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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: Bucks signing Xavier Henry

LOS ANGELES, CA - NOVEMBER 16:  Xavier Henry #7 of the Los Angeles Lakers shoots against the Golden State Warriors at Staples Center on November 16, 2014 in Los Angeles, California.  The Warriors won 136-115.   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 Stephen Dunn/Getty Images)
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The Bucks hope Xavier Henry is just another thing Byron Scott is wrong about.

Shams Charania of Yahoo Sports:

Henry – the No. 12 pick in the 2010 draft – never found his footing in the NBA with the Memphis Grizzlies, New Orleans Hornets or Los Angeles Lakers. He made some strides with the Lakers in 2013-14, but he tore his Achilles early the following season. That compounded the knee injuries that made Scott doubt Henry could meet the expectations placed on him coming out of Kansas.

Milwaukee now has 15 players, the regular-season roster limit. If Henry’s deal is unguaranteed, he’s obviously not a lock to stick. But the Bucks could use another wing. I’m guessing they’ll add more players to compete with Henry for that final spot.

Report: Lakers signing Travis Wear

NEW YORK, NY - MARCH 19: Travis Wear #6 of the New York Knicks dives for the ball against the Minnesota Timberwolves  during their game at Madison Square Garden on March 19, 2015 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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Phil Jackson said he warned the Lakers they’d regret passing on Kristaps Porzingis with the No. 2 pick.

The Lakers are getting another swing at stretch big Jackson liked – though this time with far lower stakes.

Adrian Wojnarowski of Yahoo Sports:

Travis Wear spent 2014-15 with the Knicks and last season in Spain.

He’ll compete with recently signed Zach Auguste for a regular-season-roster opening that doesn’t exist – until the Lakers ditch Nick Young. I wouldn’t be surprised if the Lakers add more players to the mix.

Both Wear and Auguste are eligible to have their D-League rights assigned to the Lakers’ affiliate if they’re waived before the season.

The 6-foot-10 Wear went undrafted out of UCLA in 2014. He has the makings of a stretch four, but he must become more comfortable beyond the arc rather than just in the mid-range.

NBA rookies love Kris Dunn, Ben Simmons – not so much

NEW YORK, NY - JUNE 23:  Kris Dunn walks on stage after being drafted fifth overall by the Minnesota Timberwolves in the first round of the 2016 NBA Draft at the Barclays Center on June 23, 2016 in the Brooklyn borough of 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 Mike Stobe/Getty Images)
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Rookie of the Year, best playmaker, best defender and funniest. Kris Dunn even received a vote for best shooter despite his jumper holding him back in pre-draft evaluations.

Dunn – the Timberwolves’ No. 5 pick – cleaned up in the NBA’s annual rookie survey.

But when it came to the most important question, Brandon Ingram – the Lakers’ No. 2 pick – claimed the top spot:

Which rookie will have the best career?

1. Brandon Ingram, L.A. Lakers — 26.7%

2. Kris Dunn, Minnesota — 16.7%

3. Buddy Hield, New Orleans — 13.3%

T-4. Dragan Bender, Phoenix — 6.7%

Jaylen Brown, Boston — 6.7%

Jamal Murray, Denver — 6.7%

Ben Simmons, Philadelphia — 6.7%

Others receiving votes: Dejounte Murray, San Antonio; Dario Saric, Philadelphia; Pascal Siakam, Toronto; Tyler Ulis, Phoenix; Denzel Valentine, Chicago

That’s a pretty poor showing for Ben Simmons, whom the 76ers drafted No. 1. Maybe it’s because Simmons didn’t make the NCAA tournament at LSU.

But that lack of exposure only barely dissuades me. I still think Simmons will have the best career and win Rookie of the Year. The 76ers will likely feature him in a major role this season while Dunn is stuck behind Ricky Rubio (for now, at least).

But that didn’t dissuade their fist-year peers:

Who will be the 2016-17 Kia Rookie of the Year?

1. Kris Dunn, Minnesota — 29.0%

2. Brandon Ingram, L.A. Lakers — 25.8%

3. Ben Simmons, Philadelphia — 19.4%

Other notable questions (click through to NBA.com full results) and my picks:

Which rookie was the biggest steal at where he was selected in the Draft?

1. Dejounte Murray (29), San Antonio — 16.1%

2. Tyler Ulis (34), Phoenix — 12.9%

My pick: Timothé Luwawu-Cabarrot (24), Philadelphia

Which rookie is the most athletic?

1. Jaylen Brown, Boston — 38.7%

2. Brice Johnson, L.A. Clippers — 16.1%

My pick: Brown

Which rookie is the best shooter?

1. Buddy Hield, New Orleans — 65.7%

2. Jamal Murray, Denver — 20.0%

My pick: Hield

Which rookie is the best defender?

1. Kris Dunn, Minnesota — 23.5%

2. Gary Payton II, Houston — 20.6%

3. Malcolm Brogdon, Milwaukee — 17.6%

My pick: Payton

Which rookie is the best playmaker?

1. Kris Dunn, Minnesota — 29.4%

2. Ben Simmons, Philadelphia — 26.5%

3. Tyler Ulis, Phoenix — 20.6%

My pick: Dunn in a vacuum with the caveat that Simmons’ playmaking – not far behind Dunn’s – will be more valuable at power forward than Dunn’s will be at point guard

Jose Calderon retires from Spanish national team

RIO DE JANEIRO, BRAZIL - AUGUST 11:  Jose Calderon #8 of Spain moves the ball against Nigeria during the Men's Basketball - Preliminary Round Group B Nigeria vs Spain on Day 6 of the Rio 2016 Olympic Games at Carioca Arena 1 on August 11, 2016 in Rio de Janeiro, Brazil.  (Photo by Tom Pennington/Getty Images)
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Jose Calderon has won three Olympic medals – silver in 2008 and 2012 and bronze this year.

Just three men’s basketball players have won more:

  • Carmelo Anthony (three golds and a bronze for Team USA)
  • Gennady Volnov (a gold,* two silvers and a bronze for the Soviet Union)
  • Sergey Belov (a gold* and three bronzes for the Soviet Union)

Calderon, who turns 35 next month, won’t catch them.

O. Cauchi of Sportando:

Veteran point guard Jose Calderon has officially announced his retirement from Spanish NT.

Calderon barely played in Rio. Spain is stacked at point guard with Sergio Rodriguez, Ricky Rubio and Sergio Llull.

The Lakers aren’t as deep at the position with D'Angelo Russell and Marcelo Huertas. Calderon might have a bigger impact in Los Angeles – especially if he’s not saving himself for Eurobasket 2017.