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Group led by John Salley files counterclaim in ABA case: Court battle could imperil future of fledgling league

March 5, 2007

Both sides in a contentious battle for control of the locally based American Basketball Association have agreed to play ball in out-of-court settlement talks.

The two sides agreed to negotiate only after a trio of investors, led by former National Basketball Association all-pro John Salley, fired another shot at league co-founders Joe Newman and Richard Tinkham, both Indianapolis entrepreneurs.

A District Court judge in Marion County gave the sides until March 26 to work out their differences. A hearing is set for that day in the event the dispute can't be settled out of court.

"I really want to calm the waters and move forward," Newman said.

On Jan. 31, ABA board members Salley, Thomas Doyle and David Howitt attempted to fire Newman, who owns 24 percent of the company, as CEO. Salley, in addition to being the league's commissioner, is a co-owner of the league's Hollywood Flame. Doyle, a Maryland attorney, is owner of the Maryland Nighthawks. Howitt is an Oregon businessman. Together, the trio owns 6.94 percent of the league.

In February, Newman and Tinkham-who also owns a 24-percent share of the ABA-claimed the trio had acted unlawfully, and moved to remove them from the five-member board.

Newman, 69, filed a federal lawsuit Feb. 12 seeking to keep the trio from taking control of the league.

Doyle, Salley and Howitt then filed a counterclaim with a wide range of accusations against Newman and Tinkham.

Those claims include allegations that Newman co-mingled league finances with personal finances, spent ABA money on personal legal problems, and made big-money deals and stock swaps without board approval.

The counterclaim also said Newman and Tinkham mismanaged the league by not conducting due diligence on prospective franchise owners and that both failed to divest stock as outlined in a December 2006 Securities Purchase Agreement designed to diversify ownership and raise capital.

"There is no veracity to any of that," Newman said.

Jeffrey Nickloy, an attorney with the Noblesville law firm Campbell Kyle Proffitt LLP representing Salley's group, said he is limiting his comments before the lawsuit is resolved.

"When parties start making lots of public statements, it can make the negotiations more difficult," Nickloy said. "I'm guardedly optimistic this can be settled. There are many reasons why both sides would benefit from an out-of-court settlement."

The primary reason is financial, Nickloy said. The league can scarcely afford any more losses. It has not registered a profit in its seven-year existence.

The ABA, a 21st century incarnation of the league that spawned the Indiana Pacers in the 1960s, has grown in fits and starts. Several former league and team employees and other creditors have criticized Newman and Tinkham on a number of fronts.

In December, the ABA acquired Souvall-Page & Co., a publicly traded Utahbased company with no assets. In exchange, Souvall-Page principals got a minority stake in the ABA. The purchase allowed the league to essentially become a public company without the expense of an initial public offering and it subsequently raised $2.4 million by selling stock.

In January, ABA signed a deal with Spalding to sponsor the league and supply basketballs. This month, Hollywood moviemaker New Line Cinemas started production of "Semi-Pro," a movie about the ABA starring Will Ferrell and Woody Harrelson.

With a dramatically reduced player pay scale and revised business model focused on regional play and fewer travel expenses, the league has grown to 47 franchises in the United States, Mexico and Canada, with plans to add 20 more next season.

But Salley's group said Newman had no right to sign the Spalding deal before bringing it to the board and has no authority to expand the league or issue press statements about expansion without board approval.

Newman said he is using funds generated through the stock sale to pursue apparel and licensing deals, broaden the ABA's entertainment offerings, and expand league management.
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