceedings for that purpose shall have been instituted or shall
be pending, or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of Niebler & Muren, S.C., counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been delivered to you
the signed opinion of Gary A. Agron, counsel for the Company, dated as of the
Option Closing Date, in form and substance satisfactory to Niebler & Muren,
S.C., counsel to the Underwriter, which opinion shall be substantially the same
in scope and substance as the opinion furnished to you at the First Closing Date
pursuant to Section 4(d) hereof, except that such opinion, where appropriate,
shall cover the Option Shares rather than the Firm Shares. If the First Closing
Date is the same as the Option Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the Chairman of the Board and the principal financial
officer of the Company dated the Option Closing Date, in form and substance
satisfactory to Niebler & Muren, S.C., counsel to the Underwriter, substantially
the same in scope and substance as the certificate furnished to you at the First
Closing Date pursuant to Section 4(g) hereof.
(iv) At the Option Closing Date, there shall have been delivered to
you letters in form and substance satisfactory to you from the Auditors, dated
the Option Closing Date and addressed to you, confirming the information in
their letter referred to in Section 4(f) hereof as of the date thereof and
stating that, without any additional investigation required, nothing has come to
their attention during the period from the ending date of their review referred
to in said letter to a date not more than five (5) business days prior to the
Option Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be satisfactory
in form and substance to you, and you and Niebler & Muren, S.C., counsel to the
Underwriter, shall have been furnished with all such documents, certificates and
opinions as you may request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the covenants or
conditions contained therein.
(i) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be cancelled at, or at
any time prior to, each Closing
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<PAGE>
Date by your notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the Underwriter to the Company, except as
otherwise provided herein.
(j) There shall have been furnished to you, on or before the First Closing
Date, the Lock Up Agreement signed by the Company, and each shareholder,
director and officer so required.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and your counsel. The Company shall promptly furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
other documents as you may reasonably request from time to time. With respect
to any Closing, by written instrument delivered to the Company, you may from
time to time, in your sole discretion, waive any of the requirements imposed
upon the Company pursuant to this Section, including without limitation the
requirement that any opinion, certificate, survey or other document be delivered
to you at any Closing or as of any Closing Date; any such waiver by you with
respect to a Closing shall not in any way be construed as such waiver with
respect to any other Closing. If any condition to your obligations hereunder to
be satisfied prior to or a Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification to the Company without liability
on the part of you or the Company, except for the expenses or fees to be paid or
reimbursed by the Company pursuant to Section 8 hereof and except to the extent
provided in Sections 6 and 7 hereof.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Units is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
December 1, 1997 at 2:00 p.m. Milwaukee, Wisconsin time, on the date of this
Agreement, or on such later date or time as the Company and you may agree in
writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Units on exercise of
the option provided for in Section 2(b) hereof shall be affected.
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<PAGE>
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless you, each of your
officers, directors, employees and agents, and each person, if any, who controls
you within the meaning of the Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which you or each such
officer, director, employee, agent or controlling person may become subject
under the Act, the Exchange Act, Blue Sky Laws or other federal or state laws or
regulations, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in or incorporated in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any application filed under any Blue Sky
Law or other document executed by the Company specifically for that purpose or
based upon written information furnished by the Company and filed in any state
or other jurisdiction in order to qualify any or all of the Units under the
securities laws thereof (any such document, application or information being
hereinafter referred to as a "Blue Sky Application") or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; the Company agrees to reimburse you and each such other indemnified
person for any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that:
(i) any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or in any Blue Sky
Application in reliance upon and in conformity with written information
furnished to the Company by you specifically for use therein (but in no event
shall the assistance in the drafting of all or any portion of the Registration
Statement, any Preliminary Prospectus, the Prospectus, such amendment or
supplement or such other document of the type referred to in the preceding
paragraph by you or your counsel constitute such information); or
(ii) if such statement or omission was contained or made in a
Preliminary Prospectus and corrected in the Prospectus and (i) any such loss,
claim, damage or liability suffered or incurred by you (or any person who
controls you) resulted from an action, claim or suit by any person who purchased
Units from you in the Offering, and (ii) you failed to deliver or provide a copy
of the Prospectus to such person at or prior to the confirmation of the sale of
such Units in any case where such delivery is required by the Securities Act
unless such failure was due to failure by the Company to provide copies of the
Prospectus to you as required by this Agreement.
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<PAGE>
The indemnification obligations of the Company as provided above are in
addition to any liabilities the Company may otherwise have under other
agreements, under common law or otherwise.
(b) You will indemnify and hold harmless the Company, each of the
directors and officers of the Company who sign the Registration Statement, and
each person, if any, who controls the Company within the meaning of the Act or
the Exchange Act, against any losses, claims, damages or liabilities to which
the Company or any such director, officer or controlling person may become
subject under the Act, the Exchange Act, Blue Sky Laws or other federal or state
laws or regulations, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with your written consent, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
Blue Sky Application, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, in reliance upon and in
conformity with any written information furnished to the Company by you
specifically for use therein (but in no event shall the assistance in the
drafting of all or any portion of the Registration Statement, any Preliminary
Prospectus, the Prospectus, such amendment or supplement or such other document
of the type referred above by you or your counsel constitute such information).
You agree to reimburse the Company and each such other indemnified person for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action.
Your indemnification obligations as provided above are in addition to any
liabilities which you may otherwise have under other agreements, under common
law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ
26
<PAGE>
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Underwriter or a person
who controls the Underwriter within the meaning of the Act, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such
action (including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party, and in the reasonable judgment
of the Underwriter, it is advisable for the Underwriter or controlling
persons to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Underwriter or such controlling person, it being understood, however,
that the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). No settlement of any action against an indemnified party shall be
made without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnified party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriter makes claims for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price per Unit appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law, then the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
27
<PAGE>
Company and the Underwriter agree (a) that it would not be just and equitable if
the respective obligations of the Company and the Underwriter to contribute
pursuant to this Section 7 were to be determined by PRO RATA or PER CAPITA
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this Section 7 and (b) that the contribution of the Underwriter
shall not be in excess of its proportionate share of the portion of such losses,
claims, damages or liabilities for which the Underwriter is responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
ll(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. As used in this paragraph, the
word "Company" includes any officer, director, or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriter. No contribution shall be requested with
regard to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Firm Units or Option Units to the Underwriter is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company, including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including reasonable fees (but not in excess of the amount set forth in Section
3(b)) and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units and Unit components under the State Securities or
Blue Sky Laws which we shall mutually designate; the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selling Agreement
and the Blue Sky Memorandum; the cost of printing the certificates representing
the components comprising the Units, expenses of Company due diligence meetings
and presentations. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$135,000 of which $20,000
28
<PAGE>
has been paid. In the event the over-allotment option is exercised in full,
the Company shall pay to you at the Option Closing Date an additional amount
equal to 3% of the gross proceeds received upon exercise of the
over-allotment option. In the event the transactions contemplated hereby are
not consummated for any reason, the Underwriter will retain that portion of
the $20,000 non-accountable expense allowance deposit received from the
Company as is equal to its actual accountable expenses and will reimburse the
Company for the remainder, if any.
(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter, and the Underwriter agrees to
indemnify and hold harmless the Company from and against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the indemnified party may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 9:00 a.m. Milwaukee,
Wisconsin time, on the first full business day following the Effective Date, or
at such earlier time after the Effective Date as you in your discretion shall
first commence the initial public offering of any of the Shares. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Shares, or the time when the Shares
are first generally offered by you to dealers by letter, telegram, or telefax
whichever shall first occur. This Agreement may be terminated by you at any time
before it becomes effective as provided above, except that Sections 3(c), 6, 7,
8, 12, 13, 14 and 17 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 17,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2(b), if exercised, may be cancelled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriter for the resale of
the Units agreed to be purchased hereunder, by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal, Florida or New York
State
29
<PAGE>
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably
believed likely by you to have a material adverse impact on the business,
financial condition or financial statements of the Company, (vii) any adverse
change having occurred in the sole opinion of the Underwriter in the
financial or securities markets since the date of this Agreement, (viii) any
event shall have occurred or shall exist which makes untrue or incorrect in
any material respect any statement or information contained in the
Registration Statement or which is not reflected in the Registration
Statement but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect; or (ix)
any adverse change having occurred in the sole opinion of the Underwriter
with respect to the earnings, business prospects or general condition of the
Company, financial or otherwise, other than normal fluctuations in sales,
whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone, telegram, or telefax
confirmed by letter.
(c) Any termination pursuant to section 10 or 9 of the Agreement shall be
without liability of the Underwriter to the Company or on the part of the
Company to the Underwriter, including, but not limited to, loss of anticipated
profits or consequential damages except that the Company shall remain obligated
to pay the costs and expenses provided to be paid in Section 4(b) and 8 hereof
and except as to indemnification and contribution as provided in Section 6 and 7
hereof.
11. UNDERWRITER'S WARRANT.
On the First Closing Date, the Company will issue to you, for a
consideration of $100 and upon the terms and conditions set forth in the form of
Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase up to 55,000 Units at an exercise price of
$12.00 per Unit. In the event of conflict in the terms of this Agreement and
the Underwriter's Warrant, the language of the Underwriter's Warrant shall
control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
(a) All representations, warranties, covenants and agreements of the
Company, the Company and the Underwriter contained herein or in certificates of
officers delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 6 and 7 hereof, shall survive the delivery and
execution of this Agreement and the Closing Date and shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
you
30
<PAGE>
or any person controlling you, the Company or any of its officers, directors,
or controlling persons.
(b) The indemnification and contribution provisions of Section 6 and 7
hereof are in addition to any and all remedies or rights which either of the
parties hereto may have, including the right to sue and recover damages for any
breach of any representation, warranty or covenant made or given by either of
the parties hereto to any other party.
13. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to you, will be mailed, certified mail,
return receipt requested, delivered or telegraphed or telefaxed and confirmed
at 1233 N. Mayfair Road, Suite 117, Milwaukee, Wisconsin 53226, telefax
(414) 778-0820, or if sent to the Company, will be mailed, certified mail,
return receipt requested, delivered, or telegraphed or telefaxed and confirmed
to it at 20 North Orange Avenue, Orlando, Florida 32801, telefax (407) 648-8101.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriter and the Company and any person controlling the Company, or the
Underwriter, and directors of the Company, nominees for directors of the Company
(if any) named in the Prospectus, the officers of the Company who have signed
the Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from the Underwriter of the Units.
15. INTEGRATION. This Agreement (including the Schedules hereto) constitutes
the entire agreement among the parties hereto with respect to the subject
matters hereof and supersedes all prior agreements and understandings among the
parties both written and oral.
16. PARTIAL UNENFORCEABILITY. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other
Section, paragraph or provision hereof.
17. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of Wisconsin applicable to agreements made and to be entirely
performed within Wisconsin.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
31
<PAGE>
Very truly yours,
ORLANDO PREDATORS ENTERTAINMENT, INC.
By
-------------------------------------
Jack Youngblood, President
Dated: , 1997
------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
FIRST MIDWEST SECURITIES, INC.
By
-------------------------------------
James Linna, President
Dated: , 1997
------------------
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Exhibit 1.08
ORLANDO PREDATORS ENTERTAINMENT, INC.
550,000 UNITS
AGREEMENT AMONG UNDERWRITERS
To each of the Underwriters named ________ __, 1997
in Schedule I to the attached
Underwriting Agreement
Dear Sirs:
1. UNDERWRITING AGREEMENT. Orlando Predators Entertainment, Inc., a
Florida corporation (the "Company") proposes to enter into an underwriting
agreement in the form of the Underwriting Agreement attached hereto (the
"Underwriting Agreement") with the underwriters named in Schedule I to the
Underwriting Agreement (the "Underwriters") for whom we are acting as
representative (the "Representative"), acting severally and not jointly, with
respect to the purchase from the Company of an aggregate of 550,000 units (the
"Firm Units"), each unit ("Unit") consisting of two (2) shares of the Company's
no par value Common Stock (the "Common Stock"), and one redeemable Common Stock
Warrant entitling the holder thereof to purchase for $7.50, one share of Common
Stock for a term of two years from the effective date of the Registration
Statement described below in Section 2. In addition, the Company proposes to
sell to the Underwriters up to an additional 82,500 Units (the "Optional Units")
for the purpose of covering over-allotments.
Under the terms of the Underwriting Agreement, each of the Underwriters
will agree, in accordance with the terms thereof, to purchase on a firm
commitment basis the number of Units set forth opposite its name in said
Schedule I, subject to adjustment pursuant to Section 12 hereof.
2. REGISTRATION STATEMENT AND PROSPECTUS. The Units are described in a
registration statement on Form SB-2 (File No. 333-____) and related prospectus
which have been filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act") and
the rules and regulations of the Commission thereunder. A copy of Amendment No.
1 to the registration statement has been delivered to you. An additional
amendment to such registration statement has been or will be filed in which you
have been or will be named as one of the Underwriters of the Units, and you
hereby authorize us to approve on your behalf any further amendments or
supplements which may be necessary or appropriate. The registration statement,
as amended at the time it becomes effective, is called the "Registration
Statement" and the final prospectus as filed by the Company with the Commission
pursuant to Rule 424(b) under the Act, is referred to as the "Prospectus."
3. AUTHORITY OF REPRESENTATIVE. You authorize us as your Representative
to execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to
price and number of the Units to be purchased by you except as provided herein
and therein) and to take such actions as in our
<PAGE>
discretion we may deem advisable in respect of all matters pertaining to the
Underwriting Agreement, this Agreement, and the transactions for the accounts
of the several Underwriters contemplated thereby and hereby, determining
whether and to what extent to purchase the Optional Units on behalf of the
Underwriters, and the purchase, carrying, sale and distribution of the Units.
4. PUBLIC OFFERING. In connection with any public offering of the Units,
you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement becomes effective), the initial public
offering price, and the concessions and reallowances to dealers, to change the
public offering price and such concessions and reallowances after the initial
public offering, to furnish the Company with the information to be included in
the Registration Statement and the Prospectus and any amendment or supplement
thereto with respect to the terms of the offering, and to determine all matters
relating to the public advertisement of the Units and any communications with
dealers or others;
(b) To reserve all or any part of your Units for sale to retail
purchasers and to dealers selected by us ("Selected Dealers") among whom may be
included any Underwriter (including ourselves) and each of whom shall be a
member of the National Association of Securities Dealers, Inc., such
reservations for sales to retail purchasers to be as nearly as practicable in
proportion to the respective underwriting obligations of the Underwriters and
such reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Units such aggregate
number of Units retained by you remaining unsold and to release to you any of
your Units reserved but not sold;
(c) To sell reserved Units, as nearly as practicable in proportion to
the respective reservations, to retail purchasers at the public offering price
and to Selected Dealers at the public offering price less a concession (the
"Selected Dealer's Concession") pursuant to the Selling Agreement in
substantially the form attached; and
(d) To buy Units for your account from Selected Dealers at the public
offering price less such amount not in excess of the Selected Dealer's
Concession as we may determine.
After advice from us that the Units are released for public offering, you
will offer to the public in conformity with the terms of the offering set forth
in the Prospectus, or in any amendment or supplement thereto, such of your Units
as we advise you are not reserved.
You recognize the importance of a broad distribution of the Units among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution, and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Units to Selected Dealers we will
take such action as we deem appropriate to effect a broad distribution.
2
<PAGE>
5. REPURCHASE OF UNITS NOT EFFECTIVELY PLACED FOR INVESTMENT. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
Underwriter prior to the termination of the provisions referred to in Section 11
of this Agreement, shall be repurchased by you on demand at the cost of such
purchase plus brokerage commissions and transfer taxes on redelivery. Units
delivered on such repurchase need not be the identical Units purchased by you.
In lieu of demanding repurchase by you we may in our discretion (a) sell for
your account the Units so purchased by us, at such price and upon such terms as
we may determine, and debit or credit your account with the loss and expense or
net profit resulting from such sale, or ((b) charge your account with an amount
not in excess of the Selected Dealer's Concession with respect to such Units
plus brokerage commissions and transfer taxes paid in connection with such
purchase.
6. PAYMENT AND DELIVERY. You agree to deliver to us at or before 8:00
a.m., local Milwaukee time, on the Initial Closing Date referred to in the
Underwriting Agreement, a certified check or bank cashier's check payable in
Clearing House funds to the order of First Midwest Securities, Inc., as
Representative, for the full purchase price of the Units which you shall have
agreed to purchase from the Company. The proceeds shall be delivered in the
amounts required in each case for payment of the full purchase price by us to
the Company against delivery of the Units to us for your account. You authorize
us to accept that delivery and to give a receipt therefore. We may in our
discretion make such payment on your behalf with our own funds, in which event
you will reimburse us promptly upon request. You authorize us, as your
custodian, to take delivery of your Units registered as we may direct, in order
to facilitate deliveries. You also authorize us to hold for your account such
of your Units as we have reserved for sale to retail purchasers and to Selected
Dealers and to deliver your reserved Units against such sales. We will deliver
your unreserved Units to you promptly and, after we receive payment for reserved
Units sold by us for your account, we will remit to you an amount equal to the
price paid by you for such Units. As soon as practicable after termination of
Sections 4, 5 and 9 and the first sentence of Section 8 of this Agreement
(pursuant to Section 11 hereof) we will deliver to you any of your Units
reserved but not sold. All Units delivered to you pursuant to this Section will
be evidenced by certificates in such denominations as you shall direct by
written notice received by us not later than the third full business day
preceding the Initial Closing Date.
7. AUTHORITY TO BORROW. In connection with the purchase or carrying of
any Units purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Units. Any lender may rely on our instructions in all matters relating to
any such loans. Any of your Units held by us for your account may be delivered
to you for carrying purposes only, and subject to our further direction.
8. STABILIZATION AND OVER-ALLOTMENT. To facilitate the distribution of
the Units, you authorize us during the term of this Agreement, or for such
longer period as may be necessary, in our discretion, and without obligating us
to do so, to make purchases and sales of the Units
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for your account in the open market or otherwise, for long or short account,
on such terms and at such prices as we deem advisable and, in arranging
sales, to over-allot. You also authorize us to cover any short position
incurred pursuant to this Section by purchase of any or all of the Optional
Units from the Company pursuant to the option contained in the Underwriting
Agreement or otherwise on such terms as we deem advisable. All such
purchases and sales and over-allotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their
respective underwriting obligations. You will on our demand take up at cost
or deliver against payment any Units so purchased or sold or over-allotted
for your account. You will be obligated in respect of purchases and sales
made for your account hereunder whether or not the proposed purchase of the
Units is consummated. Your net commitment shall not, at the end of any
business day, exceed 15% of your maximum underwriting obligation.
Notwithstanding the foregoing limitations, in the event of default by one or
more Underwriters in respect of their obligations under this Section, you
will assume your proportionate Unit of such obligation without relieving the
defaulting Underwriter from liability.
In the event that we effect any stabilizing purchases pursuant to this
Section, we will notify each Underwriter promptly of the date and time when the
first stabilizing purchase is effected and the date and time when stabilizing is
terminated. Each Underwriter agrees that if it effects any stabilizing
purchases, it will, not later than three business days following the day on
which any such stabilization purchase is effected, notify us of the price, date
and time at which such stabilizing purchase was effected and will promptly
notify us of the date and time when stabilizing was terminated by such
Underwriter. Each Underwriter authorizes us to file with the Commission all
notices and reports which may be required as a result of any transactions made
pursuant to this Section.
Upon request you will advise us of Units retained by you or purchased by
you from other Underwriters and Selected Dealers and remaining unsold and will
sell to us for the account of one or more of the Underwriters such of your
unsold Units as we may designate, at the public offering price thereof less such
amount as we may determine, but not in excess of the Selected Dealer's
Concession with respect thereto.
If, pursuant to the provisions of the first paragraph of this Section and
prior to the termination of this Agreement (or such earlier date as we may have
determined on notice to the Underwriters), we purchase or contract to purchase
any Units which were retained by or released to you for direct sale, which Units
were theretofore not effectively placed for investment by you, you authorize us
in our discretion either to charge you account with an amount equal to the
Selected Dealer's Concession with respect thereto or to require you to
repurchase such Units at a price equal to the total cost of such purchase,
including commissions, if any, and transfer tax on the redelivery. Units
delivered on such repurchase need not be the identical Units originally
purchased by and delivered to you.
Upon the termination of this Agreement, we are authorized in our
discretion, in lieu of delivering to the several Underwriters any Units then
held for their respective accounts pursuant to this Section, to sell such Units
for the accounts of each of the Underwriters at such price or
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prices as we may determine and debit or credit your account for the loss or
profit resulting from such sale.
9. OPEN MARKET TRANSACTION. We and you agree not to bid for, purchase,
attempt to induce others to purchase or sell, directly or indirectly, any Units
except as brokers pursuant to unsolicited orders and as otherwise provided in
this Agreement or in the Underwriting Agreement. You further agree not to offer
the Units for sale until notified by us, as Representative, that they are
released for that purpose.
10. EXPENSES AND SETTLEMENT. We may charge your account with Selected
Dealer's Concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement or in connection with the purchase, carrying, sale or
distribution of the Units. Our determination of the amount and allocation of
the expenses shall be conclusive. As soon as practicable after termination of
the provisions referred to in Section 11, the accounts hereunder will be
settled, but we may reserve from distribution such amount as we deem advisable
to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (a)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association, partnership,
unincorporated business or other separate entity, and of any expenses incurred
by us, or by any other Underwriter with our approval, in contesting any such
liability, and (b) any transfer taxes which may be assessed and paid after such
settlement on account of any sale or transfer for your account.
11. TERMINATION. The provisions of Sections 4, 5 and 9 and the first
sentence of Section 8 of this Agreement shall terminate 30 days after the date
of this Agreement unless extended by us. We may extend said provisions for
periods not exceeding an additional 30 days in the aggregate, provided that the
Selected Dealers Agreements, if any, are similarly extended. Whether extended
or not, said provisions may be terminated in part or in whole by notice from us
to the effect that the provisions referred to in this Section 11 have been so
terminated.
12. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters
hereunder or under the Underwriting Agreement shall not release the other
Underwriters from their obligations or affect the liability of any defaulting
Underwriter to the other Underwriters for damages resulting from such default.
In case of default under the Underwriting Agreement by one or more Underwriters,
we may arrange for the purchase by others, including non-defaulting
Underwriters, of Units not taken up by such defaulting Underwriters, and you
will, at our request, increase pro rata with the other non-defaulting
Underwriters the number of Units which you are to purchase. In the event any
such arrangements are made, the respective number of Units to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the Underwriters and by such others shall be taken as the basis for the
underwriting obligations under this Agreement.
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In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. POSITION OF REPRESENTATIVE. We shall be under no liability to you for
any act or omission, except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred therefrom.
Nothing shall constitute the Underwriters, or any of them, an association,
partnership, unincorporated business or other separate entity and the rights and
liability of ourselves and each of the other Underwriters are several and not
joint.
14. INDEMNIFICATION. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act of 1933, as amended, to the extent
and upon the terms by which each Underwriter agrees to indemnify the Company in
the Underwriting Agreement. Such indemnity agreement shall survive the
termination of any of the provisions of this Agreement.
In the event that at any time any claim shall be asserted against us, as,
or a result of our having acted as, Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in investigating
and defending against such claim or claims, and your proportionate share (based
upon your underwriting obligation) of any liability incurred by us in respect of
such claim or claims, whether such liability shall be the result of a judgment
against us or as a result of any such settlement.
15. BLUE SKY MATTERS. You shall not have any responsibility with respect
to the right of any Underwriter or other person to sell Units in any
jurisdiction, notwithstanding any information we may furnish in that connection.
You hereby authorize us to file or cause to be filed, on your behalf, a New York
Further State Notice, if required, and to take such other action as may be
necessary or advisable to qualify the Units for offering and sale in any
jurisdiction.
16. TITLE TO SECURITIES. The Units purchased for the respective accounts
of the several Underwriters shall remain the property of those Underwriters
until sold; and no title to such securities shall in any event pass to us, as
Representative, by virtue of any of the provisions of this Agreement.
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17. CAPITAL REQUIREMENT. You confirm that your commitment hereunder will
not result in any violation of Section 8(b) or 15(c) of the Securities Exchange
Act of 1934 or the rules and regulations thereunder, including Rule 15c3-1, or
any provision of any applicable rules of any securities exchange to which you
are subject or of any restriction imposed upon you by such exchange.
18. NOTICES AND GOVERNING LAW. Any notice from you to us shall be
delivered, mailed, telegraphed, or telefaxed to us at First Midwest Securities,
Inc. Any notice from us to you shall be delivered, mailed, telegraphed, or
telefaxed to you at your address as set forth below.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Wisconsin.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc.. You represent that you are a member in
good standing of said Association.
Very truly yours,
FIRST MIDWEST SECURITIES, INC.
By
--------------------------------------
James Linna, President
Confirmed and accepted as of the date
first above written.
By
-------------------------------------
Name of Underwriter
-------------------------------------
Authorized Signature
-------------------------------------
Address
-------------------------------------
Telephone Number
-------------------------------------
Number of Units Purchased
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<PAGE>
Exhibit 1.09
FIRST MIDWEST SECURITIES, INC.
550,000 Units
Orlando Predators Entertainment, Inc.
SELLING AGREEMENT
Dear Sirs:
1. We, as Underwriter, are offering for sale an aggregate of 550,000
Units (the "Firm Units") of Orlando Predators Entertainment, Inc. (the
"Company") which we have agreed to purchase from the Company. In addition,
we have been granted an option to purchase from the Company up to an
additional 82,500 Units (the "Option Units") to cover over-allotments in
connection with the sale of the Firm Units. The Firm Units and the Option
Units purchased are herein collectively called the "Units." The Units and
the terms under which they are to be offered for sale by the Underwriter are
more particularly described in the Prospectus.
2. The Units are to be offered to the public by the Underwriter at the
price per Unit set forth on the cover page of the Prospectus (the "Public
Offering Price"), in accordance with the terms of the offering thereof set
forth in the Prospectus.
3. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Units for sale to certain dealers who are engaged in
the investment banking or securities business and who are either (i) members
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) dealers with their principal places of business located
outside the United States, its territories and its possessions and not
registered as brokers or dealers under the Securities Exchange Act of 1934,
as amended (the "1934 Act") who have agreed not to make any sales within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein (such dealers who shall agree to
purchase Units hereunder being herein called "Selected Dealers"), at the
Public Offering Price, less a selling concession (which may be changed) of
not in excess of $. per Unit payable as hereinafter provided, out of which
concession an amount not exceeding $. per Unit may be reallowable by
Selected Dealers to members of the NASD or foreign dealers qualified as
aforesaid. The Selected Dealers have agreed to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and if
any such dealer is a foreign dealer and not a member of the NASD, such
Selected Dealer also has agreed to comply with the NASD's interpretation
with respect to free-riding and withholding, to comply, as though it were a
member of the NASD, with the provisions of Section 8 and 36 of Article III of
such Rules of Fair Practice, and to comply with Section 25 of Article III
thereof as that Section applies to non-member foreign dealers. The
Underwriter may be included among the Selected Dealers.
<PAGE>
4. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the public offering of the
Units.
5. If you desire to purchase any of the Units, your application should
reach us promptly by telephone, telegraph or facsimile at our office at 1233
N. Mayfair Road, Suite 117, Milwaukee, Wisconsin 53213, Attention: William
R. Haese, Telephone No. (414) 778-1091 or (800) 776-3004, Fax No. (414)
778-0820. We reserve the right to reject subscriptions in whole or in part,
to make allotments and to close the subscription books at any time without
notice. The Units allotted to you will be confirmed subject to the terms and
conditions of this Agreement.
6. Any Units purchased by you under the terms of this Agreement may be
immediately reoffered to the public in accordance with the terms of offering
thereof set forth herein and in the Prospectus, subject to the securities or
blue sky laws of the various states or other jurisdictions.
You agree to pay us on demand an amount equal to the Selected Dealer
concession as to any Units purchased by you hereunder which, prior to the
termination of this Agreement, we may purchase or contract to purchase and,
in addition, we may charge you with any broker's commission and transfer tax
paid in connection with such purchase or contract to purchase. Certificates
for Units delivered on such repurchases need not be the identical
certificates originally purchased.
No expenses shall be charged to Selected Dealers. A single transfer tax,
if payable, upon the sale of the Units by the Underwriter to you will be paid
when such Units are delivered to you. However, you shall pay any transfer
tax on sales of Units by you and you shall pay your proportionate share of
any transfer tax (other than the single transfer tax described above) in the
event that any such tax shall from time to time be assessed against you and
other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Units other than as contained in the Prospectus.
7. The first three paragraphs of Section 6 hereof will terminate when
we shall have determined that the public offering of the Units has been
completed and upon telegraphic notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the
30th full business day after the date hereof; provided however, that we shall
have the right to extend such provisions for a further period or periods, not
exceeding an additional 30 full business days in the aggregate upon
telegraphic or facsimile notice to you.
8. For the purpose of stabilizing the market in the Units, we have
been authorized to make purchases and sales of the Units of the Company, in
the open market or otherwise, for long or short account, and, in arranging
for sales, to over-allot.
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9. On becoming a Selected Dealer, and in offering and selling the
Units, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to
the distribution of preliminary and final prospectuses for securities of an
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and
will comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
10. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Units are qualified for
sale under the respective securities or blue sky laws of such states and
other jurisdictions, but we assume no obligation or responsibility as to the
right of any Selected Dealer to sell the Units in any state or other
jurisdiction or as to the eligibility of the Units for sale therein.
11. No Selected Dealer is authorized to act as our agent or otherwise
to act on our behalf, in offering or selling the Units to the public or
otherwise or to furnish any information or make any representation except as
contained in the Prospectus.
12. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriter or with each other,
but you will be responsible or your share of any liability or expense based
on any claim to the contrary. We shall not be under any liability for or in
respect of value, validity or form of the Units or the delivery of the
certificates for the Units, or the performance by anyone of any agreement on
its part, or the qualification of the Units for sale under the laws of any
jurisdiction, or for or in respect of any other matter relating to this
Agreement, except for lack of good faith and for obligations expressly
assumed by us or by the Underwriter in this Agreement and no obligation on
our part shall be implied herefrom. The foregoing provisions shall not be
deemed a waiver of any liability imposed under the 1933 Act.
Payment for the Units sold to you hereunder is to be made at the Public
Offering Price less the above-mentioned selling concession at such time and
date as we may advise, at the office of First Midwest Securities, Inc., at
the address indicated above, by a certified or official bank check in
Clearing House funds, payable to the order of First Midwest Securities, Inc.,
against delivery of certificates for the Units. If such payment is not made
at such time, you agree to pay us interest on such funds at the prevailing
brokers' loan rate.
13. Notices should be addressed to us at our office address indicated
above. Notices to you shall be deemed to have been duly given if telegraphed,
mailed, or telefaxed to you at the address to which this letter is addressed.
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14. This Agreement shall be governed by and construed exclusively in
accordance with the laws of the State of Wisconsin without giving effect to
the choice of law or conflicts of law principles thereof.
15. If you desire to purchase any Units, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith, even though you may have previously
advised us thereof by telephone, telegraph or fax. Our signature hereon may
be by facsimile.
Very truly yours,
FIRST MIDWEST SECURITIES, INC.
By:
------------------------------------
James Linna, President
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First Midwest Securities, Inc.
1233 N. Mayfair Road, Suite 117
Milwaukee, WI 53213
Gentlemen:
We hereby irrevocably subscribe for ________ Units of Orlando Predators
Entertainment, Inc. in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Prospectus referred
to in the first paragraph thereof relating to said Units and we confirm that
we have no right to return any Units to you. We further confirm that our
commitment hereunder will not result in any violation by us of Section 8(b)
or 15(c) of the Securities Exchange Act of 1934 or the rules and regulations
thereunder, including Rule 15c3-1, or any provision of any applicable rules
of any securities exchange to which we are subject or of any restriction
imposed upon us by such exchange. We further state that in purchasing said
Units we have relied upon said Prospectus and upon no other statement
whatsoever, whether written or oral. We confirm that we are a dealer
actually engaged in the investment banking or securities business and that we
are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons
who are nationals there or of residents therein. We hereby agree to comply
with the provisions of Section 24 of Article III of the rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the
NASD, with provisions of Sections 8 and 36 of Article III of such Rules of
Fair Practice, and to comply with Section 25 of Article III thereof as that
Section applies to non-member foreign dealers.
Name of Firm_____________________________
Authorized Signature_____________________
Title____________________________________
Date_____________________________________
<PAGE>
Exhibit 1.10
WARRANT TO PURCHASE
55,000 Units
ORLANDO PREDATORS ENTERTAINMENT, INC.
UNDERWRITER'S WARRANT
Dated: _______________, 1997
THIS CERTIFIES that First Midwest Securities, Inc. (herein sometimes called
the "Holder" and/or the "Underwriter") is entitled to purchase from Orlando
Predators Entertainment, Inc., a Florida corporation (the "Company"), at the
price and during the period as hereinafter specified, up to 55,000 Units of the
Company's securities with each Unit (the "Underwriter's Warrant Unit")
consisting of two (2) shares of the Company's no par value per share Common
Stock (the "Warrant Unit Shares") and one Redeemable Warrant (the "Underlying
Warrant") entitling the holder thereof to purchase for $7.50 (the "Underlying
Warrant Exercise Price"), one share of Common Stock (the "Underlying Warrant
Shares") for a term of five (5) years from the effective date of the
Registration Statement described below. The Warrant Unit Shares and the
Underlying Warrant Shares are sometimes referred to herein collectively as the
"Warrant Shares."
This Underwriter's Warrant (the "Underwriter's Warrant") is issued pursuant
to an Underwriting Agreement between the Company and the Underwriter in
connection with a public offering, through the Underwriter, of 550,000 Units
(the "Units") as more fully described in the Underwriting Agreement, (and up to
82,500 additional Units covered by an over-allotment option granted by the
Company to the Underwriter) pursuant to a Registration Statement on Form SB-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), and in consideration of $100 received by the Company for the
Underwriter's Warrant.
1. The rights represented by the Underwriter's Warrant shall be exercised
at the price, subject to adjustment in accordance with Sections 9 and 10 hereof
(the "Exercise Price") and during the periods as follows:
(a) The Underwriter's Warrant shall be numbered and shall be registered in
a warrant register. The Company shall be entitled to treat the registered owner
of any Underwriter's Warrant (the "Warrantholder") as the owner in fact thereof
for all purposes and shall not be bound to recognize any equitable or other
claim to or interest in such Underwriter's Warrant on the part of any other
person, and shall not be liable for any registration or transfer of
Underwriter's Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with such knowledge of such facts that its
participation therein amounts to gross negligence or bad faith.
(b) During the 12 month period from the Effective Date of the Registration
Statement (the "First Anniversary Date"), the Warrantholder shall have no right
to purchase any
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Underwriter's Warrant Units hereunder, except that in the event of any
merger, consolidation or sale of substantially all the assets of the Company
as an entirety prior to the First Anniversary Date, the Warrantholder shall
have the right to exercise the Underwriter's Warrant at such time and into
the kind and amount of Underwriter's Warrant Units and other securities and
property (including cash) receivable by a holder of the number of
Underwriter's Warrant Units into which the Underwriter's Warrant would have
been convertible or exercisable immediately prior thereto.
(c) At any time between the first anniversary and the fifth anniversary of
the Effective Date, (the fifth anniversary of the Effective Date being the
"Expiration Date") inclusive, the Warrantholder shall have the option to
purchase Underwriter's Warrant Units hereunder at a price ("Exercise Price") of
$12.00 per Underwriter's Warrant Unit.
(d) At any time between the first anniversary and the fifth anniversary of
the Effective Date, inclusive, the holders of the Underlying Warrants shall have
the option to purchase the number of fully paid and nonassessable Underlying
Warrant Shares which the holder of the Underlying Warrant may at that time be
entitled to purchase on the same terms and conditions as the Redeemable Warrants
offered and sold to the public. The Underlying Warrants are redeemable by the
Company on the same terms and conditions as the Redeemable Warrants offered and
sold to the public, provided, however, only the Underlying Warrants which have
been issued pursuant to an exercise of the Underwriter's Warrant Units shall be
subject to redemption. Holders of the Underwriter's Warrants and the Underlying
Warrants are sometimes herein referred to collectively as "Warrantholders."
(e) After the Expiration Date, the Warrantholder shall have no right to
purchase any Underwriter's Warrant Units hereunder.
2. The rights represented by the Underwriter's Warrant or Underlying
Warrant may be exercised at any time within the periods above specified, in
whole or in part, by (i) the surrender of the Underwriter's Warrant or
Underlying Warrant (with the purchase form at the end hereof properly executed)
at the principal executive office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company); (ii)
payment to the Company of the Exercise Price then in effect for the number of
Underwriter's Warrant Units or Underlying Warrant Shares, as the case may be,
specified in the above-mentioned purchase form together with applicable transfer
taxes, if any; and (iii) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the effect that such
person(s) agree(s) to be bound by the provisions of paragraph 7 and
subparagraphs (b), (c) and (d) of paragraph 8 hereof. The Underwriter's Warrant
or Underlying Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Underwriter's Warrant or Underlying Warrant is surrendered and payment
is made in accordance with the foregoing provisions of this paragraph 2.
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<PAGE>
3. Upon such surrender of an Underwriter's Warrant or Underlying Warrant
and payment of the Exercise Price or Underlying Warrant Exercise Price, as
applicable, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder exercising
such Warrant or Underlying Warrant and in such name or names as such
Warrantholder may designate, a certificate or certificates for the number of
Warrant Units Shares or Underlying Warrant Shares or Underlying Warrants, as the
case may be, so purchased upon the exercise of such Underwriter's Warrant or
Underlying Warrant; and in the case of a fractional Warrant Share and/or
Underlying Warrant, such fraction shall be rounded to the nearest whole Warrant
Share and/or Underlying Warrant otherwise issuable upon such surrender. Such
certificate, certificates or Underlying Warrants shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Unit Shares, Underlying Warrants
and/or Underlying Warrant Shares, as the case may be, as of the date of receipt
by the Company or the warrant agent, if any, of such Warrant or Underlying
Warrant and payment of the applicable Exercise Price or Underlying Warrant
Exercise Price; provided, however, that if, at the date of surrender of such
Warrant or Underlying Warrant and payment of the applicable Exercise Price or
Underlying Warrant Exercise Price therefor, the transfer books for the Common
Stock or other class of stock purchasable upon the exercise of such
Underwriter's Warrants or Underlying Warrants shall be closed, the certificates
for the components of the Underwriter's Warrant Units or Underlying Warrant
Shares, as the case may be, in respect of which such Underwriter's Warrant or
Underlying Warrant is then exercised shall be issuable as of the date on which
such books shall next be opened (whether before or after the date the
Underwriter's Warrant or Underlying Warrants would otherwise terminate (the
"Termination Date")) and until such date the Company shall be under no duty to
deliver any Warrant Shares or Underlying Warrants. The rights of purchase
represented by the Underwriter's Warrants and Underlying Warrants shall be
exercisable, at the election of the Warrantholders thereof, either in full or
from time to time in part and, in the event that an Underwriter's Warrant or
Underlying Warrant is exercised in respect of less than all of the Underwriter's
Warrant Units or Underlying Warrant Shares purchasable on such exercise at any
time prior to the Termination Date, a new Warrant and/or Underlying Warrant
evidencing the remaining Underwriter's Warrants and/or Underlying Warrants will
be issued; and the Company shall deliver, or the warrant agent, if any, is
hereby irrevocably authorized to countersign and to deliver the required new
Warrant and/or Underlying Warrant pursuant to the provisions of this Section;
and the Company whenever required by the warrant agent, if any, and will supply
the warrant agent with Underwriter's Warrant or Underlying Warrant duly executed
on behalf of the Company for such purpose.
4. The Underwriter's Warrant shall not be transferred, sold, assigned, or
hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Warrantholder, and may be
assigned in whole or in part to any person who is an officer of the
Warrantholder or to any member of the selling group and/or the officers or
partners thereof during such period. Any such assignment shall be effected by
the Warrantholder by (i) executing the form of assignment at the end hereof and
(ii) surrendering the Underwriter's Warrant for cancellation at the office or
agency of the Company referred to in paragraph 2 hereof, accompanied by a
certificate (signed by an officer of the Warrantholder
3
<PAGE>
if the Warrantholder is a corporation), stating that each transferee is a
permitted transferee under this paragraph 4; whereupon the Company shall
issue, in the name or names specified by the Warrantholder (including the
Warrantholder) a new Underwriter's Warrant or Warrants of like tenor and
representing in the aggregate rights to purchase the same number of
Underwriter's Warrant Units as are purchasable hereunder. Such transfers
shall be made in compliance with the rules and regulations of the National
Association of Securities Dealers ("NASD") as well as the Act, the Exchange
Act of 1934, as amended and the respective rules and regulations promulgated
thereunder.
5. The Company covenants and agrees that all Warrant Unit Shares and
Underlying Warrant Shares issued hereunder will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which the Underwriter's Warrant and the Underlying
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of Shares.
6. The Underwriter's Warrant and the Underlying Warrants shall not
entitle the Warrantholder to any voting rights or other rights as a shareholder
of the Company.
7. (a) If at any time for a period of four (4) years commencing one (1)
year from the Effective Date, the Company files a registration statement under
the 1933 Act which relates to a current offering of securities of the Company
(except a Registration Statement on Form S-4, S-8 or any other inappropriate
form), such registration statement and the prospectus included therein shall
also, at the written request of the Company by any of the then owners of the
Underwriter's Warrants, Warrant Units, Underlying Warrants or Warrant Shares
(the "Owners"), include and relate to the Underlying Warrants and/or Warrant
Shares issuable upon exercise of such Underwriter's Warrants and/or Underlying
Warrants so as to permit the public sale thereof in compliance with the 1933
Act. The Company shall give written notice to the Owners of its intention to
file a registration statement under the 1933 Act relating to a current offering
of the securities of the Company, at least 30 days prior to the filing of such
registration statement, and the written request provided for in the first
sentence of this subsection shall be made by the Owners at least 10 days prior
to the date specified in the notice as the date on which the Company intends to
file such registration statement. Neither the delivery of such notice by the
Company nor of such request by the Owners shall in any way obligate the Company
to file such registration statement and, notwithstanding the filing of such
registration statement, the Company may, at any time prior to the effective date
thereof, determine not to offer those securities to which such registration
statement relates, without liability to the Owners, except that the Company
shall pay such expenses incurred in connection with the preparation and filing
of such registration statement and as otherwise set forth in subsection (d)
hereof.
(b) In addition, for a period of four (4) years commencing one (1) year
from the Effective Date, upon written notice at any time from a Majority Holder
(as such term is defined in subsection (f) of this Section 7) that he, she or it
contemplates the transfer of all or any part of his, her or its Underlying
Warrants or Warrant Shares under such circumstances that a public
4
<PAGE>
offering thereof would be involved within the meaning of the 1933 Act, the
Company, as promptly as possible after the receipt of such notice, shall
file, at its expense, a post-effective amendment or a new registration
statement with respect to the offering, sale or other disposition of the
Underlying Warrants and/or Warrant Shares as to which the Company shall have
received such notice. Within 10 days after receiving any such notice, the
Company shall give notice to the other Owners advising them that the Company
is proceeding with such post-effective amendment or new registration
statement and offering to include therein the Underlying Warrants and/or
Warrant Shares of such Owners. The Company shall not be obligated to any
such other Owner unless such other Owner shall accept such offer by written
notice to the Company within 30 days of the Company's notice. The Owners
will bear the expense of fees of counsel for the Owners and any sales
commissions for the Underlying Warrants and/or Warrant Shares sold by the
Owners. In no event shall the Company be required to file a post-effective
amendment or a new registration statement pursuant to the requirements of
this subsection (b) more than once.
(c) In any exercise of the registration rights afforded pursuant to
subsection (a) and (b) of this Section 7, the Company shall:
(i) Supply to the Owner or its designee, as representative of the
Owners intending to make a public distribution of their Underlying
Warrants and/or Warrant Shares (the holder of the Underwriter's
Warrant by his, her or its receipt of the Underwriter's Warrant and/or
Underlying Warrant thereby acknowledging his, her or its appointment
of the Owners' representative or its designee as his, her or its
representative for purposes of this Agreement), four executed copies
of each post-effective amendment or registration statement and as many
copies of the preliminary and final prospectus which shall have been
prepared in conformity with the requirements of the 1933 Act and the
rules and regulations promulgated thereunder and such other documents
as the representative of the Owners shall reasonably request;
(ii) Cooperate in taking such action as may be necessary to register
or qualify the Underlying Warrants and/or Warrant Shares under the
securities acts or blue sky laws of such jurisdictions as the
representative of the Owners shall reasonably request and the Company
shall do any and all other acts and things which may be necessary or
advisable to enable the Owners to consummate such proposed sale or
other disposition of the Underlying Warrants and/or Warrant Shares in
any such jurisdiction; provided, however, that in no event shall the
Company be obligated, in connection therewith, to qualify to do
business or to file a general consent to service of process in any
jurisdiction where it shall not then be so qualified; and
(iii) Use its best efforts to cause any such post-effective
amendment or new registration statement to become effective and remain
effective for a period of not less than 12 months after the initial
effectiveness thereof. The Company shall
5
<PAGE>
cooperate in taking such other action as may be necessary to permit
the public sale or other disposition of the Underlying Warrants and/or
Warrant Shares by the Owners.
(d) The Company shall comply with the requirements of subsections (a) and
(b) of this Section (including the related requirements of subsection (c) of
this Section), at its own expense, including the costs to register/qualify the
securities under the securities laws of those states as the Owners shall
reasonably request; but excluding underwriting commissions, transfer taxes and
underwriter's expense allowance attributable to the securities being offered by
the Owners.
(e) The term "Majority Holder" as used in this Section shall include any
owner or combination of owners of Underwriter's Warrants, Underlying Warrants
and/or Warrant Shares, in any combination, if the aggregate amount of:
(i) the Warrant Unit Shares and/or Underlying Warrant Shares then
held by him, her, it or among them, plus
(ii) the Warrant Unit Shares and/or Underlying Warrant Shares then
issuable upon exercise of the Underwriter's Warrants and/or Underlying
Warrants then held by him, her, it or among them would constitute more
than fifty percent of the Underwriter's Warrant Unit Shares and/or
Underlying Warrant Shares originally issuable upon exercise of all of
the Underwriter's Warrants and Underlying Warrants.
(f) The provisions contained herein shall continue in effect regardless of
the exercise or surrender of any of the Warrants. Notwithstanding anything in
this Section 7 to the contrary, the Company shall not be obligated to register
any Underlying Warrants or Underlying Warrant Shares if the Underlying Warrants
shall have expired unexercised or if the Underlying Warrants shall have been
redeemed by the Company; and the Underlying Warrant Shares shall not be used to
calculate a Majority Holder if the Underlying Warrants shall have expired
unexercised or shall have been redeemed by the Company.
8. (a) Whenever pursuant to paragraph 7 a registration statement
relating to the Underlying Warrants and/or Warrant Shares is filed under the
Act, amended or supplemented, the Company will indemnify and hold harmless each
holder of the securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities, or actions in respect thereof,
arise out of or are based upon any untrue statement or alleged untrue statement
of any material
6
<PAGE>
fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment
or supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and will
reimburse the Distributing Holder or such controlling person or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, and each person, if any,
who controls the Company (within the meaning of the Act) against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities, or actions
in respect thereof, arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus, said
final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
7
<PAGE>
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 8 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No settlement
shall be made without the consent of the indemnifying party.
9. In case of any reclassification, capital reorganization or other
change of outstanding Shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital, reorganization or other
change of outstanding Shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of this Warrant shall have the right thereafter, by
exercising such Warrant, to purchase the kind and number of Shares of stock or
other securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance by a holder of the number of Shares of Common Stock that
might have been purchased upon exercise of such Warrant, immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. The foregoing provision shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding Shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
10. If, prior to the expiration of this Warrant by exercise or by its
terms the Company shall issue any of its shares of Common Stock as a share
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either such case, the Exercise Price per
Underwriter's Warrant Unit shall be proportionately reduced, and the number of
Underwriter's Warrant Units at the time purchasable pursuant to this Warrant
shall be proportionately increased; and conversely, if the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price
per Underwriter's Warrant Unit in effect at the time of such action shall be
proportionately increased and the number of Underwriter's Warrant Units at that
time purchasable pursuant to this Warrant shall be proportionately decreased.
If the Company shall, at any time during the life of this Warrant declare a
dividend payable in cash on its shares of Common Stock and shall at
substantially the same time offer to its shareholders a right to purchase new
shares of Common Stock from the proceeds of such dividend or for an amount
substantially equal to the dividend, all shares of Common Stock so issued shall,
for the purpose of this Warrant, be deemed to have been issued as a share
dividend. Any dividend paid or distributed upon the shares of Common Stock in
shares of any other class of securities convertible into shares of Common Stock
shall be treated as a dividend paid in shares of Common Stock to the extent that
shares of Common Stock are issuable upon the conversion thereof.
11. This Agreement shall be governed by and construed in accordance with
the internal substantive laws of the State of Wisconsin, without regard for the
conflict of laws.
8
<PAGE>
IN WITNESS WHEREOF, Orlando Predators Entertainment, Inc. has caused this
Underwriter's Warrant to be signed by its duly authorized officers under its
corporate seal and this Underwriter's Warrant to be dated ____________________,
1997.
ORLANDO PREDATORS ENTERTAINMENT, INC.
By______________________________________
Jack Youngblood, President
Attest:_________________________________
______________, Secretary
9
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Underwriter's Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant for, and to purchase thereunder, ________ Units ("Unit")
of Orlando Predators Entertainment, Inc. with each Unit comprised of two (2)
shares of Orlando Predators, Entertainment, Inc. no par value common stock and
one (1) warrant to purchase an additional share of such common stock at $7.50
per share and herewith makes payment of $__________ therefor and requests that
the certificates for Units be issued in the name(s) of, and delivered to
______________________________, whose address(es) is (are): ____________
____________________.
Dated:_____________________, 19__
By:____________________________________
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________________ the right to purchase Shares represented by the
foregoing Underwriter's Warrant to the extent of ______ Units and appoints
____________________________________ attorney to transfer such rights on the
books of Orlando Predators Entertainment, Inc., with full power of substitution
in the premises.
Dated:_____________________, 19__
By:____________________________________
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER COMMON SHARE
Pro forma Nine February 14, 1997 Pro forma YEARS ENDED DECEMBER 31,
Months Ended through Year Ended -------------------------
September 30, 1997 September 30, 1997 December 31, 1996 1996 1995
------------------ ------------------ ----------------- -------- --------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS
Net (loss)........................... (550,260) (545,748) (609,923) (561,307) (653,506)
Shares
Weighted average number of
common shares outstanding.......... 2,480,000 1,380,000 2,480,000 1,380,000 1,380,000
Primary earnings per common share:
Net loss............................. (0.22) (0.40) (0.25) (0.41) (0.47)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
FULLY DILUTED EARNINGS
Net loss............................. (550,260) (545,748) (609,923) (561,307) (653,506)
Shares
Weighted average number of
common shares outstanding.......... 2,480,000 1,380,000 2,480,000 1,380,000 1,380,000
Fully diluted earnings per common share:
Net loss............................. (0.22) (0.40) (0.25) (0.41) (0.47)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
<PAGE>
[Letterhead]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports dated:
REPORT DATE: FINANCIAL STATEMENTS OF:
------------ ------------------------
May 30, 1997 The Orlando Predators Entertainment, Inc.
May 30, 1997 Orlando Predators, a Division of Orlando Predators, Ltd.
and to the reference made to our firm under the caption "Experts" included in or
made part of this SB-2 Registration Statement Amendment #1.
/s/ AJ. ROBBINS, P.C.
--------------------------------
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
NOVEMBER 12, 1997
`
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1997 MAR-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 156,100 357,982 1,337 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 25,867 688,956 15,000 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 32,457 19,985 20,000 0
<CURRENT-ASSETS> 246,326 1,457,712 81,736 0
<PP&E> 289,799 267,669 203,928 0
<DEPRECIATION> (21,505) (837) (107,074) 0
<TOTAL-ASSETS> 2,722,402 3,809,911 499,309 0
<CURRENT-LIABILITIES> 2,780,354 3,399,637 732,313 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 487,796 487,796 0 0
<OTHER-SE> (545,748) (77,522) (233,004) 0
<TOTAL-LIABILITY-AND-EQUITY> 2,722,402 3,809,911 499,309 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 2,660,566 0 2,889,383 2,651,577
<CGS> 0 0 0 0
<TOTAL-COSTS> 2,454,727 3,140 2,788,541 2,759,737
<OTHER-EXPENSES> 51,635 7,030 39,837 35,582
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 67,581 1,023 0 0
<INCOME-PRETAX> (545,748) (77,522) (561,307) (653,506)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (545,748) (77,522) (561,307) (653,506)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (545,748) (77,522) (561,307) (653,506)
<EPS-PRIMARY> (0.40) (.06) 0 0
<EPS-DILUTED> (0.40) (.06) 0 0
</TABLE>
