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Kings ownership documents reveal major potential stumbling blocks for Seattle

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CORRECTION:  February 8, 2013

An earlier version of this post incorrectly referred to a May 2003 document as an addendum to the Kings’ 1992 ownership agreement.  The May 2003 document is self-described as a proposal, which, if approved, would constitute a basis for an amendment of the Kings’ partnership agreement.  The version of the May 2003 document viewed by PBT was unsigned.

This item was co-written by Aaron Bruski and James Ham

The fight over the Sacramento Kings is building to a fever pitch.

In one corner, Seattle-based investors led by hedge fund manager Chris Hansen and Microsoft CEO Steve Ballmer have entered into an agreement to purchase the Kings from the Maloof family with the intention of moving to Seattle.

In the other corner, former NBA All-Star and Sacramento Mayor Kevin Johnson is moving comfortably toward an announcement of his equity partners, which will come at some time this week. Sources close to the situation have said that these owners will more than meet NBA criteria and be able to compete with or beat Seattle’s offer. Additionally, these owners will come to the table willing to pay their portion in an arena deal that was previously approved by the NBA, and sources say will be approved by the Sacramento City Council, as well.

USA Today and the Sacramento Bee reported that big money guys Ron Burkle and Mark Mastrov were in serious talks with the city, and USA Today reported that Burkle met with David Stern in New York on Thursday, January 24th. PBT can confirm each of those reports.

Since the Sacramento Bee’s report on the issue January 24, there has been speculation whether Kings minority owners have the “Right of First Opportunity” to purchase the team from the Maloofs.

They well may.

NBC ProBasketballTalk has acquired a copy of the Kings’ 1992 ownership agreement and an unsigned May 2003 proposal to amend the ownership agreement.

Article VII of the 1992 ownership agreement, “Transfer of Partnership Interests” starts off in Section 7.1 “Restrictions on Transfer” with the basic tenet that, “…no sale, assignment, transfer, encumbrance or hypothecation (herein referred to as a “Transfer”) shall be made by a Partner of the whole or any part of its or his Partnership interest (including, but not limited to, its or his interest in the capital or profits of the Partnership).” Section 7.2 permits certain specified sales to “Affiliates,” which in theory covers sales to essentially the same ownership (more on “Affiliates” below).

A little further down in Article VII, Section 7.3 spells out the right of first refusal in plain legalese.

“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 he 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).

Section 7.3 further adds that a “non-selling partner” must step forward with its right to match within 30-days notice of the team’s sale. When that authority is exercised, the minority owner would have a 45-day window to complete a purchase.

The language is clear, but perhaps the Maloof family is counting on an earlier clause:

“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

Section 5.1 details the “Authority of the General Partner.” It includes language giving the majority owner “exclusive authority to manage the operations and affairs and to make all decisions regarding the Partnership and its business…”

Section 5.2 addresses the “Sale or Financing of Partnership Property.” It includes clear language stating “the General Partner shall have the sole and unrestricted right to and discretion to determine all matters in connection with any sale of the partnership Property or any part thereof…”

In layman’s terms, sections 5.1 through 5.3 establish the potential for a super-majority in the franchise’s decision-making authority. By reaching a 65-percent threshold of controlling interest, the Maloof family and partner Bob Hernreich have accomplished that by purchasing minority shares during the last decade.

While this all seems alarming for the Kings’ minority owners, it is not the end of the story. Nowhere in Sections 7.1 through 7.3 is an exception carved out protecting Section 5.3 and the Maloofs super-majority clause from the right of first opportunity. This means that while the Maloofs’ have the right to sell and/or relocate without minority approval, it doesn’t appear they have the right to sell any portion of their interest in the club without first giving the limited partners a chance to match.

As attorneys do, how an attorney may interpret the document may depend on who is paying their bills. And a judge may get to make the final call.

A May 2003 proposal to amend the ownership agreement proposed to strip the “Affiliate” language that sources tell PBT may have provided a small loophole for a transfer of the team’s majority share while circumventing the rights of the minority owners. The proposal included the following language:

“2. Partners Right of First Refusal

To clarify the issue of First Right of Refusal on purchase of partnership shares, the following is a proposed amendment to the Partnership Agreements:

A. Partner’s Proposal to Transfer. If a Partner proposes to sell, assign, or otherwise dispose of all or any part of the Partner’s Interest, however it is held, i.e. whether or not the interest is owned directly by it, or through another entity, individual, etc. (Hereafter “Such Interest”), then the Partner (“Selling Partner”) shall first make a written offer to sell such Interest to the remaining Partners, pro rata (as not all of the other Partners are required to participate in the purchase) based on their then ownership positions in the Partnership. The price, terms and conditions shall be as mutually agreed by the parties.

The following section goes on to propose that in the case of a third-party offer, the minority owners retain their right of first refusal for 60 days after receiving the selling Partner’s written notice and it finishes with this definitive statement:

“No Partner shall sell, transfer or otherwise dispose of their Interest, even if owned through a different entity and it is the purported different entity selling all or a portion of itself within the holder of the Interest, except in accordance with the provisions of this Article.”

There is one more note of interest in Section 3 of the proposal titled “Sale of an Interest in the General Partner”:

“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.”

Meaning, that if the Maloofs sell their interest to the Hansen-Ballmer group for the reported $525 million and the minority owners do not take up the Right of First Refusal, Hansen and Ballmer would be required to purchase a proportional stake of the minority share as well.

We aren’t looking at $341 million (the Maloof and Hernreich 65-percent share), we would be looking at the entire $525 million. Although whether that sum would make the Seattle group even blink is up for debate.

The proposal language states that if the proposal is approved by the partners, it will constitute a basis for an amendment of the ownership agreement to be drafted and executed by all partners.  The version of the May 2003 proposal viewed by PBT was unsigned but according to a source with intimate knowledge of the situation, the proposal was signed in May of 2003.  PBT is not aware of an amendment to the ownership agreement that was later drafted and executed by all partners.

So the question now becomes, is there a Right of First Opportunity/Refusal and if so, is there a minority owner who is willing to step up and invoke that right? If so, can that owner come up with the financial backing to match the deal from the Hansen-Ballmer group?  What is the backstory of the May 2003 proposal and what became of it?  And lastly, will the NBA continue to back a Seattle deal that may have ignored the rights of minority owners?

It would be surprising if the NBA didn’t have some serious questions for the Maloofs and the Seattle group.

Report: Heat reach out to Chris Bosh to find ‘amicable resolution,’ get no response

Miami Heat players Josh Richardson, left, Chris Bosh, center, and Tyler Johnson, right, look up as they watch a video replay during the final seconds of the second half in Game 5 of an NBA basketball playoffs first-round series against the Charlotte Hornets, Wednesday, April 27, 2016, in Miami. The Hornets defeated the Heat 90-88. (AP Photo/Wilfredo Lee)
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The Heat won’t waive Chris Bosh yet, because if he plays 25 games (regular-season or playoff) with another team this season, he’d count against Miami’s cap this summer. The only path to the extra cap space is ensuring Bosh misses the postseason.

With players waived after today ineligible for the playoffs and every team having 24 or fewer regular-season games remaining, the time to formally waive Bosh is approaching.

Bosh will still get the $75,868,170 remaining over the final years of his contract from Miami. The key for the Heat is getting a doctor, selected jointly by the NBA and players union, to rule that Bosh — who has had multiple blood-clot episodes — continuing to play would present a “medically unacceptable risk of suffering a life-threatening or permanently disabling injury or illness.” Then, Bosh’s salary won’t count against the cap (at least unless he plays 25 games elsewhere).

Ira Winderman of the South Florida SunSentinel:

The Heat, according to a source close to the situation, in recent days have attempted to reach out to Bosh in hopes of an amicable resolution, without response.

For Bosh to get the remaining money he’s owed, he’ll have to cooperate with the medical testing.

This is a huge opportunity for him, anyway. The doctor ruling it’s safe for him to play is his most direct path onto the court.

But I also understand Bosh’s bitterness toward the Heat. He wants to play, and they won’t let him. He doesn’t have to be amicable.

Still, he’ll cooperate enough. There’s too much money on the line.

Knicks evaluating players based on triangle fit

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It was never clear whether Knicks president Phil Jackson was forcing/would force coach Jeff Hornacek to run the triangle offense.

It’s still not.

Jackson insisted he was fine with Hornacek deviating from the famed scheme Jackson used as a coach with the Bulls and Lakers. But now it appears the triangle is back, and Hornacek — whose Suns teams used more of an up-tempo, pick-and-roll attack — is expressing a long-term commitment to it.

Stefan Bondy of the New York Daily News:

Jeff Hornacek confirmed Tuesday that management is using the remaining months to evaluate who fits the system, which has been re-emphasized as more of a traditional triangle since the All-Star break. Hornacek even made it sound like they were placing players in two different hats: the triangle yays, and the triangle nays.

“As times goes on, you say can they get it? Are they getting better at it? If they’re not, you go, OK,” Hornacek said. “End of the year comes and we’re having our discussions and you say, ‘Can this guy play this offense? We’ll say either yay or nay or he’s getting it, he’s getting better. So I’m sure that’s part of evaluations this summer.”

Yaron Weitzman of Bleacher Report:

It’s difficult to believe Jackson’s fingerprints aren’t all over this, especially with Jackson-favorite Kurt Rambis heavily involved.

What does that mean for Hornacek, who’s in his first season with New York? He can try to appease his boss, but this doesn’t bode well for the coach’s job security.

It also doesn’t bode well for the Knicks.

Acquiring more productive players should take priority over scheme. Committing too deeply to the triangle will narrow New York’s pool of available talent.

And it’s not as if Hornacek has done a bad job with his offense. Despite Jackson building a team with just three quality offensive players* — Carmelo Anthony, Kristaps Porzingis and Courtney Lee — the Knicks still have a middling offense.

Their defense, guided by Rambis, is lousy. That should be the bigger emphasis.

But Jackson keeps doing his own thing, no matter how little anyone else understands it.

*Derrick Rose, who scores well as a driver, doesn’t qualify due to his shaky perimeter shooting and lackluster ball distribution.

GM: Re-signing Paul Millsap is Hawks’ priority

BOSTON, MA - FEBRUARY 27: Paul Millsap #4 of the Atlanta Hawks drives against Amir Johnson #90 of the Boston Celtics during the third quarter at TD Garden on February 27, 2017 in Boston, Massachusetts. NOTE TO USER: User expressly acknowledges and agrees that , by downloading and or using this photograph, User is consenting to the terms and conditions of the Getty Images License Agreement. (Photo by Maddie Meyer/Getty Images)
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The Hawks have gone multiple directions in the last year.

Thinking long-term, they traded Jeff Teague and Kyle Korver for first-round picks and refused to offer Al Horford a full max contract.

Thinking short-term, they signed Dwight Howard and kept Paul Millsap through the trade deadline – and even added Ersan Ilyasova on an expiring contract.

What direction is Atlanta going, and where does Millsap — who was shopped earlier in the season — fit?

Hawks general manager Wes Wilcox, via Adrian Wojnarowski of Yahoo Sports:

Paul Millsap is absolutely our priority this offseason, in re-signing him with the Atlanta Hawks. We’ve communicated that to Paul, his team, and we feel great about our position there. We also don’t want to hide from the fact that, yeah, we took a long, hard look at it earlier in the season, during a period of time where our team was struggling, and ultimately decided that Paul is far too valuable to us. And through that period of time and that exercise, we made that decision to absolutely keep Paul. And he is certainly our priority.

It seemed Horford was the Hawks’ priority once they kept him past last year’s trade deadline. Then, they facilitated his exit to the Celtics by not offering him his full max.

Will Atlanta pay whatever it takes to keep Millsap?

A full max contract projects to pay Millsap about $207 million over five years (about $41 million annually). He’s extremely helpful right now, and losing him would sink the Hawks in the standings. But do they really want to pay him more than $47 million in a season where he turns 37?

Perhaps it won’t take quite that much. Other teams project to be able to offer Millsap only up to about $154 million over four years (about $38 million annually). Maybe Atlanta can get him for something in between — or maybe even less than the max if other teams are leery of his age. But the Hawks are basically pot-committed.

The time for the Hawks to choose a direction was before the trade deadline, and they chose to build with Millsap. We’ll see whether they stay on that track when it comes time to pay.

Report: Jimmer Fredette, playing in China, engaging NBA teams on March return

NEW YORK, NY - FEBRUARY 22:  Jimmer Fredette #32 of the New York Knicks in action against the Toronto Raptors during their game at Madison Square Garden on February 22, 2016 in New York City.  NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement.  (Photo by Al Bello/Getty Images)
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It has been six years since Jimmer Fredette entered the NBA with a cult following out of BYU. After five lackluster NBA seasons, will he get a sixth?

His play in China has generated buzz among those already inclined to support him.

Adrian Wojnarowski of Yahoo Sports:

Errick McCollum is averaging more points per game in the Chinese Basketball Association and taking fewer shots than Fredette. Also averaging 30 points per game in China: MarShon Brooks, Jared Cunningham, Jabari Brown, Jamaal Franklin, Lester Hudson, Darius Adams and Dominique Jones.

In other words, a bunch of borderline NBA players who most likely belong outside the top league.

That includes Fredette, whose selfish style doesn’t lend itself to the smaller role he’d likely have to fill in the NBA.

It takes only one team to take a chance on Fredette, but I wouldn’t bank on immediate help or upside from the 28-year-old.