<PAGE> 1
As filed with the Securities and Exchange Commission on May 21, 1998.
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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)
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<S> <C> <C>
FLORIDA 7941 91-1796903
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) I.D. Number)
</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. Robert Kant, Esq.
Law Office of Gary A. Agron Sara Ziskin, Esq.
5445 DTC Parkway, Suite 520 O'Connor, Cavanagh,
Englewood, CO 80111 Anderson, Killingsworth
(303) 770-7254 & Beshears, P.A.
(303) 770-7257 (Fax) One Camelback Road
Phoenix, AZ 85012
(602) 263-2400
(602) 263-2900 (Fax)
Approximate date of commencement of the Offering: As soon as practicable
after the effective date of the Offering.
<PAGE> 2
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]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Title of Each Class Amount Proposed Proposed Maximum Amount
of Securities To Be Maximum Aggregate of
to be Registered Registered Price Per Unit Offering Price Registration Fee
===========================================================================================================
<S> <C> <C> <C> <C>
Series A Redeemable
Convertible Preferred Stock, no 690,000 $ 10.00 $ 6,900,000 $ 2,035
par value ("Preferred Stock") Shares(1)
Class A Common Stock, no par
value, underlying Preferred 1,299,270 $ 5.31 $ 6,900,000 $ 2,035
Stock(2) Shares
Preferred Stock underlying 60,000 $ 10.00 $ 600,000 $ 177
Representative's Warrant(3) Shares
Class A Common Stock, no par
value, underlying Preferred
Stock underlying 112,980 $ 5.31 $ 600,000 $ 177
Representative's Warrant(2) Shares
Class A Common Stock, no par
value, issuable as Preferred 276,000 $ 4.50 $ 1,242,000 $ 367
Shares ---------
Stock Dividends(4)
Total $ 4,791
===========================================================================================================
</TABLE>
(1) Includes the over-allotment option granted to the Representative of
90,000 shares.
(2) The Preferred Stock is convertible into Common Stock at a price equal to
118% of the closing price of the Common Stock on the Nasdaq SmallCap
Market on the effective date of the Registration Statement. The conversion
price above is based upon a closing price of $4.50 per share of Common
Stock on May 19, 1998 and therefore a conversion price of $5.31 per share
which results in each share of Preferred Stock being convertible into
1.883 shares of Common Stock.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares issuable upon exercise of the Representative's Warrant is subject
to adjustment in accordance with the anti-dilution provisions of such
warrant.
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<PAGE> 3
(4) Assumes aggregate Class A Common Stock dividends issuable through
December 31, 1999 of $1,242,000 or 276,000 shares of Common Stock based
upon an annual dividend of $1.20 per share of Preferred Stock and a value
of $4.50 per share of Class A Common Stock.
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.
iii
<PAGE> 4
SUBJECT TO COMPLETION, DATED MAY 21, 1998
PROSPECTUS
600,000 SHARES
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Orlando Predators Entertainment, Inc. (the "Company") is hereby
offering 600,000 shares of its Series A Redeemable Convertible Preferred Stock,
no par value (the "Preferred Stock"). Dividends on the Preferred Stock are
cumulative from the date of original issuance and payable quarterly commencing
__________, 1998 at an annual rate of $1.20 per share payable in cash or in
Class A Common Stock, no par value ("Class A Common Stock") of the Company at
the Company's sole discretion. Each share of Preferred Stock is convertible at
the option of the holder at any time after 12 months from the date hereof,
unless previously redeemed, into shares of Class A Common Stock at a rate of
__________ shares of Class A Common Stock for each share of Preferred Stock (the
"Conversion Rate"), equivalent to a conversion price ("Conversion Price") of
$_______ per share of Class A Common Stock, subject to adjustment in certain
events.
The Preferred Stock may be redeemed at the Company's option, upon at least
30 days' notice, in whole or in part on a pro rata basis, commencing 12 months
from the date hereof at $12.00 per share plus accrued dividends payable to the
redemption date if the closing price of the Class A Common Stock as quoted on
the Nasdaq SmallCap Market has equaled or exceeded $_______ for 20 trading days
within a period of 30 consecutive trading days. The Preferred Stock will
automatically convert into Class A Common Stock at the Conversion Price if the
closing price of the Class A Common Stock has equaled or exceeded 200% of the
Conversion Price for at least 20 trading days within a period of 30 consecutive
trading days at any time on or after 12 months from the date hereof. See
"Description of Securities."
The Class A Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "PRED". On May 19, 1998, the closing price of the Class A Common Stock on
the Nasdaq SmallCap Market was $4.50 per share. See "Price Range of Class A
Common Stock." The Company has applied to have the Preferred Stock listed for
trading on the Nasdaq SmallCap Market under the symbol "PREDP".
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE ___ OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO PUBLIC UNDERWRITING PROCEEDS TO
DISCOUNTS(1) COMPANY(2)(3)
====================== ===================== =====================
<S> <C> <C> <C>
Per Share................ $ 10.00 $ 1.00 $ 9.00
TOTAL.................... $6,000,000 $ 600,000 $5,400,000
- ------------------------- ---------------------- --------------------- ---------------------
</TABLE>
<PAGE> 5
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $480,000,
including the Representative's 3% nonaccountable expense allowance.
(3) The Company has granted to the Underwriters an option for 45 days to
purchase up to an additional 90,000 shares of Preferred Stock at the
Price to Public less the Underwriting Discount, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount, and Proceeds to Company will be
$6,900,000, $690,000, and $6,210,000, respectively. See "Underwriting."
The Preferred Stock is offered by the Underwriters, when, as and if
delivered to and accepted by them and subject to the right of the Underwriters
to withdraw, cancel, modify, or reject any orders, in whole or in part, and
subject to certain other conditions. It is expected that delivery of the
certificates representing the Preferred Stock will be made against payment
therefor in New York, New York on or about __________, 1998.
H D BROUS & CO., INC.
THE DATE OF THIS PROSPECTUS IS _____________, 1998
<PAGE> 6
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission) a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered by this
Prospectus. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto, which may be examined without charge at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, copies of which may be obtained from
the Commission upon payment of the prescribed fees.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files 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
may 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 7 World Trade Center, Suite 300, New York, New
York 10048, at Northwestern Atrium Center, 500 West Madison, Chicago, Illinois
60621 and on the Commission's website at www.sec.gov.
The Company furnishes to its stockholders annual reports which 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
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, 1997
and an equal amount of adjusted gross income anticipated for the calendar year
ended December 31, 1998, 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, 1997, and an equal amount of gross annual income anticipated
for the year ending December 31, 1998.
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<PAGE> 7
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. Unless the context otherwise requires, all
information contained in this Prospectus assumes no exercise of the
over-allotment granted to the Underwriters or the Existing Options, as
hereinafter defined.
THE COMPANY
The Company owns and operates the Orlando Predators (the "Predators" or
the "team"), a professional arena football team of the Arena Football League
(the "AFL" or the "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 game rules with certain exceptions intended to make the game faster and
more exciting. See "Arena Football Rules of Arena Football."
The AFL is a nonprofit membership corporation organized to govern the
arena football teams that comprise the League and to sell team memberships
("Memberships") in major United States markets. The AFL's first season commenced
in 1987. Between 1987 and 1997, the League grew from four teams to 14 teams with
a team in Buffalo expected to begin play in 1999. The membership fees for the
next team joining the AFL has increased from $125,000 in 1995 to $2 million for
the 1997 season, with a current league asking price of $7 million effective for
the 1999 season. Since 1992, announced League attendance has grown from 736,000
to over 1,050,000, an increase of more than 42%. Game broadcasts during this
period have included local, regional, ESPN and ESPN 2 coverage. For the 1998
season, 47 games are scheduled to be broadcast on national and regional cable
television stations, including ABC's live broadcast of Arena Bowl XII. From 11
million television households in 1994, the AFL reached 27.5 million households
in 1997. See "Arena Football."
The Company has reached agreement with the League to purchase additional
revenue interests ("Equity Interests") in the AFL, which will bring the
Company's total Equity Interest in the League to approximately 15.8%. The
Company intends to use a portion of the proceeds of the Offering to purchase the
additional Equity Interests from the League. The Company's strategy is to
participate through the operation of the Predators and the purchase of the
Equity Interests in what the Company believes will be the continued significant
growth of the AFL which in turn is expected to result in increased revenue to
the Company generated from larger national and regional broadcast contracts,
increased revenue to the Company generated from larger national League
sponsorship contracts, increased revenue to the Company from additional
Membership fees, increased fan attendance at AFL games including Predators'
games, and appreciation in the value of the Predators as an AFL team. See
"Business - Strategy."
At the team level, the Company's strategy is to increase fan attendance at
Predators' home games, expand the Predators' advertising and sponsorship base,
and contract with additional local and regional broadcasters to broadcast
Predators' games. The Company also intends to use a portion of the
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<PAGE> 8
proceeds of the Offering to acquire other professional sports teams which the
Company believes will increase the value of the Company and increase earnings.
See "Business - Strategy."
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 win-loss record.
Currently, the Company derives substantially all of its revenue from the
arena football operations of the Predators. This revenue results from the sale
of tickets to the Predators' home games, the sale of advertising and promotions
to Predator sponsors, the sale of local and regional broadcast rights to
Predators' games, the Predators' share of League contracts with national
broadcast organizations and expansion team fees paid through the AFL, the sale
of merchandise carrying the Predators' logos, and concession sales at Predators'
home games.
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 OFFERING
See "Description of Securities - Preferred Stock"
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<S> <C>
Securities offered(1).......................... 600,000 shares of Preferred Stock.
Capital Stock Outstanding ..................... 2,480,000 shares of Class A Common Stock and 1,000 shares
of Class B Common Stock.
Capital Stock
Outstanding After Offering(2).................. 2,480,000 shares of Class A Common Stock, 1,000 shares
of Class B Common Stock, and 600,000 shares of Preferred
Stock that are convertible into an aggregate of _________
shares of Common Stock.
Liquidation Preference......................... $10.00 per share of Preferred Stock, plus accumulated and
unpaid dividends.
Dividends...................................... Cumulative annual dividends of $1.20 per share payable
quarterly out of assets legally available therefor on
the 30th day of January, April, July and October of each
year (or if such day is not a business day, on the next
succeeding business day), commencing July 30, 1998 (each
such date, a "dividend payment date") when, as, and if
declared by the Board of Directors. Dividends will
cumulate from the date of issuance and will be payable
in cash or in the Company's Class A Common Stock, at the
sole discretion of the Company. The value of the Class A
Common Stock issued will be the last reported sales
price of the Class A Common Stock on the Nasdaq SmallCap
Market on the last day of each calendar quarter.
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
Conversion Rights.............................. Each share of Preferred Stock will be convertible at the
option of the holder at any time, unless previously
redeemed, into ____ shares of the Company's Class A
Common Stock (the "Conversion Rate"), equivalent to a
Conversion Price of $____ per share of Class A Common
Stock, subject to adjustment in certain events.
Mandatory Conversion........................... The Preferred Stock will automatically convert into Class
A Common Stock at the Conversion Price if the closing price
of the Class A Common Stock on the Nasdaq SmallCap Market
has equaled or exceeded 200% of the Conversion Price for at
least 20 trading days within a period of 30 consecutive
trading days at any time commencing 12 months from the date
of issuance.
Optional Redemption............................ The Preferred Stock may be redeemed at the Company's option,
upon at least 30 days' notice, in whole or in part on a pro
rata basis, on and after 12 months from the date hereof, at
$12.00 per share, plus accrued dividends, payable to the
redemption date if the closing price of the Company's Class A
Common Stock as quoted on the Nasdaq SmallCap Market has
equaled or exceeded $______ (125% of the Conversion Price of
$_____ per share of Class A Common Stock) for at least 20 trading
days within a period of 30 consecutive trading days.
Voting Rights.................................. The holders of the Preferred Stock are not entitled to vote,
except as set forth below and as provided by law. Without the
consent of the holders of Preferred Stock, the Company may
issue other series of preferred stock that are pari passu with, or
junior to, the Preferred Stock as to dividends and liquidation
rights. Without the approval of the holders of at least a majority
of the outstanding shares of Preferred Stock, the Company may
not alter voting rights, designations, preferences, or other rights
of the holders of the Preferred Stock or amend the Company's
Articles of Incorporation so as to adversely affect such voting
rights, designations, preferences, or other rights.
Listing...................................... The Company has applied to list the Preferred Stock for trading
on the Nasdaq SmallCap Market under the symbol "PREDP." The
Company's Class A Common Stock and Warrants are listed on the
Nasdaq SmallCap Market under the symbols "PRED" and "PREDW",
respectively.
Use of Proceeds.............................. Purchase of two Equity Interests from the AFL, repayment of
debt and working capital. See "Use of Proceeds."
</TABLE>
5
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<TABLE>
<CAPTION>
<S> <C>
Risk Factors................................... Prospective purchasers of the Preferred Stock offered hereby
should carefully consider certain risk factors as detailed in
this Prospectus. Investment in the Preferred Stock involves a
high degree of risk and should only be purchased by investors
capable of suffering a loss of their entire investment. See "Risk
Factors."
</TABLE>
- ----------------
(1) If the over-allotment option granted to the Underwriters is exercised in
full, 90,000 additional shares of Preferred Stock will be sold, with net
proceeds to the Company of $783,000 after deducting commissions and
expenses.
(2) Does not include an aggregate of _______ shares issuable upon exercise
of outstanding common stock purchase warrants and stock options
(collectively, the "Existing Options"). See "Capitalization,"
"Management - 1997 Employee Stock Option Plan", and "Description of
Securities."
SUMMARY FINANCIAL DATA
The following tables set forth certain summary financial data of the
Company. The summary financial data should be read in conjunction with the
Company's financial statements included elsewhere in this Prospectus. The
summary financial data as of December 31, 1997 and 1996 and for the period
February 14 through December 31, 1997 and the year ended December 31, 1996 and
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. Interim data for the period ended
March 31, 1998 have been derived from unaudited financial statements which are
also included herein. The results of operations for the three months ended March
31, 1998 are not necessarily indicative of the results to be expected for the
year ending December 31, 1998.
<TABLE>
<CAPTION>
FEBRUARY 14
THROUGH YEAR ENDED THREE MONTHS FEBRUARY 14
DECEMBER 31, DECEMBER 31, ENDED THROUGH
1997 1996 MARCH 31, 1998 MARCH 31, 1997
------------ ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 2,697,894 $ 2,889,383 $ 2,792 $ --
Net loss $ (891,985) $ (561,307) $ (204,115) $ (77,522)
Weighted average number
of shares outstanding 1,463,796 -- 2,480,000 1,380,000
Net loss per share $ (.61) $ -- $ (.08) $ (.06)
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA AT MARCH 31, 1998:
Working capital............................... $ 1,393,134 $ 3,663,134
Total assets.................................. $ 5,885,222 10,655,222
Total liabilities............................. $ 2,114,615 1,964,615
Stockholders' equity ......................... $ 3,770,607 8,690,607
</TABLE>
(1) As adjusted to reflect the sale of 600,000 shares of Preferred Stock
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."
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<PAGE> 11
RISK FACTORS
Prospective investors should consider carefully the following risk
factors, together with the other information contained in this Prospectus, in
evaluating a purchase of Preferred Stock 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 below and
elsewhere in this Prospectus.
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS
The Company has not generated any earnings to date. It incurred net losses
of approximately $204,115, $891,985 and $561,307 for the three months ended
March 31, 1998, the period from February 14 through December 31, 1997, and the
year ended December 31, 1996, 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. In addition, there can be no assurance
that the value of the team will increase.
COMPETITION FOR SPORT ENTERTAINMENT DOLLARS; COMPETING INDOOR STYLE FOOTBALL
LEAGUE
The Predators compete for sports entertainment dollars with other
professional sports teams and with college teams and with other sports-related
entertainment. During portions of the AFL season, the Predators compete for
attendance and fan support, with a professional basketball team in the Orlando
area and with professional hockey and baseball teams in other areas of Florida.
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, such as Walt Disney World. On a broader scale,
AFL teams compete with football teams fielded by high schools and colleges, the
Professional Indoor Football League, the National Football League, the Canadian
Football League, the National Football League Europe ("NFL Europe"), formerly
known as the World League of American Football. In May 1997 the Professional
Indoor Football League ("PIFL"), a competing indoor style football league,
commenced play in eight markets. The AFL believes that PIFL is infringing upon
the patent for the Arena Football Game System and has brought a legal action
against PIFL to enforce the patent. There can be no assurance that the AFL will
be successful in such legal action. Should PIFL continue to operate, the
operations of the AFL and the Company could be adversely affected. See "Business
- - Competition."
USE OF PROCEEDS TO ACQUIRE TWO EQUITY INTERESTS IN THE AFL
The Company intends to use a portion of the proceeds of the Offering to
acquire two Equity Interests in the AFL providing for the Company to receive
revenue generated by the League's sale of AFL expansion team Memberships, AFL
licensed merchandise and broadcast rights to arena football
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<PAGE> 12
games. Should the AFL experience difficulty in selling such AFL expansion team
Memberships, AFL licensed merchandise and broadcast rights, the Company's two
Equity Interests may have little or no value. Under the terms of its purchase
agreement with the League, the Company's two Equity Interests will entitle it to
receive a minimum of $480,000 in revenue distributions per year until the
Company receives distributions of $6 million, at which point the Company's two
Equity Interests then share in both the revenues and the expenses of the League
without any priority distributions. If the $6 million in distributions is made
within one year of the purchase of the two Equity Interests, then the Company
must return one Equity Interest to the AFL and the remaining Equity Interest
will share in the revenue and the expenses of the League. See "Arena Football -
AFL Licensing" and "Business - Purchase of Equity Interests."
RISKS ASSOCIATED WITH AFL MEMBERSHIP
The membership agreements with the AFL generally make the Predators and
other members of the AFL 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 the Company to make additional payments 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 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. While such expansion affords the AFL the opportunity to enter new
markets and increase revenue, 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,
the Company may receive less revenue from the AFL as the result of League
expansion since AFL teams share equally in the revenue generated from national
television contracts and sale of AFL merchandise.
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RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
The Company intends to grow in part through the acquisition of additional
professional sports teams, such as minor league baseball and hockey teams. This
strategy will entail reviewing and potentially reorganizing acquired business
operations, corporate infrastructure and systems, and financial controls.
Unforeseen expenses, difficulties, and delays frequently encountered in
connection with expansion through acquisitions could inhibit the Company's
growth and negatively impact profitability. There can be no assurance that
suitable acquisition candidates will be identified, that acquisition of such
candidates will be consummated, or that the operations of any acquired
businesses will be successfully integrated into the Company's operations and
managed profitably without substantial costs, delays, or other operational or
financial difficulties. In addition, competition for acquisition candidates may
increase purchase prices for acquisitions to levels beyond the Company's
financial capability or to levels that would not result in the returns required
by the Company's acquisition criteria. As of the date of this Prospectus, the
Company has no binding agreements, understandings, or arrangements to effect any
acquisitions and is not engaged in any active negotiations to acquire any other
companies. The Company may issue capital stock or incur substantial indebtedness
in making future acquisitions. See "Risk Factors - Future Capital Needs; Debt
Service Requirements; and Possible Dilution Through Issuance of Stock." The
size, timing, and integration of any future acquisitions may cause substantial
fluctuations in operating results from quarter to quarter. Consequently,
operating results for any quarter may not be indicative of the results that may
be achieved for any subsequent quarter or for a full fiscal year. These
fluctuations could adversely affect the market price of the Class A Common Stock
and Preferred Stock. See "Risk Factors - Lack of Public Market for Preferred
Stock and "Risk Factors - Possible Volatility of Securities Prices."
The Company's ability to continue to grow through the acquisition of
additional teams will depend upon (i) the availability of suitable acquisition
candidates at attractive purchase prices, (ii) the Company's ability to compete
effectively for available acquisition opportunities, and (iii) the availability
of funds or Class A Common Stock with a sufficient market price to complete the
acquisitions. See "Business - Strategy." The Company's future growth through
acquisitions also will depend upon its ability to obtain the requisite league
approvals. Alternatively, one or more leagues may attempt to impose restrictions
on the Company in connection with their approval of acquisitions.
FUTURE CAPITAL NEEDS; DEBT SERVICE REQUIREMENTS; POSSIBLE DILUTION THROUGH
ISSUANCE OF STOCK
The Company's future capital requirements will depend primarily upon the
size, timing, and structure of future acquisitions and its working capital and
general corporate needs. To the extent that the Company finances future
acquisitions in whole or in part through the issuance of capital stock or
securities convertible into or exercisable for capital stock, existing
stockholders will experience a dilution in the voting power of their common
stock and earnings per share could be negatively impacted. To the extent to
which the Company will be able or willing to use the Class A Common Stock for
acquisitions will depend on the market value of such stock from time to time and
the willingness of potential sellers to accept Class A Common Stock as full or
partial consideration. The inability of the Company to use its Class A Common
Stock as consideration, to generate cash from
9
<PAGE> 14
operations, or to obtain additional funding through debt or equity financing in
order to pursue its acquisition program could materially limit the Company's
growth.
Any borrowings made to finance future acquisitions or for operations could
make the Company more vulnerable to a downturn in its operating results, a
downturn in economic conditions, or increases in interest rates on borrowings
that are subject to interest rate fluctuations. If the Company's cash flow from
operations is insufficient to meet its debt service requirements, the Company
could be required to sell additional equity securities, refinance its
obligations, or dispose of assets in order to meet its debt service
requirements. In addition, it is likely any credit arrangements will contain
financial and operational covenants and other restrictions with which the
Company must comply, including limitations on capital expenditures and the
incurrence of additional indebtedness. There can be no assurance that such
financing will be available if and when needed or will be available on terms
acceptable to the Company. The failure to obtain sufficient financing on
favorable terms and conditions could have a material adverse effect on the
Company's growth prospects and its business, financial condition, and results of
operations.
DEPENDENCE UPON 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 share of local television and radio
audiences. Failure to participate in the AFL playoffs would deprive the
Predators of additional revenue that results from sales of tickets for home
playoff games and from media contracts. Revenue is, therefore, significantly
adversely affected by a poor game winning performance, especially involving
losses of home games. See "Business - Performance."
DEPENDENCE UPON 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 NFL Europe, 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."
POSSIBLE INCREASES IN PLAYERS' SALARIES
Although AFL player salaries are low compared to salaries currently paid
by other professional sports teams, there can be no assurance that salaries
payable by the Company will not increase
10
<PAGE> 15
significantly in the future, thereby increasing the Company's operating expenses
and adversely affecting its financial condition and results of operations. See
"Business - Players."
ABSENCE OF INSURANCE; RISK OF INJURIES
Player contracts generally entitle players to receive their salary even if
unable to play as a result of injuries sustained from arena football-related
activities during the course of employment. Although the Company carries
occupational health, accidental death and disability insurance of up to $500,000
per player, the Company must pay the first $35,000 of loss for each player up to
an aggregate loss of $465,000. Payment of the these insurance premiums as well
as payments that 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."
LEAGUE RESTRICTIONS ON PURCHASE OF SECURITIES
The AFL Charter and Bylaws contain provisions that may restrict a person
from acquiring the common stock and affect the value of the common stock or the
value of any team, including the Predators. In general, any acquisition of
shares of common stock that will result in a person or a group of persons
holding 5% or more of the Company's outstanding common stock requires the prior
approval of the AFL, which may be granted or withheld in the sole discretion of
the AFL. 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. See "Arena Football
- - Restrictions of Ownership."
UNCERTAINTIES REGARDING RENEWAL OF BROADCAST CONTRACTS; NO ASSURANCE OF REVENUES
The AFL's contracts with ESPN and ESPN 2 for the national broadcast of
certain AFL games in the United States expire at the end of the 1999 season. A
percentage of the revenue generated from those contracts and any future national
or network media contracts after payment of AFL expenses has been 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 new broadcast contracts with
the AFL upon the expiration of the current contracts. For the years ended
December 31, 1996 and 1997, the Company did not receive any revenue from the AFL
because revenue was offset by League expenses due from the AFL teams.
The Company's television and radio contracts for the local broadcast of
the Predators pre-season, regular season and certain post-season games also
expire at the end of the 2000 and 1998 seasons, respectively. The failure to
renew local television or radio contracts would have a material adverse effect
on the Company. See "Business - Current Operations."
11
<PAGE> 16
DEPENDENCE UPON KEY PERSONNEL
The Company depends 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 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 or carry key person life insurance on
the lives of any of its executive officers. See "Management - Executive Officers
and Directors."
SEASONALITY
The AFL season begins in April and ends in August. As a result, the
Company realizes a significant portion of its revenue and incurs a significant
portion of its expenses during that period.
CONTROL BY PRINCIPAL STOCKHOLDER; AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK;
PREVENTION OF CHANGES IN CONTROL
Monolith owns approximately 1,281,500 shares (52%) of the 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 is able to
elect all of the Company's directors and control the affairs of the Company. The
Company's Articles of Incorporation authorize the issuance of up to 1,500,000
shares of preferred stock (up to 690,000 shares of which are being offered
hereby) with such rights and preferences as may be determined from time to time
by the Board of Directors. Accordingly, under the Articles of Incorporation, the
Board of Directors, without shareholder approval, may issue preferred stock with
dividend, liquidation, conversion, voting, redemption or other rights that 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, including the
Preferred Stock offered hereby, 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 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 FOR PREFERRED STOCK
Prior to the Offering, there has been no public trading market for the
Preferred Stock. There can be no assurance that a regular trading market for the
Preferred Stock will develop or continue after the Offering or, if such a market
develops, that the market price of the Preferred Stock will exceed the offering
price. See "Underwriting." Because of the conversion feature of the Preferred
Stock, the trading price of the Preferred Stock will most likely depend, at
least in part, on the market price of the Company's Class A Common Stock.
12
<PAGE> 17
NO DIVIDENDS ON CLASS A COMMON STOCK; DILUTION CAUSED BY ISSUANCE OF CLASS A
COMMON STOCK TO PAY PREFERRED STOCK DIVIDENDS
Dividends on the Preferred Stock may be paid in cash or in the Company's
Class A Common Stock at the sole discretion of the Company. The Company has not
paid any dividends on its Class A Common Stock since its inception and does not
anticipate paying any dividends in the foreseeable future. The Company plans
to retain earnings, if any, to finance the development and expansion of its
business. See "Dividend Policy" and "Description of Securities - Preferred
Stock."
POSSIBLE VOLATILITY OF SECURITIES PRICES
The market price of the Preferred Stock and the Class A Common Stock
following the Offering may be highly volatile, as has been the case with the
securities of other small capitalization public companies. 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 public companies have experienced wide fluctuations due to
variations in quarterly operating results, general economic conditions and other
factors beyond their control.
SHARES ELIGIBLE FOR FUTURE SALE
There currently are outstanding 2,480,000 shares of Class A Common Stock.
Of these shares, 1,350,000 shares are freely tradeable without restriction or
registration under the Securities Act, unless held by an "affiliate" of the
Company, as that term is defined in Rule 144 under the Securities Act. Shares of
Class A Common Stock held by affiliates of the Company are subject to the resale
limitations of Rule 144 described below. The remaining 1,130,000 shares of Class
A Common Stock are "restricted securities" as that term is defined in Rule 144
under the Securities Act and currently may be sold in the public securities
markets, subject to volume and other resale limitations. See "Description of
Securities - Class A Common Stock Eligible for Future Sale."
Sale of substantial amounts of Class A Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Class A Common Stock and therefore the market price of the Preferred Stock
offered hereby. Directors, officers, and other shareholders of the Company who
own an aggregate of 1,380,000 shares of Class A Common Stock, however, have
agreed not to sell or otherwise transfer any such shares until December 1, 1998
without the written consent of the underwriters of the Company's initial public
offering and the Representative.
The Preferred Stock offered hereby will be freely tradeable without
restriction or further registration.
RIGHT TO ACQUIRE SHARES
A total of 500,000 shares of Class A Common Stock has been reserved for
issuance upon the exercise of options granted or which may be granted under the
Company's 1997 Employee Stock
13
<PAGE> 18
Option Plan. See "Management - 1997 Employee Stock Option Plan." As of the date
hereof, there were outstanding options to acquire 253,000 shares of Class A
Common Stock at exercise prices ranging from $2.00 to $4.50 per share. In
addition, there are outstanding (i) warrants to purchase 550,000 shares of Class
A Common Stock at an exercise price of $7.50 per share issued in connection with
the Company's 1997 initial public offering ("IPO") and exercisable at any time
until December 10, 2002 (the "Unit Warrants"). (ii) warrants to purchase 110,000
shares of Class A Common Stock and 55,000 Unit Warrants (the "1997 Underwriters'
Unit Warrants") at an exercise price of $12.00 per 1997 Underwriters' Unit
Warrant and (iii) warrants to purchase 160,000 shares of Class A Common Stock at
$3.75 per share at any time until December 31, 2002 (the "1998 Warrants").
During the terms of such options and warrants, the holders thereof will have the
opportunity to profit from an increase in the market price of the Class A Common
Stock. The existence of such options and warrants may adversely affect the terms
on which the Company can obtain additional financing, and the holders of such
options and warrants can be expected to exercise such options and warrants at a
time when the Company, in all likelihood, would be able to obtain additional
capital by offering shares of its capital stock on terms more favorable to the
Company than those provided by the exercise of such options and warrants. See
"Description of Securities - Shares Eligible for Future Sale."
UNDERWRITERS' INFLUENCE ON THE MARKET
A significant amount of the Preferred Stock 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 AND OFFICERS
The Company's Bylaws substantially limit the liability of the Company's
directors and officers to the Company and its stockholders for breach of
fiduciary or other duties to the Company. See "Description of Securities -
Limitation on Liabilities."
PREFERRED STOCK MAY NOT BE CONVERTIBLE INTO CLASS A COMMON STOCK
The Preferred Stock may not be converted unless, at the time of
conversion, the Company has a current Registration Statement covering the shares
of Class A Common Stock issuable upon conversion of the Preferred Stock 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 Preferred Stock. 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.
14
<PAGE> 19
Purchasers of the Preferred Stock may reside in jurisdictions in which the
shares of Class A Common Stock underlying the Preferred Stock are not registered
or qualified. In this event, the Company might be unable to issue Class A Common
Stock to those persons desiring to convert their Preferred Stock 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, Preferred Stockholders would have no choice but to
attempt to sell the Preferred Stock in a jurisdiction where such sale is
permissible. See "Description of Securities."
LISTING AND MAINTENANCE CRITERIA FOR NASDAQ SECURITIES
The Company's Class A Common Stock and Warrants are currently listed on
the Nasdaq SmallCap Market, and the Company has applied for listing for the
Preferred Stock on the Nasdaq SmallCap Market. The Company believes it meets the
recently adopted standards for such listing that require (i) net tangible assets
of $4 million, (ii) a public float of one million shares, (iii) a market value
of 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 has 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.
15
<PAGE> 20
REDEMPTION OF PREFERRED STOCK; PAYMENT OF DIVIDENDS IN CASH OR CLASS A COMMON
STOCK
Commencing 12 months from the date of this Prospectus, the Preferred Stock
may be redeemed by the Company on 30 days' prior written notice at $12.00 per
share if the closing price of the Class A Common Stock on the Nasdaq SmallCap
Market is at least 125% of the Conversion Price for at least 20 of the 30
trading days prior to the redemption date. Accordingly, holders of the Preferred
Stock may be required to either exchange their Preferred Stock for Class A
Common Stock or accept a fixed payment price for each share of Preferred Stock.
Moreover, dividend payments may be in cash or Class A Common Stock of the
Company, in the Company's sole discretion. The Company will be unable to redeem
the Preferred Stock for Class A Common Stock or pay Preferred Stock dividends in
Class A Common Stock unless there is a current prospectus covering such
issuances of Class A Common Stock. See "Description of Securities."
OFFERING PRICE ARBITRARILY DETERMINED
The offering price of the Preferred Stock was arbitrarily determined
through negotiations between the Representative and the Company and does not
necessarily bear any relationship to the Company's assets, earnings or other
investment criteria. See "Underwriting."
NO ASSURANCE AS TO FUTURE RESULTS
Prospective purchasers of Preferred Stock should carefully consider the
information contained in this Prospectus before purchasing Preferred Stock.
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. As a result of many factors, including those discussed herein under
"Risk Factors", no assurance can be given that the future results covered by the
forward-looking statements will be achieved.
PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock commenced trading on the Nasdaq
SmallCap Market under the symbol "PRED" on December 11, 1997. The following
table sets forth for the quarters indicated the range of high and low closing
prices of the Company's Class A Common Stock as reported by Nasdaq but does not
include retail markup, markdown or commissions.
<TABLE>
<CAPTION>
Closing Price
---------------------
By Quarter Ended: High Low
<S> <C> <C>
June 30, 1998 (through May 19, 1998)................ $5.25 $ 3.63
March 31, 1998...................................... $4.25 $ 2.94
December 31, 1997................................... $4.25 $ 3.12
</TABLE>
16
<PAGE> 21
As of May 19, 1998, the Company had approximately 350 record and
beneficial stockholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998, and as adjusted to give effect to the sale by the Company of the
600,000 shares of Preferred Stock offered hereby and application of the
estimated net proceeds, without giving effect to the exercise of the Existing
Options.
<TABLE>
<CAPTION>
MARCH 31,
1998 AS ADJUSTED
------------- -----------
<S> <C> <C>
Preferred Stock, no par value, 1,500,000 shares
authorized, none issued or outstanding, 600,000 shares
issued and outstanding, as adjusted........................ $ 0 $ 4,920,000
Common Stock, no par value, 15,000,000 shares
authorized, 2,480,000 shares of Class A Common Stock
issued and outstanding, 1,000 shares of Class B Common
Stock issued and outstanding............................... $ 4,866,707 $ 4,866,707
Accumulated deficit........................................ $ (1,096,100) $(1,096,100)
------------- -----------
Total capitalization................................. $ 3,770,607 $ 8,690,607
============= ===========
</TABLE>
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be $4,920,000
($5,730,000 if the Over-allotment Option is exercised). The Company intends to
apply the net proceeds of the Offering in the following order of priority:
<TABLE>
<CAPTION>
PURPOSE AMOUNT PERCENT OF NET PROCEEDS
- ------- ------ -----------------------
<S> <C> <C>
Purchase of two Equity Interests(1)........................ $2,500,000 50.8%
Repayment of debt(2)....................................... $2,000,000 40.7%
Working capital............................................ $ 420,000 8.5%
---------- ----
Total...................................................... $4,920,000 100%
========== ====
</TABLE>
(1) The total purchase price for the two Equity Interests is $6 million, of
which the Company intends to pay $2.5 million using the proceeds of the
Offering. The remaining $3.5 million will be paid
17
<PAGE> 22
out of the Company's existing funds. See "Business - Purchase of Equity
Interests" for a discussion of the Equity Interests.
(2) Consists of $2 million of promissory notes sold to a group of
non-affiliated lenders, bearing interest at 7% per annum due the earlier
of the closing date of the Offering or December 31, 2001. The funds
generated from the sale of the promissory notes will be used by the
Company to pay a portion of the purchase price of the two Equity
Interests.
The Company estimates that the net proceeds of the Offering, together with
its current cash positions and its anticipated operating revenue, 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 over-allotment option granted to the Underwriters or the
Existing Options will be added to working capital.
18
<PAGE> 23
SELECTED FINANCIAL DATA
The following tables set forth certain 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, 1997 and 1996, and for the period
February 14 through December 31, 1997 and the year ended December 31, 1996 and
for the period February 14, 1997 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 as of March 31, 1998 have been derived from
unaudited financial statements which are included herein. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
FEBRUARY 14
THROUGH YEAR ENDED THREE MONTHS FEBRUARY 14
DECEMBER 31, DECEMBER 31, ENDED THROUGH
1997 1996 MARCH 31, 1998 MARCH 31, 1997
------------- ------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 2,697,894 $ 2,889,383 $ 2,792 $ --
Net loss......................... $ (891,985) $ (561,307) $ (204,115) $ (77,522)
Weighted average number
of shares outstanding............ 1,463,796 -- 2,480,000 1,380,000
Net loss per share............... $ (.61) $ -- $ (.08) $ (.06)
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED(1)
---------- --------------
BALANCE SHEET DATA AT MARCH 31, 1998:
<S> <C> <C>
Working capital.................................... $1,393,134 $ 3,663,134
Total assets....................................... 5,885,222 10,655,222
Total liabilities................................. 2,114,615 1,964,615
Stockholders' equity .............................. 3,770,607 8,690,607
</TABLE>
(1) As adjusted to reflect the sale of 600,000 shares of Preferred Stock
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."
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Financial information for the year ended December 31, 1996 is derived from
the operations of the Predators when the team was owned and operated by Orlando
Predators, Ltd., a non-affiliated predecessor company. The Company derives
substantially all of its revenue from the arena football operations of the
Predators. This revenue results from the sale of tickets to the Predators' home
games, the sale of advertising and promotions to Predator sponsors, the sale of
local and regional broadcast rights to Predators' games, the Predators' share of
League contracts with national broadcast organizations and expansion team fees
paid through the AFL, the sale of merchandise carrying the Predators' logos and
concession sales at Predators' home games. 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
revenue 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 this revenue is 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 revenue is recognized in
August from playoff games, if any.
Prospective purchasers of the Preferred Stock should carefully consider
the following information as well as other information contained in this
Prospectus before making an investment in the securities. 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 "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.
20
<PAGE> 25
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
The Company recognizes game revenue and expenses over the course of the
season (April through August). Revenue for the 1998 and 1997 periods was
insignificant and was primarily interest income. Interest income for the 1998
period was $24,484 compared to $1,725 for the 1997 period. The increase in
interest income is attributable to the increase in investable funds resulting
from the IPO.
The net loss for period ended March 31, 1997 was $77,522 ($.06 per share)
compared to a $204,115 loss ($.08 per share) for the 1998 quarter.
Consistent with the Company accounting policies, insignificant operating
revenue and operating expenses have been reported during the first quarters of
calendar 1998 and 1997.
General and administrative expenses were $208,048 for the quarter ended
March 31, 1998, and $68,054 for the period February 14 through March 31, 1997.
The increase of approximately $140,000 is primarily due to legal and accounting
fees of $33,600 and staff salaries of approximately $92,400. In addition, the
1998 period represents a full quarter, whereas the 1997 period was substantially
shorter; therefore, certain expenses in 1998 were greater than in 1997, such as
office expense, telephone, and depreciation and amortization expense.
PERIOD ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company recognizes game revenue and expenses over the course of the
season (April through August). Therefore, revenue and operating expenses, other
than selling, general and administrative expenses of the Company, are comparable
to the predecessor company (Orlando Predators, a division of Orlando Predators,
Ltd.)
Revenue. Revenue for the period ended December 31, 1997 was $2,697,894,
which represented a decrease of $191,489, or 6.6%, as compared to revenue for
the year ended December 31, 1996 of $2,889,383. The decrease for the period
ended December 31, 1997 was directly attributable to a decrease in ticket sales
of $328,462 as well as decreases in sponsorship and miscellaneous revenue of
$171,812. The decrease in ticket sales and sponsorship revenue resulted from a
decrease in season ticket sales efforts prior to the beginning of the 1997
season. The team was sold in March 1997 to the Company, and the former owners
did not market season tickets and sponsorship sales as they had done in prior
years. For the 1998 season, the Company began marketing efforts in September
1997. The decrease in ticket and sponsorship revenue was offset by increases in
League revenue of $163,467 and playoff revenue of $145,318.
The Company expects that revenue will increase during the 1998 season as a
result of (i) increased ticket sales for the 1998 season and (ii) the Company's
new lease with the Orlando Arena
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<PAGE> 26
which provides the Company with a 20% share of concession revenue at Predators'
home games and a rebate against rent of $3 per person (up to $10,000) for games
in which attendance exceeds 9,000 persons. However, a portion of this revenue
will be offset by slightly lower ticket prices. See "Business - Properties."
Operating Expenses. Operating expenses were $1,906,870, a decrease of
$286,887 or 13.1% as compared to the prior year operating expenses of
$2,193,757. The decreases were a result of decreases in player related costs,
including payroll, medical and housing costs. These decreases were offset by
increased expenses of approximately $159,000 related to an additional home
playoff game.
Selling and Promotional Expenses. Selling and promotional expenses were
$408,281, a decrease of 7.9%, or $35,124, as compared to the prior year
primarily due to the decreased pre-season marketing efforts, but were offset
with the increased advertising costs associated with the one additional home
playoff game as compared to the prior year.
League Assessments. League assessments were $224,622, an increase of
$73,243, or 48%, as compared to the prior year of $151,379. League assessments
increased primarily due to costs associated with legal settlements with former
teams. The AFL is comprised of a number of teams who share in all the League
expenses and some League revenues. Assessments are based upon the team's share
of League operating expenses and other League expenses such as legal
settlements.
General and Administrative Expenses. General and administrative expenses
were $871,206, an increase of $245,569, or 39.3%, as compared to the prior year
of $625,637. This increase can be attributed to an increase in payroll costs and
professional fees.
Interest Expense. Interest expense during the period ended December 31,
1997 was $104,083. The interest expense was related to the debt assumed in the
purchase of the Company and additional advances for operations made by
stockholders of the Company. This debt was paid using proceeds of the IPO.
Amortization and Depreciation. Amortization and depreciation increased
$45,061 as compared to the prior year due to the increase in the cost of the
assets acquired by the Company in February 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company financed net operating losses primarily with
loans from the team's former managing general partner.
Through December 10, 1997, the Company had issued an aggregate of
$2,342,970 of promissory notes (together with interest thereon) to its two
stockholders, all of which were repaid from proceeds of the IPO. During April
1998, the Company sold $2 million of promissory notes bearing interest at 7% per
annum due the earlier of December 31, 2001 or the closing date of the Offering.
As
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<PAGE> 27
additional consideration for the purchase of the promissory notes, the Company
issued common stock purchase warrants to purchase 160,000 shares of Common Stock
for $3.75 per share at any time until December 31, 2001.
The reduction of indebtedness using proceeds of the IPO improved 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 and the IPO will be sufficient to satisfy the Company's
anticipated working capital requirements for at least the next 12 months, apart
from any acquisitions that the Company may consummate.
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<PAGE> 28
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 75-mile radius of Orlando, Florida.
All names and logos of the Orlando Predators were owned by and registered to
Gridiron prior to the purchase of the AFL Rights by the AFL.
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. For the 1998 season, Anaheim was replaced by a Grand Rapids team
and in the 1999 season a Buffalo team will commence play.
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 11 seasons of play
with over 1,050,000 in total game 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 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 increased from
$125,000 for the 1990 season to $2 million for the 1997 season, with a current
League asking price of $7 million effective for
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<PAGE> 29
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.
Player's salaries for the 1998 season range from $15,000 to $50,000, together
with a housing allowance 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. If the team and a player cannot agree on the option season
salary following the contract year, 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 $465,000.
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 ten
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.
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<PAGE> 30
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.
AFL TEAMS
For the 1998 season, the AFL will consist of the following 14 teams,
aligned into two conferences, with two divisions in each conference:
AMERICAN CONFERENCE
Western Division Central Division
Arizona Rattlers Iowa Barnstormers
Portland Forest Dragons Milwaukee Mustangs
San Jose SaberCats Texas Terror
NATIONAL CONFERENCE
Eastern Division Southern Division
Albany Firebirds Florida Bobcats
Grand Rapids Rampage Nashville Kats
New Jersey Red Dogs Orlando Predators
New York CityHawks Tampa Bay Storm
REGULAR SEASON AND PLAYOFFS
Following two pre-season games, the regular AFL season extends from April
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 pre-season home
games, regular season home games and playoff home games. Teams do not receive
any gate receipts from away games except that visiting team's hotel expenses are
paid by the home team. Each team is required to pay an annual
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<PAGE> 31
assessment to the AFL, which is generally equal to the team's share of the
League's annual operating costs. Each team is also contingently liable for team
repurchases by the League and League litigation costs. 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 revenue
generated by the League's sale of expansion team Memberships. Each visiting team
participating in the playoffs receives a reimbursement for hotel expenses and a
fixed payment of $47,500 for the first playoff game, $58,000 for the second
playoff game and $75,000 for the Arena Bowl.
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, 1997 and 1996, the Company's share of
net revenue from licensing was negligible and was credited against the team's
AFL assessment for each such period. The Company's share of net revenue from the
League (the "Equity Interest") was equal to 1/16 of the AFL's net revenue for
the 1997 season. The Equity Interest is equal to the AFL's net revenue divided
by the total number of League teams (15 including Buffalo, which will begin
playing in 1999) and one Gridiron Equity Interest. For the 1998 season there
will also be 14 teams, but an Equity Interest will equal 1/19 of League revenue
as a result of the additional two Equity Interests expected to be purchased by
the Company using proceeds of the Offering and an additional Equity Interest
conveyed to Gridiron as a part of its asset sale to the League. League
assessments are also based upon Equity Interests. Each team is also permitted to
license its club-identified products locally for sale at its arena, at
team-owned and operated stores and through team catalogs.
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 the League's national and network broadcast contracts on behalf
of its members. Each of the AFL's members generally is 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 with each representative having one vote. Mr.
Youngblood serves as the Predator's representative on the AFL Board of
Directors. The two Equity Interests to be purchased by the Company with proceeds
of the Offering will be non-voting. 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.
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<PAGE> 32
RESTRICTIONS ON OWNERSHIP
The AFL Charter and Bylaws contain provisions that may restrict a person
from acquiring the common stock and affect the value of the common stock or the
value of any team, including the Predators. In general, any acquisition of
shares of common stock that will result in a person or a group of persons
holding 5% or more of the Company's outstanding common stock requires 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 prescribe. If a prospective purchaser obtains the AFL's consent to
acquire a 5% or more interest in the team, such prospective purchaser will be
required to acknowledge that the purchaser will be bound by the applicable
provisions of the AFL Charter and Bylaws. The Company is required to pay a
$25,000 fee to the League for its review and approval of the terms of the
Offering.
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 that prohibit team owners from engaging in certain activities, such
as wagering on any game in which an AFL team participates. AFL players and
referees and employees of the AFL and its member clubs are not eligible to
purchase or hold securities of the Company. 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.
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.
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<PAGE> 33
BUSINESS
CURRENT OPERATIONS
The Company derives substantially all of its revenue from the arena
football operations of the Predators. The Company generates its revenue from the
sale of tickets to the Predators' home games, the sale of advertising and
promotions to Predator sponsors, the sale of local and regional broadcast rights
to Predators' games, the Predators' share of League contracts with national
broadcast organizations and expansion team fees paid through the AFL, the sale
of merchandise carrying the Predators' logos, and concession sales at Predators'
home games. 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 as well as one home and one away pre-season exhibition game.
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 has a
seating capacity of approximately 16,000 spectators. The following table sets
forth certain information relating to the Predators' regular season revenue
generated by the sale of tickets for the 1996, 1997 and 1998 seasons:
<TABLE>
<CAPTION>
AVERAGE AVERAGE
NUMBER OF PER GAME PAID AVERAGE PAID TICKET REVENUE PER
SEASON SEASON TICKETS ATTENDANCE TICKET PRICE GAME
------ -------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C>
1998(1) 7,103 N/A $22.00 N/A
1997 5,401(2) 8,523 $24.32 $207,233
1996 8,245 10,415 $22.46 $233,880
</TABLE>
(1) Represents season ticket sales through May 19, 1998. Average per game paid
attendance and average ticket revenue per game cannot be computed until
the end of the 1998 season
(2) The Company believes that the season ticket attendance drop of
approximately 18% in 1997 was a result of a late start in promoting season
ticket sales caused by the Company's acquisition of the Predators in 1997.
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<PAGE> 34
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 (a large, four sided electronic sign 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
In March 1998, the Company entered into a three-year television contract
with the Sunshine Network for the 1998, 1999 and 2000 seasons providing for the
Company to receive approximately $70,000 per season. The Company also entered
into a one-year radio contract with Clear Channel, Inc. providing for the
Company to receive approximately $20,000 in 1998. Most of the proceeds from the
two media contracts will be paid in the form of bartered commercial television
and radio time made available to the 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 television broadcast rights in 1996 or 1997
as all such revenue was offset by AFL operating expenses assessed against the
League's teams. In February 1998, the AFL reached a new two-year national
broadcast agreement with ESPN, ESPN 2 and ABC providing for the networks to
televise 20 AFL games, a majority of which will be live rather than tape delayed
(including 10 games in prime time), four playoff games and ABC's telecast of the
Arena Bowl.
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 $60,000 for the 1997 season, but is expected to increase in 1998
as a result of the Company's development of a new logo for the team.
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SUMMARY OF LEAGUE REVENUE AND EXPENSE
The following table summarizes the Company's Team 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>
PURCHASE OF EQUITY INTERESTS
In April 1998, the Company entered into an agreement with the AFL
providing for it to purchase two Equity Interests (representing a 2/19 interest
in the League's revenue) for $6 million a portion of which will be paid using
proceeds of the Offering. Under the terms of the agreement, the Company will
receive the greater of $480,000 per year or 2/19 of the League's gross revenue
until the Company receives an aggregate of $6 million, at which time the Company
will share in League revenue and expenses equal to 2/19 and 2/18, respectively.
If the entire $6 million is paid within 12 months from the date of purchase, one
of the Equity Interests will be canceled and the Company thereafter will receive
1/18 of the League's gross revenue and be responsible for 1/17 of League
expenses, without a fixed guarantee. If the $6 million is not paid within such
12 month period, the Company will retain both Equity Interests. The agreement is
contingent upon the League's purchase of Gridiron. See "Use of Proceeds" and
"Business-League Purchase of Gridiron."
LEAGUE PURCHASE OF GRIDIRON
The AFL is currently negotiating to purchase from Gridiron the patent and
all other rights to the Arena Football Game System (the "AFL Rights") for $4
million. In order to finance the purchase of the AFL Rights, the AFL agreed to
sell to the Company two Equity Interests for $6 million which the Company is
purchasing using a portion of the proceeds of the Offering. If the AFL is unable
to enter into a purchase agreement with Gridiron, the Company's purchase
agreement for two Equity Interests will be cancelled. See "Use of Proceeds" and
"Business - Purchase of Equity Interests."
STRATEGY
The Company's strategy is to participate through the operation of the
Predators and the purchase of the Equity Interests in what the Company believes
will be the continued significant growth of the AFL. The Company believes that
AFL growth will result in increased revenue to the Company generated from larger
national and regional broadcast contracts, increased revenue to the Company
generated from larger
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<PAGE> 36
national League sponsorship contracts, increased revenue to the Company from
additional Membership fees, increased fan attendance at AFL games including
Predators' games, and appreciation in the value of the Predators as an AFL team.
At the team level, the Company's strategy is to increase fan attendance at
Predators' home games, expand the Predators' advertising and sponsorship base,
and contract with additional local and regional broadcasters to broadcast
Predators' games. The Company also intends to acquire other professional sports
teams which the Company believes will increase the Company's value and earnings.
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. Game winning success requires
the ongoing recruitment of superior players. 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 increase media exposure to the team in
central Florida, and expand the Company's sponsorship base, the Company employs
a marketing representative who calls upon the media, corporate sponsors and
other central Florida organizations. This marketing representative 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. The Company also employs five to ten part-time telemarketing personnel
prior to commencement of the AFL season to assist in ticket sales.
In a broader sense, the Company's strategy also 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 win-loss 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>
YEAR 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>
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TEAM MANAGEMENT
PRESIDENT
Jack Youngblood, a 14-year veteran of the NFL has served as the General
Manager of the Predators since February 1995 and as the Company's President
since 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 he was a radio talk show host in the Sacramento metropolitan
area from 1993 to 1995. 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 starter for the Rams. Mr.
Youngblood set a Rams team record by playing in 201 consecutive games, and his
15 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 was hired in 1996 to become offensive coordinator of the AFL
expansion Nashville Kats. Nashville won an expansion team record ten games and
qualified for the AFL playoffs. 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.
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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.
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 for the 1998 season.
<TABLE>
<CAPTION>
NO NAME POSITION(1) HT. WT. BIRTHRATE YEARS IN AFL
- -- ---- ----------- --- --- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 Dedric Smith OS 5-8 159 09/16/71 Rookie
4 John Clark FB/LB 6-3 250 08/16/68 4th Season
5 Chris Barber DS 6-1 190 01/15/64 6th Season
7 Kevin Gaines DS 6-1 190 08/07/71 Rookie
8 Chad Johnson QB 6-3 210 03/19/74 Rookie
9 Connell Maynor QB/WR 6-0 180 01/21/69 5th Season
12 Franco Grilla Kicker 5-11 180 07/21/70 2nd Season
15 Ty Law OS 6-1 180 11/27/71 3rd Season
17 Pat O'Hara QB 6-4 212 09/27/68 3rd Season
21 Bruce LaSane WR/LB 6-4 225 08/30/66 6th Season
23 Corris Ervin DS 5-11 185 08/30/66 2nd Season
28 Damon Mason DS 5-9 175 03/21/74 Rookie
30 Bret Cooper WR/DB 6-0 190 12/18/70 5th Season
</TABLE>
34
<PAGE> 39
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
33 Tommy Dorsey FB/LB 6-3 235 03/05/79 Rookie
35 Mark Sander FB/LB 6-2 230 03/21/68 Rookie
42 Rick Hamilton FB/LB 6-2 241 04/19/70 Rookie
46 Bill Hall FB/LB 6-1 238 12/05/70 Rookie
50 Reggie Lee OL/DL 6-2 280 12/21/67 Rookie
65 Eric Drakes OL/DL 6-5 265 01/24/69 6th Season
69 Ray Forsythe OL/DL 6-3 310 02/13/72 Rookie
78 Webbie Burnett OL/DL 6-3 285 11/07/67 6th Season
82 Barry Wagner WR/DB 6-3 215 11/24/67 6th Season
83 James Crockett DS 5-10 190 11/26/74 Rookie
84 Robert Gordon OS 5-10 185 06/07/68 Rookie
87 Victor Hall OL/DL 6-2 265 12/04/68 4th Season
93 Kelvin Ingram OL/DL 6-2 285 10/25/70 Rookie
95 Samuel Hairston OL/DL 6-4 260 11/09/69 2nd Season
97 Howard Smothers OL/DL 6-3 280 11/16/73 Rookie
98 Jeff Faulkner OL/DL 6-4 300 04/04/64 2nd Season
99 Connell Spain OL/DL 6-2 285 06/09/74 Rookie
</TABLE>
- ----------
(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. Each
AFL player signs a one-year contract with an additional one-year option season
granted to the team. If a team and player cannot agree on the option season
salary following the contract year, 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.
ORLANDO ARENA
The Predators have played in the Orlando Arena, which has a seating
capacity of approximately 16,000, since 1991. In March 1998, the Company signed
a new five-year lease (with an additional five-year option) with the Orlando
Arena commencing in the 1998 season at approximately the same per game rental as
its previous lease, but 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 10% to 20%, depending upon
seat location. The Company will also receive a rebate against rent of $3 per
person (up to $10,000) for games in which attendance exceeds 9,000 persons.
Under the terms of the Predators' previous lease, which expired at the end of
the 1997 season, the Predators paid a rental that was the higher of $7,500 per
game or 8.5% of ticket sales for such
35
<PAGE> 40
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.
COMPETITION
The Predators compete for sports entertainment dollars with other
professional sports teams and with college athletics and other sports-related
entertainment. During portions of the AFL season, the Predators compete with
professional basketball in the city of Orlando and with professional hockey and
professional baseball in the state of Florida. 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 Professional Indoor Football League (a fledgling
indoor style football league established in 1997 with teams operating in eight
markets, the NFL, the Canadian Football League and NFL Europe.
EMPLOYEES
In addition to its active football 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.
In March 1998, the Company signed a new five-year lease with the Orlando
Arena. See "Business - Orlando Arena."
36
<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows.
<TABLE>
<CAPTION>
NAME Age Position
- ---------------------------------- ----- ----------------------------------
<S> <C> <C>
William G. Meris(1)(2) 32 Chairman of the Board of Directors
Jack Youngblood(1)(2)(3) 49 President and Director
Alex S. Narushka(3) 37 Secretary, Treasurer and Chief
Financial Officer
Robert G. Flynn 33 Chief Operating Officer
Edgar J. Allen 51 Vice President-Sales and
Marketing
Alan N. Gagleard(1) 45 Director
Thomas F. Winters, Jr., M.D.(2) 45 Director
</TABLE>
- ----------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Although they were elected executive officers of the Company in 1997,
Messrs. Youngblood and Narushka have held management positions with the
Predators since 1995 and 1994, respectively.
William G. Meris was appointed the Company's Chairman in March 1997. Mr.
Meris has served as Chairman of the Board of Directors of Interhealth
Nutritionals, Inc., a privately held nutrition supplement manufacturer, since
April 1996 and has been a director of SunWest P.E.O. Inc. since January 1998. He
was also a director of Gum Tech International, Inc., a publicly held specialty
chewing gum manufacturer, from August 1997 until February 1998. Since June 1995,
Mr. Meris has been President 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. from May
to 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
37
<PAGE> 42
the affairs of the Company and during the remainder of the year, devotes
approximately 25% of his time to the affairs of the Company.
Jack Youngblood, a 14-year veteran of the NFL, has served as the General
Manager of the Predators since February 1995 and as the Company's President
since 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. 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 was an All-American defensive
end for the University of Florida.
Alex S. Narushka, who joined the Company as the Predators' Assistant
General Manager in April 1994, has been the Company's Secretary, Treasurer and
Chief Financial Officer since 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, who joined the Predators in September 1991, has been the
Company's Director of Operations since 1995 and Chief Operating Officer since
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 Master's degree in
Sports Administration from the University of Florida.
Edgar J. Allen has been Vice President - Sales and Marketing of the
Company since 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 was a practicing attorney from 1979 to 1997, 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 national accounting firms prior to
38
<PAGE> 43
and during law school. Since 1997, Mr. Gagleard has been the President and Chief
Executive Officer of Sunwest P.E.O. Inc., a professional employer organization
based in Arizona. In 1994, as a result of guaranteeing the obligations of a
company engaged in the restaurant business and in which Mr. Gagleard was a
principal stockholder and director (although not an executive officer or active
participant in the operations of the restaurant), Mr. Gagleard filed a petition
in bankruptcy under the U.S. Bankruptcy Act. He was discharged in 1994. Mr.
Gagleard graduated from the Detroit College of Law in 1979.
Thomas F. Winters, Jr., M.D., a director of the Company since 1997, has
been a practicing orthopedic surgeon since 1986. He is a graduate of Brown
University and received his medical degree in 1980 from the University of
Connecticut. He completed an internship in internal medicine at the 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 at the University of Connecticut Health Center in Framington,
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.
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.
The Audit Committee reviews 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 considers the compensation and incentive
arrangements of the Company's executive officers.
The Company agreed with the underwriters of its initial public offering
that, until December 10, 1999, the Company would allow an observer designated by
the underwriters and acceptable to the Company to attend all meetings of the
Board of Directors. The observer has no voting rights, is reimbursed for
out-of-pocket expenses incurred in attending meetings and is indemnified against
any claims arising out of participation at the meetings, including claims based
upon liabilities arising under the securities laws.
39
<PAGE> 44
EXECUTIVE COMPENSATION
The Company was organized in March 1997 to acquire, own and operate the
Predators. 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 $100,000 in salary and other compensation for the year ending December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
(a) (b) (c) (d) (e) (f)
NAME AND PRINCIPAL YEAR SALARY($) BONUS($) STOCK OTHER ANNUAL
POSITION ---- --------- -------- OPTIONS COMPENSATION($)
-------- ------- ---------------
<S> <C> <C> <C> <C> <C>
William G. Meris, Chairman 1997 10,000 0 5,000 25,000(1)
Jack Youngblood, President 1997 60,000 45,000(2) 34,500 0
</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 1997, Mr. Youngblood received a commission of
$45,000 based upon total Sponsorship Income for the year ended December
31, 1997 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.
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.
40
<PAGE> 45
The Company has reserved 500,000 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, stock options have been granted under
the Plan to purchase 253,000 shares of Class A Common Stock (including options
granted to officers and directors of the Company to purchase 75,000 of such
shares), exercisable at prices ranging form $2.00 to 4.50 per share.
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
this 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.
41
<PAGE> 46
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME(1) BENEFICIALLY OWNED OF CLASS
---- ------------------ ----------
<S> <C> <C>
William G. Meris*(2) 1,350,425 55.0%
The Monolith Limited Partnership*(2)(5) 1,350,425 55.0%
Jack Youngblood(3) 34,500 1.4%
Alan N. Gagleard(4)(5) 122,375 5.1%
Thomas F. Winters, Jr., M.D.(6) 13,000 .5%
All directors and officers as a group 1,565,300 61.0%
(7 persons)(2)(3)(4)(6)
</TABLE>
- -----------
* May be deemed to be "founders" and "promoters" of the Company as those
terms are defined under the Securities Act.
(1) 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
do not own any shares of Preferred Stock. Their addresses are in care of
the Company.
(2) Includes (i) 1,276,500 shares held by The Monolith Limited Partnership
("Monolith"), a privately held, Delaware limited partnership. The General
Partner of Monolith is WGM Corporation, a Delaware Corporation ("WGM"), of
which William G. Meris is the President and sole principal stockholder,
(ii) 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, (iii) stock options to purchase 13,800 shares at
$2.00 per share assigned to Meris Financial, Inc. by Monolith and, (iv)
warrants to purchase 68,000 shares at $3.75 held by Monolith. See "Certain
Transactions."
(3) Represents 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.
(4) Includes (a) 103,500 shares of Class A Common Stock, (b) 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 (c) 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.
(5) 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."
(6) Includes warrants to purchase 8,000 shares at $3.75 per share and options
to purchase 5,000 shares at $2.00 per share.
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<PAGE> 47
CERTAIN TRANSACTIONS
In February 1997, The Monolith Limited Partnership ("Monolith") purchased
92.5% and Alan N. 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 initial public
offering by the Company which occurred in December 1997 (the "IPO") and the
assumption by the Company of the $180,000 promissory note obligation to OPL. The
promissory note was paid in December 1997. In March 1997 Mr. 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 Mr. Gagleard in the amount of $105,000 carrying
the same terms, which was paid by the Company at the same time as it paid 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 Mr. 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 Mr.
Gagleard, evidenced by a non-interest bearing promissory note due the earlier of
December 31, 1998 or the closing of the IPO. As additional consideration for the
loan, Monolith granted Mr. Gagleard an option to purchase 13,800 shares of the
Company's common stock owned by Monolith for $2.00 per share. The loan was paid
in full in December 1997.
Between March and November 1997, Monolith and Mr. Gagleard lent 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 IPO. The loans were repaid in full in December
1997.
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 accrued
interest payable and (ii) issued 103,500 shares of its Class A Common Stock and
75 shares of its Class B Common Stock to Mr. Gagleard in exchange for 103,500
shares of its then-voting common stock and $375 in accrued interest payable. The
Class B Common Stock was issued to Monolith and Mr. Gagleard at $5.00 per share,
the same price as the IPO offering price per share. Prior to the exchange,
Monolith and Mr. 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. The AFL Bylaws require League
approval before an AFL team may become publicly held. In the case of the
Company, League approval was conditioned upon the League's requirement that
voting control of the Company would remain in the hands of its two
43
<PAGE> 48
existing stockholders (Monolith and Mr. Gagleard). The League requirement was
satisfied by the Company through creation of the Class B Common Stock, each
share of which votes the equivalent of 10,000 shares of Class A Common Stock.
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 Mr. Gagleard (13,800 options) and Meris Financial, Inc.
(13,800 options).
In April 1998, The Monolith Limited Partnership, a principal stockholder
of the Company, and Thomas F. Winters, Jr., a director of the Company, purchased
$1,150,000 and $100,000, respectively, of promissory notes issued by the Company
and received 92,000 1998 Warrants and 8,000 1998 Warrants, respectively. The
promissory notes will be paid using proceeds of the Offering. See "Use of
Proceeds" and "Description of Securities - 1998 Warrants."
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. 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
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 2,480,000 shares of Class A Common Stock
are outstanding. 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 certain control
requirements of the AFL. See "Arena Football - Restrictions on Ownership" and
"Certain Transactions." 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 that 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 are
entitled to share ratably in all assets remaining after payment of liabilities
in the event of the liquidation, dissolution or winding up of the Company.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. The outstanding Common Stock is fully
paid and nonassessable. The holders of the Class B Common Stock
44
<PAGE> 49
are entitled to convert each share of Class B Common Stock into one share of
Class A Common Stock.
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.
PREFERRED STOCK
Under the Company's Articles of Incorporation, the Company's Board of
Directors is authorized, without further shareholder action, to provide for the
issuance of up to 1,500,000 shares of preferred stock, no par value, in one or
more series, with such voting powers or without voting powers, and with such
designations, power, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions, as shall be set
forth in the resolutions providing therefor. As of the date of this Prospectus,
the Company has no shares of preferred stock outstanding.
The Preferred Stock will, when issued, be fully paid and nonassessable.
The transfer agent, registrar, redemption agent, and conversion agent for shares
of the Preferred Stock will be Corporate Stock Transfer, Inc., Denver, Colorado.
DIVIDENDS
Holders of shares of Preferred Stock will be entitled to receive, when and
as declared by the Board of Directors of the Company out of assets of the
Company legally available for payment, a cumulative annual cash dividend of
$1.20 per share. Dividends will accrue from the date of the original issuance
and will be payable quarterly on the 30th day of January, April, July and
October (of if such day is not a business day, on the business day immediately
succeeding such 30th day), commencing July 30, 1998, to the person in whose name
the Preferred Stock is registered at the close of business on the 15th day of
the month next preceding such dividend payment date, or if any such date is not
a business day, on the next succeeding day that is a business day. Dividends
will be computed on the basis of a 360-day year of twelve 30-day months, with
each dividend payment to be rounded to the nearest whole cent. Dividends on the
Preferred Stock will accumulate to the extent they are not paid on the dividend
payment date for the period for which they accrued whether or not the Company
has earnings, whether or not there are funds legally available for the payment
of such dividends, and whether or not such dividends are declared. Dividends on
the Preferred Stock will be cumulative from the date issued. Such dividends will
be payable when and as declared by the Board of Directors of the Company out of
assets of the Company legally available for payment. Accrued dividends, whether
current or in arrears, will be payable on Preferred Stock that is converted into
Class A Common Stock only if such dividend has been declared and is payable as
of a record date prior to the Conversion Date (as hereinafter defined).
Dividends will be payable in cash or in the Company's Class A Common Stock at
the sole discretion of the Company. The value of any
45
<PAGE> 50
Class A Common Stock issue will be the last reported sales price of the Class A
Common Stock on the Nasdaq SmallCap Market on the last day of each calendar
quarter.
No dividends will be declared, paid, or set apart for payment on common
stock, or the preferred stock of any series ranking, as to dividends, junior to
the Preferred Stock, for any period unless full cumulative dividends have been
or contemporaneously are declared and paid (or declared and a sum sufficient for
the payment thereof set apart for payment) on the Preferred Stock for all
dividend payment periods terminating on or prior to the date of payment of such
dividends. When dividends are not paid in full upon the Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the Preferred
Stock, all dividends declared upon shares of Preferred Stock and any other
preferred stock ranking on a parity as to dividends will be declared pro rata so
that in all cases the amount of dividends declared per share on the Preferred
Stock and such other preferred stock shall bear to each other the same ratio
that accumulated dividends per share on the shares of Preferred Stock and such
other preferred stock bear to each other.
LIQUIDATION RIGHTS
In the event of any involuntary liquidation, dissolution, or winding up of
the Company, the holders of shares of Preferred Stock will be entitled to
receive out of assets of the Company available for distribution to the
shareholders, before any distribution of assets is made to holders of common
stock or other stock of the Company ranking junior to the Preferred Stock,
liquidating distributions in the amount of $10.00 per share plus accrued and
unpaid dividends. If upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the amounts payable with respect to the Preferred
Stock and any other shares of stock of the Company ranking as to any such
distribution on a parity with the Preferred Stock are not paid in full, the
holders of the Preferred Stock and of such other shares will share ratably in
any such distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. Such liquidation
rights are not triggered by (i) any consolidation or merger of the Company with
or into any other corporations, (ii) any dissolution, liquidation, winding up or
reorganization of the Company immediately followed by reincorporation of another
corporation or creation of a partnership, or (iii) a sale or other disposition
of all or substantially all of the Company's assets to another corporation or a
partnership, provided that in each case effective provision is made in the
certificate of incorporation of the resulting and surviving corporation or the
articles of partnership, or otherwise, for the protection of the rights of the
holders of Preferred Stock.
CONVERSION RIGHTS
Optional Conversion. Each share of the Preferred Stock will be convertible
at any time on or after 12 months from the date hereof, unless previously
redeemed, at the option of the holder thereof into ______ shares of the
Company's Class A Common Stock, equivalent to a Conversion Price of $_______ per
share of Class A Common Stock, subject to adjustment as set forth below. A
holder of
46
<PAGE> 51
Preferred Stock may convert his shares by surrendering to the conversion agent
each certificate covering shares to be converted together with a statement of
the name or names in which the shares of Class A Common Stock shall be
registered upon issuance (the date of such surrender, being the "Conversion
Date"). Every such notice of election to convert will constitute a contract
between the holder giving such notice and the Company whereby such holder will
be deemed to subscribe for the shares of Class A Common Stock he will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription, to surrender the shares of Preferred Stock to be converted
and to release the Company from all further obligation thereon and whereby the
Company will be deemed to accept the surrender of such shares of Preferred Stock
in full payment of the shares of Class A Common Stock so subscribed for and to
be issued upon such conversion. As promptly as practicable after the Conversion
Date, the Company shall issue and deliver to the converting holder of the
Preferred Stock a certificate representing the number of shares of Class A
Common Stock into which the Preferred Stock was converted together with
dividends, if any, payable on the Preferred Stock so converted as may be
declared and made payable to holders of record of Preferred Stock on the record
date immediately preceding the Conversion Date. If a holder of Preferred Stock
elects to convert only a portion of his Preferred Stock, upon such conversion
the Company shall also deliver to the holder of the Preferred Stock a new
Preferred Stock certificate representing his unconverted Preferred Stock. In
lieu of fractional shares of Class A Common Stock, there will be paid to the
holder of Preferred Stock at the time of conversion an amount in cash equal to
the same fraction of the current market value of a share of Class A Common Stock
of the Company. This current market value will be deemed the closing price of
the Class A Common Stock on the Nasdaq SmallCap Market on the last trading day
preceding the Conversion Date.
Mandatory Conversion. If at any time on or after 12 months from the date
hereof, the closing price for the Class A Common Stock, as quoted on the Nasdaq
SmallCap Market or any national securities exchange, has equaled or exceeded
200% or more of the Conversion Price for at least 20 trading days within a
period of 30 consecutive trading days, the Preferred Stock will automatically
convert into Class A Common Stock at the Conversion Price. The Conversion Rate
will be subject to adjustment upon the issuance of shares of common stock or
other securities of the Company as a dividend or distribution on shares of Class
A Common Stock of the Company to the holders of all of its outstanding shares of
Class A Common Stock; subdivisions, combinations, or certain reclassifications
of shares of Class A Common Stock of the Company; the issuance of shares of
Class A Common Stock of the Company or of rights, options, or warrants to
subscribe for or purchase shares of Class A Common Stock of the company at less
than the effective Conversion Price of the Preferred Stock; or the distribution
to the holders of shares of Class A Common Stock of the Company generally of
evidences of indebtedness or assets (excluding cash dividends and distributions
made out of current or retained earnings) or rights, options, or warrants to
subscribe for securities of the Company other than those mentioned above. No
adjustment in the Conversion Rate will be required to be made with respect to
the Preferred Stock until cumulative adjustments amount to 1% or more; however,
any such adjustment not required to be made will be carried forward and taken
into account in any subsequent adjustment. No accrued and unpaid cumulative
dividends will be paid upon conversion of the Preferred Stock unless the
conversion occurs after the record date for such dividend.
47
<PAGE> 52
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any reorganization
of the Company, each share of Preferred Stock would thereupon become convertible
only into the number of shares of stock or other securities, assets, or cash to
which a holder of the number of shares or Class A Common Stock of the Company
issuable (at the time of such consolidation, merger, or reorganization) upon
conversion of such share of Preferred Stock would have been entitled upon such
consolidation, merger, sale or reorganization.
VOTING RIGHTS
The holders of the Preferred Stock will not be entitled to vote, except as
set forth below and as provided by law. On matters subject to a vote by holders
of the Preferred Stock, the holders are entitled to one vote per share.
Without the consent of the holders of Preferred Stock, the Company may
issue other series of preferred stock which are pari passu with, or junior to,
the Preferred Stock as to dividends and liquidation rights. Without the approval
of the holders of at least a majority of the number of shares of Preferred Stock
then outstanding, voting or consenting separately as a class, the Company may
not issue preferred stock which is senior to the Preferred Stock as to dividends
or liquidation rights, or amend, alter or repeal any of the voting rights,
designations, preferences or other rights of the holders of the Preferred Stock
so as adversely to affect such voting rights, designations, preferences or other
rights.
OPTIONAL REDEMPTION
If not earlier converted, exchanged, or redeemed, the Preferred Stock may
be redeemed at the Company's option, upon at least 30 days' notice, in whole or
in part on a pro rata basis, on and after 12 months from the date hereof, at
$12.00 per share plus accrued dividends payable to the redemption date.
Concurrently with the notice of redemption provided by the Company, the
Company will provide instructions as to the procedure to be followed to execute
such redemption. If less than all of the shares of Preferred Stock are to be
redeemed, the Preferred Stock shall be redeemed on a pro rata basis.
1998 WARRANTS
In April 1998, the Company sold $2 million face amount of promissory notes
bearing interest at 7% per annum due the earlier of the closing of the Offering
or December 31, 2001. As additional consideration for the purchase of the
promissory notes, the Company issued 160,000 common stock purchase warrants (the
"1998 Warrants"), each 1998 Warrant exercisable to purchase one share of Class A
Common Stock at $3.75 per share until December 31, 2002. See "Use of Proceeds."
48
<PAGE> 53
CLASS A COMMON STOCK ELIGIBLE FOR FUTURE SALE
There currently are outstanding 2,480,000 shares of Class A Common Stock.
Of these shares, 1,350,000 shares are freely tradeable without restriction or
registration under the Securities Act, unless held by an "affiliate" of the
Company, as that term is defined in Rule 144 under the Securities Act. Shares of
Class A Common Stock held by affiliates of the Company are subject to the resale
limitations of Rule 144 described below. The remaining 1,130,000 shares of Class
A Common Stock are "restricted securities" as that term is defined in Rule 144
under the Securities Act and currently may be sold in the public securities
markets, subject to volume and other resale limitations.
Sale of substantial amounts of Class A Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Class A Common Stock and therefore the market price of the Preferred Stock
offered hereby. Directors, officers, and other shareholders of the Company who
own an aggregate of 1,380,000 shares of Class A Common Stock, however, have
agreed not to sell or otherwise transfer any such shares until December 1, 1998
without the written consent of the underwriters of the Company's initial public
offering.
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) 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. 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.
The Company has granted certain demand and piggy-back registration rights
to the underwriter of the IPO with respect to the 1997 Underwriters' Unit
Warrants as well as the Preferred Stock issuable upon exercise of the
Representative's 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."
The Preferred Stock offered hereby will be freely tradeable without
restriction or further registration.
TRANSFER AGENT AND WARRANT AGENT
Corporate Stock Transfer, Inc., 370 17th Street, Suite 2350, Denver,
Colorado 80202, is the Company's transfer agent and warrant agent.
49
<PAGE> 54
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.
50
<PAGE> 55
UNDERWRITING
The Underwriters named below acting through H D Brous & Co., Inc. (the
"Representative") have severally agreed, subject to the terms and conditions set
forth in the underwriting agreement (the form of which is filed as an exhibit to
the Company's Registration Statement of which this Prospectus is a part) among
the Company and the Underwriters (the "Underwriting Agreement") to purchase from
the Company and the Company has agreed to sell to the Underwriters, the
respective number of shares of Preferred Stock set forth opposite their names
below:
UNDERWRITER NUMBER OF SHARES
H D Brous & Co., Inc.
-------
Total 600,000
=======
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Preferred Stock are subject to certain
conditions. The Underwriters are committed to purchase all of the shares of
Preferred Stock offered hereby (other than the shares covered by the
over-allotment option described below) if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Preferred Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
securities dealers at such price less a concession not in excess of $____ per
share. The Underwriters may allow and such dealers may re-allow to other
dealers, including any Underwriter, a discount not in excess of $____ per share.
After the public offering of the Preferred Stock, the offering price and
concessions and discounts may be changed by the Underwriters.
The Company has agreed to underwriting discounts and commissions in the
aggregate of 10% of the initial offering price of the shares of Preferred Stock
offered hereby. The Company also has agreed to reimburse the Representative's
expenses on a non-accountable basis in the amount of 3% of the gross proceeds
received from the sale of Preferred Stock. Any such expenses in excess of the
expense allowance will be borne by the Underwriter.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities in connection with
the offer and sale of the Preferred Stock, under the Securities Act and to
contribute to payments the Underwriters may be required to make in respect
thereof.
51
<PAGE> 56
The Underwriters have obtained an option from the Company, exercisable
during the 45-day period after the date of the Prospectus, under which they may
purchase up to 90,000 additional shares of Preferred Stock at the same price
per share that the Company will receive for the shares being purchased by the
Underwriters. The Underwriters may exercise the option only to cover
over-allotments to the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales of shares of Preferred Stock offered hereby to accounts
over which they exercise discretionary authority.
The Company has agreed to issue the Representative's Warrants to the
Representative for a consideration of $100. The Representative's Warrants are
exercisable at any time during the four year period commencing one year from the
date of this Prospectus to purchase up to 60,000 shares of Preferred Stock for
$12.00 per share. The Representative may not sell, transfer, pledge or
hypothecate the Representative's Warrants for a period of 12 months from the
effective date of the Offering, except to an Underwriter or a partner or officer
of an Underwriter, or by will or operation of law. The Representative's Warrants
bear 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 Warrants, 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 Warrants are outstanding. At any time at
which the Representative's Warrants are likely to be exercised, the Company
would probably be able to obtain additional equity capital on more favorable
terms. The securities underlying the Representative's Warrants have certain
registration rights which 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
52
<PAGE> 57
on which it could obtain additional capital may be adversely affected while the
Representative's Warrants are outstanding. The number of shares of Preferred
Stock issuable under the Representative's Warrants and the exercise price are
subject to adjustment under certain events.
In connection with the Offering, the Underwriters may purchase and sell
the Preferred Stock 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 Preferred Stock. Syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Preferred Stock 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 Preferred Stock 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 Preferred Stock, which may be higher than the
price that might otherwise prevail in the open market. 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.
The Company has agreed with the Representative that the Company will
appoint an individual selected by the Representative to be a director of the
Company and thereafter to include such individual as a part of management's
slate of directors, so that such individual, subject to stockholder approval,
will act as a director for at least 24 months from the closing of the Offering.
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.
LEGAL MATTERS
The validity of the Preferred Stock 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 O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a
professional association, Phoenix, Arizona.
EXPERTS
The financial statements of the Company for the period and year ended
December 31, 1997 and 1996, and the period ended March 31, 1997 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.
53
<PAGE> 58
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
Unaudited Proforma Financial Information Explanatory Headnote F-2
Unaudited Proforma Statement of Operations F-3
Notes to Unaudited Proforma Financial Statement F-4
Independent Auditors' Report F-5
Financial Statements:
Balance Sheets F-6
Statements of Operations F-7
Statements of Changes in Stockholders' Equity F-8
Statements of Cash Flows F-9
Notes to Financial Statements F-10
ORLANDO PREDATORS, A DIVISION OF ORLANDO PREDATORS, LTD.
Independent Auditors' Report F-25
Financial Statements:
Balance Sheet F-26
Statement of Operations F-27
Statement of Changes in Division Equity (Deficit) F-28
Statement of Cash Flows F-29
Notes to Financial Statements F-30
</TABLE>
<PAGE> 59
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
UNAUDITED PROFORMA FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
INTRODUCTION
The following unaudited proforma financial statement gives effect to the
completion of the acquisition of two, non-voting, equity interests in the Arena
Football League, Inc. (AFL) by The Orlando Predators Entertainment, Inc. (the
Company), the completion of the proposed public offering of preferred stock and
is based on the estimates and assumptions set forth herein and in the notes to
such statement. 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.
The proforma statement of operations for the period February 14, 1997 to
December 31, 1997 includes the operating results of the Company and the
estimated results of the two equity interests in the AFL.
ACQUISITION
In April 1998, the Company agreed to acquire two, non-voting, equity interests
in the AFL. The two, non-voting, equity interests share in 2/19ths of the
distributions of AFL revenues, once the purchase price is paid. Upon receipt of
$6,000,000 in distributions, the two equity interests will share in both
revenues at 2/19ths and expenses at 2/18ths. If the Company receives $6,000,000
in distributions within one year of purchase of the two equity interests, then
one share will return to the AFL and the Company will share in both revenues at
1/18ths and expenses at 1/17ths. The purchase price for the two equity interests
purchased by the Company was $6,000,000. Two, non-voting, equity interests in
the League will be subject to the equity method of accounting.
F-2
<PAGE> 60
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
UNAUDITED PROFORMA STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 14 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
PROFORMA
PERIOD
FOR THE PERIOD FEBRUARY 14, 1997
FEBRUARY 14 TO TO
DECEMBER 31, PROFORMA DECEMBER 31,
1997 ADJUSTMENTS 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Ticket revenues $ 1,542,577 $ -- $ 1,542,577
Play-off game ticket revenues 140,318 -- 140,318
Play-off game revenue sharing 45,000 -- 45,000
Local television and radio broadcast 87,632 -- 87,632
rights
Advertising and promotions 644,529 -- 644,529
Advertising and promotions, related 50,000 -- 50,000
party
League revenue 181,250 (28,618)(5) 737,895
-- 585,263 (5) --
Other 6,588 -- 6,588
-------------- -------------- --------------
Total Revenues 2,697,894 556,645 3,254,539
-------------- -------------- --------------
COSTS AND EXPENSES:
Operations 1,901,508 -- 1,901,508
Operations, related party 5,362 -- 5,362
Selling and promotional expenses 408,281 -- 408,281
League assessments 224,622 (20,000)(6) 204,622
General and administrative 871,206 -- 871,206
Amortization 52,496 -- 52,496
Depreciation 32,402 -- 32,402
-------------- -------------- --------------
Total Costs and Expenses 3,495,877 (20,000) 3,475,877
-------------- -------------- --------------
OPERATING INCOME (LOSS)
(797,983) 576,645 (221,338)
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (2,520) -- (2,520)
Interest expense, related party (104,083) 104,083 (2) --
Interest income 12,601 -- 12,601
-------------- -------------- --------------
Net Other Income(Expense) (94,002) 104,083 10,081
-------------- -------------- --------------
NET INCOME (LOSS) $ (891,985) $ 680,728 $ (211,257)
============== ============== ==============
NET (LOSS) PER SHARE $ (.61) $ (4)
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,463,796 (3)
============== ==============
</TABLE>
SEE ACCOMPANYING HEADNOTE AND NOTES TO PROFORMA FINANCIAL STATEMENT
F-3
<PAGE> 61
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENT
NOTE 1 - PROFORMA ADJUSTMENTS
The adjustments relating to the statement of operations are computed assuming
the acquisition of the two, non-voting, equity interests in the AFL occurred and
the proposed public offering of preferred stock was completed at the beginning
of the period presented.
NOTE 2 - INTEREST EXPENSE
The decrease assumes the completion of the proposed public offering of preferred
stock which precludes the requirement of debt and related interest expense.
NOTE 3 - WEIGHTED AVERAGE NUMBER OF CLASS A COMMON SHARES OUTSTANDING
Includes the weighted average shares of the Company's Class A common stock
equivalents in the proposed public offering of preferred stock, converted at
_____ shares of Class A common stock for each share of preferred stock.
NOTE 4 - PROFORMA NET LOSS PER SHARE
Proforma net loss per share is calculated assuming that the _____________ shares
of the Company's Class A common stock are outstanding for the entire period
presented.
NOTE 5 - LEAGUE REVENUES
The decrease assumes that the Company's original membership share of League
revenues would decrease due to sharing revenues between 19 memberships
(interests) rather than 16 memberships.
The increase assumes that the Company will share in 2/19ths of revenues for the
two, non-voting, equity interests purchased.
NOTE 6 - LEAGUE ASSESSMENTS
The decrease assumes that the AFL will no longer pay a $20,000 annual royalty to
Gridiron, per team, for the licensed right to operate the Arena Football League
and the use of the Arena Football League logo, trademark and patented game known
as Arena Football. The AFL intends to purchase all AFL logos, trademarks and
patents from Gridiron, with the proceeds from the Company's purchase of the two,
non-voting, equity interests.
F-4
<PAGE> 62
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 December 31, 1997, and the related statements of
operations, changes in stockholders' equity and cash flows from February 14,
1997 (inception) to December 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
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
Entertainment, Inc. as of December 31, 1997 and the results of its operations
and its cash flows for the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
JANUARY 21, 1998
EXCEPT FOR NOTE 12 AS TO
WHICH THE DATE IS MARCH 17, 1998
F-5
<PAGE> 63
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,255,678 $ 2,313,858
Accounts receivable, sponsorships -- 595,207
Accounts receivable, sponsorships, related parties -- 50,000
Inventory 14,659 16,079
Receivable from employees 51,717 72,788
Prepaid expenses 94,134 459,817
------------ ------------
Total Current Assets 2,416,188 3,507,749
PROPERTY AND EQUIPMENT, at cost, net 262,397 259,458
ACQUISITION COSTS -- 3,060
DEFERRED OFFERING COSTS -- 25,000
LOAN FEES -- 5,000
MEMBERSHIP COST, net 1,944,259 1,931,823
OTHER INTANGIBLES, net 55,159 49,988
RESTRICTED INVESTMENT 100,000 100,000
OTHER ASSETS 908 3,144
------------ ------------
$ 4,778,911 $ 5,885,222
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 167,355 $ 63,107
Accounts payable, related parties 80,108 49,942
Due to AFL -- 11,250
Bridge loans -- 150,000
Accrued interest, stockholders 99,083 --
Deferred revenue 457,643 1,840,316
------------ ------------
Total Current Liabilities 804,189 2,114,615
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 1,500,000 shares authorized; none
issued or outstanding -- --
Class A Common stock, 15,000,000 shares authorized;
2,480,000 issued and outstanding 4,861,707 4,861,707
Class B Common Stock, 1,000 shares authorized,
1,000 issued and outstanding 5,000 5,000
Accumulated (deficit) (891,985) (1,096,100)
------------ ------------
Total Stockholders' Equity 3,974,722 3,770,607
------------ ------------
$ 4,778,911 $ 5,885,222
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE> 64
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE
FEBRUARY 14, FOR THE PERIOD MONTHS
TO FEBRUARY 14 TO ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1997 1997 1998
------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Ticket revenues $ 1,542,577 $ -- $ --
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 644,529 -- 2,792
Advertising and promotions, related party 50,000 -- --
League revenue 181,250 -- --
Other 6,588 -- --
------------ ------------ ------------
Total Revenues 2,697,894 -- 2,792
------------ ------------ ------------
COSTS AND EXPENSES:
Operations 1,901,508 -- 1,911
Operations, related party 5,362 -- --
Selling and promotional expenses 408,281 3,140 --
League assessments 224,622 -- --
General and administrative 871,206 68,054 208,048
Amortization 52,496 6,193 17,608
Depreciation 32,402 837 3,876
------------ ------------ ------------
Total Costs and Expenses 3,495,877 78,224 231,443
------------ ------------ ------------
OPERATING (LOSS) (797,983) (78,224) (228,651)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (2,520) (1,023) (400)
Interest expense, related party (104,083) -- --
Interest income 12,601 1,725 24,484
Gain on sale of asset -- -- 452
------------ ------------ ------------
Net Other Income (Expense) (94,002) 702 24,536
------------ ------------ ------------
NET (LOSS) $ (891,985) $ (77,522) $ (204,115)
============ ============ ============
NET (LOSS) PER SHARE - BASIC $ (.61) $ (.06) $ (.08)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,463,796 1,380,000 2,480,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE> 65
ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- -------------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT (DEFICIT) TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Class A Common Stock
issued in exchange
for ownership of the
Predators 1,276,500 $ 438,087 -- $ -- $ -- $ 438,087
Class A Common Stock
issued for cash 103,500 49,709 -- -- -- 49,709
Class B Common Stock
issued for conversion
of accrued interest
payable -- -- 1,000 5,000 -- 5,000
Class A Common Stock
issued net of offering
costs of $1,126,089 1,100,000 4,373,911 -- -- -- 4,373,911
Net (loss) -- -- -- -- (891,985) (891,985)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES,
DECEMBER 31, 1997 2,480,000 4,861,707 1,000 5,000 (891,985) 3,974,722
Net (loss) (unaudited) -- -- -- -- (204,115) (204,115)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES,
MARCH 31, 1998
(UNAUDITED) 2,480,000 $ 4,861,707 1,000 $ 5,000 $(1,096,100) $ 3,770,607
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE> 66
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE FOR THE THREE
FEBRUARY 14, PERIOD MONTHS
TO FEBRUARY 14 ENDED
DECEMBER 31, TO MARCH 31, MARCH 31,
1997 1997 1998
------------ -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) $ (891,985) $ (77,522) $ (204,115)
Adjustments to reconcile net (loss) to net cash
from operating activities:
Depreciation and amortization 84,898 7,030 21,484
Changes in assets and liabilities:
Accounts receivable 688,956 -- (645,207)
Employee receivables (46,256) (1,637) (21,071)
Inventory 5,326 -- (1,420)
Prepaid expenses (1,693) (241,540) (365,683)
Other assets (908) (1,700) (2,236)
Accounts payable and accrued expenses 300,985 102,789 (222,248)
Deferred revenue (830,544) 570,562 1,382,673
------------ ------------- ------------
Net Cash (Used) by Operating Activities (691,221) 357,982 (57,823)
------------ ------------- ------------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment (27,130) -- (1,485)
Sale of equipment -- -- 548
Investment in certificate of deposit (100,000) (100,000) --
Payments for contract purchase (62,054) -- --
------------ ------------- ------------
Net Cash (Used) by Investing Activities (189,184) (100,000) (937)
------------ ------------- ------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans from stockholders 1,080,000 100,000 --
Payments of loans from stockholders (2,317,828) -- --
Bridge loans -- -- 150,000
Payment of loan fees -- -- (5,000)
Proceeds from issuance of Class A Common Stock 5,500,000 -- --
Payment of offering costs (1,126,089) -- (25,000)
Payment of acquisition costs -- -- (3,060)
------------ ------------- ------------
Net Cash Provided by Financing Activities 3,136,083 100,000 116,940
------------ ------------- ------------
INCREASE IN CASH 2,255,678 357,982 58,180
CASH, beginning of period -- -- 2,255,678
------------ ------------- ------------
CASH, end of period $ 2,255,678 $ 357,982 $ 2,313,858
============ ============= ============
</TABLE>
Supplementary information:
See Note 9
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-9
<PAGE> 67
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS 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). 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. 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.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for the
three months ended March 31, 1998 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 three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.
CASH AND CASH EQUIVALENTS
Cash and equivalents consist 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 expense was $32,402, $837 and $3,876 for the
periods ended December 31, 1997, March 31, 1997 and March 31, 1998 (unaudited),
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.
F-10
<PAGE> 68
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS 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 was $45,601 $6,193 and
$12,437 for the periods ended December 31, 1997, March 31, 1997 and March 31,
1998, 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 and other costs from his former
employer were purchased for $62,054 and are being amortized on a straight-line
basis over the term of his contract with the Company, which is 3 years.
Amortization expense was $6,895, $0 and $5,171 for the periods ended December
31, 1997, March 31, 1997 and March 31, 1998, 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.
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 financial statements. Management
believes these estimates reasonably disclose the value of services received.
F-11
<PAGE> 69
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACQUISITION COSTS
The Company had capitalized acquisition costs of $0, $0 and $3,060 at December
31, 1997, March 31, 1997 and March 31, 1998, respectively, relating to an active
letter of intent for a potential purchase of two, non-voting, equity interests
in the Arena Football League, Inc. (See Note 12). Acquisition costs are
allocated to the net assets acquired if the acquisition is successful or are
charged to operations if the negotiations are discontinued.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's current anticipated public
offering of preferred stock are deferred and will be charged against
stockholders' equity upon the successful completion of the offering or charged
to expense if the offering is not completed.
LOAN FEES
Loan fees related to the Company's notes payable-bridge loans are being
amortized over the life of the notes, which are due the earlier of December 31,
2002 or on the closing date of the Company's anticipated public offering of
preferred stock. (See Note 7).
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 primarily when depreciation
for tax purposes exceeds depreciation for book purposes. The net deferred tax
asset at December 31, 1997 and March 31, 1998 was 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. (See Note 11).
F-12
<PAGE> 70
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF 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.
EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) was issued in February 1997 (effective for financial statements issued
for periods ending after December 15, 1997). This Statement simplifies the
standards for computing earnings per share (EPS) previously found in Accounting
Principles Board 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.
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 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 recognizes compensation costs under the provisions of
APB No. 25 and will provide the expanded disclosure required by SFAS No. 123
when applicable.
F-13
<PAGE> 71
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued Statements No.
130, "Reporting Comprehensive Income", No. 131, "Disclosures about Segments of
an Enterprise and Related Information", and in February 1998 the FASB issued No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits",
effective for fiscal years beginning after December 15, 1997. The adoption by
the Company of these Statements in January 1998 did not have a material impact
on the Company's financial statements.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in the
date field, with the result that data referring to year 2000 and subsequent
years may be misinterpreted by these programs. If present in the computer
applications of the Company, or its suppliers and customers, and not corrected,
this problem could cause computer applications to fail or to create erroneous
results and could cause a disruption in operations and have a short-term adverse
effect on the Company's business and results of operations. The Company will
evaluate its principal computer system to determine if they are substantially
Year 2000 compliant.
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 was paid in May
1997, assumption of $45,000 in commissions payable, and $225,000 of Monolith
Limited Partnership interests (agent for the Company).
F-14
<PAGE> 72
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS 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 1998 season budget is as follows:
<TABLE>
<S> <C>
Revenue:
Expansion membership fees $ --
-----------
--
Assessments:
Operating assessment 120,000
Other costs 15,000
-----------
(135,000)
-----------
Net Assessment $ (135,000)
===========
</TABLE>
The Company continues to be contingently liable for its share of AFL expenses
which may exceed AFL revenues.
F-15
<PAGE> 73
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 3 - ARENA FOOTBALL LEAGUE (CONTINUED)
A $1,500,000 judgement has been entered against the AFL. The AFL has filed a
motion to appeal and set aside the judgement. No date has been set for the
motion to set aside and legal counsel is unable to estimate the future outcome.
The AFL was also a defendant to a claim for alleged damages for approximately
$2,000,000. In April 1998 the AFL board voted to settle the claim for $35,000
(unaudited). The AFL is also a party to a number of other lawsuits arising in
the course of business estimated by management to be for amounts less than
$10,000,000. In the opinion of the Company's management, 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.
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>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
AFL assessment $ 9,208 $ 51,495
Professional fees 6,495 35,733
Sales tax -- 6,358
Game expense 57,993 325,895
Other 20,438 40,336
--------- ---------
$ 94,134 $ 459,817
========= =========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Office equipment $ 68,478 $ 68,683
Game equipment and system 226,321 226,901
------------ ------------
294,799 295,584
Less accumulated depreciation (32,402) (36,126)
------------ ------------
$ 262,397 $ 259,458
============ ============
</TABLE>
F-16
<PAGE> 74
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Accounts payable $ 151,740 $ 62,568
Accrued salaries and payroll 15,615 539
----------- -----------
$ 167,355 $ 63,107
=========== ===========
</TABLE>
NOTE 7 - NOTES PAYABLE-BRIDGE LOANS
During April 1998, the Company completed an offering of 40 units in a Private
Placement. Each unit consisted of one $50,000 promissory note (totaling
$2,000,000) bearing interest at 7% per annum and 4,000 warrants to purchase the
Company's Class A common stock expiring December 31, 2001. The notes are payable
the earlier of December 31, 2001 or on the closing date of the Company's
anticipated public offering of preferred stock. Underwriters were paid a
commission of $95,000. Of the $2,000,000 promissory notes, $1,050,000 were sold
to current stockholders or directors, including $850,000 to Monolith. As of
March 31, 1998, 3 units were sold for $150,000 and a commission of $5,000 was
paid.
NOTE 8 - 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 Contracts
expired at the end of the 1997 season. In March 1998, the Company signed new
broadcasting contracts, which are under similar terms as the above contracts.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with players, the head coach and
executives of the Predators. Some 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 with a one year renewal option. If
the team does not re-sign the player at the end of the contract, he is waived
and free to sign with another team. However, the team has the option of signing
the player first. If the player refuses to re-sign, he must "sit out" for one
year before playing for another team.
F-17
<PAGE> 75
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 options to purchase 34,500 shares of the Company's
Class A Common Stock with an exercise price of $2.00 per share through July
2007.
The Director of Player Personnel and Assistant Coach has a 3 year employment
agreement with annual compensation ranging from $40,000 to $44,000, a $6,000
signing bonus, playoff participation incentives and options to purchase 10,000
shares of the Company's Class A Common Stock with an exercise price of $2.00 per
share.
The Headcoach has a 3 year employment agreement with annual compensation ranging
from $70,000 to $80,000, playoff participation incentives and options to
purchase 15,000 shares of the Company's Class A Common Stock with an exercise
price of $2.00 per share. The Company has an option to renew the contract for an
additional 3 years.
The Vice-President of Sales and Marketing has a 3 year employment agreement with
annual compensation of $45,000, 10% commissions on increases in sponsorship
revenues over the prior year sponsorship revenues, 1% of renewal season ticket
sales and 20% of new season ticket sales, less commissions paid to direct sales
staff.
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 and was subsequently
renewed.
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.
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 secured by a $100,000 certificate of deposit.
F-18
<PAGE> 76
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 9 - 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:
<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 December
31, 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. The
Company issued 1,000 shares of Class B common stock in exchange for $5,000 in
accrued interest payable to stockholders. The notes payable were subsequently
paid from the proceeds of the Company's initial public offering of Class A
common stock.
The Company paid $99,083 for interest during the period ended March 31, 1998.
NOTE 10 - COMMON STOCK
STOCK SPLIT
In June 1997, the Board of Directors approved a 1,380 for 1 forward stock split
of its Class A Common Stock. All financial information and per share data have
been restated to reflect this event.
F-19
<PAGE> 77
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 10 - COMMON STOCK (CONTINUED)
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 Class A 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.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------
RESERVED PRICE PER
SHARES SHARES SHARE
------------------ ------------------ -----------------
<S> <C> <C> <C>
Initial reserved shares 150,000 -- $ --
Granted 138,000 138,000 2.00
------------------ ------------------ -----------------
BALANCE, DECEMBER 31, 1997
AND MARCH 31, 1998, UNAUDITED 12,000 138,000 $ 2.00
================== ================== =================
</TABLE>
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No.
123). The standard requires the Company to adopt the fair value method with
respect to stock-based compensation of consultants and other non-employees.
The Company did not change its method of accounting with respect to employee
stock options; the Company continues to account for these under the intrinsic
value method. Had the Company adopted the fair value method with respect to
options issued to employees as well, an additional charge to income of $134,000
would have been required in 1997; proforma net loss would have been ($1,025,985)
and loss per share would have been $(.70).
STOCK TRANSACTIONS
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 accrued interest.
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 certain control requirements of the AFL.
There are outstanding (i) warrants to purchase 550,000 shares of Class A Common
Stock at exercise price of $7.50 per share at any time until their expiration
on December 10, 2002 (the "Unit Warrants"). (ii) warrants to purchase 110,000
shares of Class A Common Stock and 55,000 Unit Warrants (the "1997
Underwriters' Unit Warrants") at an exercise price of $12.00 per 1997
Underwriters' Unit Warrant and (iii) warrants to purchase 160,000 shares of
Class A Common Stock at $4.50 per share at any time until December 31, 2002
(the "1998 Warrants").
F-20
<PAGE> 78
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 11 - INCOME TAXES
For the period ended March 31, 1997, deferred tax balances were insignificant.
The components of deferred tax assets and (liabilities) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total deferred tax assets $ 335,387 $ 449,389
Less valuation allowance (335,387) (449,389)
----------- -----------
Total deferred tax (liabilities) -- --
----------- -----------
Net deferred tax asset $ -- --
=========== ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax asset
and (liabilities) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Temporary differences;
Property and equipment $ (2,773) $ (3,382)
Membership cost 17,146 21,822
Accrued interest-stockholders 37,255 37,255
Net operating loss carryforward 283,759 393,694
Less valuation allowance (335,387) (449,389)
----------- -----------
$ -- --
=========== ===========
</TABLE>
F-21
<PAGE> 79
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 11 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE PERIOD MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
$ -- --
Current -- --
----------- -----------
Deferred $ -- $ --
=========== ===========
</TABLE>
The components of deferred income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE PERIOD MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Temporary differences;
Depreciation expense $ 2,773 $ 3,382
Amortization expense (17,146) (21,822)
Interest-stockholders (37,255) (37,255)
Net operating loss carryforward (283,759) (393,694)
Less valuation allowance 335,387 449,389
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
F-22
<PAGE> 80
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 11 - INCOME TAXES (CONTINUED)
The following is a reconciliation of the amount of income tax expense (benefit)
that would result from applying the statutory income tax rates to pre-tax loss
and the reported amount of income tax expense (benefit):
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE PERIOD MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Tax expense (benefit) at statutory rates $ (283,759) $ (109,936)
Depreciation expense 2,773 609
Amortization expense (17,146) (4,676)
Interest expense - stockholders (37,255) --
Increase in valuation allowance 355,387 114,003
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
NOTE 12 - SUBSEQUENT EVENT - MARCH 17, 1998
LETTER OF INTENT TO PURCHASE EQUITY INTERESTS IN THE AFL
On March 17, 1998, the Company signed a letter of intent to acquire two,
non-voting, equity interests in the Arena Football League, Inc. for $6,000,000.
Each equity interest similar to will entitle the Company to share equally with
each other member in AFL revenues. The AFL guarantees in the letter of intent to
pay the Company at least $480,000 per year until the Company receives an
aggregate of $6,000,000 through League distribution. If the Company receives
$6,000,000 within one year from the closing of the sale, one equity interest
returns to the League and one equity interest remains with the Company without
any guaranteed rate of return. Once the Company receives an aggregate of
$6,000,000, the Company will participate in all League revenues, expenses and
liabilities with respect to the two equity interests.
The $6,000,000 is payable as follows: $3,500,000 with the executed contract and
$2,500,000 within 60 days of the contract. The Company intends to raise bridge
and equity financing for the payments.
The purchase of the interests will require that two, non-voting, equity
interests in the League will be subject to the equity method of accounting, and
an unsecured, note receivable from the League, imputed interest and principal
due annually.
F-23
<PAGE> 81
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED
NOTE 13 - SUBSEQUENT EVENT - THROUGH APRIL 23, 1998 (UNAUDITED)
On March 28, 1998 the Company signed a letter of intent with an underwriter to
offer to the public 600,000 shares of the Company's 12% Cumulative Convertible
Preferred Stock, valued at $10 per share. The Preferred Shares will convert into
shares of the Company's Class A Common Stock at a price equal to ____________ of
the closing price of the Class A Common Stock on the date immediately preceding
effectiveness of the Preferred Shares.
F-24
<PAGE> 82
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 the year 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 the year 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-25
<PAGE> 83
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-26
<PAGE> 84
ORLANDO PREDATORS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Ticket revenues $ 1,871,039
Play-off game revenue sharing 40,000
Local television and radio broadcast rights 89,682
Advertising and promotions 792,320
Advertising and promotions, related parties 43,899
League revenue 17,783
Other 34,660
-----------
Total Revenues 2,889,383
-----------
COSTS AND EXPENSES:
Operations 2,180,734
Operations, related party 13,023
Selling and promotional expenses 443,405
League assessments 151,379
General and administrative 606,222
General and administrative, related party 19,415
Amortization 10,175
Depreciation 29,662
-----------
Total Costs and Expenses 3,454,015
-----------
OPERATING (LOSS) (564,632)
-----------
OTHER INCOME:
Interest 3,325
Other --
-----------
Total Other Income 3,325
-----------
NET (LOSS) $ (561,307)
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-27
<PAGE> 85
ORLANDO PREDATORS
STATEMENT OF CHANGES IN DIVISION EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
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-28
<PAGE> 86
ORLANDO PREDATORS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net (loss) $ (561,307)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 39,837
Changes in assets and liabilities:
Accounts receivable (8,999)
Inventory --
Prepaid expenses 64,454
Due from League (26,395)
Other assets 2,436
Accounts payable and accrued expenses (26,500)
Deferred revenue (302,458)
-----------
Net Cash (Used) by Operating Activities (818,932)
-----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment (14,920)
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Contributions to the Division 835,398
Distributions from the Division (5,184)
-----------
Net Cash Provided From Financing Activities 830,214
-----------
(DECREASE) IN CASH (3,638)
CASH, beginning of period 4,975
-----------
CASH, end of period $ 1,337
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-29
<PAGE> 87
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
The Orlando Predators, Ltd., a Florida limited partnership, was formed in April
1991. The Orlando Predators, a Division of the Orlando Predators, Ltd.
(Predators) is a professional Arena Football team located in Orlando, Florida.
During 1991, the Partners entered into a License and Membership Agreement with
the Arena Football League (AFL) for the expansion team in Orlando. (See Note 3).
On January 14, 1997, Orlando Predators, Ltd. entered into an agreement with
Monolith Limited Partnership to sell the membership for $1,875,000 in cash,
$180,000 note payable and $225,000 of Monolith Limited Partnership interests and
assumption of $45,000 of liabilities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and equivalents consist 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 gains or loss is credited or
charged to operations. Depreciation expense for the year ended December 31, 1996
was $29,662.
MEMBERSHIP COST
The AFL membership cost of $375,000 is being amortized on a straight-line basis
over 40 years. Amortization expense for the year ended December 31, 1996 was
$9,425.
Management 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,
management 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".
F-30
<PAGE> 88
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Predators
are entitled to keep all gate receipts from home games but do not share in the
gate receipts from away games. Team expenses (principally players 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
amortized ratably as regular season games are played. General, administrative,
selling and promotional expenses are charged to operations as incurred.
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 Predators sell sponsorships for cash and services. In exchange, the sponsors
receive advertising and various benefits to the Predator games. The value of the
trade goods and services has been estimated in the accompanying financial
statements. Management believes these estimates reasonably disclose the value of
goods and services received.
INCOME TAXES
The Division is not subject to income taxes. Accordingly, no income tax
provision or benefit has been recognized in the accompanying financial
statements.
CONCENTRATIONS OF CREDIT RISK
The 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 Predators maintain all cash in deposit accounts, which at times may exceed
federally insured limits. The Predators have 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.
F-31
<PAGE> 89
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1995 the Predators adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets" (SFAS 121). The Statement requires impairment losses to be recognized
for long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows are not sufficient to recover the
assets' carrying amounts.
The adoption of SFAS 121 had no material impact on the Predators financial
position.
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 Predators
share of the AFL revenues and assessments are as follows at December 31, 1996:
<TABLE>
<S> <C>
Revenue:
Expansion membership fees $ 17,783
-----------
Assessments:
Operating assessment 125,000
Other costs 26,379
-----------
151,379
-----------
Net Revenue (Assessment) $ (133,596)
===========
</TABLE>
The Predators continue to be contingently liable for their share of AFL expenses
which may exceed AFL revenues. The Company continues to be contingently liable
for its share of AFL expenses which may exceed AFL revenues. As of May 30, 1997,
the Predators are contingently liable for approximately $90,000 for other team
membership purchases.
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.
F-32
<PAGE> 90
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - ARENA FOOTBALL LEAGUE (CONTINUED)
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 Predators results of operations or financial position.
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 Predators are 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 at December 31, 1996:
<TABLE>
<S> <C>
AFL assessment $ 21,000
Professional fees 8,195
Sales tax 4,600
Insurance 2,025
Other 4,123
------------
$ 39,943
============
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Office equipment $ 77,041
Game equipment and system 126,887
------------
203,928
Less accumulated depreciation (107,074)
------------
$ 96,854
============
</TABLE>
F-33
<PAGE> 91
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at December 31,
1996:
<TABLE>
<S> <C>
Accounts payable trade $ 252,290
Accrued salary and payroll taxes 47,999
-----------
$ 300,289
===========
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LOCAL MEDIA CONTRACTS
The Predators have radio and television broadcasting contracts with a local
radio station and a local cable sports network, which expire at the end of the
1997 season. The contracts require the Predators to provide certain services,
goods, and game tickets in exchange for commercial time, promotional events and
the right to broadcast the games.
EMPLOYMENT AGREEMENTS
The Predators have employment agreements with players, the head coach and the
vice president of the team. 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 coach has a
one-year agreement for $70,000 with bonuses based on the number of winning games
and play-off participation and contains a covenant not to compete for a period
of one year after termination of employment. The vice president has a two-year
agreement for $60,000, 10% commission on sponsorship revenue and bonuses based
on play-off participation.
LEASE COMMITMENTS
The Predators are committed under a lease with the City of Orlando to lease the
Orlando Centroplex Arena for all home games and the Citrus Bowl as a practice
field. Lease payments are based upon the greater of a percentage of gross ticket
sales or $7,500 per regular season game. The lease expired at the end of the
1997 season.
In addition, the 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.
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.
F-34
<PAGE> 92
ORLANDO PREDATORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LETTER OF CREDIT
The Predators have entered into an agreement with a financial institution for a
letter of credit in the amount of $100,000. The letter of credit is required by
the League and is available to the League to draw upon, if necessary, but only
after the AFL Board of Directors has given approval. The letter of credit was
personally guaranteed by the partners of Orlando Predators, Ltd.
NOTE 8 - RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the notes
to the financial statements, the following related party transactions have
occurred:
SPONSORSHIP REVENUE
During the year ended December 31, 1996, the Predators received revenue in the
form of sponsorships from certain limited partners in the amount of $43,899.
COSTS OF SPONSORSHIP
During the year ended December 31, 1996, the Predators incurred expenses related
to sponsorship revenue received from certain limited partners in the amount of
$3,625.
MEDICAL EXPENSES
The Predators incurred medical expenses for treatment of player and/or employee
medical conditions from certain limited partners. During the year ended December
31, 1996 such expenses totaled $9,398.
LEGAL EXPENSES
During the year ended December 31, 1996, the Predators incurred legal expenses
from certain limited partners in the amount of $19,415.
F-35
<PAGE> 93
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>
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Price Range of Class A Common Stock...................................... 16
Capitalization........................................................... 17
Use of Proceeds.......................................................... 17
Selected Financial Data.................................................. 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............................................. 20
Arena Football........................................................... 24
Business................................................................. 29
Management............................................................... 37
Principal Stockholders................................................... 41
Certain Transactions..................................................... 43
Description of Securities................................................ 44
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Financial Statements..................................................... F-1
</TABLE>
600,000 SHARES OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK
THE ORLANDO PREDATORS
ENTERTAINMENT, INC.
---------------
PROSPECTUS
---------------
H D BROUS & CO., INC.
__________, 1998
<PAGE> 94
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 director
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
<PAGE> 95
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 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)
<TABLE>
<S> <C>
SEC Registration Fee...................................... $ 4,791
NASD Filing Fee........................................... 2,124
Blue Sky Filing Fees...................................... 12,000
Blue Sky Legal Fees....................................... 25,000
Printing Expenses......................................... 60,000
Legal Fees and Expenses................................... 95,000
Accounting Fees........................................... 15,000
Transfer Agent Fees....................................... 3,000
Nasdaq Application Fee.................................... 10,000
Miscellaneous Expenses.................................... 73,085
--------
TOTAL................................................. $300,000(1)
</TABLE>
- -----------
(1) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
(2) Does not include the Representative's commission and expenses of $780,000
($897,000 if the over-allotment Option is exercised).
II - 2
<PAGE> 96
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act, as amended.
(i) In March 1997, the Registrant issued 1,276,500 shares of its
Class A Common Stock valued at $.34 per share to The Monolith Limited
Partnership ("Monolith") in exchange for transfer by Monolith of all of
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
Class A 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) From time to time, 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 accrued interest payable 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 accrued interest payable. 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.
(v) From time to time, the Registrant has issued options (currently
aggregating 253,000 such stock options) to employees, officers, and
directors under its 1997 Employee Stock Option Plan.
(vi) In April 1998 the Registrant sold $2,000,000 of promissory
notes to the following individuals and issued to them 160,000 common stock
purchase warrants exercisable at $3.75 per share of Common Stock until
December 31, 2002 as follows:
II - 3
<PAGE> 97
<TABLE>
<CAPTION>
NAME NUMBER OF WARRANTS
<S> <C>
Charles L. Pastorino 12,000
Rudolph and Marsha Reece, Jr. 8,000
Richard Leverant 4,000
Thomas F. Winters, Jr. 8,000
Alice J. Slanec, Trustee 4,000
Lyle Riegel 8,000
Robert a. Musick 8,000
Stephen T. Liesen 8,000
Duane Elsenbeiss 4,000
Jerome R. Laczniak 8,000
Nicolas Sarillo 4,000
C.K. Martin 8,000
Michael Maynard 8,000
The Monolith Limited Partnership 68,000
-------
TOTAL 160,000
</TABLE>
With respect to the sales made, the Registrant relied on Section 4(2) of
the Securities Act of 1933, as amended (the "Securities 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 persons were
accredited investors as that term is defined in Rule 501 of Regulation D under
the Securities 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.
II - 4
<PAGE> 98
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<S> <C>
1.11 Form of Underwriting Agreement (To be filed by amendment)
1.12 Form of Agreement Among Underwriters (To be filed by amendment)
1.13 Form of Selling Agreement (To be filed by amendment)
1.14 Form of Representative's Warrant (To be filed by amendment)
3.01 Articles of Incorporation of the Registrant(1)
3.02 Bylaws of the Registrant(1)
5.02 Opinion of Gary A. Agron, regarding legality of the
Preferred Stock (includes Consent)
10.01 1997 Employee Stock Option Plan(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)
10.08 Purchase Agreement for Orlando Predators(1)
10.09 Exchange Agreement for Orlando Predators' Assets(1)
10.10 Employment Agreement with Mr. Youngblood(1)
10.11 1998 Lease Agreement - Orlando Arena
10.12 Agreement between Arena Football League and the Registrant
to acquire the Equity Interests
10.13 Form of April 1998 Promissory Note (To be filed by amendment)
10.14 Employment Agreement with Mr. Gruden
23.05 Consent of Gary A. Agron (See 5.02, above)
23.06 Consent of AJ Robbins, P.C.
</TABLE>
- -----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, File Number 333-31671, declared effective on December 11, 1997.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under
the Securities 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
II - 5
<PAGE> 99
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 Securities 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
Securities 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 - 6
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities 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 May 18, 1998.
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
By: /s/ JACK YOUNGBLOOD
-------------------------------------------
Jack Youngblood, President
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed below by the following persons on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM G. MERIS Chairman of the Board
- --------------------------- of Directors May 18, 1998
William G. Meris
/s/ JACK YOUNGBLOOD President (Chief Executive May 18, 1998
- --------------------------- Officer) and Director
Jack Youngblood
/s/ ALEX NARUSHKA Secretary, Treasurer and May 18, 1998
- --------------------------- Chief Financial Officer
Alex Narushka (Principal Accounting
Officer)
/s/ ROBERT G. FLYNN Chief Operating Officer May 18, 1998
- ---------------------------
Robert G. Flynn
/s/ EDGAR J. ALLEN Vice President - Sales and May 18, 1998
- -------------------------- Marketing
Edgar J. Allen
/s/ ALAN N. GAGLEARD Director May 18, 1998
- --------------------------
Alan N. Gagleard
/s/ THOMAS F. WINTERS, JR. Director May 18, 1998
- --------------------------
Thomas F. Winters, Jr.
</TABLE>
II - 7
<PAGE> 101
THE ORLANDO PREDATORS ENTERTAINMENT, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<S> <C>
1.11 Form of Underwriting Agreement (To be filed by amendment)
1.12 Form of Agreement Among Underwriters (To be filed by amendment)
1.13 Form of Selling Agreement (To be filed by amendment)
1.14 Form of Representative's Warrant (To be filed by amendment)
3.01 Articles of Incorporation of the Registrant(1)
3.02 Bylaws of the Registrant(1)
5.02 Opinion of Gary A. Agron, regarding legality of the
Preferred Stock (includes Consent)
10.01 1997 Employee Stock Option Plan(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)
10.08 Purchase Agreement for Orlando Predators(1)
10.09 Exchange Agreement for Orlando Predators' Assets(1)
10.10 Employment Agreement with Mr. Youngblood(1)
10.11 1998 Lease Agreement - Orlando Arena
10.12 Agreement between Arena Football League and the Registrant
to acquire the Equity Interests
10.13 Form of April 1998 Promissory Note (To be filed by amendment)
10.14 Employment Agreement with Mr. Gruden
23.05 Consent of Gary A. Agron (See 5.02, above)
23.06 Consent of AJ Robbins, P.C.
</TABLE>
- -----------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2, File Number 333-31671, declared effective on December 11, 1997.
<PAGE> 1
EXHIBIT 5.02
[LAW OFFICE OF GARY A. AGRON LETTERHEAD]
May 20, 1998
The Orlando Predators Entertainment, Inc.
20 North Orange Avenue, Suite 101
Orlando, Florida 32801
RE: Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for The Orlando Predators Entertainment, Inc., a
Florida corporation (the "Company"), in connection with its proposed public
offering under the Securities Act of 1933, as amended, of up to 920,000 Units
of its securities, each Unit consisting of one share of no par value preferred
stock ("Preferred Stock") and one common stock purchase warrant ("Warrant")
through a Registration Statement on Form SB-2 ("Registration Statement") as to
which this opinion is a part, to be filed with the Securities and Exchange
Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies identified to our satisfaction of the
following:
(1) Articles of Incorporation of the Company as filed with the
Secretary of State of the State of Florida;
(2) Corporate minutes containing the written deliberations and
resolutions of the Board of Directors and shareholders of the Company;
(3) The Registration Statement and the Preliminary Prospectus
contained within the Registration Statement;
(4) The other exhibits to the Registration Statement.
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as we have deemed necessary or
appropriate under the circumstances.
<PAGE> 2
The Orlando Predators Entertainment, Inc.
May 18, 1998
Page two
Based upon the foregoing and in reliance thereon, it is our opinion
that the Units, Preferred Stock, Warrants and Common Stock issuable upon
exercise of the Warrants offered under the Registration Statement will, upon
the purchase, receipt of full payment, issuance and delivery in accordance with
the terms of the offering described in the Registration Statement, be fully and
validly authorized, legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part thereof.
Very truly yours,
Gary A. Agron
GAA/jp
<PAGE> 1
EXHIBIT 10.11
AGREEMENT FOR USE OF
ORLANDO ARENA AT ORLANDO CENTROPLEX
BETWEEN
THE CITY OF ORLANDO
AND
THE ORLANDO PREDATORS
THIS USE AGREEMENT (the "Agreement") is made and entered into as of this
20th day of May, 1998, by and between the CITY OF ORLANDO, FLORIDA, a Florida
municipal corporation (the "City"), and THE ORLANDO PREDATORS ENTERTAINMENT
INC., A Florida Corporation (the "Club").
W I T N E S S E T H:
WHEREAS, the City owns and operates the Orlando Arena (the "Arena"); and
WHEREAS, the Club has requested the use of the Arena to play the home game
portion of its football schedule during the 1998, 1999, 2000, 2001 and 2002
seasons of the ARENA FOOTBALL LEAGUE; and
WHEREAS, the Club's use of the Arena should attract business and tourism to
downtown Orlando and create additional economic benefits for the City and its
citizens; and
WHEREAS, the City deems it advantageous for itself and for the citizens of
Orlando to permit the Club the non-exclusive use of the Arena together with the
rights and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereby agree as follows:
I. TERM AND DESCRIPTION
SECTION 1.1 TERM. The item of this Agreement shall be for a period of five
(5) years commencing on May 20, 1998 and terminating on May 19, 2003 (unless
terminated earlier in accordance with the terms hereof). The Club shall have the
option to renew this Agreement for an additional five (5) year term.
SECTION 1.2 ARENA DESCRIPTION. The Arena, which is the object of this
Agreement, is located at 600 W. Amelia Street, Orlando, Florida 32801.
-1-
<PAGE> 2
II. USE OF CENTROPLEX FACILITIES
SECTION 2.1 MAINTAINING A FRANCHISE AND A HOME SCHEDULE. The Club agrees,
in exchange for the right to the non-exclusive use of the Arena for the 1998,
1999, 2000, 2001 and 2002 Arena football seasons, that it will take all
reasonable actions within its capacity during the term of this Agreement to
retain an ARENA FOOTBALL LEAGUE franchise in Orlando to play all home games at
the Arena for such seasons.
SECTION 2.2 USAGE FEES FOR ORLANDO ARENA. During the term of this
Agreement, the Club shall have the right to the non-exclusive use of the Arena,
during the Arena football season, for the Club to play the home game portions of
its regular season and play-off schedule. Each year of the term of this
Agreement, the Club shall have the right to promote one (1) Arena Football
related event at the Arena for an amount equal to the base rent and in
accordance with all other terms and conditions as set forth in this Agreement.
In consideration of such right to the non-exclusive use of the Arena the Club's
compensation to the City shall be the base rent and usage fee plus taxes as
follows:
Seven thousand five hundred dollars ($7500) base rent or eight and one half
percent (8.5%) of gross ticket sales (less applicable taxes), whichever is
greater, with a rent cap of Fifteen Thousand dollars ($15,000) for regular
season games and a rent cap of Five Thousand dollars ($5,000) for the first
round play-offs and Fifteen Thousands dollars ($15,000) for the second round
playoffs and Fifteen Thousands dollars ($15,000) for the Arena Bowl game. Rent
cap for the Arena Bowl Championship game will be Fifteen Thousand dollars
($15,000) should the Club earn the right to host the event.
Should the Club raise ticket prices subsequent to the first Arena Football
season, the base rent of Seven Thousand Five hundred dollars ($7,500) will be
adjusted upward by the percentage increase in the average ticket price for the
Club's regular football season. As an example, should the ticket prices increase
from an average of Ten dollars ($10) for each regular season football game
during the 1998 football season to an average of Twelve and 50/100 dollars
($12.50) for each regular season football game during the 1999 football season,
a percentage of twenty-five percent (25%), the base rent will increase from
Seven Thousand Five hundred dollars ($7,500) to Nine Thousand Three Hundred
Seventy Five Dollars ($9,375) [$7500 x 1.25]. For purposes of this paragraph,
"average ticket price" shall be calculated by taking the ticket prices for each
classification or level of seating, and multiplying the prices by the actual
number of seats within each classification or level of seating, and dividing the
sum by the total number of seats in the Arena. The base rent would thus be
established as the greater of the minimum
-2-
<PAGE> 3
base rent as calculated above, or eight and one half percent (8.5%) of gross
ticket sales, less applicable taxes, but in no event more than a maximum amount
determined by applying the calculation described above to the present maximum of
Fifteen Thousand dollars ($15,000).
In addition to the usage fees set forth in section 2.2, the Club shall pay
the City for the following plus applicable taxes:
(A) All technical services excluding house lights and sound technicians at
prevailing posted rates;
(B) All video cabling fees at the rate of $250.00 for each home T.V. and
$500.00 for each away T.V.;
(C) A video package (for a two camera shoot) at $500.00 per game. If a
third camera is required, then Club shall pay to rent such third
camera and for "slo mo;"
(D) The cost of complimentary tickets at ten cents ($0.10) each (over the
allotment of 2% of the manifested capacity);
(E) All Club catering cost and expenses;
(F) The actual cost of rental of any equipment which the City must rent
for the benefit of the Club. In this regard, the City acknowledges
that all City owned chain hoist motors and fork lifts can be used by
the Club during the term without rent or payment. However, any
additional chain hoist motors or other equipment which the City must
rent to accommodate the Club shall be paid for by the Club at the
City's actual cost for the same;
(G) All media phones at a cost of $75.00 per phone plus the actual cost of
all calls made by the media; provided, however, City agrees to provide
to Club three (3) phones for the Club's use at no charge to the Club.
However, club will pay for all applicable telephone charges for the
free phones.
SECTION 2.2 SERVICES. In consideration of the payment of the rent as set
forth above, and the usage fees set forth in Section 2.2, the City agrees to
provide the following services to Club as part of the services covered by the
rent and usage fee: all staffing costs, including Law Enforcement,
Paramedics/EMTs, Ticket Takers, Ticket Sellers, Ushers and Security (excluding
tech as referenced above); all costs associated with the setup and tear down of
the field; all costs of clean-up and equipment (including risers, spot lights,
and forklifts); and one (1) chain
-3-
<PAGE> 4
hoist motor and three (3) phones as referenced in Section 2.2.
In addition, the Club shall have access to all locker rooms excluding the
Orlando Magic locker room and any permanent IHL home locker room which may be
constructed. Both the Club and the visiting team will enter the facility through
the west end security entrance.
The City will make other rooms available to the Club on an as needed basis,
based upon the availability of the rooms, subject to the approval of the
Director.
In addition to the foregoing, the Club shall have the right, after
notifying Director and obtaining Director's consent, which consent shall not be
unreasonably withheld, to cause the home games of the Club in the Arena to be
broadcast by radio or television or to be filmed, recorded or video-taped. Such
broadcasting, filming, recording or video-taping shall be in accordance with the
rules and regulations in effect for such activities within the Arena; however,
the Club shall not be charged any fee by the City in connection with the
approval of or undertaking by or on behalf of the Club of any of the same.
The usage fee set forth in Section 2.2 does not include use of Thunder
Field or the Citrus Bowl locker locker rooms (the "facilities") by the Club. In
addition to the usage fee set forth above, the Club agrees to pay the City
$100.00 per week plus tax for use of the facilities on an as available basis.
The Club also agrees to reimburse the City for twice a week Citrus Bowl locker
room clean-up costs. The Club further agrees to pay for more frequently clean-up
of the Citrus Bowl locker room facilities if it is deemed necessary by the
centroplex Director. The City may preempt the club's use of the facilities if
the City can rent the facilities at posted rates.
When utilizing the Citrus Bowl locker rooms, the Club shall remove their
equipment and goods used at the Eastside locker room, during periods when the
locker room is being used by other tenants/users. Whenever possible, the City
shall allow the Club to store said equipment and goods in a section of the
locker room facility to be designated by the Director. It shall be the
responsibility of the Club to move their equipment and goods back and forth
between the two locations and to remove their equipment within ten (10) business
days after the last game of the season.
In addition, should the Club use the Citrus Bowl locker room in connection
with its practices, the Club shall be responsible for and shall indemnify and
save the City harmless from any damage or theft which occurs to the Club's
property while located at the Citrus Bowl locker room.
-4-
<PAGE> 5
All payments due from the Club to the City under the terms of this
Agreement shall be made payable to the City of Orlando within three (3) days of
the date of the date of each game and if not paid within three (3) days after
written notice, shall bear interest at the rate of eighteen percent (18%) per
annum from the date due until paid.
SECTION 2.4 TICKET SALES. The Ticket Agency currently designated for the
City is TicketMaster; however, such Ticket Agency is subject to change by
decision of the City only. The exact number of tickets sold for each of the
respective Club home games will be finally determined by the Centroplex Box
Office's computerized ticket audit. The Club must provide the Centroplex
Director with credible documentation evidencing the number of commemorative
tickets sold and complimentary tickets issued (including trade tickets) for the
respective home game. The Club ticket office shall serve only as a secondary
box office for season/group ticket sales and shall not sell any individual game
tickets.
Should the Gross Receipts for any home game be insufficient to cover any
and all costs including, but not limited, to those contained in Section 2.2 of
the Agreement, then these outstanding monetary obligations will be settled out
of the deposit money required under Section 2.6 herein. To the extent the
deposit money is insufficient to cover those outstanding monetary obligations,
the Club shall pay to the City no later than three (3) business days following
after the respective Club home game, all amounts determined by the City to be
outstanding.
SECTION 2.5 PAYMENT. The City agrees to pay the Club three dollars ($3.00)
per person for attendance at each game in excess of 9,000, not to exceed ten
thousand dollars ($10,000) per game. Attendance will be determined by turnstile
count. The City agrees to pay to the Club any money due after the settlement
of the event no later than three (3) business days following game.
The City shall pay the Club its share of the concession income within ten
(10) days after the Club's last home regular season or play-off game.
SECTION 2.6. DEPOSIT. The Club agrees to pay the City, as consideration
for reserving the Arena for the regular-season home schedule dates, a deposit
of one thousand dollars ($1,000).
SECTION 2.7. SCHEDULING PLAYING DATES. For purposes of scheduling events
at the Arena, the City acknowledges that the Club is a prime sports oriented
user of the Arena and agrees to grant to the Club priority over any other
sports team using
-5-
<PAGE> 6
multiple dates during the Arena Football Season (April through August) with the
exception of the Orlando Magic.
SECTION 2.8 FAILURE; IMPOSSIBILITY
(a) Failure. If the Club fails to use the Arena on a date reserved for a
home, playoff game or Arena Football related event and the Club does not notify
the City of the anticipated failure at least seven (7) calendar days prior to
its scheduled date, then the non-refundable deposit will be applied toward the
date the Club failed to use the Arena. The Club shall remain obligated to pay
the City the full amount of any monetary obligations due hereunder to the City
which are outstanding after each home game and any monetary obligations
outstanding at the conclusion of Club's home schedule (or playoffs) for the
season. The Club shall have ten (10) calendar days from the date of the Club's
scheduled final home game for that season to make payment to City of any
outstanding monetary obligations.
Notwithstanding the Club's compliance with the foregoing, the City may
make such other use of the Arena as it desires on the date the Club fails to
use the Arena. For any rescheduling of a date on which the Club fails to use
the Arena, the Club will be required to pay a fee of two thousand dollars
($2,000) to City, in addition to the usage, at least five (5) calendar days
prior to the rescheduled date.
If the Club is required in writing by the television or cable network
televising the game to reschedule any home game and does so reschedule, then it
will not be deemed a "failure to use" the Arena and the Club will not be
subject to the additional fee referenced above.
(b) Impossibility. Notwithstanding the provisions of subsection (a), the
Club shall be excused and relieved from any monetary obligations owed the City
in regard to any Club home game, if the performance of such home game is made
impossible, prevented or substantially impeded or interfered with by any law
decree of a governmental authority having jurisdiction, public enemy, riot,
transportation failure, closing down of the Arena by a governmental authority,
disaster, act of God or other like cause beyond the reasonable control of the
Club. When such impossibility, prevention or substantial impediment occurs, the
Club shall use their best efforts to reschedule the respective home game in
cooperation with the City. Notwithstanding anything in this subsection, the
Club shall be obligated to pay any Arena preparation costs incurred by the
City, if the Club had timely knowledge of such impossibility and did not
provide the City with notice of cancellation at least twenty-four (24) hours
prior to the commencement of the scheduled home game.
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SECTION 2.9 CITY'S PERFORMANCE IMPOSSIBLE. If any law, decree of
any government authority having jurisdiction, public enemy, riot, labor
dispute, construction delay, transportation failure, closing down of the Arena
by a governmental authority other than the City, disaster, act of God or any
other like cause beyond the reasonable control of the City prevents,
substantially interferes with or makes it impossible for the City to provide
the Arena to the Club for any scheduled home game, then the City shall not be
responsible for or liable to the Club for damages resulting from the Club not
being able to use the Arena and the Club shall have no obligation to pay the
rent and usage fee or any additional fee to the City for such date.
SECTION 2.10 ARTIFICIAL TURF; CARPETING. The City will use its best
efforts to provide the Club access to the Arena prior to the opening game to
measure and paint the artificial turf for the floor of the Arena. The City
agrees to provide a location for the storage of the turf during the ARENA
FOOTBALL LEAGUE season. The City shall make the Arena available to the Club for
practice at reasonable times whenever the turf is in place. The Club shall not
be required to pay the base rent payment for practice sessions, understanding
that all practice sessions are subject to availability. For use of the Arena
for its practice sessions, the Club shall reimburse the City a lighting charge
of fifty dollars ($50) per hour. Each non-gameday Club practice shall be
scheduled in advance with the Director and the Club shall reimburse the City
for the cost of the lighting as described above. Unless other arrangements are
explicitly approved in advance by the Director, all Club practices shall be
closed to the public.
SECTION 2.11 PARKING RIGHTS; PASSES. For each Club home game, the City
reserves to itself exclusively the right to control and charge for parking in
facilities controlled by the City and to keep such revenue in its entirety. For
each Club home game, the City shall provide to the Club, one hundred and
seventy five (175) parking passes free of charge. Any additional parking passes
requested will be issued at the posted prevailing rates. The Club shall not
resell any parking provided by the City.
SECTION 2.12 RIGHTS TO NOVELTIES AND PROGRAMS. For all Club events at
the Arena, the Club shall retain all rights for the merchandising and sale of
programs and novelties. The Club will be required to use the City's designated
concessionaire to sell and manage such merchandise items on behalf of the Club,
a fee based on a percentage of total sales will be negotiated between the Club
and the City for such services.
SECTION 2.13 ASSUMPTION OF RISK. The placement and storage of Club
novelties and programs, and any promotional giveaway items, within the Arena
shall be on an as available basis and
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shall be the responsibility of and solely at the risk of the Club. The City
assumes no liability for the theft, damage or spoilage of any stored novelties
and programs or other personal property of the Club, unless due to the gross
negligence or willful misconduct of the City, and even then only to the extent
permitted by law.
Section 2.14 CONCESSIONS. The City, or its designee, shall manage all
concessions, including, but not limited to those for food and beverage.
Whenever concession sales exceed Thirty Five Thousand dollars ($35,000), the
City agrees to pay the Club an amount equal to twenty percent (20%) of the
total net gross proceeds for the sale of food and beverages at the Arena during
any Arena football game or Arena football related event promoted by the Club.
For the purpose of this paragraph, concessions shall be defined as the sale of
all food, beverages (alcoholic and non-alcoholic), candy and similar products
to patrons of the Arena. The net gross proceeds shall be defined as the total
sales of all concession products for cash or credit and shall include
subcontractors commissions, but shall not include total sales of concession
products by subcontractors. Net gross proceeds does not include applicable
taxes.
The Club shall not be permitted to bring food and/or beverages, including
alcoholic beverages into the Arena and shall purchase any such item from the
concessionaire located at the Arena.
Section 2.15 TICKET ADMINISTRATION. The Club shall be responsible for
setting the prices for all categories of tickets available for scheduled Club
home games. However, in accordance with the Arena Skybox Agreement between the
City and the Orlando Magic, the Club must:
(A) allow each skybox sublessee to purchase a number of tickets up
to the maximum seating capacity permitted in the sublessee's
respective skybox; and
(B) charge a price for each skybox ticket equal to the highest
published per seat ticket price being charged per seat anywhere
else in the Arena for that event.
Section 2.16 Audit. At the end of the Club's fiscal year following the
completion of the Club's season, the Club shall submit to the City its
financial records regarding attendance, ticket sales, ticket prices and other
records necessary to determine the total Gross Receipts from the Club's use of
the Arena. The Club shall keep true, complete and accurate records in
accordance with generally accepted accounting principles.
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Section 2.17 ADVERTISING
(A) Temporary Signage; Message Board. The Club shall not, nor shall they
allow anyone else to, erect or display any temporary signage or advertisement
anywhere inside, outside or connected to the Arena immediately prior to or
during any Club home game without the written approval of the Centroplex
Director. The City reserves the right to approve any advertisers and the
advertising copy with specific concerns regarding illegality, poor taste or
potential damage to the City's revenues or the City's reputation. The Club shall
have the right to hang temporary signage in the four vomitories. Said signage
shall be non-permanent and shall be removed after each home game. Additionally,
the Club shall be permitted to place signage on their dasherboards. Unless the
Centroplex Director has given written approval, the Club shall not, nor shall
they allow anyone else to, display any message or advertisement on the Arena
scoreboard message-center during any Club home game which might, in any manner,
conflict with third party messages or advertisements already approved by the
Centroplex Director. The content of all temporary signage and advertisements and
all scoreboard messages and advertisements must be submitted to the Centroplex
Director, for written approval, at least seventy-two (72) hours prior to each
home game at which they are to be erected or displayed. The written approval of
the Centroplex Director shall not be unreasonably withheld; however, such
written approval will often depend on whether the rights to erect or display
signage, messages or advertisements have previously been assigned exclusively to
third parties.
(B) Dirigible.
1. Operation. During their events, the Club may operate and
display during the pre-game period, half-time and post-game period one
dirigible in the size and shape outlined in Exhibit "1" attached. Any deviation
from the dimensions outlined in Exhibit "1" must be submitted to the Centroplex
Director for written approval.
2. Storage. The Club shall be solely responsible for the
storage of the dirigible. At the present time, no City-controlled space is
available in the Arena for storage of the dirigible.
3. Dirigible Insurance. Prior to display or operation of the
dirigible at the Arena, the Club shall submit written evidence to the City that
the dirigible is covered by the Club's liability insurance.
Section 2.18 BROADCAST FEE; MEDIA REQUESTS. The Club shall retain all
broadcast revenue derived from telecasts of Club home
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games emanating from the Arena. As referenced in Section 2.2, the Club shall
pay a fee of Two Hundred Fifty dollars ($250.00) per home game. The Club shall
remove all equipment from the Centroplex facilities within ten (10) business
days after the Club's last home game. Provided, however, if the City has leased
the Arena to another user during the period between seven (7) days following
such last home game and ten (10) business days following such last home game,
then the Club shall remove all equipment from the Arena within seven (7) days
following the last home game and shall remove all its equipment from the
balance of the Centroplex facilities within ten (10) business days as
aforesaid. The only exception to the foregoing is if a league play-off game is
scheduled at the Arena for the first Saturday in September, the equipment must
be removed within twenty-four hours after the game is played. The Club shall
pay the City five hundred dollars ($500.00) for each day that the equipment
remains at the Centroplex facilities after the above-referenced deadlines.
SECTION 2.19 INSURANCE.
(a) Liability Insurance. The Club shall secure and maintain at all times
during the term of this Agreement, at the Club's expense, one or more policies
of general liability and auto liability insurance as required below:
(1) Liability Limits. The limitation of liability shall not be less
than Two Million Dollars ($2,000,000) Combined Single Limits (bodily injury and
property damage). Property damage liability coverage may have a deductible or
self-insurance retention of no more than Fifty-Thousand Dollars ($50,000).
(2) Coverage. Coverage shall be provided for general liability for
any injury, death, damage and/or loss of any sort sustained by any person,
organization or corporation (including the Club and any of its officers,
employees and agents) in connection with any act or omission upon, or use or
occupancy of the Arena and for any activity performed by the Club, its officers,
agents, contractors, servants or employees, under this Agreement and shall
include, but need not be limited to, premises/operations liability; blanket
contractual liability, broad form property damage; independent contractor;
automobile liability for owned, leased, hired or nonowned vehicles; products
and/or completed operations; personal injury, including coverages A, B and C
with no employee exclusion; fire legal liability; and employees as additional
insureds. All such insurance shall be primary to any other insurance that may be
valid and collectible.
(3) Authorized Carriers. The insurance described herein shall be
obtained from insurance companies duly authorized to issue such policies in the
State of Florida and having a financial condition of "XI" or the equivalent as
rated from time
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to time by Best's Rating Guide or any successor or substitute rating service
accepted by the Club and the City.
(4) Naming of the City as Additional Insured. The City shall be
named as an additional insured in such policy(ies) or an endorsement thereto in
the following manner:
"The City of Orlando is an additional insured for all coverages
provided by this policy of insurance and shall be protected by this policy
for any claim, suit, injury, death, damage or loss of any sort sustained by
a person, organization or corporation in connection with activity upon or
use or occupancy of the Arena, as well as any activity performed by the
principal insured under and in accordance with this Agreement."
"The coverages provided by this policy to the City or any other named
insured shall not be terminated, reduced or otherwise changed in any
respect without providing at least thirty (30) days prior written notice
to the City of Orlando, Centroplex Department, 600 West Amelia Street,
Orlando, Florida 32801."
(b) Evidence of Insurance. The Club shall deliver to the City a copy of
all policies required hereunder and all endorsements thereto or other evidence
to reasonably satisfy the City that the Club has secured or renewed and is
maintaining insurance as required by this Agreement as follows:
(1) On or before the effective date of this Agreement.
(2) Within five (5) City business days prior to the expiration or
renewal date of each such policy.
(3) Within five (5) City business days after the Club's receipt of a
written request therefor.
The "ACORD" form of Certificate of Insurance shall not be submitted as
such evidence and shall not be deemed to be satisfactory evidence unless the
following changes are made on such form:
(i) The wording at the top of the form, "This certificate is issued
as a matter of information only and confers no rights upon the certificate
holder.", shall be deleted in its entirety.
(ii) The wording at the bottom of the form, "Should any of the above
described policies be canceled before the expiration date thereof, the issuing
company will endeavor to mail thirty (30) days written notice to the below
named certificate holder,
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but failure to mail such notice shall impose no obligation of any kind upon the
company.", shall be changed to read as follows:
"Should any of the above described policies be canceled, reduced as to
coverage, or otherwise changed before the expiration date thereof, the issuing
company shall provide written notice of such action to the below named
certificate holder/City of Orlando at least thirty (30) days prior to the
effective date of such change or cancellation."
SECTION 2.20 INDEMNIFICATION. The Club agrees to indemnify and hold the
City harmless from and against any and all liability, claims, demands,
damages, expenses, fees, fines, penalties, suits, proceedings, actions and
costs of actions, including reasonable attorneys fees at trial and on appeal, of
any kind and nature arising out of or in any way connected with the use or
occupancy of the Arena by the Club or its licensees, patrons, employees, agents
or invitees.
SECTION 2.21 OFFICE SPACE. The Orlando Arena currently has designated
office space occupied by RDV Sports. Should said office space, or portions of
said office space become available for occupancy, the Club shall have the first
right of refusal if the City determines not to utilize the office space.
III. MISCELLANEOUS
SECTION 3.1 TAXES. The Club shall pay to the proper authority, before
delinquency, all taxes, levies and assessments arising out of or directly
related to its use of the Arena or any other City owned property including, but
not limited to, taxes arising out of the activity or business conducted therein
as a result of or due to the existence of this Agreement between the parties.
SECTION 3.2 RECITALS. The parties hereto agree that all recitals are
true and correct.
SECTION 3.3 CAPTIONS. The titles of paragraphs herein are for
convenience only and do not define or limit their contents.
SECTION 3.4 WAIVER. Failure on the part of the City to object to any
action or non-action on the part of the Club, no matter how long the same may
continue, shall not be construed as a waiver of the City's rights hereunder.
SECTION 3.5 AMENDMENTS. Material amendments to this Agreement may be
made only in writing duly approved and executed by the City and the Club.
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SECTION 3.6 ASSIGNMENT. The Club shall not assign or otherwise
transfer to another person or entity any of its rights, duties, or obligations
under the terms and conditions of this Agreement without the prior approval of
the City Council, with such approval shall not be unreasonably withheld. The
assignee or transferee assumes and agrees directly with the City to perform all
the terms and conditions of this Agreement on the part of the Club, to be
performed.
SECTION 3.7 NO RELATIONSHIP. In no event shall the City be construed
to be a partner, associate or joint venturer of the Club, or any party
associated with the Club. The Club is not an agent of the City for any purpose
whatsoever. The Club shall not create any obligation or responsibility on
behalf of the City or bind the City in any manner.
SECTION 3.8 APPLICABLE LAW; VENUE. This Agreement shall be construed
in accordance with and governed by the laws of the State of Florida. Venue for
any action brought hereunder shall be in Orange County, Florida.
SECTION 3.9 INVALIDITY OF PARTICULAR PROVISION. Should any term,
provision, condition or other portion of this Agreement or the application
thereof be held to be inoperative, invalid or unenforceable, the remainder of
this Agreement or the application of such term or provision to persons or
circumstances other than those to which it is held invalid or unenforceable
shall not be affected thereby and shall continue in full force and effect.
SECTION 3.10 STORAGE. All Club equipment shall be removed from the
Centroplex facilities within ten (10) business days after the Club's last home
game. Provided, however, if the City has leased the Arena to another user
during the period between seven (7) days following such last home game and ten
(10) business days following such last home game, then the Club shall remove all
equipment from the Arena within seven (7) days following the last home game and
shall remove all its equipment from the balance of the Centroplex facilities
within ten (10) business days as aforesaid. The Club shall pay the City five
hundred dollars ($500.00) for each day that the equipment remains at the
Centroplex facilities after the above-referenced deadlines.
SECTION 3.1 FORCE MAJEUR. If the premises or any part of the Orlando
Centroplex is destroyed or damaged by fire or any other cause, or if any other
casualty or unforeseen occurrence renders the fulfillment of this Agreement by
the City impossible, then this Agreement shall be terminated, the Club shall be
liable for rent, charges for support personnel and services, additional utility
charges which have accrued only as to the time of termination: provided,
however, if such impossibility of performance shall be due to the act or
omissions of the Club, its
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agents, employees, members, licensees, or invitees, then the Club shall be
liable for the entire rent charged hereunder as well as all accrued charges in
addition to such other damages as may result from such acts or omissions. The
Club hereby waives any claim for damages or compensation from the City on
account of such termination.
SECTION 3.12 PREVIOUS AGREEMENTS SUPERSEDED. The terms and conditions of
this Agreement supersede the terms, obligations and conditions of any other
existing or prior agreement or understanding, written or oral, between the
parties regarding the premises.
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IN WITNESS WHEREOF, the City and the Club have duly approved this
Agreement and authorized, respectively, the Mayor and City Clerk of the City
and the general partner of the Club to execute and deliver this Agreement, all
as of the day and year written above.
CITY OF ORLANDO, FLORIDA
By: /s/ ILLEGIBLE
--------------------------
DEPUTY CENTROPLEX DIRECTOR
WITNESS:
/s/ ILLEGIBLE
- -----------------------
/S/ ILLEGIBLE
- -----------------------
APPROVED AS TO FORM AND LEGALITY
For the use and reliance of the
City of Orlando, Florida only.
,1998
---------------------------
/s/ ILLEGIBLE
---------------------------
City Attorney
Orlando, Florida
* * * * *
ORLANDO PREDATORS ENTERTAINMENT
INC., a Florida Corporation
By Its President:
By: /s/ JACK YOUNGBLOOD
-------------------------------
Jack Youngblood
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STATE OF FLORIDA
COUNTY OF ORANGE
PERSONALLY APPEARED before me, the undersigned authority, Jack Youngblood,
well known to me and known by me to be the President of Orlando Predators
Entertainment Inc., a Florida Corporation, and acknowledged before me that he
executed the foregoing instrument on behalf of the corporation, as its true act
and deed, and that he was duly authorized to do so. He is personally known to me
or has produced ________________ as identification and did (did not) take an
oath.
/s/ MARK SMITH
-------------------------------
Name: Mark Smith
Notary Public, State of Florida
Notary Commission No. CC497988
My Commission Expires: 9-25-99
MARK SMITH
[NOTARY SEAL] My Comm Exp. 9/25/99
Bonded By Service Ins
No. CC497988
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EXHIBIT 10.12
NTH PURCHASE AGREEMENT
This nth Purchase Agreement ("Agreement") is entered into as of April 29, 1998,
by and between the Arena Football League, Inc., a Delaware corporation ("AFLI")
and Orlando Predators Entertainment, Inc., a Florida corporation ("OPE"), with
reference to the following facts:
RECITALS
A. AFLI is a not for profit Delaware corporation organized under Internal
Revenue Code Section 501(c)(6). AFLI operates the Arena Football League
("League"), a professional football league. AFLI proposes to enter into an
agreement ("Gridiron Agreement") with Gridiron Enterprises, Inc. ("Gridiron")
to purchase certain patents, trademarks and copyrights relating to the game of
Arena Football which are presently owned by Gridiron and licensed to AFLI
pursuant to that certain License Agreement dated October 1, 1991, as amended
("License Agreement").
B. The AFLI is owned and operated by its Members through its Board of
Directors ("Board"). At present each Member owns a Football team ("Team") in the
League and each Member has a representative as a member of the Board. Gridiron
does not own a Team but is treated in all respects as a Member and has a
representative as a member of the Board. Each Members' prorata ownership
interest in AFLI is expressed as an nth. The prorata ownership interest of
Gridiron in AFLI is also expressed as an nth. Therefore, the prorata ownership
interests in AFLI are presently evidenced by sixteen nths (16nths). Membership
in and ownership of nths in AFLI is governed by and will continue to be
governed by the By-Laws and other rules and regulations of AFLI, as they may be
amended from time to time and the actions and decisions taken by the Board in
accordance with the By-Laws.
C. OPE is a Member of AFLI and owns the Orlando Predators Arena Football Team
and is the owner of 1nth in respect thereof. OPE wishes to purchase an
additional 2nths in AFLI for the sum of six million dollars ($6,000,000.00)
cash and AFLI desires to sell an additional 2nths to OPE all as more fully set
forth in this Agreement
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, AFLI and OPE hereby agree as
follows:
ARTICLE 1: PURCHASE AND SALE OF OPE 2NTHS
1.1 PURCHASE AND SALE. AFLI agrees to sell to OPE, and OPE agrees to
purchase from AFLI, subject to the terms, covenants and conditions set forth
herein, 2nths ("OPE 2nths") representing ownership in, and rights and
responsibilities with respect to the AFLI.
1.2 DEFINITION OF NTHS. Each nth in AFLI represents a prorata
ownership interest with all other nths in AFLI. Presently AFLI has issued
16nths, one to each of the fifteen (15) Member Teams ("Team nths") and one to
Gridiron in partial consideration for the rights granted AFLI in the License
Agreement ("Gridiron 1st nth"). At present, each Team nth entitles the owner
thereof to
<PAGE> 2
certain prorata distributions and subjects the owner thereof to certain prorata
assessments from time to time imposed by AFLI to fund its operations. At
present the Gridiron 1st nth is entitled to prorata distributions with all
Team nths. In the future, certain nths will or may be issued by AFLI (including
the Gridiron 1st nth as modified by the Gridiron Agreement, the Gridiron 2nd
nth as issued pursuant to the Gridiron Agreement, and the OPE 2nths issued
pursuant to this Agreement, may have specific limitations on rights granted to
and obligations assumed by the owner thereof.
1.3 PURCHASE PRICE. The purchase price for the OPE 2nths is six
million dollars ($6,000,000) in cash ($6MM Investment") to be paid as follows:
a) $ 3,500,000 ("OPE 1st Installment") on the Closing date
(defined below); and
b) $2,500,000 ("OPE 2nd Installment") on or before the 75th
day from and after the Closing Date ("Full Investment
Date").
1.4 RIGHTS AND OBLIGATIONS OF THE OPE 2NTHS INVESTMENT. The OPE 2
nths will have the following rights and obligations;
a) NON-VOTING. NO BOARD REPRESENTATIONS. The OPE 2nths will be
non voting and have no right to vote in any matter or to
appoint any director or any alternate director to the Board.
b) NORMAL PRORATA DISTRIBUTIONS AND CHARGES. The OPE 2nths
will be entitled to all prorata distributions made to the
owners of all nths in respect thereof and they will be
subject to any prorata charges and contributions required of
all owners of nths in respect thereof except as specifically
provided otherwise in this Section 1.4.
c) PRIORITY DISTRIBUTIONS. The OPE 2nths will be entitled to a
priority distribution in return of the $6MM Investment in
the amount of four hundred and eighty thousand dollars
($480,000) per year ("480 Payment") commencing with the year
beginning on the Full Investment Date. The 480 Payment shall
be made annually on the Full Investment Date until the $6MM
Investment is returned in full. The 480 Payment shall be
made first from proceeds which would otherwise be available
for distribution in respect of nths in the ordinary course
of business of AFLI, which proceeds were received by AFLI
during the twelve month period preceding the date the 480
Payment is due, exclusive of receipts from assessments of
members for operations or from fines. The 480 Payment, to
the extent paid from such proceeds available for
distributions, shall be paid to OPE prior to any
distributions in respect of nths. In the event that AFLI
does not have sufficient proceeds available for
distributions to make the 480 Payment in any year, AFLI will
asses each team nth prorata an amount of up to $20,000 per
Team nth in order to make the 480 Payment. If after such
assessment in the full amount of $20,000 per Team nth there
is insufficient cash to pay the 480 Payment in full, the
shortfall shall be added to 480 Payment for the
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next following year. The provisions of this Section 1.4 (a)shall
apply cumulatively to the 480 Payment for each year until the
$6MM Investment is paid in full.
d) NO INTEREST ON CAPITAL ACCOUNT. No interest shall accrue or be
payable with respect to capital account of OPE in respect of
the $6MM Investment.
e) VOLUNTARY PAYMENTS/NO PREPAYMENT PENALTY. In addition to the
annual 480 Payment, AFLI may make other payments in return of
capital represented by the $6MM Investment in any amount and at
any time and from time to time in the sole discretion of AFLI.
f) PREPAYMENT WITHIN ONE YEAR OF THE FULL INVESTMENT DATE. AFLI in
its sole and absolute discretion may elect to return to OPE the
entire $6MM Investment on or before the day which is the one
year anniversary of the Full Investment Date (1nth Reduction
Date"). In such event and upon such timely payment to OPE, the
OPE 2NTHS shall be automatically reduced to 1st nth which will
be non voting and entitled to all prorata distributions and
subject to all prorata charges and assessments made by AFLI.
In such event all future calculations, distributions and charges
in respect of the OPE 2NTHS shall thereafter be in respect of
1st NTH (hereinafter called the "OPE 1st NTH").
g) EXEMPTION FROM CHARGES AND LIABILITIES. The OPE 2NTHS shall be
exempt from any and all prorata charges and liabilities assessed
by AFLI in respect of nths until the full and complete return
to OPE of the $6MM Investment. Upon repayment in full of the
$6MM Investment, the OPE 2NTHS or the OPE 1st nth, as the case
may be, will be subject prorata to all charges and liabilities
thereafter assessed by AFLI in respect of Team nths.
h) RESTRICTIONS ON DISTRIBUTIONS. Pending the timely payment by OPE
to AFLI of the full $6MM Investment (i.e. both the OPE 1st
Installment and the OPE 2nd Installments,) the OPE 2NTHS will
not be entitled to receive prorata distributions, if any, made
by AFLI in respect of NTHS. Upon payment in full by OPE to AFLI
of the $6MM Investment pursuant to this Agreement, the OPE 2NTHS
or the OPE 1st NTH, as the case may be, will be entitled to
prorata distributions, if any, made by AFLI in respect of NTHS.
i) NO EFFECT ON OPE TEAM NTH. The provisions of this Agreement have
no effect on the rights and obligations of AFLI and OPE in
respect of the OPE Team nth.
ARTICLE 2: CLOSING
2.1 CONDITIONS PRECEDENT. The following are conditions precedent to the
purchase and sale of the OPE 2NTHS as contemplated by this Agreement.
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<PAGE> 4
a) The approval of the Board (which may include the
requirement to amend the By-laws of AFLI, presently or
prospectively, to accommodate this Agreement and the
Gridiron Agreement) on or before June 30, 1998.
b) The full execution and delivery of the Gridiron Agreement
by and between Gridiron and AFLI on or before June 30, 1998.
c) The full execution and delivery of this Agreement by and
between OPE and AFLI on or before May 22, 1998.
If any of the conditions set forth in this Section 2.1 are not timely
satisfied or waived by the parties hereto, for any reason other than the
default of AFLI or OPE, then this Agreement and the rights and obligations of
AFLI and OPE shall terminate and be of no further force and effect.
2.2 CLOSING. Closing of the initial transaction contemplated by this
Agreement shall occur at the offices of AFLI on a date ("Closing Date")
mutually agreed to by the parties hereto but in all events within ten (10) days
after the execution and delivery of the Gridiron Agreement by the parties
thereto. At closing the following will occur:
a) The parties will establish and confirm the Closing Date, the
Full Investment Date and the 1st nth Reduction Date.
b) OPE will pay to AFLI the OPE 1st Installment in immediately
available funds.
c) The parties will execute and deliver such additional
documentation appropriate to evidence the issuance of the OPE
2nths by AFLI to OPE.
2.3 FULL INVESTMENT. On or before the Full Investment Date, OPE will pay
AFLI the OPE 2nd Installment in immediately available funds.
ARTICLE 3: CERTAIN AGREEMENTS.
3.1 PRESENT AND FUTURE STRUCTURE OF AFLI NOT AFFECTED. The parties
acknowledge and agree that this Agreement does not create any rights in favor
of OPE or obligations incumbent on AFLI other than as specifically set forth
herein. OPE acknowledges and agrees that AFLI may change its structure, issue
new Team nths or recover or transfer existing Team nths, issue other nths in
respect of other transactions, incur liabilities, acquire assets and otherwise
freely conduct its business all on terms and conditions approved by AFLI.
3.2 GRIDIRON AGREEMENT. The parties acknowledge and agree that AFLI
proposes to issue Gridiron a second nth which will be non-voting pursuant to
the Gridiron Agreement subject to all the terms and conditions set forth
therein. OPE acknowledges that the four million dollars ($4,000,000) in cash
("$4MM") and related expenses proposed to be paid to Gridiron pursuant to the
Gridiron Agreement will come from the proceeds of the $6MM Investment. OPE
further acknowledges that OPE is not in privity with Gridiron Agreement and
that the
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Gridiron Agreement specifies that there are no third party beneficiaries. OPE
agrees that it has no independent rights or obligations under the Gridiron
Agreement.
3.3 USE OF PROCEEDS FROM THE $6MM INVESTMENT. The parties acknowledge
and agree that in addition to the cash to be paid to Gridiron under the
Gridiron Agreement, the proceeds of the $6MM Investment is expected to be used
as generally set forth in Exhibit A attached hereto and incorporated herein,
the actual use of proceeds of the $6MM Investment other than the $4MM and
related expenses to be paid to Gridiron pursuant to the Gridiron Agreement will
be determined by the Board in its sole and absolute discretion.
3.4 ACCELERATION OF THE FULL INVESTMENT DATE. OPE may establish the Full
Investment Date as a date certain to occur before the 75th day from and after
the Closing Date on five (5) business days written notice to AFLI. If AFLI
intends to complete any transaction with a third party which will provide AFLI
with any cash payment or investment from such third party ("Third Party
Investment"), AFLI will give written notice to OPE specifying the proposed
closing date of any Third Party Investment which shall not be less than fifteen
(15) days from the date such notice is delivered to OPE. Upon receipt of such
notice, OPE may upon five (5) days written notice to AFLI establish the Full
Investment Date as above provided.
3.5 COVENANTS OF AFLI. AFLI covenants with OPE that it will (i) use its
best efforts (a) to obtain on or before June 30, 1998, any required Board
approval of this Agreement and the Gridiron Agreement, any required By-law
amendments and all other approvals, if any, required under AFLI's articles of
incorporation or Bylaws (b) to negotiate in good faith the Gridiron Agreement
and use best efforts to obtain the full execution and delivery thereof on or
before June 30, 1998 and (ii) promptly execute and return to OPE a counterpart
of this Agreement when executed by OPE.
ARTICLE 4: MISCELLANEOUS
4.1 NOTICES. All notices, consents or waivers required or permitted in
this Agreement shall be in writing and be deemed to have been duly given when
delivered personally or 72 hours after being mailed, registered or certified
mail, return receipt requested, postage prepaid, or at noon the day after being
delivered prepaid to an overnight courier with instructions for next morning
delivery or upon delivery by facsimile to the addresses set forth immediately
below. A party may change its address for notice by such notice.
If to AFLI address to:
C. David Baker, Communications
ARENA FOOTBALL LEAGUE, INC.
2582 Santiago Blvd., Suite B
Orange, CA 92867
Fax: 714/974-6100
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With a copy to:
Ronald J. Kurplers, III, Esq.
President and General Counsel
ARENA FOOTBALL LEAGUE, INC.
75 East Wacker Drive, Suite 400
Chicago, IL 60601
Fax: 312/332-5540
If to OPE address to:
Will Meris
Chairman of the Board
ORLANDO PREDATORS ENTERTAINMENT, INC.
20 N. Orange Avenue, Suite 101
Orlando, FL 32801
Fax: 407/648-8101
With a copy to:
Jack Youngblood
President
ORLANDO PREDATORS ENTERTAINMENT, INC.
20 N. Orange Avenue, Suite 101
Orlando, FL 32801
Fax: 407/648-8101
4.2 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement with
respect to each provision in which time is a factor. In the event that a date
for performance of any obligation under this Agreement or expiration of any
time period falls on a Saturday, Sunday or a holiday on which national banks
are required to be closed, the date for performance of such obligation or
expiration of such time period shall be adjusted to be the next occurring
calendar day which is not a Saturday, Sunday or bank holiday.
4.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits, contains the
entire agreement between the parties pertaining to the subject matter hereof and
fully supersedes all prior agreements and understandings between the parties
pertaining to such subject matter. No change in or amendment to this Agreement
shall be valid unless set forth in writing and signed by all of the parties
after the execution of this Agreement. As a matter of clarification, the
provisions of Article IV, Section 17 of AFLI's Bylaws which require certain
deposits in the event of legal action brought by a Member against the
Commissioner and/or AFLI for matters specified therein does not apply to OPE in
the event of any controversy, claim or dispute between the parties affecting or
relating to the performance of this Agreement.
4.4 FURTHER ASSURANCES. Each party agrees that it will without further
consideration execute and deliver such other documents and take such other
action, whether prior or subsequent
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to the Closing, as may be reasonably requested by the other party to consummate
more effectively the purposes or subject matter of this Agreement.
4.5 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of Illinois.
4.6 ATTORNEY'S FEES VENUE. In the event of any controversy, claim or
dispute between the parties affecting or relating to the subject matter or
performance of this Agreement, the prevailing party shall be entitled to
recover from the non-prevailing party all of its reasonable expenses,
including reasonable attorneys' and accountants' fees. Venue for any proceeding
brought by any party with respect to the provisions of the Agreement shall be
in any appropriate State or Federal Court in the County of Cook, State of
Illinois.
4.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
and all such executed counterparts shall constitute the same agreement. It
shall be necessary to account for only one such counterpart in proving this
Agreement.
4.8 HEADINGS, GENDER AND NUMBER. The section headings used in this
Agreement are intended solely for convenience of reference and shall not
amplify, limit, modify or otherwise be used in the interpretation of any
provisions of this Agreement. The masculine, feminine or neuter gender and the
singular or plural number shall be deemed to include the others whenever the
context so indicates or requires.
4.9 SUCCESSORS. The provisions of this Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereof, provided, however, that neither party hereto may voluntarily assign its
rights and obligations hereunder without the express written consent of the
other party in the case of each such proposed assignment. Such consent may be
withheld in the sole and absolute discretion of the party from whose consent is
sought, provided, however, if consent is sought in connection with a proposed
successor to the business of the party requesting such consent, the party from
whom consent is sought shall not unreasonably withhold such consent. This
Agreement is not meant to, and does not, replace or supercede any present or
future AFLI procedures, whether contained in its Bylaws or otherwise, with
respect any consents required to transfer nths or ownership interests in ALFI.
Therefore, if consent under this Agreement is sought in connection with a
proposed transfer of the OPE Team nth and/or the OPE 2nths or 1st nth, as the
case may be, compliance with any such other consent procedures will be required
as a condition precedent to any request for consent under this Agreement,
provided that OPE may transfer the OPE 2nths or 1st nth to a transferee of the
OPE Team nth as to which consent was granted without obtaining any further
consent.
4.10 EXPENSES. Each party shall be liable for its own cost and expense
incurred in connection with the negotiation, preparation, execution and
performance of this Agreement.
4.11 NO THIRD PARTY BENEFICIARIES/EQUAL BARGAINING STRENGTH. There are
no third party beneficiaries to this Agreement. Each party hereto acknowledges
that (i) each party hereto is of equal bargaining strength, (ii) each such party
has actively participated in the drafting, preparation, and negotiation of this
Agreement; and (iii) any rule of construction to the effect that ambiguities are
to
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be resolved against the drafting party shall not apply in the interpretation of
this Agreement, any portion hereof, any amendments hereto, or any Exhibits
attached hereto.
4.12 SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, the remainder
of this Agreement shall nonetheless remain in full force and effect.
4.13 SURVIVAL. The provisions of this Agreement which remain in effect or
become effective after the Closing Date or which are to be performed after the
Closing Date shall survive the Closing Date.
4.14 NO BROKERS. Neither Seller nor Buyer is obligated for the payment
of any fees or expenses to any broker or finder in connection with the origin,
negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby. Each party shall indemnify the other party
from and against any claim for any broker's or finder's fee made to or through
such party with respect to the transactions contemplated by this Agreement.
4.15 CONFIDENTIALITY. Except for disclosure, if any required by any law to
which any party is subject, the timing and content of any announcements, press
releases and public statements concerning the transactions contemplated hereby
shall be mutual agreement of AFLI and OPE.
4.16 DISPUTE RESOLUTION. Except as provided in Section 4.17 below, in the
event any controversy, dispute, question, issue or claim of whatsoever nature
arising out of, in connection with, or in relation to the interpretation,
performance of breach of this Agreement, including any claim based on contract,
tort or statute (hereinafter, for purposes of this Section and Section 4.17
"dispute"), is not resolved by informational negotiations within thirty (30)
days (or any mutually agreed extension of time) after any party to such dispute
requests such negotiations, the dispute shall be referred to non-binding
mediation in Cook County, Illinois under the Commercial Mediation Rules of the
American Arbitration Association, before resorting to court action. In the
event that the dispute is not resolved by mediation within sixty (60) days (or
any agreed extension of time) after the informal negotiation period, then
either party may bring such action it deems necessary or appropriate to resolve
the dispute.
4.17 EQUITABLE RELIEF. The provisions of Section 4.16 above shall not
apply to either party seeking equitable relief (such as a temporary restraining
order or injunction) or enforcing a previously obtained judgement in any court
permitted pursuant to Section 4.6.
4.18 SIGNATURE AUTHORITY. Each signatory hereto represents that the
execution of this Agreement by such signatory has been duly authorized by the
Board of Directors of the entity on behalf of which such signatory executed
this Agreement.
(SIGNATURE PAGE TO FOLLOW)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AFLI
ARENA FOOTBALL LEAGUE, INC.
a Delaware corporation
By:
-----------------------------
C. David Baker
Its Commissioner
By:
-----------------------------
Ronald J. Kurpiers, II
Its President
OPE
ORLANDO PREDATORS ENTERTAINMENT, INC.,
a Florida corporation
By:
-----------------------------
Will Meris
Its Chairman
By:
-----------------------------
Jack Youngblood
Its President
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
OF
JAY M. GRUDEN
THIS AGREEMENT, made this 29 day of August, 1997, by and between THE
ORLANDO PREDATORS ENTERTAINMENT, INC., a Florida corporation, hereinafter
called the "Company", and JAY M. GRUDEN, hereafter called "GRUDEN".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, pursuant to the terms of a geographically exclusive
license agreement with Arena Football League, Inc., an Illinois corporation,
shall operate and manage the Orlando Predators (the "Team"), an Arena Football
Team in the Orlando area during the arena football league season (the "Season")
of the Arena Indoor Football League(TM)(the "League");
WHEREAS, the Company desires to contract with Gruden and Gruden desires to
contract with the Company to serve as Head Coach of the Team; and
WHEREAS, the parties realize that it is in the best interest of both the
Company and Gruden that they enter into this Agreement to set forth the terms
and conditions of Gruden's employment with the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
premises herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. Gruden shall be employed as Head Coach of the team, at
the salary and upon the terms and conditions set forth in this Agreement.
2. TERM. The effective date of this Agreement shall be September 1,
1997, and it shall continue in force and effect for until September 30, 2000.
The term of Gruden's employment as head coach may be extended at the option of
the Company for three additional periods of one Contract Year each beginning
October 1, 2000. Under the terms and condition as specified herein, if Company
notifies Gruden in writing of such an extension within two (2) weeks after the
final game (including any playoff game) in which the Team participates in each
respective season beginning in the year 2000.
3. DUTIES. Gruden shall be responsible for the management of the player
and football team development and coaching of the Team during and for the
Season and thereafter until the expiration of this Agreement. In pursuance
thereof, and with the advice and consultation and subject to the superseding
powers, of the Company, Gruden shall:
A. Supervise and manage the coaching staff of the Team on behalf of the
Company;
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B. Participate, if requested by the Company, in the business of the
football operations of the Team and the League.
C. Scout, train and select players for the Team in accordance with the
provisions of the current Team Management Agreement in effect with the League
and Arena Football League, Inc. and such standards, rules and regulations as the
League, Arena Football League, Inc. and the Company shall develop and apply to
the football operations of the Team;
D. Participate and cooperate in the operation of such League tryout and
training camps as may be conducted on a League-wide basis;
E. Participate and cooperate in such player assignments, transfers
exchanges trades, acquisitions and releases as may be required by the Company;
F. Perform all the necessary and customary duties of the Head Coach of a
professional sports team, including the development of game strategies, player
performance standards, play preparation, and the performance, or supervision of
the performance of all matters relating to game preparation and play;
G. Supervise player conduct and demeanor, and impose such reasonable
disciplinary manners and sanctions as may be necessary to maintain appropriate
player conduct and demeanor, subject to the rules, limitations and standards
which may be developed and imposed by the Company.
H. Participate and assist, if requested by the Company, in the
development and maintenance of effective public relations with the national and
local print, radio and television media, and project and promote a positive and
enthusiastic attitude concerning Arena Football, the Company, the league and the
Team;
I. Cooperate with the Team and the Company in such promotional activities
of the Company, the League and the Team as may be reasonably required, including
but not limited to personal appearances, radio, television and print interviews,
autograph sessions and the like;
J. Appear, at the request of the Company and upon mutually agreeable
term, as host or guest on any Team or Company sponsored local or national radio
or television broadcast upon mutually agreeable terms;
K. Grant to the Company (and Gruden hereby so grants to the Company) the
right to use Gruden's name, portrait, and picture likeness and game or practice
performance in all exhibitions, descriptions and representations of the football
games of the Team or the field, or by radio broadcast, telecast, motion
pictures, videotape photograph or any other media, in connection with any and
all promotional advertising or trade purposes of the Company and/or Team;
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L. Perform such other duties or expand, reduce or otherwise alter the
role, title and scope of the duties herein described, as may be reasonably
required by the Company to provide for the successful development of Arena
Football, the Company, the League and the Team.
4. DEVOTION FULL-TIME TO SERVICE OF THE COMPANY. Gruden agrees to devote
his full time to the business of the Company and he shall not engage in or carry
on or be employed by, directly or indirectly, and other business or profession
without the consent of the Company.
5. COMPENSATION. The Company shall pay Gruden, and Gruden shall accept
from the Company, in full payment for Gruden services under this Agreement, as
follows:
A. SALARY. The gross salary before deductions payable by the
Company to Gruden during the first Contract Year of this Agreement shall be
SEVENTY THOUSAND AND NO/100 DOLLARS ($70,000.00); during the second Contract
Year SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS AND NO/100 ($75,000.00); and
during the third Contract year EIGHTY-THOUSAND DOLLARS AND NO/100 ($80,000.00).
Payments shall be made bi-weekly.
B. BONUS. Gruden shall be entitled to receive a bonus of TWO
THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($2,500.00) for each League Playoff
Game in which the Team participates, and an additional TWO THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($2,500.00) for each such League Playoff Game which
is played in Orlando as a "home" game, payable in the customary payroll
following each such game. Gruden shall be entitled to receive and additional
bonus of FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00) in the event the Team wins
the Arena Football League Championship. The total of all bonuses which could be
earned by Gruden shall not exceed $20,000 in any Contract Year.
C. INSURANCE. Gruden shall receive in accordance with an insurance
program to be instituted by the Company, major medical insurance for Gruden and
Gruden's spouse. the Company shall pay 50% and Gruden shall pay 50% of the
premiums of said insurance plan. The Company shall pay, if available through a
group, 50% of the premiums for, a life insurance policy insuring the life of
Gruden.
D. STOCK OPTION. Gruden shall be granted an option to purchase
Fifteen Thousand (15,000) shares of common stock of Company, which option shall
vest in the amount of one-third (1/3) of such option shares after Gruden's
completion of each full Contract Year. The option price shall be the market
value of the stock per share as of September 1, 1997. If a controlling interest
in the Club is sold by its present owners. Gruden's option shares shall
automatically vest fully and become exercisable at that point.
E. SALARY IN OPTION PERIODS. In the event that the Company exercises
its options set forth in paragraph 2 above to extend the term of this Agreement,
Gruden shall be entitled to receive the following base salary: 2000-01 season --
$85,000; 2001-02 -- season $90,000; 2002-03 -- $95,000.
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6. REIMBURSABLE EXPENSES. A. The Company may reimburse Gruden for
reasonable and necessary expenses incurred by Gruden in furtherance of the
business and affairs of the Team and the Company but only in the event an
expense reimbursement policy is adopted by the Company, and only in the amounts
allowed by the Company's budget levels and only with pre-approval for such
expenses according to the Company's rules and regulations for such expenses.
Such reimbursement shall be made as soon as reasonable practicable after such
expenditures are made, against presentation of signed and itemized expense
reports and in accordance with the travel and business policies which the
Company may promulgate.
B. Company shall reimburse the reasonable moving expenses of Gruden
from the Nashville, Tennessee area to Orlando, Florida.
C. Company agrees to reimburse Gruden for the difference, if any,
between the cost of his residence in Nashville, Tennessee, and the ultimate
amount he receives from its sale in a bona fide sale transaction to an unrelated
third party if such amount is less than the cost.
D. Company agrees to reimburse Gruden for the reasonable rental
expense he incurs in renting a residence in the Orlando, Florida area until his
residence in Nashville, Tennessee is sold, provided that Company's
responsibility for such reimbursement shall not exceed the period of one year.
7. TRAVELING EXPENSE. Gruden and Gruden's wife will be paid by the Team
all airline and room costs incurred while attending an "away" Orlando Predator
game.
8. USE OF VEHICLE. In the event (but only in the event) that pursuant to
the terms of a sponsorship or advertising agreement approved by the Company, a
sufficient number of automobiles are made available for use by the Team, Gruden
shall be entitled to the use of one such automobile; provided however, that such
automobile shall first be made available for any reasonable business use by the
Team, and for Gruden's personal use only as and to the extent that such
reasonable business use is not required.
9. OTHER BENEFITS. Gruden shall be entitled to those usual and customary
benefits which shall be offered by the League to the Head Coach for all other
League teams. Without limiting the foregoing, such benefits may include major
medical health insurance, worker's compensation, and group life insurance,
disability insurance and related benefits as and when such benefit packages are
developed for League employees. In addition, Gruden shall be entitled to three
(3) weeks of vacation time per year, after the completion of one year's service,
without interruptions or reduction of any salary payments or other benefits
otherwise due pursuant to the terms of this Agreement; provided however, that
Gruden shall give reasonable prior notice to the Company of any period during
which Gruden shall be absent due to vacation, and shall arrange for the
effective performance of his duties and obligations during any such absence and
provided further, that Gruden shall not schedule any vacation period so as to
adversely affect the football operations of the Team. Vacation time to which
Gruden is entitled, but which
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remains unused at the conclusion of this Agreement, shall not accumulate or
accrue but shall be deemed to be waived by Gruden.
10. LIMITATION ON AUTHORITY. Gruden shall have no authority:
A. To pledge the credit of the Company;
B. To bind the Company under any contract, agreement, note,
mortgage or otherwise;
C. To release or discharge any debt due the Company;
D. To sell, mortgage, transfer, or otherwise dispose of any assets
of the Company.
11. DEATH OF GRUDEN - SALARY CONTINUATION. In the event Gruden should die
prior to the termination of his employment, the Company shall pay, by reason of
death of Gruden and as additional compensation for the services rendered to the
Company by Gruden during his lifetime, his regular salary for the month in which
his death occurred, plus any and all Life Insurance provided by Team's employee
benefits package.
12. TRADE SECRETS; PROPRIETARY INFORMATION. In the course and scope of
this Agreement, Gruden will be exposed to certain trade secrets, sensitive
financial data, sources of supply, product specifications and other confidential
information concerning the business of the Company which require protection.
Gruden understands that, among other things, methods of operation, sensitive
financial and business information concerning players, other persons and
entities affiliated or doing business with the Company scouting reports, playing
strategies, and the nature or extent of research projects being conducted or
contemplated by or on behalf of the Company, are all confidential, and are not
at any time during or after the term of this Agreement to be revealed to or used
for any reason, by anyone outside the Company, without the Company's specific,
written authorization. Gruden further agrees that he will not indulge or
otherwise commercialize such confidential information, so long as the
confidential or secret nature of such information shall remain, whether such
information belongs to the Company or to some other entity to which the Company
owes or may be held to owe some obligation of confidentiality or to anyone
outside the Company, including, but not limited to, competitors of the Company
or businesses engaged in business similar to that of the Company. On the
termination of this Agreement, Gruden shall not take from the premises of the
Team or from the Company or otherwise retain, and shall surrender to the
Company, any such confidential information and any records, files or other
documents, or copies thereof, relating to the business of affairs of the
Company.
In the event of a breach or threatened breach by Gruden of the provisions
of this Section, the Company shall be entitled to an injunction restraining
Gruden from disclosing or permitting the disclosure in whole or in part of any
and all of the information set forth herein or from
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rendering any services directly or indirectly to any person, firm, corporation,
association, or other entity to whom such information, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
from Gruden.
Gruden further acknowledges that the Company's source of material and its
practices and methods as such are valuable, special and unique assets of its
business, and Gruden covenants and agrees to keep all such matters secret from
all persons except authorized officers and employees of the Company. This entire
sectional shall be construed as a covenant independent of any other provision of
this Agreement, and the existence of claim or cause of action of Gruden against
the Company, whether based upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of these covenants. In
the event of a breach or threatened breach of this Paragraph, the non-prevailing
party will pay the prevailing party's attorney's fees in any action brought to
enforce this provision on all trial and appellate levels.
13. COVENANT NOT TO COMPETE. Gruden agrees that during the term of this
Agreement and any extension thereof, he will not, within the United States, for
his own account or for the account of others, as an officer, director,
stockholder, owner, partner, employee, promoter, consultant, manager or
otherwise, participate in the promotion, financing, ownership operation or
management of, or assist in or carry on through a proprietorship, corporation,
partnership other form of business entity or otherwise, any business activity
directly or indirectly involved in the management or operation of any football
league, except as such league(s) shall be either operated by the Company, or
licensed to operate by the Company.
Notwithstanding the foregoing, if the term of this Agreement is extended
pursuant to Paragraph 2. above, and Gruden thereafter receives, between any
year, a written offer of employment to serve as either head coach or offensive
coordinator, of a team in the National Football League, Gruden shall have the
right to accept said offer and to terminate this Agreement if the Company fails
to notify Gruden that it will match such offer within fifteen (15) days after
the Company's receipt of a copy of such offer from Gruden. If the Company fails
to notify Gruden within said period that it will match the offer, then Gruden
shall have the right to terminate this Agreement and to accept said offer of
employment by executing such offer with ten (10) days after the Company's
failure to match the offer. If the Company matches the offer received by Gruden,
this Agreement shall be automatically amended to incorporate the terms contained
in such offer.
If any court or competent jurisdiction shall at any time deem the time
period or the extent and scope of the covenant not to compete as set forth in
this paragraph to be unreasonable or excessive, then: (i) all provisions of
this Paragraph not so deemed to be excessive shall nevertheless remain in full
force; (ii) the restrictive time period herein shall be deemed to be the
longest period permissible by law; and (iii) the scope of this covenant shall
deemed to be as
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extensive as permitted by law under the circumstances. The court in such case
shall reduce the time period and/or scope of such covenant to permissible
duration and extent.
14. STANDARDS. Gruden shall comply with Club's policies for its employees
as adopted from time to time and shall act at all times with due regard to
public convention and morals, and shall refrain from engaging in conduct,
committing any act or becoming involved in any situation or occurrence which
will bring Gruden into public disrepute, scandal, contempt or ridicule or which
justifiably prejudices or its detrimental to the Club, the Arena Football
League and/or professional football.
15. COMPLIANCE WITH RULES. Gruden hereby agrees to abide and to be legally
bound by the constitution and bylaws and rules and regulations of the Club and
the Arena Football League or successor thereto and by the decisions of the
President or Commissioner or any successor league or leagues which shall be
final, conclusive and unappealable; Gruden further agrees thereto if involved or
affected in any manner whatsoever by a decision of the Commissioner agrees to
release the Commissioner and to waive every claim he may have against the
Commissioner individually and in his official capacity and/or against the Arena
Football League and against every club in the Arena Football League and against
any director, officer and stockholder or partner of any club in the Arena
Football League for damages and for all claims and demands whatsoever arising
out of or in connection with the decision of the Commissioner.
16. TERMINATION. Gruden's employment under this Agreement may be
terminated by the Company as defined and provided below:
A. Events Causing Termination. Subject to the provisions of
Subsection B below, Gruden shall be subject to termination
immediately upon written notice after the occurrence of any of
the following events:
(i) Gruden is determined by the Company to be guilty of acts of
fraud, dishonesty, or similar misconduct;
(ii) Gruden is determined by the Company to have been negligent
in the performance of those duties required of him under this
Agreement;
(iii) Gruden is determined by the Company to have failed or
refused to fulfill the duties and responsibilities specifically
required of Gruden pursuant to the terms of this Agreement;
(iv) Gruden is determined by the Company to have used
intoxicants, stimulants, or any other substance in a manner, to
an extent, or with the effect that Gruden is impaired in the
performance of his duties hereunder;
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(v) Gruden accepts a bribe or agrees to throw or fix any Arena
Football game, or bets money or anything of value on the outcome
or score of any Arena Football game, or knowingly associates
with gamblers or gambling activity;
(vi) Gruden is convicted of a felony or misdemeanor involving
moral turpitude, or is determined by the Company to have
engaged in conduct that brings discredit to the Company, or
impairs the integrity of the League or the game of Arena
Football.
B. PROCEDURE FOR TERMINATION. Any determination by the Company to
terminate Gruden's employment under this Agreement pursuant to
this Paragraph shall require notice to Gruden at the address
provided in this Agreement.
C. CESSATION OF PAYMENTS. Upon termination of Gruden pursuant to
this Paragraph by the Company, the Company shall be under no
further obligation to Gruden except to pay to Gruden such amounts
as have been accrued up to the time of such termination. The
failure of the Company to exercise any right whether granted
pursuant to the provisions of this Paragraph hereof, under the
law or otherwise, after receiving notice or knowledge of any
breach of the Agreement by Gruden, shall not be deemed a waiver
by the Company of any subsequent breach by Gruden of a similar or
different nature.
D. ACKNOWLEDGMENT. Gruden agrees to fully accept and adhere to
all rules and regulations of the Company, as listed in the Arena
Football Rule Book and as additionally instituted presently or in
the future by the League or Arena Football League, Inc. Gruden
acknowledges and agrees that any failure to comply with those
rules and regulations could lead to Gruden being:
(i) Fined;
(ii) Suspended for a game or games; or
(iii) Dismissed by the League.
Gruden further acknowledges that all decisions regarding rules
and regulations of Arena Football fall solely with the Company,
the League and Arena Football League, Inc.
17. CHANGE OF COMPANY OR TEAM FORM. In the event that, at any time prior
to the expiration of the term of the Agreement: (i) the Company dissolves and/or
reconstitutes itself
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in a different form, structure, or manner of doing business (including, but not
limited to, a corporation or franchise association form); or (ii) the Company
sells, assigns, transfers, or otherwise conveys its right, title and interest
in the ownership, operation and/or management of the Team, then Gruden shall
nevertheless be entitled to the salary set forth in Section 5 for the remainder
of the term of this Agreement. If majority position of voting stock is sold
Gruden will have the right to entertain and accept any other offer from any
other football after the year.
18. BREACH; REMEDIES. Gruden acknowledges that a breach of any of the
covenants in this Agreement would cause irreparable harm to the Company for
which there is no adequate remedy at law. In the event of a breach or a
threatened breach of the provisions of this Agreement, the Company may seek an
injunction restraining the event or continuation of such breach. Gruden hereby
agrees and acknowledges that the covenants set forth herein, shall apply with
full force and effect regardless of when, how or why this Agreement is
terminated and whether such termination is effected by the Company or by the
parties hereto mutually. With respect to each and every breach or violation or
threatened breach or violation by Gruden or any of the covenants set forth
herein, the Company, in addition to all other remedies available at law or in
equity, shall be entitled to enjoin the commencement or continuance thereof and
may, without notice to Gruden, apply to any court of competent jurisdiction
for entry of an immediate restraining order or injunction. In addition, Gruden
agrees to immediately, upon demand, account for and pay over to the Company (i)
an amount equal to all compensation, commission, bonus, salary, gratuity, or
other remuneration of any kind directly or indirectly received by Gruden
resulting from an activity in breach or violation of any of the covenants as
set forth in this Agreement, and (ii) the amount paid by Company to Gruden's
previous employer to secure his release from a noncompetition provision of his
employment agreement with that former employer, such amounts being agreed to
constitute partial liquidation of damages in that the amount of actual damages
to be sustained by the Company on account of any such breach or violation is
not capable of measurement. The Company may pursue any of the remedies
described herein concurrently or consecutively in any order as to any such
breach or violation, and the pursuit of one of such remedies at any time will
not be deemed an election of remedies or waiver of the right to pursue any of
the other such remedies.
19. NOTICES. All notices to be given pursuant to this Agreement shall be
in writing and delivered (i) personally or (ii) by nationally recognized
overnight courier service, or (iii) by facsimile with confirmation of
receipt, or (iv) by deposit in the United States mail, postage prepaid,
registered or certified, and addressed to each respective party, as the case
may be, at the following addresses:
Club: The Orlando Predators
Entertainment, Inc.
20 North Orange Avenue, Suite 101
Orlando, Florida 32801
Attn: Mr. Jack Youngblood
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With Copy to: Lowndes, Drosdick, Doster, Kantor
& Reed, P.A.
215 N. Eola Drive
Orlando, Florida 32801
Attn: James F. Heekin, Jr.
Employee: Jay M. Gruden
----------------------------------
----------------------------------
Notice effected by personal delivery or by facsimile shall be effective upon
receipt. Notice effected by overnight courier service shall be effective the day
following deposit with such service, and notice by registered or certified U.S.
mail shall be effective three (3) days following the date of mailing. Any party
hereto, by notice given in accordance with this paragraph 13, may change the
address to which, or the persons or entities to whom, notices may be given. Any
notice designated for a person or entity other than a party hereto shall be
given in the same manner, but to an address reasonably designed to accommodate
delivery in due course.
20. LEAGUE APPROVAL. This contract shall be subject to the approval of
Commissioner of the Arena Football League or any successor thereto in
accordance with the constitution and bylaws and rules and regulations of the
Arena Football League or the same documents of any successor thereto.
21. DISPUTE RESOLUTION. Should any controversy, dispute or claim arise
between Club and Gruden relating to or arising out of the subject matter of this
Agreement (including termination of employment), the relationship of Club and
Gruden, or under any federal, state or local law or ordinance (including, but
not limited to, claims, demands or actions under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, and all amendments to the aforementioned, as well as any
other federal, state or local statute or regulation regarding employment
discrimination), such controversy, dispute or claim shall be settled
exclusively by arbitration administered in Orlando, Florida by the American
Arbitration Association in accordance with its applicable rules, and judgment
upon the award rendered by the arbitrator may be entered in any court in
Orlando, Florida having jurisdiction thereof. The prevailing party in the
arbitration shall, in addition to such other relief as may be granted, be
entitled to a reasonable sum as and for such party's costs and expenses
incurred, including attorney's fees. Club and Gruden each agree that, except
for Club's right to injunctive relief pursuant to paragraph 18 below,
arbitration shall be the sole and exclusive remedy in the event any such
controversy, dispute or claim shall arise.
22. INJUNCTIVE RELIEF. Gruden hereby represents and acknowledges that he
has special, exceptional and unique knowledge and skill as a coach of
professional football, the loss of which cannot be estimated with any certainty
and cannot be fairly or adequately valued. Gruden therefore agrees that Club
shall have the right, apart from the dispute resolution provisions of paragraph
21 and in addition to any other right which Club may possess, (a) to enjoin him
by appropriate legal action from playing or coaching or engaging in activities
related to professional football for any person, firm, corporation or private
or public institution, whether or not related to professional or college
football, and (b) to specifically enforce Gruden's
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obligations hereunder, during the term of this Agreement. This Agreement, and
any benefits to be received pursuant to it, may not be assigned by Gruden
without the express prior written consent of Club.
23. LAW GOVERNING. This Agreement shall be deemed to have been made and
shall be governed by, construed and enforced in accordance, with the laws of the
State of Florida.
24. HEADINGS. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. WAIVER. The failure at any time of any party to demand strict
performance of another party of any of the terms, covenants or conditions set
forth in this Agreement shall not be construed as a continuing waiver or
relinquishment thereof, and any party may, at any time, demand strict and
complete performance of any other party of such terms, covenants and conditions.
26. SEVERABILITY. The unenforceability or invalidity of any provision shall
not affect any other provision of this Agreement, and this Agreement shall
continue in full force and effect, and be construed and enforced as if such
provision had not been included.
27. AUTHORITY. Each party warrants and represents that it or they have the
full right, power and authority to enter into this Agreement and make the
covenants in this Agreement.
28. ASSIGNMENT. This Agreement is personal in nature as to Gruden and may
not be assigned by Gruden, but may be assigned by the Company, if so assigned,
shall inure to the benefit of and be binding upon the successor and assigns of
the Company.
29. MODIFICATION. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by the parties hereto.
30. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to its subject matter. This Agreement may be amended only by a written
instrument duly executed by the parties. Any condition to a party's obligations
hereunder may be waived in writing by such party.
(Signatures on Next Page)
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WHEREAS, the parties hereto have hereunto caused this Agreement to be
executed on the day and year first above written.
WITNESS: "COMPANY"
/s/ [ILLEGIBLE] THE ORLANDO PREDATORS
- ------------------------------ ENTERTAINMENT, INC.
NAME: By: /s/ JACK YOUNGBLOOD
------------------------- -------------------------
Jack Youngblood
-------------------------
Its President
- ------------------------------
Name: "EMPLOYEE"
-------------------------
/s/ JAY M. GRUDEN
/s/ WILLIAM G. MERIS -------------------------
- ------------------------------ Jay M. Gruden
Name: William G. Meris
-------------------------
- ------------------------------
NAME:
-------------------------
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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:
------------ ------------------------
January 21, 1998 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.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
May 20, 1998
