Definitive ownership documents create hurdles in Sacramento Kings’ sale to Seattle group
Excerpts of the definitive documents governing the partnership between the Kings’ minority and majority owners have gone public. The 1992 ownership agreement and a 2003 addendum, obtained by Cowbell Kingdom’s James Ham and NBC Sports ProBasketBallTalk’s Aaron Bruski, reveal hurdles to the pending sale reached by the Maloofs and Seattle-based investment group led by Chris Hansen. Here are three of them.
1. The right of first refusal is real.
The bankruptcy trustee managing Bob Cook’s limited shares told the Sacramento Bee he believed minority owners were being denied an opportunity to match the Seattle deal. Until now, no one was quite sure if that was true. The definitive paperwork obtained and quoted by Ham and Bruski spell out that the Kings’ limited partners do indeed have a right to match.
Section 7.3. Right of First Opportunity.
Notwithstanding the provisions of Section 7.1 hereof, if a Partner desires to assign all or part of his or its interest in the Partnership and such assignment is not specifically permitted under Sections 7.2A or 7.2B above, then the assignment shall be subject to the right of first opportunity hereinafter described in this Section 7.3. Before a Partner (the “Selling Partner”) actually concludes a sale of its interest in the Partnership subject to this Section 7.3, the Selling Partner shall give notice to (a) the General Partner and each other Limited Partner if the Selling Partner is a Limited Partner, and (b) to each Limited Partner if the Selling Partner is the General Partner (such Partner or Partners other than the Selling Partner being individually and collectively herein called “Non-Selling Partner”) setting forth the purchase price for which it will offer such Partnership interest for sale (which purchase price must be payable entirely in cash or part in cash and the balance pursuant to one or more promissory notes).
2. The Maloofs’ supermajority doesn’t overrule minority owners’ right to match.
The documents reveal that the Maloofs and partner Bob Hernreich have gained a supermajority by obtaining 65-percent controlling interest in the franchise.
Section 5.3. Limitations on Authority of the General Partner.
Notwithstanding the provisions of Sections 5.1 and 5.2 hereof:
A. The following decisions shall require the approval of Partners then holding Partnership Percentages aggregating at least 65%:
(1) The moving of the Team from the Sacramento area to another City prior to February 1, 2002;
(2) The sale of all or substantially all of the Partnership Property
This means that the Kings majority owners have an overhwhelming say in the organization’s “decision-making authority” according to Bruski and Ham. Their supermajority, however, doesn’t deny their limited partners the right to match. The Maloofs can have a final say on an item like relocation, but selling any of their shares without first giving the minority owners an opportunity to buy is prohibited within the governing documents.
3. If the right to match isn’t exercised, the Seattle-group is required to purchase the franchise at its full $525-million value.
According to reports, the agreement in place between the Maloofs and Hansen states that the San Francisco-based hedge fund manager is purchasing just 65 percent of the franchise. That equates to a roughly $341-million payday for the Kings’ current majority owners. But according to the franchise’s governing documents, if the right of first refusal isn’t exercised, Hansen’s group is also obligated to purchase the remaining 35 percent controlled by the minority owners.
From Section 3 of the 2003 addendum:
“Any offer received by the General Partners to purchase a portion, or all, of their interest, which was not purchased by the Limited Partners pursuant to their Right of First Refusal, would be considered an offer to purchase that percentage of the total entity.”
These three items are only the tip of the iceberg. Through careful consideration and reporting, Ham and Bruski raise serious questions about the Seattle deal, including how minority owners’ rights are appearing to be infringed. For an exhaustive breakdown of the ownership agreement, read the complete story published at NBC Sports’ ProBasketBallTalk.