-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rl6rUdZLaC5i9JdzgPBwxXkQZEaWGePDbbWqpBdUS3lZzgSYa/sgM/0C2+9skMRf NeBlA+MGVI4TyOY/Y7ih9Q== 0000950152-98-004320.txt : 19980513 0000950152-98-004320.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950152-98-004320 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19980512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND INDIANS BASEBALL CO INC CENTRAL INDEX KEY: 0001059019 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 341861303 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-49357 FILM NUMBER: 98616297 BUSINESS ADDRESS: STREET 1: 2401 ONTARIO ST CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2162404200 MAIL ADDRESS: STREET 1: 2401 ONTARIO ST CITY: CLEVELAND STATE: OH ZIP: 44115 S-1/A 1 CLEVELAND INDIANS BASEBALL 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998 REGISTRATION NO. 333-49357 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ CLEVELAND INDIANS BASEBALL COMPANY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 7941 34-1861303 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION) CLASSIFICATION CODE NUMBER)
2401 ONTARIO STREET CLEVELAND, OHIO 44115 (216) 420-4200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) RICHARD E. JACOBS CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER CLEVELAND INDIANS BASEBALL COMPANY, INC. 2401 ONTARIO STREET CLEVELAND, OHIO 44115 (216) 420-4200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES OF ALL CORRESPONDENCE TO: EDWARD G. PTASZEK, JR. THOMAS F. MCKEE Baker & Hostetler LLP Calfee, Halter & Griswold LLP 3200 National City Center 1400 McDonald Investment Center 1900 East Ninth Street 800 Superior Avenue Cleveland, Ohio 44114-3485 Cleveland, Ohio 44114-2688 (216) 621-0200 (216) 622-8200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, please check the following box. [ ] ------------------ THE REGISTRANT HEREBY AMENDS THIS 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. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 12, 1998 PROSPECTUS 4,000,000 SHARES CLEVELAND INDIANS BASEBALL COMPANY, INC. LOGO CLASS A COMMON SHARES ------------------ All of the 4,000,000 Class A Common Shares (the "Class A Common Shares") offered hereby are being offered by Cleveland Indians Baseball Company, Inc. (the "Company"). Although the Company will receive all of the proceeds of the Offering, substantially all of the proceeds will be used to acquire partnership interests in Cleveland Indians Baseball Company Limited Partnership from entities controlled by Richard E. Jacobs, Chairman of the Board, President and Chief Executive Officer of the Company, in connection with the transactions described under the heading "Formation Transactions." Prior to the Offering, there has been no public market for the Class A Common Shares. It is currently anticipated that the initial public offering price per Class A Common Share will be between $14.00 and $16.00. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Class A Common Shares have been approved for inclusion in the Nasdaq National Market under the symbol "CLEV," subject to notice of issuance. ------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON SHARES. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===================================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) THE COMPANY(2) - --------------------------------------------------------------------------------------------------------------------- Per Share.................................... $ $ $ - --------------------------------------------------------------------------------------------------------------------- Total(3)..................................... $ $ $ =====================================================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $2,000,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to 600,000 additional Class A Common Shares solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to the Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ The Class A Common Shares are offered by the Underwriters subject to receipt and acceptance of the shares by them. The Underwriters reserve the right to reject any order in whole or in part. It is expected that delivery of the Class A Common Shares will be made against payment therefor at the offices of McDonald & Company Securities, Inc. or through the facilities of the Depository Trust Company on or about , 1998. MCDONALD & COMPANY SECURITIES, INC. The date of this Prospectus is , 1998 3 Photograph depicting a variety of Cleveland Indians players and an "American League Champions and Division Champions" logo superimposed on a background photograph of fans at Jacobs Field JACOBS FIELD IS OWNED BY THE GATEWAY ECONOMIC DEVELOPMENT CORPORATION OF GREATER CLEVELAND. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON SHARES, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes (i) no exercise of the Underwriters' over-allotment option and (ii) completion of the transactions described under the heading "Formation Transactions." Unless the context otherwise requires, prior to completion of the Formation Transactions, references to the "Company" throughout this Prospectus, including the financial information contained herein, refer to the operations of Cleveland Indians Baseball Company Limited Partnership (the "Partnership") and Ballpark Management Company ("Ballpark Management"). After completion of the Formation Transactions, references to the "Company" refer to the operations of Cleveland Indians Baseball Company, Inc. and the Partnership. The American League, and its member clubs, and the National League, and its member clubs, are collectively referred to in this Prospectus as "MLB" or "Major League Baseball." None of the Office of the Commissioner of Baseball, the National League or any of its member clubs, or the American League or any of its member clubs, or any of their respective owners, officers, directors, employees or representatives make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in, or assume any liability for any inaccuracies in or omissions from, this Prospectus. THE COMPANY The Company has been organized to serve as the sole general partner of the Partnership, which owns the 1997 American League Champion Cleveland Indians (the "Indians" or the "Club") and manages Jacobs Field, the Indians' home ballpark. Baseball has a long tradition in the City of Cleveland. The first professional baseball game in Cleveland was played on June 2, 1869, when the Cleveland Forest Citys played the Cincinnati Red Stockings. In 1901, the Club became one of the charter members of the American League of Professional Baseball Clubs (the "American League"). During the ensuing 20 years, the Indians enjoyed great success, including a victory against the Brooklyn Dodgers in the 1920 World Series. During the 1940s and 1950s, the Indians were one of baseball's consistently strong teams. The Indians won the American League pennant twice (1948 and 1954), captured the World Series from the Boston Braves in 1948, and finished second in the American League six times (1951-1953, 1955, 1956 and 1959). Unfortunately, the next 25 years of the Indians' history were marked by financial instability, inattention to the Club's minor league system, criticized player personnel decisions, poor on-field performance and some of the worst attendance figures in Major League Baseball. In 1986, Richard E. Jacobs and his brother David acquired control of the Indians and began to execute a long-term strategy that has returned winning baseball to Cleveland and has made the Cleveland Indians one of the premier franchises in Major League Baseball. The Company's strategy is to maintain the Indians' competitive position and to increase the long-term value of the franchise. The elements of this strategy include dedication to a strong player development system, effective player personnel management, attention to quality and customer service and an integrated approach to marketing and licensing arrangements. In the past three seasons, the Indians have won three American League Central Division Championships and two American League Championships. Under Mr. Jacobs' direction, the Indians were also instrumental in the planning and development of the downtown sports complex that includes Jacobs Field. The Company believes that the Club's recent on-field and financial successes are largely attributable to the collaboration of a management team that includes experienced and talented baseball and business executives. This team is led by John Hart, Executive Vice President and General Manager, and Dennis Lehman, Executive Vice President, Business, and includes a coaching staff led by Mike Hargrove, Manager. Mr. Hart was named Major League Baseball Executive of the Year in 1994 and 1995 by The Sporting News, a leading sports publication, and Mr. Hargrove was named Manager of the Year by The Sporting News in 1995. Player development is a critical element of management's efforts to build and maintain a strong franchise. The Company has established a strong minor league organization through a consistent, system-wide approach to evaluating and developing young players. The team's minor league organization was ranked the best in Major League Baseball in a 1996 poll by The Sporting News. Among its other player development efforts, the 3 5 Company sponsors baseball programs in The Dominican Republic and Venezuela in which coaches affiliated with the Club work to develop the skills of promising young players in those countries. The Club's successful minor league organization has provided the Indians with a pool of talented young players to supplement its major league roster and to permit it to make opportune trades. Effective player personnel management is the most visible element of the Company's baseball strategy. The goal of the Company's player personnel management efforts is to maintain a competitive team while limiting the unpredictability in player salaries resulting from salary arbitration and free agency. Management's confidence in its ability to identify promising young players has permitted the Club to selectively enter into multi-year contracts with players early in their careers. The Company also attempts to sign a nucleus of experienced players to multi-year contracts. Finally, the Club has been successful in trading for, or signing as free agents, talented players who can fill roles on the roster made vacant by trades, retirements, injuries and losses to the free agent market. By building value for team sponsors and fans, the Company's business executives leverage the Club's on-field product to enhance revenues. The Company's control over various facets of its business, including advertising signage and concessions at Jacobs Field, permits it to capitalize on the Indians' popularity with sponsors and fans. Sponsors are offered a number of advertising vehicles to maximize their exposure at Jacobs Field and their association with the Club. Fans at Jacobs Field are offered a customer-focused experience in an attractive, comfortable environment featuring a variety of amenities, concessions and merchandise options and a courteous, well-trained staff. The successful execution of the Indians' long-term strategy has resulted in strong revenues in recent years. The Club has sold out all tickets available for public sale for each of the 1996, 1997 and 1998 regular seasons prior to Opening Day. The Indians hold the Major League Baseball record for consecutive regular season sell-outs, which stands at 229 through May 6, 1998. These strong attendance figures provide the Club with a predictable ticket sale and premium seating revenue base for the regular season and permit the Company to realize high levels of merchandise and concession sales at Jacobs Field. The fan interest evidenced by these attendance figures has also permitted the Club to enhance revenues from other sources, such as local broadcast and cable television, radio and advertising. However, the Company's management believes that much of the Club's local revenue potential has been realized and that future increases in the Club's revenues, operating income and net income, if any, are likely to be substantially less than those realized over the past five years. See "Risk Factors -- Limited Potential for Further Revenue and Earnings Growth." Although the Company's revenues depend heavily on the Indians' on-field performance, the predictability of the Club's ticket and premium seating sales in recent years has allowed it to create a competitive, profitable team within the framework of a Major League Baseball system that is confronted with escalating player salaries and limited means for clubs to increase revenue. Richard E. Jacobs is Chairman of the Board, President and Chief Executive Officer of the Company. Upon completion of the Offering, the Company will own at least a 51% general partnership interest in the Partnership, and Mr. Jacobs, as the sole trustee of two family trusts (the "Jacobs family trusts"), will beneficially own a 49% limited partnership interest in the Partnership, through the trusts' ownership of Cleveland Baseball Corporation ("CBC"), the pre-Offering general partner of the Partnership. In addition, Mr. Jacobs, through the Jacobs family trusts, will beneficially own 2,281,667 Class B Common Shares and 133,200 Class A Common Shares following the Offering which represents 99.88% of the total voting control of the Company. As a result, Mr. Jacobs will be able to control all decisions regarding the Company requiring a shareholder vote (other than certain charter amendments), including the election of the entire Board of Directors. Following the Offering, each of the 6,043,334 limited partnership Units in the Partnership held by CBC will be exchangeable for Class A Common Shares on a one-for-one basis, subject to the right of the Company to pay cash upon receiving notice of a proposed exchange. See "Formation Transactions" and "The Partnership--Limited Partner Rights." The Company is an Ohio corporation incorporated on March 17, 1998. The Company's principal executive offices are located at 2401 Ontario Street, Cleveland, Ohio 44115, and its telephone number is (216) 420-4200. 4 6 THE OFFERING Class A Common Shares offered................ 4,000,000 shares Class A Common Shares to be outstanding after the Offering(1)............................ 4,139,376 shares Class B Common Shares to be outstanding after the Offering............................... 2,283,957 shares Aggregate Class A and Class B Common Shares to be outstanding after the Offering(1).... 6,423,333 shares Nasdaq National Market symbol................ CLEV Use of proceeds.............................. To acquire the general partnership interest in the Partnership. See "Formation Transactions."
- --------------- (1) Excludes 6,043,334 Class A Common Shares reserved for issuance upon exchange of limited partnership Units in the Partnership. See "The Partnership -- Limited Partner Rights." Also excludes 700,000 Class A Common Shares reserved for issuance under the Company's Stock Option Plan. See "Management -- Stock Option Plan." 5 7 SUMMARY FINANCIAL DATA The following table sets forth certain historical and pro forma data for the Partnership and Ballpark Management on a combined basis and should be read in conjunction with the Combined Financial Statements of the Partnership and Ballpark Management and the Notes thereto included elsewhere in this Prospectus. For financial reporting purposes, the Company generally recognizes revenues and expenses on a game-by-game basis. Because the Major League Baseball regular season begins in late March or early April, the Company's first fiscal quarter, which ends on March 31, generally includes limited revenues and reflects a loss attributable to fixed costs of operations incurred during the quarter. The revenue recognized in the first quarter ended March 31 consists primarily of spring training and exhibition game revenues, merchandise sales and concession and catering revenue. Generally, any post-season revenue will be recognized in the fourth quarter.
YEAR ENDED ------------------------------------------------------------ THREE MONTHS ENDED DECEMBER 31, MARCH 31, ---------------------------------------- ----------------------------- 1997 PRO OCTOBER 31,(1)(2) ------------------- ACTUAL FORMA ----------------- PRO ------------------ -------- 1993 1994(3) 1995(3) 1996 ACTUAL FORMA(4) 1997 1998 1998(4) ------- ------- ------- -------- -------- -------- ------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA REVENUES: Net ticket sales.............. $19,410 $23,182 $32,267 $ 45,658 $ 49,279 $49,279 $1,402 $ 1,093 $ 1,093 Local radio and television.... 6,316 5,568 9,667 13,631 17,014 17,014 -- 38 38 Concession and catering....... 2,367 6,969 11,872 14,726 14,095 14,095 110 20 20 Private suite and club seat rental...................... -- 3,768 5,635 7,035 8,704 8,704 -- -- -- Advertising and promotion..... 1,597 3,998 5,742 6,891 8,754 8,754 -- -- -- Merchandise................... 2,548 8,513 15,024 14,683 17,449 17,449 1,043 1,432 1,432 Major Leagues Central Fund.... 17,585 3,943 6,633 12,369 15,505 15,505 -- -- -- Other......................... 3,602 3,579 2,979 3,002 3,365 3,365 648 675 675 Post-season................... -- -- 9,888 1,933 13,051 13,051 -- -- -- Benefit (provision) for revenue sharing............. 658 (239) (2,056) (5,731) (7,186) (7,186) (204) (223) (223) ------- ------- ------- -------- -------- -------- ------- -------- -------- Total revenues.......... 54,083 59,281 97,651 114,197 140,030 140,030 2,999 3,035 3,035 ------- ------- ------- -------- -------- -------- ------- -------- -------- OPERATING EXPENSES: Major league team............. 21,898 26,389 38,904 53,420 66,125 66,125 1,512 2,430 2,430 Player development............ 7,931 7,198 8,298 8,735 11,146 11,146 2,436 2,484 2,484 Ballpark operations........... 5,148 6,259 9,071 10,389 10,965 10,965 1,844 1,973 1,973 Cost of merchandise sold...... 1,422 5,001 9,224 11,692 12,982 12,982 1,435 1,582 1,582 Administrative and general.... 5,983 8,702 9,769 9,275 10,292 11,342 2,271 2,473 2,736 Major Leagues Central Fund.... 3,747 3,559 1,498 4,146 4,938 4,938 260 303 303 Advertising and promotion..... 3,205 3,929 3,805 2,960 3,854 3,854 1,284 927 927 Post-season................... -- -- 5,457 1,309 6,252 6,252 -- -- -- Amortization of signing bonuses and player contracts................... 1,833 2,005 3,242 3,212 3,630 3,630 104 225 225 Depreciation and amortization................ 1,338 1,275 1,361 1,326 1,629 1,629 385 397 397 ------- ------- ------- -------- -------- -------- ------- -------- -------- Total operating expenses.............. 52,505 64,317 90,629 106,464 131,813 132,863 11,531 12,794 13,057 ------- ------- ------- -------- -------- -------- ------- -------- -------- OPERATING INCOME (LOSS)......... 1,578 (5,036) 7,022 7,733 8,217 7,167 (8,532) (9,759) (10,022) OTHER INCOME (EXPENSE): Interest income............... 1,260 1,375 1,658 3,855 4,672 2,649 1,231 1,948 1,353 Interest expense.............. (2,027) (1,310) (2,005) (2,045) (2,301) (2,301) (429) (661) (661) Gain (loss) on player transactions................ 47 85 71 616 2,696 2,696 -- (1,604) (1,604) League expansion proceeds..... 3,000 -- -- -- 9,286 9,286 -- -- -- Minority interest............. -- -- -- -- -- (9,554) -- -- 5,358 ------- ------- ------- -------- -------- -------- ------- -------- -------- Income (loss) before provision for income taxes.............. 3,858 (4,886) 6,746 10,159 22,570 9,943 (7,730) (10,076) (5,576) Provision (benefit) for income taxes......................... -- -- -- -- -- 3,060 -- -- (1,729) ------- ------- ------- -------- -------- -------- ------- -------- -------- Net income (loss)............... $ 3,858 $(4,886) $6,746 $ 10,159 $ 22,570 $ 6,883 $(7,730) $(10,076) $ (3,847) ======= ======= ======= ======== ======== ======== ======= ======== ======== Pro forma net income (loss) per share......................... $ 1.07 $ (0.60) ======== ========
6 8
MARCH 31, ------------------- OCTOBER 31,(1)(2) DECEMBER 31, PRO ----------------- ----------------------------- ACTUAL FORMA 1993 1994(3) 1995(3) 1996 1997 1998 1998(4) ------- ------- ------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Total current assets............................... $28,316 $21,719 $60,952 $ 60,228 $ 85,195 91,412 91,412 Total current liabilities.......................... 32,465 35,792 68,346 62,124 74,891 100,655 100,655 Total assets....................................... 47,441 43,032 79,991 87,272 118,152 125,037 129,737 Long-term obligations.............................. 26,538 25,671 26,182 33,458 45,811 50,708 50,708 Total shareholders' equity (deficit)............... (11,562) (18,431) (14,537) (8,310) (2,550) (26,326) (21,626)
- --------------- (1) Includes (a) the assets, liabilities and results of operations of the Partnership as of October 31, 1993 and 1994 and for the years then ended and (b) the assets, liabilities and results of operations of Ballpark Management as of December 31, 1993 and 1994 and for the years then ended. The results of operations of the Partnership for the two-month period ended December 31, 1994, which are not reflected in the above combined financial data, were as follows (in thousands): Revenues.................................. $ 578 Expenses.................................. 2,783 ------- Operating loss............................ (2,205) Interest expense.......................... 271 ------- Net loss.................................. $(2,476) =======
(2) The Club did not commence play at Jacobs Field until the 1994 regular season. As a result, the operations of Ballpark Management for the year ended December 31, 1993 were insignificant. (3) A players' strike during 1994 and 1995 resulted in the cancellation of 27 home games and 18 away games of the 1994 regular season, the entire 1994 post-season and nine home games and nine away games of the 1995 regular season. The Major League Baseball regular season consists of 162 games, of which 81 are scheduled to be played at home and 81 are scheduled to be played on the road. (4) Pro forma income statement data give effect to a March 1998 distribution by the Partnership and the repayment of related party indebtedness (the "Distribution"), the transactions described under the caption "Formation Transactions" and the sale of 4,000,000 Class A Common Shares by the Company pursuant to the Offering and the application of the estimated net proceeds therefrom at an assumed initial public offering price of $15.00 per share, as if such transactions had occurred on January 1, 1997. Pro forma balance sheet data give effect to such transactions (other than the Distribution) as if they had occurred on March 31, 1998. See "Formation Transactions," "Use of Proceeds" and "Pro Forma Financial Data." 7 9 RISK FACTORS Prospective investors should consider carefully the following risk factors, together with the other information contained in this Prospectus, in evaluating an investment in the Class A Common Shares 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 in this section and elsewhere in this Prospectus. CONTROL BY RICHARD E. JACOBS; VOTING RIGHTS The Company has two classes of common shares comprised of Class A Common Shares and Class B Common Shares (collectively, the "Common Shares"). Following completion of the Formation Transactions and the Offering, Richard E. Jacobs will control substantially all of the outstanding Class B Common Shares as sole trustee of the Jacobs family trusts which own such shares of record. Although Class A Common Shares and Class B Common Shares vote together on all matters submitted to the shareholders for approval (other than certain charter amendments), the Class A Common Shares are entitled to one vote per share, and the Class B Common Shares are entitled to 10,000 votes per share. Consequently, Mr. Jacobs, as the beneficial holder of 2,281,667 Class B Common Shares, will be able to control the management and policies of the Company, including its management of the Indians as general partner of the Partnership, the election of the entire Board of Directors, any determination with respect to a sale of all or substantially all of the assets of the Company or the Partnership and the outcome of all other matters submitted to the shareholders for approval (other than certain charter amendments). See "Management," "Certain Transactions" and "Principal Shareholders." OFFERING PROCEEDS TO BE USED TO PURCHASE PARTNERSHIP INTERESTS FROM RELATED PARTIES The Company intends to use the proceeds of the Offering to purchase its general partnership interest in the Partnership and to engage in the other transactions described under the caption "Formation Transactions." Substantially all of the net proceeds from the Offering will be paid to CBC, which is owned by the Jacobs family trusts. The terms of the Formation Transactions were not negotiated on an arms'-length basis and no independent appraisals or other valuations of the assets being transferred in connection with the Formation Transactions have been obtained. Rather, the parties considered, among other things, the result of operations, financial condition and cash flows of the Company, an assessment of management, the Company's present state of development, recent sales prices of other Major League Baseball franchises and the current state of the economy in the United States and the Cleveland, Ohio, metropolitan area. In effect, the value of the business and assets being transferred will be based upon the overall value of the Company implied by the initial public offering price per share. Accordingly, there can be no assurance that this value does not exceed the value of the Company that would be reflected in an arms'-length transaction. LIMITED POTENTIAL FOR FURTHER REVENUE AND EARNINGS GROWTH During the past five years, the Company has realized significant growth in revenues, operating income and net income. Most of the Company's revenues are derived from local sources. Gross revenues from national television and radio contracts and Major League Baseball Properties royalties represented only approximately 11.5% of the Company's revenues during 1997. Much of the Company's growth has resulted from increased ticket sales, premium seating rents, food and beverage concession sales, merchandise sales and local broadcasting revenues (radio, broadcast television and cable television). Increases in the Company's revenues have resulted primarily from the Indians' on-field performance and the increased popularity of the Club among baseball fans in the region. Management believes that much of the Indians' local revenue potential has already been realized and that future increases in revenues, operating income and net income, if any, are likely to be substantially less than those realized over the past five years. Moreover, the revenue sharing rate, which applies to a club's net local revenue and was 12% in 1997, will be 16% in 1998, 17% in 1999 and 20% in 2000. These increases in the revenue sharing rate may reduce the net local revenue retained by the Company in future years, depending on the amount of the Company's net local revenue relative to that of other MLB 8 10 clubs. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Major League Baseball -- Collective Bargaining Agreement." DISTRIBUTION AND REPAYMENT OF RELATED PARTY INDEBTEDNESS The Partnership has borrowed an aggregate of $35.5 million under the Major League Credit Facility. Substantially all of those funds have been loaned by the Partnership to CBC, the pre-Offering general partner of the Partnership and an affiliate of Mr. Jacobs. In March 1998, the Partnership distributed $49.2 million to its partners, and CBC repaid its $35.5 million debt to the Partnership. These transactions have had the effect of allowing CBC to use cash generated by the Partnership to repay its debt to the Partnership. The Company will receive no benefit from the repayment of such indebtedness since the Partnership will remain obligated, subject to the terms and conditions of the Major League Credit Facility, to repay amounts borrowed thereunder without the corresponding right to receive funds from CBC. Although the Company believes it will be able to pay its current liabilities with cash flow from operations or from other sources of credit available to the Company, there can be no assurance that the distribution and loan repayment will not adversely affect the Company's liquidity and financial condition. See "Certain Transactions" and "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources." DEPENDENCE ON COMPETITIVE SUCCESS OF THE INDIANS The financial results of the Company and the franchise value of the Indians are expected to depend in large part on the Indians continuing to achieve on-field success. The team's recent successes have generated fan enthusiasm, resulting in sustained ticket, premium seating, concession and merchandise sales during the regular season and greater shares of local television and radio audiences. Furthermore, success in the regular season has permitted participation in post-season playoffs, which has provided the Company with additional revenue and income. Poor on-field performance by the Indians is likely to adversely affect revenue and income. There can be no assurance that the Indians will perform well or qualify for post-season play in 1998 or thereafter. DEPENDENCE ON TALENTED PLAYERS The success of the Indians will depend, in large part, upon their ability to develop, obtain and retain talented players. The Indians compete with other MLB baseball teams and teams in other countries for available players. There can be no assurance that the Indians will be able to retain players upon expiration of their contracts or identify and obtain new players of adequate talent to replace players who retire or are injured, traded, released or lost to free agency. Even if the Indians are able to retain or obtain players who have had successful amateur or professional careers, there can be no assurance of the quality of their performance for the Indians. RISK OF INJURIES; ABSENCE OF INSURANCE To the extent that financial results of the Company and its franchise value are dependent on the Indians' competitive success, the likelihood of achieving such success is substantially reduced by serious or untimely injuries to key players. After the start of the season a player is entitled to receive his salary even if the player dies or is unable to play as a result of injury sustained during the term of his employment. In addition, players signed to multi-year contracts are guaranteed the payment of their salaries whether or not they are able to perform. These salaries represent significant financial commitments for the Indians. As of December 31, 1997, the Company's commitments under player and other employment contracts totalled $62.4 million, $54.4 million, $32.6 million, $23.1 million and $12.8 million for 1998, 1999, 2000, 2001 and 2002 and thereafter, respectively. The Company is generally insured against having to pay salaries in the event of a player's death. The Company has obtained disability insurance policies for substantially all of its players under multi-year contracts. In the event of injuries sustained resulting in lost services as defined in the policies, the policies provide for payment to the Company of a portion of the player's salary for the remaining term of the contract or until the player can resume playing. The Company's expenditures on such insurance have risen substantially. The Company may choose not to obtain (or may not be able to obtain) insurance in the future. 9 11 In addition, player disability insurance policies usually exclude from coverage pre-existing conditions. If an injured player is not insured, the Company will be obligated to pay all of the injured player's salary. Replacement of an injured player may result in an increase in salary expense for the Company. EFFECT OF POST-SEASON PLAY ON REVENUES AND INCOME The Company's revenue, operating income and cash flows in recent years have benefited materially from the Indians' appearance and performance in post-season play. In 1995 and 1997, the Indians' won the American League Championship and appeared in the World Series, and the operating income generated from post-season revenues accounted for the majority of the Company's operating income in those years. The revenues and profitability derived from post-season play are substantially dependent on the number of post-season games in which the Indians participate and the number of those games played at Jacobs Field. In the 1995 post-season, the Indians appeared in 15 out of 19 potential post-season games, and in 1997, the Indians played in 18 out of 19 potential post-season games. Income from post-season play (after reduction for an allocable portion of revenue sharing payments) contributed approximately $4.4 million and $5.7 million to the Company's operating income in 1995 and 1997, respectively. In 1997, this amount represented 79% of the Company's pro forma operating income. In 1996, the Indians were eliminated from post-season play in the Division Series, and appeared in only four out of 19 potential post-season games. Income from post-season play contributed only $0.5 million to operating income during 1996. There can be no assurance that the Indians will appear in post-season play in the future or that post-season revenues, operating income and cash flows will be significant. HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS Although the Company has generated net income in the recent past, the Company has also had periods of significant losses. For instance, for the fiscal year ended October 31, 1994, the Company incurred operating and net losses of $5.0 million and $4.9 million, respectively, although the Company believes that these losses were attributable in part to the cancellation of a portion of the 1994 season because of the players' strike. See "-- Uncertainties Relating to Labor Relations in Major League Baseball." During the recent periods of earnings, the Indians have sold out all regular season games prior to the start of the season and the team has had strong on-field performance. There can be no assurance that the Company can sustain strong ticket sales and attendance or that its recent profitability can be sustained on an ongoing basis. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Business--Business Operation -- Operations." EFFECT OF BASEBALL DECISIONS ON FINANCIAL PERFORMANCE Management's primary business objective is to increase the long-term value of the Company. Management believes that maintaining the Indians' on-field success is essential to the achievement of this objective. Accordingly, efforts to improve the Company's revenues and income from period to period may be secondary to actions that management believes will enhance long-term value. In particular, maintaining the Indians' competitive position may require the Company to take actions that could significantly increase expenses for a particular period. These actions may include, among other things, trading for highly compensated players, signing free agents or current players to new contracts or engaging in salary arbitration with existing players. Any of these actions could have a material adverse effect on the Company's financial performance and could significantly affect the market price of the Class A Common Shares. Furthermore, there can be no assurance that any actions taken by management to increase the Company's long-term value will be successful. The Commissioner and the President of the American League have the power and authority to take actions that they deem to be in the best interests of Major League Baseball, which may not necessarily be consistent with maximizing value for the holders of Class A Common Shares. Certain of these decisions could have a material adverse effect on the business, results of operations and financial condition of the Company and on the market price of the Class A Common Shares. 10 12 UNCERTAINTIES OF INCREASES IN PLAYERS' SALARIES Players' salaries in Major League Baseball have increased significantly over the past several seasons. The Club's aggregate players' salaries have increased from approximately $17.7 million during the 1993 season to approximately $58.2 million during the 1997 season. The Company's baseball executives expect players' salaries to continue to increase. Significant increases in players' salaries could have a material adverse effect on the Company's financial condition, results of operations, cash flows and franchise value if the increases are not offset by adequate increases in revenue. Moreover, to the extent that higher salaries must be paid in order to retain talented players, the Company may be subject to the luxury tax imposed by the Collective Bargaining Agreement. See "--Dependence on Talented Players" and "Major League Baseball--Collective Bargaining Agreement--Luxury Tax." LEGAL AND LEGISLATIVE CHALLENGES TO THE MLB ANTI-TRUST EXEMPTION In 1922, a United States Supreme Court decision effectively exempted professional baseball from the federal antitrust laws. Although the antitrust exemption has been affirmed on several occasions by lower courts, such decisions are based in part on reasoning suggesting that any reversal of professional baseball's antitrust exemption should be a legislative matter. In addition, two state courts and one federal district court have applied the exemption narrowly. Pursuant to the Collective Bargaining Agreement, MLB clubs and the Players Association have agreed to jointly request and cooperate in lobbying the Congress to pass legislation that will clarify that MLB players are covered under the antitrust laws (so that they have the same rights under the antitrust laws as other professional athletes), together with a provision that makes it clear that the passage of that legislation does not change the application of the antitrust laws in any other context. The MLB clubs and the Major League Baseball Players Association (the "Players Association") are working on a joint proposal to propose to the Congress. The Company does not believe that legislation enacted pursuant to the Collective Bargaining Agreement to limit the antitrust exemption as it applies to labor matters will have a material effect on the Company. However, any actions by the courts or legislators to limit further the antitrust exemption could result in significant litigation expense that would reduce net revenue produced at the league level and, consequently, reduce payments to the Company and, if successful, could have a material adverse effect on the Company and Major League Baseball. These effects could include, among other things, the inability of Major League Baseball to restrict franchise relocation, which could adversely affect franchise stability, and a change in the relationship between MLB clubs and their minor league affiliates, which the Company believes could result in a material change in the way MLB teams acquire and develop players. See "Major League Baseball -- Restrictions on Operations" and "The Company -- Team -- Player Development." UNCERTAINTIES RELATING TO LABOR RELATIONS IN MAJOR LEAGUE BASEBALL Relations between MLB clubs and their players have been contentious. During the 1994 season, a players' strike resulted in the cancellation of a substantial portion of the 1994 season, including the 1994 World Series, and the first few weeks of the 1995 season and adversely affected the Company's results of operations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." In addition to the players' strike during 1994 and 1995, professional baseball has suffered five work stoppages ranging from two to 50 days since 1972. MLB clubs and the Players Association entered into a new collective bargaining agreement (the "Collective Bargaining Agreement") that became effective as of January 1, 1997 and, with respect to certain provisions, was retroactive to the 1996 season. The agreement expires on the later of October 31, 2000 or the day following the last game of the 2000 World Series, except that the Players Association has the unilateral option to extend the Collective Bargaining Agreement to October 31, 2001 or the day after the last game of the 2001 World Series, whichever is later. MLB has also had disputes with the labor union representing the major league umpires, which have resulted in strikes and the need to use replacement umpires. There can be no assurance that Major League Baseball will not experience labor relations difficulties in the future which could have a material adverse effect on the Indians' franchise value and the Company's financial condition or results of operations. See "Major League Baseball--Collective Bargaining Agreement." 11 13 DECLINE IN POPULARITY OF PROFESSIONAL BASEBALL The popularity of professional sports, in general, and professional baseball, in particular, is important to the results of operations of the Company and the long-term franchise value of the Club. It is generally recognized that the popularity of Major League Baseball, as evidenced by attendance figures and television ratings, was adversely affected by the players' strike that shortened the 1994 and 1995 seasons. Even if the Indians franchise is successful, a substantial decline in the popularity of Major League Baseball, whether as a result of future labor disputes, increases in the popularity of other professional sports or the emergence of new spectator sports, could have a material adverse effect on the Company and the price of the Class A Common Shares. MLB RESTRICTIONS ON THE COMPANY AND ITS SHAREHOLDERS By virtue of the Indians' membership in the American League, the Company and its personnel are bound by a number of rules, regulations, guidelines, bulletins, directives, policies and agreements of the Commissioner, the American League President, the MLB clubs collectively, the American League, MLB committees, Major League Baseball Enterprises, Inc., Major League Baseball Properties, Inc., Baseball Television, Inc. and any other entity owned by the MLB clubs collectively, including, without limitation, the American League Constitution, the Major League Agreement, the Major League Rules, the Collective Bargaining Agreement, and national telecast and radio broadcast agreements (each, as the same may now exist or be amended or adopted in the future, a "Governing Document"). Any change to the Governing Documents will be binding upon the Indians and their personnel, regardless of whether the Company agrees or disagrees with such changes, and it is possible that any such change could adversely affect the Company and the shareholders. The Office of the Commissioner of Baseball (the "Commissioner") and the President of the American League each have the exclusive power to interpret the Governing Documents of MLB and the American League, respectively. In addition, the Governing Documents provide that, as a party to the Major League Agreement and as a member of the American League, the Company is precluded from resorting to the courts to enforce or maintain rights or claims against any other club, and that all disputes must be submitted to either the Commissioner or the President of the American League for determination and such determination, when rendered, is final and binding. See "Major League Baseball--MLB Governance." The Governing Documents also contain provisions which may in certain circumstances limit, restrict or require the actions of the Company or the holders of the Class A Common Shares which may adversely affect the value of the Class A Common Shares. Failure by the Company or a holder of Class A Common Shares to comply with these restrictions may ultimately result in the termination of the Club's membership in MLB, a forced sale of a shareholder's interest in the Company or the repurchase of such interests by the Company. The Governing Documents require that the Company submit to the Commissioner for his approval, which may be withheld in his sole discretion, any agreement that might affect control of the team prior to execution of that agreement. Furthermore, the Governing Documents were designed to give MLB some control over the areas of non-baseball business conducted by corporate club owners. To that end, the Governing Documents intend that the Company be a single-purpose entity. If management determines that it is beneficial to the Company to expand into other businesses, the Governing Documents require that the expansion plan be reviewed and approved by the Commissioner before being put into effect. There can be no assurance that MLB or the American League will not adopt in the future different or additional restrictions which could adversely affect the shareholders, the market price of the Class A Common Shares and the franchise value of the Club. See "Major League Baseball--Restrictions on Operations." Because the American League is a nonprofit association, the Indians and other members of the American League are generally jointly and severally liable for the debts and obligations of the association. Also, the Company is a party to various agreements entered into by all MLB clubs and will have obligations under certain of these agreements in the event another club defaults. Any failure of other clubs to pay their pro rata share of any such debt or obligation could adversely affect the Company. The success of the American and National Leagues and their members depends in part on the competitiveness of the teams and their ability to 12 14 maintain fiscally sound franchises. Certain franchises are encountering financial difficulties, and there can be no assurance that the leagues and their respective franchises will be able to operate on a fiscally stable and effective basis. Any of (i) the amendment of an existing, or the adoption of a new, Governing Document, (ii) any modification to or extension of MLB's revenue sharing or luxury tax arrangements by the MLB or (iii) future actions of the Commissioner or the American League President could have a material adverse effect on the franchise value of the Club or the market price of the Class A Common Shares. POSSIBILITY OF INCREASED COMPETITION AS A RESULT OF MLB EXPANSION MLB has two new expansion teams that commenced play in the 1998 season. Although there are no current plans to do so, MLB may also expand in the future. Expansion affords MLB the opportunity to enter new markets, but it also increases the competition for talented players among MLB teams. Generally, expansion teams are permitted to select in an expansion draft certain unprotected players from the rosters of the various MLB teams. There can be no assurance that the Indians will be able to retain all of their key players during future expansion drafts or that the rules regarding expansion drafts will not change to the detriment of the Company. In addition, to the extent MLB teams share equally in the revenue generated from national broadcast contracts, the sale of MLB licensed merchandise and national corporate sponsorships, the Company may receive less revenue from these sources as the result of expansion. UNCERTAINTIES REGARDING RENEWAL OF MEDIA CONTRACTS The Company has agreements with Fox Sports Ohio and WUAB for local television broadcasts of the Indians preseason and regular season games which expire in 1998 and 2001, respectively. The Company has agreements with Jacor Broadcasting Corporation and other affiliates for the local radio broadcast of all Indians games. The Jacor contract expires December 31, 1999, and the Company has the option to renew the contract for an additional four years. There can be no assurance that the Company will be able to renew the Fox Sports Ohio, WUAB, Jacor and local affiliate agreements following their expiration on terms as favorable as those in the current agreements. The Company receives a pro rata share of the income MLB generates from national broadcast and cable television contracts which expire between 2000 and 2002. There can be no assurance that MLB will be able to renew these contracts following their expiration on terms as favorable as those in the current agreements. BUSINESS CONCENTRATION Upon completion of the Offering, the only business of the Company will be to own and operate the Indians, manage Jacobs Field and conduct related activities. The Company's failure to (i) maintain a competitive baseball franchise, (ii) continue to receive adequate revenue from its baseball operations or (iii) operate the ballpark efficiently, could have a material adverse effect on the Company's financial condition or results of operations which may not be offset by operations from other businesses. Although the Company intends to consider acquisitions of other businesses or properties, there can be no assurance that any such acquisition will be completed. See "-- Risks Relating to Expansion of Business and Acquisitions." NEED FOR ADDITIONAL CAPITAL The Company's operations may require capital infusions on an ongoing basis. The Company intends to finance its future operations with cash flow from operations and, if necessary, borrowings. The Company cannot predict whether it can sustain cash flow levels sufficient to support its operations. Unless such cash flow levels are sustained, the Company will require additional borrowings or the sale of debt or equity securities, or some combination thereof, to provide funding for its operations. The Company's ability to incur additional indebtedness is limited by applicable provisions of the Governing Documents, which limit the amount of debt that may be secured by the assets of, or ownership interest in, a MLB club and require that the parties to any secured loan that is approved execute an agreement limiting the rights of the lenders and the club under certain circumstances, including, upon an event of default or foreclosure. The issuance and sale of additional 13 15 equity and debt securities requires MLB's prior written consent. As a condition to MLB's consent to the sale of such securities, MLB may impose certain conditions or limitations on the investor or lender, which may increase the cost of such financing to the Company. If the Company does not generate sufficient cash flow from its operations, or is unable to borrow or otherwise obtain additional funds to finance its operations, the Company's financial condition and results of operations could be adversely affected. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources." SELF INSURANCE The Company is self-insured for the first $500,000 of each workers' compensation claim and, accordingly, establishes reserves for future claims and payments. Effective January 1, 1998, the Company also implemented a medical insurance program covering substantially all of its full-time employees. The program provides employees with maximum lifetime benefits of $2.5 million, for which the Company is self-insured and, accordingly, establishes reserves for future claims and payments. The Company has only recently established this program, and has less experience on which to base its judgments concerning reserve levels than it does with respect to its workers' compensation program. There can be no assurance that the Company's actual workers' compensation or medical insurance claims will not exceed the amount of the Company's reserves. COMPETITION The Indians compete for entertainment and advertising dollars with other sports and with other entertainment and recreational activities. During parts of the baseball season, the Indians experience competition from professional basketball (the Cleveland Cavaliers and the Cleveland Rockers) and professional hockey (the Cleveland Lumberjacks). Moreover, the City of Cleveland is currently in the process of building a new football-only stadium. If certain conditions are met, the National Football League (the "NFL") is obligated to provide to the City an NFL franchise by the fall of 1999. This team is expected to use the established and popular name and heritage of the former Cleveland NFL franchise, the Cleveland Browns, and will likely have loyal fan support from its inception. The Indians also compete for attendance, broadcast audiences and advertising revenue with a wide range of other entertainment and recreational activities available in Northeast Ohio. RISKS RELATING TO EXPANSION OF BUSINESS AND ACQUISITIONS Although the Company is not presently engaged in negotiations to acquire other businesses, it may consider making future acquisitions of sports-related or non-sports-related businesses as well as commercial properties, including properties which may be owned by Mr. Jacobs or his affiliates. The Company may make such acquisitions with cash or with securities or a combination thereof. If the Company makes any such acquisitions, various risks may be encountered, including potential dilution to the Class A Common Shares then outstanding due to the issuance of additional Common Shares (which may include Class B Common Shares) in connection with the acquisitions, possible goodwill amortization, diversion of management's attention, possible environmental and other regulatory costs and unanticipated problems or liabilities, some or all of which could have a material adverse effect on the Company's financial condition and results of operations. In addition, transactions, including acquisitions, which would result in the issuance of additional Common Shares (which may include Class B Common Shares) may require the consent of MLB. There is no assurance that the Company will be able to obtain such consent. See "--MLB Restrictions on the Company and its Shareholders." DEPENDENCE ON MANAGEMENT For the foreseeable future, the Company will be materially dependent upon the services of Mr. Jacobs, Chairman of the Board, President and Chief Executive Officer; John Hart, Executive Vice President and General Manager; Dennis Lehman, Executive Vice President, Business; Dan O'Dowd, Vice President, Baseball Operations and Assistant General Manager; Jeff Overton, Vice President, Marketing and Communications and Ken Stefanov, Vice President, Finance. The loss of the services of any of these individuals could 14 16 have a material adverse effect on the Company. See "Management--Directors and Executive Officers." The Company does not carry key man life insurance on any of its officers. Mr. Jacobs is also Chairman of the Board and Chief Executive Officer of The Richard E. Jacobs Group, a real estate management and development company. Although Mr. Jacobs intends to devote a significant amount of time and attention to the Company, his involvement in other current and future business endeavors could divert his attention from the Company's business. TRAVEL RELATED RISKS The Club is scheduled to play 81 regular season road games each year. Indians players and members of the coaching staff generally travel to away games using charter air carriers. The Club's extensive travel schedule exposes it to the risk of travel-related accidents. The Company maintains life insurance coverage on its players in amounts sufficient to cover its contractual obligations in the event of a player's death. The Company also maintains additional life insurance in the amount of $2.0 million on each member of the Club's 25-man roster which provides coverage in the event of a catastrophic accident involving the team. Despite the existence of this insurance, a catastrophic accident involving the Club would have a material adverse effect on the Company's result of operations and financial condition. NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF SHARE PRICE Prior to the Offering, there has been no public market for the Class A Common Shares. Although the Class A Common Shares have been approved for inclusion in the Nasdaq National Market upon notice of issuance, there can be no assurance that an active trading market will develop or be sustained following the Offering. There can be no assurance that the price at which the Class A Common Shares will trade in the public market subsequent to the Offering will not be lower than the initial public offering price. The initial public offering price for the Class A Common Shares will be determined by negotiations between the Company and McDonald & Company Securities, Inc., as the Representative of the Underwriters, based on factors described in this Prospectus. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. Because there are no other public companies the principal business of which is Major League Baseball, the Company and the Representative were not able to use the market prices of securities of other companies in the same industry as a basis for setting the initial public offering price. The trading price of the Company's Class A Common Shares could be subject to significant fluctuations in response to variations in quarterly results, team performance and other factors. In addition, in recent years the stock markets, in general have from time to time experienced significant price and volume fluctuations, and the market for the shares of companies with a small capitalization, in particular, have experienced extreme price fluctuations which have often been unrelated to their operating performance. ABSENCE OF DIVIDENDS The Company does not intend to pay any cash dividends with respect to the Class A Common Shares or the Class B Common Shares in the foreseeable future. See "Dividend Policy." DILUTION Purchasers of the Class A Common Shares offered hereby will suffer immediate and substantial dilution of $20.06 per share, assuming an initial public offering price of $15.00 per share. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, of the 27,000,000 authorized Class A Common Shares, 4,139,376 Class A Common Shares will be issued and outstanding. Of these 4,139,376 Class A Common Shares, the 4,000,000 Class A Common Shares purchased in this Offering by persons who are not "affiliates" of the Company will be freely tradeable without restriction under the Securities Act of 1933, as amended (the "Securities Act"). The Company believes that 139,376 Class A Common Shares and the 2,283,957 Class B Common Shares that are convertible into Class A Common Shares are considered "restricted securities" 15 17 under the Securities Act and holders may not utilize Rule 144 until such shares have been held for at least one year. For a description of Rule 144, see "Shares Eligible for Future Sale." Each of the 6,043,334 limited partnership Units of the Partnership held by CBC is exchangeable, beginning one year after the date hereof, into one Class A Common Share. The Class A Common Shares issuable upon such exchange will be restricted securities within the meaning of the Securities Act. However, the Company has granted to CBC certain "piggy-back" registration rights with respect to the Class A Common Shares issued in exchange for Partnership Units. Class A Common Shares issued upon the exercise of stock options will become eligible for resale under Rule 144 one year subsequent to the date or dates that the holders of such options exercise the same. Subsequent to the Offering, the Company intends to file a registration statement on Form S-8 with respect to the 700,000 Class A Common Shares reserved for issuance pursuant to the Company's Stock Option Plan. See "Management--Stock Option Plan." Upon registration, such shares upon issuance would be freely tradeable by persons who are not "affiliates" of the Company. In addition, "affiliates" of the Company could sell such shares pursuant to Rule 144 under the Securities Act in compliance with the manner of sale and volume limitations of Rule 144. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Class A Common Shares prevailing from time to time. Sales of substantial amounts of Class A Common Shares, or the perception that such sales could occur, could adversely affect the prevailing market price for the Class A Common Shares. See "Shares Eligible for Future Sale." 16 18 FORMATION TRANSACTIONS Prior to the Offering, the Indians' operations have been conducted by the Partnership, and Jacobs Field has been managed by Ballpark Management. The Company has entered into a Reorganization Agreement with CBC, the Partnership's current general partner, MJC Baseball, Inc. ("MJC"), the Partnership's current limited partner, Ballpark Management, the Partnership, the Jacobs family trusts and Martin J. Cleary. Under the terms of the Reorganization Agreement, a number of transactions will take place prior to or concurrently with the Offering. These transactions will result in the Company becoming the sole general partner and the owner of at least a 51% partnership interest in the Partnership and the combination of the operations currently conducted by the Partnership and Ballpark Management. This result will be accomplished through the following transactions (assuming an initial public offering price of $15.00 per share and no exercise of the Underwriters' over-allotment option): - Merger of Ballpark Management and Partnership Contribution. Ballpark Management will be merged into the Company (the "Ballpark Management Merger"), and the Jacobs family trusts, as the sole shareholders of Ballpark Management, will receive 2,281,667 Class B Common Shares in exchange for their ownership interest in Ballpark Management. After the Ballpark Management Merger, the Company will contribute Ballpark Management's assets and liabilities to the Partnership for an approximate 19% general partnership interest in the Partnership. - Merger of MJC. MJC will be merged into the Company (the "MJC Merger"), and Mr. Cleary, as the sole shareholder of MJC, will receive 2,290 Class B Common Shares, 6,043 Class A Common Shares and $55,800 in cash. As a result of the MJC Merger, the Company will succeed to MJC's interest in the Partnership. - Transfer of Partnership Interests and Amendment of Partnership Agreement. CBC will transfer to the Company 3,996,000 of its Partnership Units for $55,744,200 in cash. The Partnership Agreement will be amended and restated to provide, among other things, that the Company will be the Partnership's sole general partner and CBC will be its sole limited partner. - Purchase of Common Shares by Jacobs family trusts and Mr. Cleary. The Jacobs family trusts and Mr. Cleary will acquire an aggregate of 133,233 Class A Common Shares at $15.00 per share (in addition to the 100 Common Shares purchased by the Jacobs family trusts in connection with the organization of the Company). If the Underwriters' over-allotment is exercised in whole or in part, the Company will purchase from CBC in the Formation Transactions a number of Units in the Partnership equal to the number of Class A Common Shares sold pursuant to the over-allotment option for a price per Unit equal to the initial public offering per share, less the underwriting discount. The Reorganization Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, provides that the transactions described above are conditioned upon and will close prior to or concurrently with the completion of the Offering. CBC and Ballpark Management are controlled by Richard E. Jacobs, who as trustee of the Jacobs family trusts beneficially owns all of the outstanding capital stock of the Company prior to the Offering. MJC is owned by Martin J. Cleary, a director of the Company. Accordingly, the terms of the transactions contemplated by the Reorganization Agreement, including the amount of cash to be issued in exchange for the partnership interests to be transferred to the Company, the number of Common Shares to be issued in the Ballpark Management Merger and the amount of cash and number of Common Shares to be issued in the MJC Merger, were not negotiated on an arms'-length basis. In effect, the value of the business and assets to be transferred will be based upon the overall value of the Company implied by the initial public offering price per share. In considering the value of the assets and business to be transferred, the parties considered, among other things, the results of operations, financial condition and cash flows of the Partnership and Ballpark Management, an assessment of the management of the Partnership and Ballpark Management and the present state of the Partnership and Ballpark Management's development, recent sales prices of other Major League Baseball franchises and the current state of the economy in the United States and the Cleveland, Ohio, metropolitan area. In determining the number of Class B Common Shares issuable to the Jacobs family trusts 17 19 and Mr. Cleary, the Company also considered the provisions of MLB's Ownership Guidelines, which require that Mr. Jacobs (or a group of no more than 20 individuals) maintain at least a 10% economic interest in the Company and at least 90% voting control of the Company at all times. Although the Company believes that the terms of the transactions contemplated by the Reorganization are fair to and in the best interests of the Company, no independent appraisals or other valuations of such partnership interests, assets or businesses have been or will be obtained. Set forth below are charts reflecting the ownership of the Company, the Partnership, Ballpark Management and CBC prior to and after the Formation Transactions, assuming no exercise of the Underwriters' over-allotment option. PRIOR TO THE FORMATION TRANSACTIONS
Richard E. Jacobs Martin J. Cleary trustee of the Jacobs family trusts 100% Owner 100% owner 100% owner 100% owner Cleveland Indians Ballpark Management Cleveland Baseball MJC Baseball, Inc. Baseball Company, Inc. Company (manages Corporation Jacobs Field) 99.9% general 0.1% limited partner Cleveland Indians Baseball Company Limited Partnership (owns the Cleveland Indians franchise)
AFTER THE FORMATION TRANSACTIONS
Richard E. Jacobs , Purchasers of Class A Martin J. Cleary trustee of the Common Shares in the Jacobs family trusts Offering 100% owner 3.2% Class A Common Shares 96.7% Class A 0.1% Class A Common Shares 99.9% Class B Common Common Shares 0.1% Class B Common Shares Shares Cleveland Baseball Cleveland Indians baseball Corporation Company, Inc. 49% limited partner 51% general partner Cleveland Indians Baseball Company Limited Partnership (owns the Cleveland Indians franchise and manages Jacobs Field)
18 20 USE OF PROCEEDS The net proceeds to the Company from the sale of the 4,000,000 Class A Common Shares offered hereby are expected to be approximately $53.8 million ($62.2 million if the Underwriters' over-allotment option is exercised in full), based on an assumed initial public offering price of $15.00 per share. In addition, the Company will receive proceeds of $2.0 million from the sale of Class A Common Shares to the Jacobs family trusts and Martin J. Cleary at $15.00 per share. Assuming no exercise of the Underwriters' over-allotment option, the Company will acquire partnership interests in the Partnership from CBC and MJC for $55.8 million in cash and will complete the rest of the Formation Transactions as a result of which the Company will have an aggregate 51% general partnership interest in the Partnership. If the Underwriters' over-allotment option is exercised in full, the Company will use the net proceeds to purchase additional partnership interests from CBC resulting in the Company having a 56% general partnership interest in the Partnership. DIVIDEND POLICY The Company does not anticipate paying any cash dividends on its Common Shares in the foreseeable future, but intends instead to retain any future earnings for reinvestment in its business. Any future determination to pay cash dividends will be at the sole discretion of the Company's Board of Directors and will be dependent upon, among other things, future earnings, capital requirements, contractual restrictions, the general financial condition of the Company, general business conditions and such other factors as the Company's Board of Directors deems relevant. DILUTION The net tangible book value (deficit) of the Company at March 31, 1998 was $(37.2) million or $(5.79) per share. After giving effect to the Formation Transactions and the Offering and after deduction of estimated offering expenses and the underwriting discount, the pro forma net tangible book value (deficit) as of March 31, 1998 would have been approximately $(32.5) million or $(5.06) per share. This represents an immediate dilution of net tangible book value to new investors purchasing shares in the Offering of $20.06 per share. The following table illustrates the per share dilution: Assumed initial public offering price............................................... $ 15.00 Net tangible book value (deficit) per share before the Offering(1)................ $ (5.79) Increase in net tangible book value (deficit) per share attributable to the Offering....................................................................... 0.73 --------- Pro forma net tangible book value (deficit) per share after the Offering............ (5.06) --------- Dilution per share to new public investors.......................................... $ (20.06) =========
- --------------- (1) Net tangible book value per share before the Offering is determined by dividing net tangible book value (deficit) of the Company (tangible assets of $114.2 million less liabilities) by the number of Class A and Class B Common Shares outstanding after the Formation Transactions and the Offering. 19 21 CAPITALIZATION The following table sets forth the actual combined capitalization of the Partnership and Ballpark Management at March 31, 1998 and on a pro forma basis to give effect to the Formation Transactions and the Offering, as if such transactions had occurred at March 31, 1998. This table should be read in conjunction with the historical combined and pro forma financial information of the Partnership and Ballpark Management included elsewhere in this Prospectus.
MARCH 31, 1998 ----------------------- HISTORICAL PRO FORMA ---------- --------- (DOLLARS IN THOUSANDS) Current portion of long-term debt........................... $ -- $ -- ======= ======== Long-term debt, excluding current maturities................ $35,500 $ 35,500 Shareholders' equity: Preferred Shares, without par value; 1,000,000 shares authorized; no shares issued and outstanding.......... -- -- Class A Common Shares, without par value, 27,000,000 shares authorized; no shares issued and outstanding, actual; and 4,139,376 shares issued and outstanding, pro forma(1)........................ -- 55,800(2) Class B Common Shares, without par value, 3,000,000 shares authorized; no shares issued or outstanding, actual; and 2,283,957 shares issued and outstanding, pro forma............................... -- 2,898(3) Additional paid-in capital.................................. -- 4,700(4) Shareholders' deficit....................................... -- (85,024)(5) Accumulated deficit......................................... (26,326) -- ------- -------- Total accumulated deficit/shareholders' deficit............. (26,326) (21,626) ------- -------- Total capitalization........................................ $ 9,174 $ 13,874 ======= ========
- --------------- (1) Excludes 6,043,334 Class A Common Shares reserved for issuance upon the exchange of limited partnership Units in the Partnership. See "The Partnership -- Limited Partner Rights." Also excludes 700,000 Class A Common Shares reserved for issuance under the Company's Stock Option Plan. See "Management -- Stock Option Plan." (2) Represents the issuance of (i) 4,000,000 Class A Common Shares in the Offering at an assumed initial public offering price of $15.00 per share for total consideration of $60.0 million less underwriting discounts and expenses of $6.2 million, (ii) 133,333 Class A Common Shares to the Jacobs family trusts and Mr. Cleary at $15.00 per share and (iii) 6,043 Class A Common Shares to Mr. Cleary in the MJC Merger. See "Formation Transactions." (3) Represents the issuance of 2,281,667 Class B Common Shares in the Ballpark Management Merger and 2,290 Class B Common Shares in the MJC Merger. See "Formation Transactions." (4) Represents deferred tax assets established in conjunction with, and as a result of, the Formation Transactions and the Offering. (5) Represents the reclassification of accumulated deficit after giving effect to the application of the net proceeds from the Offering. See "Use of Proceeds." Includes the entire deficit without allocation to minority interest. 20 22 SELECTED FINANCIAL DATA The following table sets forth historical financial data for the Company as of and for each of the years ended October 31, 1993 and 1994 and December 31, 1995, 1996 and 1997 and as of and for the three months ended March 31, 1997 and 1998 which should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition," the Combined Financial Statements of the Partnership and Ballpark Management and related Notes thereto, and other financial information included elsewhere herein. The financial data as of December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 are derived from the audited combined financial statements of the Partnership and Ballpark Management. The data as of and for the years ended October 31, 1993 and 1994 and as of and for the three months ended March 31, 1997 and 1998 are derived from unaudited combined financial statements of the Partnership and Ballpark Management, which in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. For financial reporting purposes, the Company generally recognizes revenues and expenses on a game-by-game basis. Because the Major League Baseball regular season begins in late March or early April, the Company's first fiscal quarter, which ends on March 31, generally includes limited revenues and reflects a loss attributable to fixed costs of operations incurred during the quarter. The revenue recognized in the first quarter ended March 31 consists primarily of spring training and exhibition game revenues, merchandise sales and concession and catering revenue. Generally, any post-season revenue will be recognized in the fourth quarter.
YEAR ENDED THREE MONTHS ------------------------------------------------- ENDED OCTOBER 31,(1)(2) DECEMBER 31, MARCH 31, ----------------- ----------------------------- ------------------ 1993 1994(3) 1995(3) 1996 1997 1997 1998 ------- ------- ------- -------- -------- ------- -------- (IN THOUSANDS) INCOME STATEMENT DATA: REVENUES: Net ticket sales.................................. $19,410 $23,182 $32,267 $ 45,658 $ 49,279 $1,402 $ 1,093 Local radio and television........................ 6,316 5,568 9,667 13,631 17,014 -- 38 Concession and catering........................... 2,367 6,969 11,872 14,726 14,095 110 20 Private suite and club seat rental................ -- 3,768 5,635 7,035 8,704 -- -- Advertising and promotion......................... 1,597 3,998 5,742 6,891 8,754 -- -- Merchandise....................................... 2,548 8,513 15,024 14,683 17,449 1,043 1,432 Major Leagues Central Fund........................ 17,585 3,943 6,633 12,369 15,505 -- -- Other............................................. 3,602 3,579 2,979 3,002 3,365 648 675 Post-season....................................... -- -- 9,888 1,933 13,051 -- -- Benefit (provision) for revenue sharing........... 658 (239) (2,056) (5,731) (7,186) (204) (223) ------- ------- ------- -------- -------- ------- -------- Total revenues.................................. 54,083 59,281 97,651 114,197 140,030 2,999 3,035 ------- ------- ------- -------- -------- ------- -------- OPERATING EXPENSES: Major league team................................. 21,898 26,389 38,904 53,420 66,125 1,512 2,430 Player development................................ 7,931 7,198 8,298 8,735 11,146 2,436 2,484 Ballpark operations............................... 5,148 6,259 9,071 10,389 10,965 1,844 1,973 Cost of merchandise sold.......................... 1,422 5,001 9,224 11,692 12,982 1,435 1,582 Administrative and general........................ 5,983 8,702 9,769 9,275 10,292 2,271 2,473 Major Leagues Central Fund........................ 3,747 3,559 1,498 4,146 4,938 260 303 Advertising and promotion......................... 3,205 3,929 3,805 2,960 3,854 1,284 927 Post-season....................................... -- -- 5,457 1,309 6,252 -- -- Amortization of signing bonuses and player contracts....................................... 1,833 2,005 3,242 3,212 3,630 104 225 Depreciation and amortization..................... 1,338 1,275 1,361 1,326 1,629 385 397 ------- ------- ------- -------- -------- ------- -------- Total operating expenses........................ 52,505 64,317 90,629 106,464 131,813 11,531 12,794 ------- ------- ------- -------- -------- ------- -------- OPERATING INCOME (LOSS)............................. 1,578 (5,036) 7,022 7,733 8,217 (8,532) (9,759)
21 23
YEAR ENDED THREE MONTHS ------------------------------------------------- ENDED OCTOBER 31,(1)(2) DECEMBER 31, MARCH 31, ----------------- ----------------------------- ------------------ 1993 1994(3) 1995(3) 1996 1997 1997 1998 ------- ------- ------- -------- -------- ------- -------- (IN THOUSANDS) OTHER INCOME (EXPENSE): Interest income................................... 1,260 1,375 1,658 3,855 4,672 1,231 1,948 Interest expense.................................. (2,027) (1,310) (2,005) (2,045) (2,301) (429) (661) Gain (loss) on player transactions................ 47 85 71 616 2,696 -- (1,604) League expansion proceeds......................... 3,000 -- -- -- 9,286 -- -- ------- ------- ------- -------- -------- ------- -------- Net income (loss)................................... $ 3,858 $(4,886) $6,746 $ 10,159 $ 22,570 $(7,730) $(10,076) ======= ======= ======= ======== ======== ======= ========
OCTOBER 31,(1)(2) DECEMBER 31, MARCH 31, ------------------- ----------------------------- --------- 1993 1994(3) 1995(3) 1996 1997 1998 -------- -------- -------- ------- -------- --------- (IN THOUSANDS) BALANCE SHEET DATA (AT PERIOD END): Total current assets....................................... $ 28,316 $ 21,719 $ 60,952 $60,228 $ 85,195 $ 91,412 Total current liabilities.................................. 32,465 35,792 68,346 62,124 74,891 100,655 Total assets............................................... 47,441 43,032 79,991 87,272 118,152 125,037 Long-term obligations...................................... 26,538 25,671 26,182 33,458 45,811 50,708 Total shareholders' equity (deficit)....................... $(11,562) $(18,431) $(14,537) $(8,310) $ (2,550) $(26,326)
- --------------- (1) Includes (a) the assets, liabilities and results of operations of the Partnership as of October 31, 1993 and 1994 and for the years then ended and (b) the assets, liabilities and results of operations of Ballpark Management as of December 31, 1993 and 1994 and for the years then ended. The results of operations of the Partnership for the two-month period ended December 31, 1994 which are not reflected in the above combined financial data were as follows (in thousands): Revenues....................... $ 578 Expenses....................... 2,783 ------- Operating loss................. (2,205) Interest expense............... 271 ------- Net loss....................... $(2,476) =======
(2) The Club did not commence play at Jacobs Field until the 1994 regular season. As a result, the operations of Ballpark Management for the year ended December 31, 1993 were insignificant. (3) A players' strike during 1994 and 1995 resulted in the cancellation of 27 home games and 18 away games of the 1994 regular season, the entire 1994 post-season and nine home games and nine away games of the 1995 regular season. A full Major League Baseball regular season consists of 162 games, of which 81 are scheduled to be played at home and 81 are scheduled to be played on the road. 22 24 PRO FORMA FINANCIAL DATA The following sets forth the Company's Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998 and Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 1997 and the three months ended March 31, 1998. The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the Formation Transactions, including the consolidation by the Company, at cost, of its general partnership interest in the Partnership, and the Offering as if such transactions had occurred at March 31, 1998. The Unaudited Pro Forma Condensed Consolidated Statements of Income give effect to such transactions and the Distribution as if they had occurred on January 1, 1997. In Management's opinion, all adjustments necessary to reflect the effects of the transactions described above have been made. The Unaudited Pro Forma Condensed Consolidated Balance Sheet and Unaudited Pro Forma Condensed Consolidated Statements of Income are not necessarily indicative of what the Company's actual financial position as of March 31, 1998 and results of operations for the year ended December 31, 1997 and the three months ended March 31, 1998 would have been, nor do they purport to represent the results of operations for any future periods or the future financial position of the Company. The pro forma financial information set forth below should be read in conjunction with the Combined Financial Statements of the Partnership and Ballpark Management and the Notes thereto and the Balance Sheet of the Company and the Note thereto included elsewhere herein. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998
THE PARTNERSHIP AND BALLPARK MANAGEMENT THE COMPANY COMBINED ADJUSTMENTS PRO FORMA ----------- --------------- ----------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS CASH AND INVESTMENTS.............................. $ 65,936 $ (a) $ 65,936 OTHER CURRENT ASSETS.............................. 25,476 25,476 FIXED ASSETS, NET................................. 5,092 5,092 PREPAID SIGNING BONUSES AND PLAYER CONTRACTS...... 10,779 10,779 INTANGIBLE ASSETS................................. 10,850 10,850 OTHER ASSETS...................................... 6,904 4,700(b) 11,604 -------- --------- -------- -------- TOTAL......................................... $ 125,037 $ 4,700 $129,737 ======== ========= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) DEFERRED REVENUE.................................. 73,261 73,261 OTHER CURRENT LIABILITIES......................... 27,394 27,394 LONG-TERM LIABILITIES............................. 50,708 50,708 SHAREHOLDERS' EQUITY (DEFICIT) Class A Common Shares........................... $ 2 55,798(c) 55,800 Class B Common Shares........................... 2,898(d) 2,898 Additional paid-in capital...................... 4,700(b) 4,700 Shareholders' deficit........................... (85,024)(e) (85,024) Accumulated equity (deficit).................... (26,326) 26,326(f) Subscriptions receivable........................ (2) 2(g) -------- --------- -------- -------- Total shareholders' equity (deficit).......... -- (26,326) 4,700 (21,626) -------- --------- -------- -------- TOTAL......................................... $ -- $ 125,037 $ 4,700 $129,737 ======== ========= ======== ========
23 25 - --------------- (a) Reflects the net proceeds received from the Offering of the Class A Common Shares of $55,800; the payment of $55,800 for the acquisition of the 51% general partnership interest in the Partnership; the receipt of $2,000 from the purchase of Common Shares by the Jacobs family trusts and Mr. Cleary and the payment of expenses of the Offering estimated at $2,000. (b) Reflects $21,400 of deferred tax assets resulting from the Formation Transactions and the Offering offset by a $16,700 valuation allowance. (c) Reflects the issuance of (i) 4,000,000 Class A Common Shares at an assumed initial public offering price per share of $15.00 for a total consideration of $60,000 less underwriting discounts and expenses of $6,200 and (ii) the issuance of 133,233 Class A Common Shares to the Jacobs family trusts and Mr. Cleary at $15.00 per share. (d) Reflects issuance of 2,281,667 Class B Common Shares in the Ballpark Management Merger based upon the net book value of the equity of Ballpark Management Company. (e) Reflects the application of the estimated net proceeds of the Offering of $55,800 to purchase partnership interests from CBC and MJC. Such amounts are offset by a reclassification of the balance of accumulated equity (deficit) of the Partnership and Ballpark Management to shareholders' deficit of ($29,224) and Class B Common Shares of $2,898, respectively. As a result of the Formation Transactions, CBC's ownership interest in the Partnership will consist solely of limited partnership interests. As a limited partner, CBC will not be obligated to fund any Partnership deficits. Accordingly, no provision has been made for the establishment of a minority interest on the pro forma balance sheet. (f) Reflects the reclassification of accumulated equity (deficit) upon completion of the Offering. (g) Payment of subscription receivable. (h) If the Underwriters' overallotment option is exercised in full, additional partnership interests will be acquired by the Company resulting in an increase to the Class A Common Shares and a decrease to Shareholders' deficit of $8,400. As a result, the minority interest ownership percentage of CBC in the Partnership will decrease to 44% from 49%. 24 26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 1997 MARCH 31, 1998 ----------------------------------------- ----------------------------------------- THE PARTNERSHIP THE PARTNERSHIP AND BALLPARK AND BALLPARK MANAGEMENT MANAGEMENT COMBINED ADJUSTMENTS PRO FORMA COMBINED ADJUSTMENTS PRO FORMA --------------- ----------- --------- --------------- ----------- --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) REVENUES: Net ticket sales.............. $ 49,279 $ 49,279 $ 1,093 $ 1,093 Local radio and television.... 17,014 17,014 38 38 Concession and catering....... 14,095 14,095 20 20 Private suite and club seat rental...................... 8,704 8,704 -- -- Advertising and promotion..... 8,754 8,754 -- -- Merchandise................... 17,449 17,449 1,432 1,432 Major Leagues Central Fund.... 15,505 15,505 -- -- Other......................... 3,365 3,365 675 675 Post-season................... 13,051 13,051 -- -- Provision for revenue sharing..................... (7,186) (7,186) (223) (223) -------- -------- -------- -------- ------- -------- Total revenues.............. 140,030 140,030 3,035 3,035 -------- -------- -------- -------- ------- -------- OPERATING EXPENSES: Major league team............. 66,125 66,125 2,430 2,430 Player development............ 11,146 11,146 2,484 2,484 Ballpark operations........... 10,965 10,965 1,973 1,973 Cost of merchandise sold...... 12,982 12,982 1,582 1,582 Administrative and general.... 10,292 $ 1,050(a) 11,342 2,473 $ 263(a) 2,736 Major Leagues Central Fund.... 4,938 4,938 303 303 Advertising and promotion..... 3,854 3,854 927 927 Post-season................... 6,252 6,252 -- -- Amortization of signing bonuses and player contracts................... 3,630 3,630 225 225 Depreciation and amortization................ 1,629 1,629 397 397 -------- -------- -------- -------- ------- -------- Total operating expenses.... 131,813 1,050 132,863 12,794 263 13,057 -------- -------- -------- -------- ------- -------- OPERATING INCOME (LOSS)......... 8,217 (1,050) 7,167 (9,759) (263) (10,022) OTHER INCOME (EXPENSE): Interest income Affiliate................... 2,023 (2,023)(b) -- 595 (595)(b) -- Other....................... 2,649 2,649 1,353 1,353 Interest expense.............. (2,301) (2,301) (661) (661) Gain (loss) on player transactions................ 2,696 2,696 (1,604) (1,604) League expansion proceeds..... 9,286 9,286 -- -- Minority interest............. (9,554)(c) (9,554) -- 5,358(c) 5,358 -------- -------- -------- -------- ------- -------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.............. 22,570 (12,627) 9,943 (10,076) 4,500 (5,576) -------- -------- -------- -------- ------- -------- PROVISION (BENEFIT) FOR INCOME TAXES......................... 3,060(d) 3,060 -- (1,729)(d) (1,729) -------- -------- -------- -------- ------- -------- NET INCOME (LOSS)............... $ 22,570 $(15,687) $ 6,883 $(10,076) $ 6,229 $ (3,847) ======== ======== ======== ======== ======= ======== PRO FORMA NET INCOME (LOSS) PER SHARE......................... $ 1.07(e) $ (0.60)(e) ======== ========
- --------------- (a) Represents estimated additional costs associated with operating as a public company. (b) Represents a reduction in interest income as a result of CBC's repayment of its $35,500 debt to the Partnership. (c) Represents the 49% minority interest attributable to CBC's limited partnership interest in the Partnership. Although CBC, as a limited partner, will not be obligated to fund any Partnership deficits, it is anticipated that the Company will generate income from operations for the 1998 year. Accordingly, CBC's portion of the loss from operations for the 1998 quarter has been allocated to minority interest. (d) Reflects income tax effects, at the Company's 31% effective tax rate, of the Partnership's 1997 and 1998 income after pro forma adjustments described in notes (a), (b) and (c) above. (e) Pro forma net income (loss) per share determined assuming 6,423,333 shares outstanding. 25 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company derives substantially all of its revenue from (i) the sale of tickets to home games, (ii) contracts with local broadcast organizations, (iii) food and beverage concession sales, (iv) premium seating rents, (v) advertising and promotional sales, (vi) merchandise sales and royalties, (vii) its participation in the Major Leagues Central Fund and (viii) parking and ancillary baseball related revenues. If the Indians qualify for post-season play, incremental revenues will be earned from similar sources. The Company's operations are seasonal, commencing with the Major League Baseball spring training camp that opens in mid-February and ending in late September or early October. If the Indians qualify for post-season playoffs, the team can play until the end of October, the duration of participation contingent on continued winning at each level of post-season play (the Division, League Championship and World Series.) For financial reporting purposes, the Company generally recognizes revenues and expenses on a game-by-game basis. Because the Major League Baseball regular season begins in late March or early April, the Company's first fiscal quarter, which ends on March 31, generally includes limited revenues and reflects a loss attributable to fixed costs of operations incurred during the quarter. The revenue recognized in the first quarter ended March 31 primarily consists of spring training and exhibition game revenues, merchandise sales and concession and catering revenue. Generally, any post-season revenue will be recognized in the fourth quarter. The Company receives a substantial portion of its receipts from the advance sale of regular season tickets during the months of December and January, prior to the commencement of the regular Major League Baseball season in late March or early April. Season tickets and public single-game tickets are sold during this time period. Jacobs Field paid attendance during the regular season approximates 3.4 million fans, of which 2.1 million are represented by season tickets. The Major League Baseball regular season schedule consists of 162 games, of which 81 are scheduled to be played at home and 81 are scheduled to be played on the road. On August 12, 1994 the Players Association began a strike that did not end until April 1, 1995. The strike resulted in the cancellation of 27 home games and 18 away games during the 1994 regular season and the entire 1994 post-season. The 1995 baseball season was also shortened by nine home games and nine away games as a result of the strike. The results of operations for 1994 and 1995 reflect the reduced number of games played. During the 1995, 1996 and 1997 baseball seasons, the Indians participated in post-season play. In 1995 and 1997, the Indians played a total of 15 games and 18 games, respectively, in post-season play, advancing to the World Series in both years. In 1996, the Indians played four post-season games, losing in the first round (out of a possible three rounds.) The Indians derive additional revenues and expenses from participation in post-season play that have been presented separately in the 1995, 1996 and 1997 financial results. RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997 Revenues Net ticket sales in the first quarter are comprised of net revenue from spring training and exhibition games. Revenue from net ticket sales decreased 22%, or $0.3 million. The decrease in revenue is primarily due to revenues from one exhibition game at Jacobs Field in 1997 that was not scheduled in 1998. The local radio and television revenues in 1998 are attributable to radio and advertising revenue for the regular season opener on March 31, 1998. In 1997, the regular season did not open until April 2, 1997. Concession and catering income decreased 82%, or $0.1 million, primarily attributable to income generated from the exhibition game at Jacobs Field in 1997 that was not scheduled in 1998. Merchandise sales increased 37%, or $0.4 million. The increase is primarily attributable to the Club's success in the 1997 post-season. 26 28 Provision for revenue sharing increased 9%, or $20,000. The increase is primarily attributable to the increase in the revenue sharing tax rate from 12% in 1997 to 16% in 1998. This increase was offset by a decrease in net local revenue as defined in the Collective Bargaining Agreement. Expenses Major league team operating costs increased 61%, or $0.9 million. The increase is primarily attributable to a $0.3 million increase in player salaries resulting from one regular season game played in the first quarter of 1998. Additionally, player insurance increased by $0.3 million relating to increased premiums attributable to extensions executed on several player contracts in the second quarter of 1997. Major league coaching staff salaries increased by $0.1 million as a result of contractual increases. Other team expenses relating to spring training, medical expenses, conditioning programs and travel costs increased $0.2 million. Ballpark operating expenses, which consist primarily of fixed costs such as wages, supplies and utilities, remained relatively constant. Cost of merchandise sold increased 10%, or $0.2 million. This increase is primarily attributable to increased sales volume relating to the team's success in the 1997 post-season. Administrative and general expenses increased 9%, or $0.2 million, primarily attributable to salary, payroll tax and benefits increases. Advertising and promotion expense decreased 28%, or $0.4 million. This decrease resulted from a $0.2 million reduction in promotional expense due to a sponsor's payment for a promotional event in 1998 that was paid for by the Company during 1997, as well as the elimination of $0.2 million in advertising expenses associated with a 1997 retail advertising campaign. Amortization of signing bonuses and player contracts is comprised of the write-off of the net book value of the signing bonus and contract value of player contracts disposed of, in transactions not involving a trade or sale, in the first quarter. Interest income increased 58%, or $0.7 million, due to $0.4 million from increased funds from advance ticket sales and $0.2 million resulting from a $12.2 million increase in the loan to the General Partner. On March 31, 1998, the General Partner repaid its indebtedness to the Company. Interest expense increased 54%, or $0.2 million, primarily attributable to an increase of $12.2 million in the outstanding balance of the Major League Credit Facility. Loss on player transactions of $1.6 million is comprised of a $1.9 million loss attributable to a February 1998 trade of one player, which included a provision requiring the Company to pay approximately $1.9 million of the traded player's salary payable during the 1998 season. The loss was partially offset by the sale of one player's contract to a Japanese team resulting in a gain of approximately $0.3 million. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenue Revenue from net ticket sales increased 8%, or $3.6 million. Net ticket sales revenue is comprised of gross ticket revenues from regular season games, less City of Cleveland admissions tax and an American League assessment, plus net revenues derived from spring training and exhibition games. Gross ticket revenues from regular season ticket sales increased 10%, or $4.8 million. This increase was primarily due to a 7% increase in the average ticket price coupled with a 3% increase in paid attendance. Paid attendance in 1997 increased by 86,584 fans due to one less rainout in 1997 and additional seating capacity added to Jacobs Field prior to the 1997 regular season. The gross ticket revenue increase was offset in part by increased City of Cleveland admission taxes of $1.0 million due to a rate increase which affected ticket sales after January 1, 1996. Local radio and television revenue increased 25%, or $3.4 million. Radio advertising sales increased $1.2 million as a result of increases in advertising rates coupled with a significant increase in volume. 27 29 Additionally, a three-year contract with the flagship radio station entered into in 1997 includes an annual base rights fee of $0.8 million that was not included in the prior contract. Local broadcast and cable television revenue increased $1.8 million due to higher incentive and advertising revenue resulting from increased television ratings. Offsetting these increases was a $0.4 million decrease in video royalties in 1997. Concession and catering income decreased 4%, or $0.6 million. This decrease was primarily attributable to decreased consumer spending as a result of early season cold weather and increased no-shows throughout the season. Private suite and club seat rentals increased 24%, or $1.7 million. This increase was primarily attributable to increases in rental revenues associated with the renewal of 37 suites and 1,303 club seats between the 1996 and the 1997 seasons at an average price increase of 24% and 15%, respectively, and rental income attributable to additional suite rentals leased on a per-game basis. Advertising and promotion revenue rose 27%, or $1.9 million. The increase was primarily due to a $1.2 million increase in print advertising and promotional revenue and a $0.6 million increase in ballpark advertising signage. Approximately $1.0 million was attributable to advertising rate increases and $0.9 million was attributable to additional advertising volume with new and existing advertisers. Internet advertising sales, new for 1997, were $0.1 million. Merchandise sales increased 19%, or $2.8 million. The increase was primarily attributable to the Club's success in the 1997 post-season. Major Leagues Central Fund revenues increased 25%, or $3.1 million, primarily as a result of negotiated contractual increases in national broadcasting rights fees. Major Leagues Central Fund revenues are comprised primarily of the Company's share of national television and radio broadcasting fees. Post-season revenues increased $11.1 million primarily due to the Indians' appearance in 18 post-season games in 1997 compared to four in 1996. The increase in post-season revenues was comprised of a $6.2 million increase in ticket revenues, a $2.2 million increase in merchandise revenues, a $1.7 million increase in concession revenues and a $1.0 million increase in other revenues. Provision for revenue sharing increased 25%, or $1.5 million, primarily due to the increase in net local revenue, as defined in the Collective Bargaining Agreement. The increase resulted from the Company's significantly higher post-season revenues, as well as increases in other revenue categories. The revenue sharing rate under the Collective Bargaining Agreement was 12% in 1996 and 1997 and will be 16% in 1998, 17% in 1999 and 20% in 2000. Expenses Major league team operating costs, which consist primarily of players' salaries, increased 24%, or $12.7 million. Player salaries were $9.7 million higher primarily due to the signing of one player for $7.0 million as well as existing player contractual increases and normal player roster changes. Team operating costs in 1997 included for the first time a "payroll luxury tax" of $2.1 million levied on the team under the terms of the Collective Bargaining Agreement. Travel costs related to the 1997 regular season increased 19%, or $0.3 million, due to general hotel and airfare increases, and three additional road trips in 1997. Other team expenses, relating to spring training, equipment and medical expenses, increased $0.6 million. Player development costs increased 28%, or $2.4 million, primarily due to a $1.1 million increase in workers' compensation costs, specifically related to increased medical costs and claim volume. Scouting costs increased $0.5 million due to increased payroll and travel costs associated with the hiring of additional scouts. Player development costs associated with the Company's various minor league affiliates, such as payroll, travel, equipment and specialized development programs, increased $0.8 million. Ballpark operating expenses increased 6%, or $0.6 million, primarily due to a $0.4 million increase in credit card fees on ticket sales and increased ballpark rent of $0.2 million. 28 30 Cost of merchandise sold increased 11%, or $1.3 million, in part due to increased sales volume and higher fixed expenses. Although sales increased 19%, other fixed expenses associated with the merchandising operation, such as labor, rent and supplies, increased by 14%, or $0.5 million, to meet the demand experienced with the team's success in the 1997 post-season. Administrative and general expenses increased 11%, or $1.0 million, primarily due to front office salary increases and executive bonuses attributable to performance of $0.8 million. Payroll taxes increased $0.2 million due to higher payroll levels in 1997. Major Leagues Central Fund expenses allocated to the Company increased 19%, or $0.8 million, primarily due to increased expenses associated with the administration of the Office of the Commissioner and revenue sharing expenses provided for in the Collective Bargaining Agreement. Advertising and promotion expense increased 30%, or $0.9 million, resulting from costs associated with a significant advertising campaign focused on increasing merchandise sales. Post-season expenses increased $4.9 million, primarily due to 14 more post-season games played in 1997 than in 1996. This increase was comprised of $1.4 million in ballpark operating costs, $1.3 million in general and administrative costs, $1.2 million in merchandising costs, $0.8 million in team costs and $0.2 million in advertising and promotion costs. Amortization of signing bonuses and player contracts increased 13%, or $0.4 million, primarily due to the amortization of the cost associated with the acquisition of one player in December 1996. Depreciation and amortization increased 23%, or $0.3 million, primarily due to a full year of depreciation incurred on capital expenditures associated with retail expansion placed into service during 1996. Interest income increased 21%, or $0.8 million, due to increases in the loan to CBC of $12.2 million, funds from advance ticket sales and expansion proceeds. The Company's loan to CBC generated interest income of $2.0 million in 1997. Repayment of CBC's indebtedness to the Company in March 1998 will result in the elimination of this interest income in future periods. Interest expense increased 13%, or $0.3 million, primarily attributable to increases in the outstanding balance of the Major League Credit Facility. Gain on player transactions increased $2.1 million, primarily due to a December 1997 trade of one player, which included a provision for the Company to receive $3.0 million in cash on or before September 1, 1998. League expansion proceeds recognized in 1997 of $9.3 million represent the Company's share of fees paid by two expansion groups to obtain expansion franchises in Major League Baseball that began play in 1998. The Company had three of its players selected by the expansion franchises in an expansion draft conducted in November 1997. The unamortized cost of the players drafted was insignificant. YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995. Revenue Net ticket sales revenue increased 42%, or $13.4 million. Gross ticket revenues increased $13.9 million, or 40%, primarily due to a 20% increase in the average ticket price coupled with a 17% increase in paid attendance. Paid attendance in 1996 increased by 475,421 fans due to eight fewer home games played in 1995 as a result of the players' strike. The gross ticket revenue increase was offset in part by increased City of Cleveland admissions taxes of $1.0 million and increased American League assessment of $0.5 million. Net revenues from spring training operations increased $1.0 million primarily due to the affect of the players' strike on 1995 spring training. Local radio and television revenue increased 41%, or $4.0 million, primarily due to increased radio advertising sales during the regular season of $1.7 million, local television contractual rights and incentive fees of $1.7 million due to a new three-year contract entered into in 1996 with the local television rightsholder and $0.6 million of television advertising revenue. These increases were the result of the success of the team in 29 31 1995, including its first World Series appearance in 41 years. The 1995 radio and television advertising sales were adversely affected by the players' strike and the cancellation of the 1994 post-season. Concession and catering income increased 24%, or $2.9 million, primarily due to attendance increases of 17%, directly related to eight more home games played in 1996 and an increase in average spending per attendee. Private suite and club seat rentals increased 25%, or $1.4 million, primarily due to rent credits of $0.8 million issued to private suite and club seat holders in 1995 for the cancellation of nine home games because of the players' strike. Rental revenue attributable to private party suites increased $0.4 million and revenue associated with private restaurant memberships at the Terrace Club increased $0.2 million, primarily due to a rate increase in the annual membership fee in 1996. Advertising and promotion revenue increased 20%, or $1.1 million, primarily due to a ballpark advertising signage revenue increase of $0.8 million and a print and promotion revenue increase of $0.3 million. These increases were influenced by the team's success in 1995, offset by the negative impact on the 1995 selling season of the 1994 players' strike and the cancellation of the 1994 post-season. Merchandise sales decreased by 2%, or $0.3 million, primarily due to decreased consumer spending over an expanded retail store base following the successful 1995 season. Major Leagues Central Fund revenue increased 86%, or $5.7 million, due to new national television contracts entered into in 1996 which extend through the year 2000 and 2002. In 1995, MLB did not have a national television contract that included a standard broadcast rights fee. Instead, MLB sold television time directly to advertisers. Post-season revenues decreased by $8.0 million due to the reduction in post-season games played in 1996. The Indians appeared in 15 post-season games in 1995 and only four in 1996, resulting in a $3.6 million decline in net ticket sales; a $2.7 million decline in merchandise sales; a $1.0 million decline in concession and catering revenue; a $0.3 million decrease in local radio and television sponsorships; and a $0.3 million reduction in league championship series participation distribution. The Company's provision for revenue sharing increased 179% or $3.7 million. The MLB revenue sharing arrangement, under which all net local revenue became subject to a revenue sharing tax, was first implemented in 1996. Prior to 1996 in the American League, local revenue sharing was generally limited to ticket receipts and local cable revenues. During 1995, the Company's provision for revenue sharing was $2.1 million. Expenses Major league team expenses increased 37%, or $14.5 million, primarily due to increases in major league roster salaries of $13.9 million. Players were paid for a full season in 1996 as compared to only 89% of the season in 1995 as a result of the players' strike, which accounted for $4.6 million of the increase. The remainder of the increase was due to player contractual salary increases, as well as certain player acquisitions. Player disability and life insurance premiums also increased $0.6 million, which corresponded to the increases in player salaries. Player development expenses increased 5.3% or $0.4 million, primarily due to the addition of four full-time scouting positions primarily focused on operations in The Dominican Republic and Venezuela. Ballpark operations expense increased 15%, or $1.3 million, primarily due to increased rent expense of $0.7 million due to increased attendance in 1996. Labor and ballpark supply costs associated with operating eight more home games increased in 1996 due to increased staffing levels to meet higher per game attendance. Cost of merchandise sold increased 27%, or $2.5 million, despite a 2%, or $0.3 million, decline in merchandise sales. The increase in cost of merchandise sold resulted from an increase in unit sales and an increase of $1.2 million in personnel, rent and administrative costs associated with a significant expansion of 30 32 retail operations. Gross margin for 1996 was 20% compared to 39% in 1995 due to liquidation of excess inventory resulting from actual sales lagging expectations. Administrative and general expenses decreased 5%, or $0.5 million, primarily due to decreases in certain expenses, such as legal fees and customer service programs, that were incurred in 1995 because of the players' strike. Major Leagues Central Fund expenses increased 177%, or $2.6 million, primarily due to lower 1995 contributions to the Major League Baseball Players' multiemployer benefit plan as a result of the players' strike and the effect of revenue sharing expenses incurred in 1996 that did not apply in 1995. Advertising and promotion expenses decreased by 22%, or $0.8 million, primarily due to decreased telemarketing and selling expenses of $0.4 million in 1996. In addition, advertising expenses incurred in the fourth quarter of 1995 did not recur in 1996. Post-season expenses decreased by $4.1 million due to the reduction in number of post-season games in 1996 as noted above. The primary contributors to the decline were a $1.4 million decrease in cost of merchandise sold; a $1.3 million reduction in administrative and general expenses; a $0.9 million decrease in ballpark operating expenses; and a $0.5 million decrease in major league team expenses. Interest income increased 132%, or $2.2 million, due to increases in loans to CBC of $15.8 million, funds from advance ticket sales and expansion proceeds. Gain on player transactions increased $0.5 million due primarily to the sale of one player to a Japanese league in 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash historically has been cash provided from operating activities. Operating activities generated cash of $31.1 million in 1997. Increases in net income, deferred revenue, higher depreciation and amortization, increases in deferred compensation, accounts payable and accrued liabilities during 1997 accounted for the increase in cash provided by operating activities. For the quarter ended March 31, 1998, cash provided from operating activities totaled $21.0 million resulting from increases in deferred revenue offset by a net loss from operations. Financing activities generated net cash of $13.5 million in 1996, primarily as a result of contributions from CBC and proceeds from the Major League Credit Facility. During 1997, financing activities generated net cash of $7.4 million, as increases in the proceeds from the Major League Credit Facility were offset in part by increased distributions to CBC. Principal uses of funds, in addition to working capital requirements, include the acquisition of short-term investments, loans to CBC, expenditures for the purchase of player contracts and signing bonuses, capital expenditures and distributions to CBC. During 1996, 1997 and 1998, the Company made purchases of short-term investments aggregating $23.0 million, $16.9 million and $6.0 million, respectively. During 1996 and 1997, the Company's loans to CBC increased by $15.8 million and $12.2 million, respectively and during 1998, loans to CBC of $35.5 million were repaid. During 1996, 1997 and 1998, the Company made expenditures for the purchase of player contracts and signing bonuses of $3.0 million, $5.0 million and $2.9 million, respectively. During the quarter ended March 31, 1998, distributions to CBC and MJC totaled $49.2 million. The Company's working capital requirements are affected by certain provisions in the Collective Bargaining Agreement, including minimum salary levels for players, travel allowances, revenue sharing assessments and luxury tax payments. The Company's obligations related to revenue sharing and the luxury tax in future years will fluctuate depending on revenue and payroll levels of the Company and other MLB teams. The Company's operating characteristics are similar to those of many service businesses. The Company does not have significant receivables or inventories but has high levels of accounts payable and accrued liabilities. Accordingly, the Company generally operates with minimal or negative working capital. The Company does not believe that working capital is a meaningful measure of its ability to meet its funding requirements. In that regard, the majority of the Company's current liabilities at December 31, 1996 and 1997 31 33 and at March 31, 1998 were deferred revenues. Deferred revenues consist primarily of advance ticket sales, and the Company satisfies this liability by playing its regular season home games. An MLB trust is a party to a Revolving Credit Agreement with a bank (the "Major League Credit Facility"), under the terms of which certain MLB clubs, including the Indians, have the ability to obtain financing on a revolving credit basis. The obligations under the Major League Credit Facility are non-recourse to the Company, and the obligation to repay advances for the benefit of the Company are secured by the rights of the Company to receive revenues that are shared by various MLB clubs, including revenues from the Major Leagues Central Fund and royalties from MLB Properties. In connection with the Major League Credit Facility the Club has assigned its rights to receive its share of revenues and royalties to the Indians Club Trust, a bankruptcy remote entity. The facility expires on the earlier of April 17, 2001 or voluntary termination by the MLB Trust. The interest rate on the amounts borrowed under the facility, which is based upon LIBOR plus a program fee established by the loan agreements, is currently 6.07%. During the term of the facility, the Company pays interest only on the outstanding borrowings, in addition to various other fixed fees of $123,000 annually. Unless the facility is renewed by the parties, upon expiration, the outstanding borrowings convert into a four-year term loan with a principal repayment schedule as follows: 15% in the first year, 20% in the second, 25% in the third and 40% in the fourth and final year. The facility also provides that upon the expiration of the current Collective Bargaining Agreement, and until a new agreement is entered into, the Club will be required to maintain an interest contingency reserve equal to nine months' interest expense at 2% above the then-applicable borrowing rate. Until recently, the Company had historically borrowed the full amount available to it under the Major League Credit Facility and in turn loaned the proceeds of such borrowings to CBC. At December 31, 1997, the outstanding principal amount of CBC's indebtedness to the Company was $35.5 million. In March 1998, the Partnership distributed $49.2 million to its partners, and CBC repaid its $35.5 million debt to the Partnership. These transactions had the effect of allowing CBC to use cash generated by the Partnership to repay its debt to the Partnership. The Company remains obligated to repay the amounts borrowed under the credit facility. The Major League Credit Facility currently provides the Company with an aggregate availability of $45.0 million, of which $9.5 million was available for borrowing at April 30, 1998. The Company also maintains a line of credit with KeyBank N.A. providing aggregate availability of up to $9.0 million. Availability under the line of credit is reduced to $2.0 million during the period from December 1 to February 28 of each year, and the line must be repaid in full for a period of 30 consecutive days during the term of the arrangement. Availability under this line of credit is reduced by an outstanding $0.4 million standing letter of credit associated with the Company's workers' compensation self-insurance arrangement. Amounts outstanding under the line of credit bear interest at either the bank's base rate or LIBOR plus 1.75%, and are guaranteed by Richard E. Jacobs, individually and as trustee of the David H. Jacobs Marital Trust. The line of credit matures on November 1, 1998, at which time the outstanding loan balance may be converted to a four-year term note, subject to certain conditions. At April 30, 1998, the Company had no borrowings under the line of credit. The Company's ability to incur additional indebtedness is limited by applicable provisions of the Governing Documents, which limit the amount of debt that may be secured by the assets of, or ownership interests in, an MLB club and require that the parties to any secured loan that is approved execute an agreement limiting the rights of the lenders and the club under certain circumstances, including upon an event of default or foreclosure. The consent of MLB is also required prior to the issuance of any additional debt or equity securities by the Company. In addition, MLB clubs may not incur indebtedness in an amount in excess of two-thirds of the value of their assets calculated in accordance with MLB rules. The Company has significant commitments under its contracts with players and other personnel, aggregating $185.3 million, including $116.8 million scheduled for payment in 1998 and 1999. These commitments represent amounts owed to players under contracts, including multi-year contracts, which are guaranteed, so long as the players fulfill their obligations under the contracts. A portion of the Company's obligations under multi-year contracts are generally covered by life and disability insurance policies. See Note 13 to the Combined Financial Statements of the Partnership and Ballpark Management. 32 34 The Company's capital expenditure budget for 1998 is approximately $1.9 million. Capital expenditures for the current year are anticipated to relate to facility and equipment improvements. The Company believes that it will generate sufficient cash flows from operations, as supplemented by available borrowings, to meet debt service requirements and to meet its short-term and long-term requirements for capital and acquisition of player contracts, although no assurance can be given that it will be able to do so or that it will be able to refinance the Major League Credit Facility at maturity. YEAR 2000 COMPLIANCE The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the Year 2000 Compliance issue. As the year 2000 approaches, such systems may be unable to accurately process certain date-based information. The Company is in the process of identifying and modifying all significant hardware and software applications that will require modification to ensure Year 2000 Compliance. Internal and external resources are being used to make the required modifications and test Year 2000 Compliance. The Company plans to complete the testing and modification of all significant hardware and software applications by June 30, 1999. The estimated cost to address Year 2000 issues is not expected to have a material impact on the Company's business, operations or financial condition. In addition, the Company is communicating with external service providers to ensure that the providers are taking the appropriate action to address Year 2000 issues. However, there can be no assurance that the systems of third parties on which the Company's systems rely will convert, or that a conversion that is incompatible with the Company's systems, would not have an adverse effect on the Company's systems. 33 35 BUSINESS GENERAL The Company has been organized to serve as the sole general partner of the Partnership, which owns the 1997 American League Champion Cleveland Indians and manages Jacobs Field, the Indians' home ballpark. Baseball has a long tradition in the City of Cleveland. The first professional baseball game in Cleveland was played on June 2, 1869, when the Cleveland Forest Citys played the Cincinnati Red Stockings. In 1901, the Club became one of the charter members of the American League. During the ensuing 20 years, the Indians enjoyed great success, including a victory against the Brooklyn Dodgers in the 1920 World Series. During the 1940s and 1950s, the Indians were one of baseball's consistently strong teams. The Indians won the American League pennant twice (1948 and 1954), captured the World Series from the Boston Braves in 1948, and finished second in the American League six times (1951-1953, 1955, 1956 and 1959). Unfortunately, the next 25 years of the Indians' history were marked by financial instability, inattention to the Club's minor league system, criticized player personnel decisions, poor on-field performance and some of the worst attendance figures in Major League Baseball. In 1986, Richard E. Jacobs and his brother David acquired control of the Indians and began to execute a long-term strategy that has returned winning baseball to Cleveland and has made the Cleveland Indians one of the premier franchises in Major League Baseball. The Company's strategy is to maintain the Indians' competitive position and to increase the long-term value of the franchise. The elements of this strategy include dedication to a strong player development system, effective player personnel management, attention to quality and customer service and an integrated approach to marketing and licensing arrangements. In the past three seasons, the Indians have won three American League Central Division Championships and two American League Championships. Under Mr. Jacobs' direction, the Indians were also instrumental in the planning and development of the downtown sports complex that includes Jacobs Field. The Company believes that the Club's recent on-field and financial successes are largely attributable to the collaboration of a management team that includes experienced and talented baseball and business executives. This team is led by John Hart, Executive Vice President and General Manager, and Dennis Lehman, Executive Vice President, Business, and includes a coaching staff led by Mike Hargrove, Manager. Mr. Hart was named Major League Baseball Executive of the Year in 1994 and 1995 by The Sporting News and Mr. Hargrove was named Manager of the Year by The Sporting News in 1995. Player development is a critical element of management's efforts to build and maintain a strong franchise. The Company has established a strong minor league organization through a consistent, system-wide approach to evaluating and developing young players. The team's minor league organization was ranked the best in Major League Baseball in a 1996 poll by The Sporting News. Among its other player development efforts, the Company sponsors baseball programs in The Dominican Republic and Venezuela in which coaches affiliated with the Club work to develop the skills of promising young players in those countries. The Club's successful minor league organization has provided the Indians with a pool of talented young players to supplement its major league roster and to permit it to make opportune trades. Effective player personnel management is the most visible element of the Company's baseball strategy. The goal of the Company's player personnel management efforts is to maintain a competitive team while limiting the unpredictability in player salaries resulting from salary arbitration and free agency. Management's confidence in its ability to identify promising young players has permitted the Club to selectively enter into multi-year contracts with players early in their careers. The Company also attempts to sign a nucleus of experienced players to multi-year contracts. Finally, the Club has been successful in trading for, or signing as free agents, talented players who can fill roles on the roster made vacant by trades, retirements, injuries and losses to the free agent market. By building value for team sponsors and fans, the Company's business executives leverage the Club's on-field product to enhance revenues. The Company's control over various facets of its business, including advertising signage and concessions at Jacobs Field, permits it to capitalize on the Indians' popularity with sponsors and fans. Sponsors are offered a number of advertising vehicles to maximize their exposure at Jacobs 34 36 Field and their association with the Club. Fans at Jacobs Field are offered a customer-focused experience in an attractive, comfortable environment featuring a variety of amenities, concessions and merchandise options and a courteous, well-trained staff. The successful execution of the Indians' long-term strategy has resulted in strong revenues in recent years. The Club has sold out all tickets available for public sale for each of the 1996, 1997 and 1998 regular seasons prior to Opening Day. The Indians hold the Major League Baseball record for consecutive regular season sell-outs, which stands at 229 through May 6, 1998. These strong attendance figures provide the Club with a predictable ticket sale and premium seating revenue base for the regular season and permit the Company to realize high levels of merchandise and concession sales at Jacobs Field. The fan interest evidenced by these attendance figures has also permitted the Club to enhance revenues from other sources, such as local broadcast and cable television, radio and advertising. Although the Company's revenues from each of these sources depend heavily on the Indians' on-field performance, the predictability of the Club's ticket and premium seating sales in recent years has allowed it to create a competitive, profitable team within the framework of a Major League Baseball system that is confronted with escalating player salaries and limited means for clubs to increase revenue. RECENT TEAM PERFORMANCE Through the end of the 1997 season, the Indians have the best record in the American League since 1994. The following table shows the regular season performance of the Indians in each of the last five seasons:
WINNNING WINS LOSSES PERCENTAGE ---- ------ ---------- 1997(1).............................. 86 75 .534 1996(1).............................. 99 62 .615 1995(2).............................. 100 44 .694 1994(2).............................. 66 47 .584 1993................................. 76 86 .469 --- --- ---- TOTAL................................ 427 314 .576
- --------------- (1) Total games fewer than 162 because of rain-outs that were not re-scheduled. (2) Season shortened due to players' strike. The Indians have competed in post-season play in each of the last three seasons as American League Central Division champions. In 1996, the Indians lost to the Baltimore Orioles three games to one in the best-of-five Division Series. After winning the Division Series in each of 1995 and 1997, the Indians played in the American League Championship Series and won the best-of-seven series in six games against the Seattle Mariners in 1995 and in six games against the Baltimore Orioles in 1997. The Indians lost to the Atlanta Braves in six games in the 1995 World Series and lost to the Florida Marlins in seven games in the 1997 World Series. BUSINESS OPERATIONS OWNERSHIP AND MANAGEMENT Richard E. Jacobs is entering his twelfth year as controlling owner of the Club. Although Mr. Jacobs is actively involved in the Club's overall management and strategy for success, he has assembled and relies on a talented team of baseball and business executives to oversee both the on-field performance of the team and the business of the franchise. John Hart was named General Manager of the Indians in September 1991 and is under contract through 2003 and for four additional years at the option of the Indians. Mr. Hart joined the Club as a Special Assignment Scout during the 1989 season. He was the Director of Baseball Operations for the 1990 and 1991 seasons. Mr. Hart was named Major League Baseball Executive of the Year by The Sporting News in 1994 and 1995. 35 37 Mike Hargrove is beginning his seventh season as Field Manager of the Indians and is under contract through 1999 and for one additional year at the option of the Indians. Mr. Hargrove joined the Indians in 1989 as the first base coach and, prior to that, spent three seasons managing in the Indians' minor league system. Mr. Hargrove was named Manager of the Year by The Sporting News in 1995. Through the end of the 1997 season, his career record as the Indians' Manager is 535 wins and 453 losses, a winning percentage of .541. Dan O'Dowd is entering his eleventh season with the Indians. From 1992 through April 1998, he was the Club's Director, Baseball Operations and Assistant General Manager. In April 1998, he was appointed Vice President, Baseball Operations and Assistant General Manager. Mr. O'Dowd is under contract through 2002 and for four additional years at the option of the Indians. Under his leadership, the Indians' minor league organization has been rebuilt into one of the best in professional baseball, posting the second best record in the 1990s among minor league systems while developing major league All-Stars such as Jim Thome, Charlie Nagy and Manny Ramirez. Mark Shapiro was named Director of Minor League Operations in 1993 and is entering his seventh season with the Indians. Mr. Shapiro is under contract through the 1999 season and for two additional years at the option of the Indians. All aspects of the Indians player development and Latin American operations report to Mr. Shapiro. During his tenure, the Club has implemented its Winter Development Program, which aids in the transition of Indians prospects to the major league environment. He has also implemented a system of individual plans for every Indians minor league player. Dennis Lehman is entering his eleventh season with the Club and sixth year as its Executive Vice President, Business. Mr. Lehman brings 28 years of baseball management experience to the team and is under contract through the 2002 season and for four additional years at the option of the Indians. Mr. Lehman is responsible for all aspects of the Company's business, finance and administrative operations. Mr. Lehman has been instrumental in implementing many of the Company's innovative customer service training programs. Jeff Overton is in his tenth season as Vice President, Marketing and Communications for the Indians. Mr. Overton is under contract through 2002, with a limited right by Mr. Overton to terminate his contract in 2000. Mr. Overton has been successful in building a large season ticket base and in marketing private suites and club seats at Jacobs Field. Mr. Overton is responsible for managing the Company's advertising signage and media revenues. He is also responsible for the public relations, community relations and advertising departments of the organization. Ken Stefanov is entering his eighth season with the Indians and fourth as Vice President, Finance. Mr. Stefanov is under contract through the 1999 season and for two additional years at the option of the Indians. As Chief Financial Officer, Mr. Stefanov is responsible for all financial reporting, planning and analysis. In addition, Mr. Stefanov oversees the Company's management information systems. Under his leadership, the Indians have developed several proprietary software programs designed to streamline operating expenses and capture customer demographic information. OPERATIONS Ticket Sales. Jacobs Field has an annual paid capacity of approximately 3.4 million fans. During each of the past two seasons, season ticket sales have accounted for approximately 2.1 million of that capacity. All available tickets for home games for the 1996, 1997 and 1998 regular seasons were sold out prior to Opening Day. The Indians hold the Major League Baseball record for consecutive regular season sell-outs, which stands at 229 through May 6, 1998. Ticket prices for regular season home games during the 1998 season range from $6 to $26 per game and the average ticket price is $17.57. Revenue from ticket sales is reduced by an 8% admissions tax imposed by the City of Cleveland and by the American League assessment, which ranges from 2.5% to 3.5%. The Company has a contract with TicketMaster, a national ticket outlet, pursuant to which all single-game tickets, 36 38 other than those sold at Jacobs Field, are sold. The following table shows certain information relating to the regular season revenue generated by ticket sales for the past five seasons:
AVERAGE GROSS PAID SEASON TICKET AVERAGE PAID AVERAGE GROSS TICKET REVENUE ATTENDANCE SEASON EVENTS(1) HOLDER BASE ATTENDANCE PAID TICKET PRICE PER EVENT TOTAL - --------------------- --------- ------------- ------------ ----------------- -------------- ---------- 1997................. 80 2,137,865 42,559 $15.73 $669,518 3,404,750 1996................. 79 2,125,239 42,002 14.67 616,145 3,318,166 1995(2).............. 71 1,539,449 40,039 12.25 490,669 2,842,745 1994(2).............. 51 1,032,710 39,121 11.98 468,785 1,995,174 1993................. 80 852,251 27,224 9.40 255,879 2,177,908
- --------------- (1) May differ from number of games played because traditional doubleheaders count toward two games but only one paid event. (2) Event figures for 1994 and 1995 reflect games missed due to players' strike. Concessions, Catering and Merchandise Sales. Jacobs Field provides fans with a wide array of food, beverage and merchandise items throughout the ballpark. Traditional ballpark offerings, such as hot dogs, hamburgers, nachos, popcorn, branded beer and soft drinks, are supplemented by less traditional baseball fare, such as barbecued chicken and ribs, deli sandwiches, "Ballpark Draft," a beer brewed by a Cleveland-based microbrewer exclusively for sale at Jacobs Field, and a selection of premium beers from around the world. In "KidsLand," a facility located behind Jacobs Field's right field foul line, fans can purchase food items appealing to younger children, such as peanut butter and jelly sandwiches. KidsLand also provides children with access to a variety of toys and playground equipment, and Slider, the Indians' mascot, visits KidsLand during each game. KidsLand is adjacent to a retail outlet devoted to selling Indians-logo apparel and other merchandise for children. For large groups, the Indians' offer pre-game parties in a picnic facility with food and beverage service located behind the center field fence. Food, beverage and merchandise vendors also offer a variety of products to fans at their seats. Fans with club seat or private suite tickets may also purchase food, beverages and merchandise in the Club Seat Lounge. The Company has the exclusive right to operate all Jacobs Field concessions, including private suite and club seat catering, and to receive all concession revenues. The Company has a license agreement with an affiliate of Sportservice Corporation ("Sportservice"), a national manager of event concessions, to operate the food and beverage concession stands and roving vendors in the ballpark during games. Sportservice has the right to make all food and beverage concession sales at Jacobs Field, excluding catering, club seat and Club Seat Lounge sales, private suite sales, restaurant sales or merchandise sales. The Company has the exclusive right to determine pricing, profit margins, brands, portions and quality of the products sold by Sportservice, as well as the right to prohibit the sale of any product. The Company has a similar agreement with an affiliate of Levy Restaurants, a national restaurateur based in Chicago ("Levy"), to provide catering for private functions and to provide concessions sales for club seats, the Club Seat Lounge, private suites and the Terrace Club. The Company strives to foster strong brand loyalty in Indians fans by offering high-quality clothing items (caps, sweatshirts, jackets, jerseys and shirts) and a wide variety of novelties at Jacobs Field and at six Indians Team Shops located in Northeastern Ohio shopping malls. At Jacobs Field, the Company operates a full-service Team Shop that is open during games and also has an outside entrance which permits it to operate during normal retail hours throughout the year. Jacobs Field also has merchandise and novelty stands located throughout Jacobs Field, including KidsLand, that increases Jacobs Field's attractiveness to families. The six Indians Team Shops also permit the Club to extend its reach to communities in Northeastern Ohio outside of downtown Cleveland. Local Television and Radio. All Cleveland Indians games are broadcast on local radio and through the Cleveland Indians Radio Network, a network of 37 stations in Ohio, Western New York, Western Pennsylvania and West Virginia that purchase rights to the games from the Company. In 1998, 145 games are scheduled to be televised locally or through local cable television stations. Radio play-by-play and color commentary is provided by Tom Hamilton, who will be joined for the first time in 1998 by former Indians 37 39 coach Dave Nelson and Mike Hegan. Messrs. Nelson and Hegan replace long-time Indians broadcaster Herb Score, who retired after the 1997 season. Television play-by-play and color commentary are provided by Mike Hegan and Jack Corrigan (when the games are broadcast on local television) and by former Indian Rick Manning and John Sanders (when the games are broadcast on cable television). All radio broadcast personalities are chosen by, and enter into contracts with, the Indians. All television broadcast personalities are employed by the broadcast stations, subject to approval by the Club. In 1995, the Company renegotiated its contract with WUAB for the local television broadcast of 70 of the Indians regular season games and up to six pre-season games each year. The current contract with WUAB expires on October 31, 2001. The Company also has a contract with Fox Sports Ohio for the local cable television broadcast of up to 80 Indians games during the regular season and two pre-season games. The current contract with Fox Sports Ohio expires on December 31, 1998. The Company and Fox Sports Ohio are currently negotiating a new contract, and the Company is also in negotiations with another broadcaster. The Company has a contract with Jacor Broadcasting Corporation pursuant to which the Company is given radio air-time and sells, on its own behalf, advertising in connection with the local radio broadcast of all regular and post-season games. The contract with Jacor expires on December 31, 1999, and the Company has the option to renew the contract for four additional years. Advertising and Corporate Sponsorship. The Company's control over various facets of its business, including advertising signage and concessions at Jacobs Field, permits it to capitalize on the Indians' advertising value by offering sponsors a variety of advertising vehicles. As a result of Jacobs Field's appeal and the Indians success in recent years, most major advertisers are interested in maximizing their advertising exposure at Jacobs Field and their association with the Club. To capitalize on advertisers' demand, the Company typically coordinates the sale of radio advertising with the sale of advertising at locations in Jacobs Field, including space on the main scoreboard, ancillary scoreboards, outfield walls and concourse signage. Advertising is also sold in game programs and on the Club's internet website. The Company also licenses the Club's name and logo in connection with corporate sponsorships and promotions throughout Northeastern Ohio. The Company's marketing department works closely with its sponsors and advertisers to customize integrated advertising and corporate sponsorship packages that incorporate many or all of the Company's available advertising outlets. The Company also offers a number of promotional activities at Jacobs Field in conjunction with Indians home games. Due to the high level of ticket sales in recent years, these promotions are designed primarily to enhance fan enjoyment, rather than to foster increased attendance. The Club has scheduled 18 promotional events for the 1998 season. These promotional events range from the distribution to fans of premiums (such as calendars, baseball caps commemorating the Indians' 1997 American League Championship, baseball cards and replica uniform T-shirts) to theme oriented events, such as a two-day commemoration of the Indians' 1948 World Series Championship. In keeping with the Club's objective of attracting families to Jacobs Field, several promotional activities focus on younger fans, with certain premiums distributed exclusively to fans age 14 and under. Player Contracts and Salaries. Player salaries constitute the single largest item of expense for the Club's operation. The Collective Bargaining Agreement requires each team to enter into a uniform player contract with each of its players and also establishes a minimum season salary of $170,000 for major league service in 1998, generally payable in semi-monthly installments during the season. Players who sustain injuries, or are terminated by the team during the regular season, are generally entitled to all of their salaries so long as they fulfill their obligations under the contracts. Player contracts may be for single-year or multi-year terms. Generally, salaries payable pursuant to multi-year contracts are guaranteed. The Indians' aggregate 40-man roster payroll, including bonuses, for the 1997 season was $58.5 million. In 1997, aggregate team salaries in MLB ranged from $12.2 million to $65.0 million. In addition to the salaries paid to its players, the Company is obligated to pay its minor league players (who play for the Indians' minor league affiliates) salaries pursuant to the terms of the players' respective contracts, which are also governed by the Collective Bargaining Agreement. Some players are signed to option agreements or "split" contracts, giving the Club the right to move the player from the Indians major league roster to that of a minor league 38 40 affiliate team roster and back, the rate of pay being based on the number of days the player plays in each league. POSSIBLE ACQUISITIONS As part of its strategy, the Company may consider acquisitions of sports-related or non-sports-related businesses as well as commercial properties that complement the Company's existing operations or that provide the Company with the opportunity to leverage the capabilities of its management team. These acquisitions may include businesses and properties owned by Mr. Jacobs or his affiliates. The Company is not engaged in any negotiations to acquire any business or property, and there can be no assurance that the Company will ever acquire any business or property other than the Indians. In addition, see "Risk Factors -- Risks Relating to Expansion of Business and Acquisitions" for a discussion of certain risks associated with the Company's acquisition strategy. TEAM PLAYER PERSONNEL The Indians player management strategy is to build a competitive team, while managing their roster to reduce the uncertainties associated with salary arbitration and free agency. Generally, a MLB player with more than three years of major league service is eligible for binding salary arbitration, and a player with more than six years of major league service is eligible for free agency. The Club has not been to arbitration over a player's salary since 1991. Prior to eligibility for arbitration, a player's salary may be established by the club, subject to the MLB minimum. See "Major League Baseball -- Collective Bargaining Agreement -- Salary Arbitration and MLB Free Agency." The Indians' success in recent years is attributable to the Company's player development efforts and effective player personnel management. In the last three years, 14 Indians have been selected to the American League All-Star team, six have received Gold Glove Awards and six have received Silver Slugger Awards. The Indians have maintained a nucleus of talented players despite a significant level of player turnover. Only nine members of the Indians' 1997 American League Championship team were members of the 1995 American League Championship team. MLB permits each team to have 40 players under contract but limits the active roster to 25 players from Opening Day through August 31. From September 1 through the end of the season, each team is permitted an active roster of 40 players. The Indians currently have 40 players under contract for the 1998 season. Certain information with respect to each of those players as of May 11, 1998 is set forth below: 39 41
YEARS/DAYS OF MLB SERVICE AS LAST SEASON CLUB OF OPENING DAY(1) OF CONTRACT OPTION ----------------- ----------- ------ PITCHERS - -------- Paul Assenmacher........................................ 11/158 1999 Rich Batchelor.......................................... 0/140 1998 Dave Burba.............................................. 6/59 1999 Bartolo Colon........................................... 0/112 1998 Dwight Gooden........................................... 13/0 1999 2000 Mike Jackson............................................ 11/59 1998 1999 Steve Karsay(2)......................................... 3/48 1998 Rich Krivda............................................. 1/82 1998 Tom Martin.............................................. 1/0 1998 Michael Matthews........................................ 0/0 1998 Jose Mesa(3)............................................ 7/28 1998 Alvin Morman(2)......................................... 1/147 1998 Charles Nagy(3)......................................... 7/48 1998 Chad Ogea............................................... 3/38 1999 2000 Eric Plunk.............................................. 11/74 1999 2000 Jason Rakers............................................ 0/0 1998 Paul Shuey.............................................. 2/94 2000 2001 John Smiley............................................. 11/35 1999 Ron Villone(2).......................................... 2/85 1998 Jaret Wright............................................ 0/97 1998 CATCHERS - --------- Sandy Alomar Jr......................................... 8/47 1999 2000 Pat Borders(3).......................................... 10/0 1998 INFIELDERS - --------- David Bell(2)........................................... 2/64 1998 Jeff Branson(3)......................................... 5/141 1998 Russell Branyan......................................... 0/0 1998 Shawon Dunston(3)....................................... 12/93 1998 Travis Fryman........................................... 7/89 2002 2003 Richie Sexson........................................... 0/17 1998 Jim Thome............................................... 5/42 2001 2002 Omar Vizquel............................................ 8/130 2001 2002 Enrique Wilson.......................................... 0/17 1998 OUTFIELDERS - ----------- Bruce Aven.............................................. 0/24 1998 Geronimo Berroa(3)...................................... 5/152 1998 Brian Giles............................................. 1/96 2001 2002 David Justice........................................... 8/00 2002 2003 Kenny Lofton............................................ 6/23 2000 2001 Scott Morgan............................................ 0/0 1998 Alexander Ramirez....................................... 0/29 1998 Manny Ramirez........................................... 4/33 1999 2000 Mark Whiten............................................. 7/26 1999
- --------------- (1) A player is credited with a day of major league service for each day of the baseball season that he is on a club's active roster. A total of 172 days of major league service constitutes a year of major league service. 40 42 See "Major League Baseball -- Collective Bargaining Agreement -- Salary Arbitration and MLB Free Agency." (2) Eligible for salary arbitration upon completion of the 1998 season (assuming, in the case of David Bell, Alvin Morman and Ron Villone, the player remains on the Club's active roster for the entire season). (3) Eligible for free agency upon completion of the 1998 season (assuming, in the case of Jeff Branson and Geronimo Berroa, the player remains on the Club's active roster for the entire season). PLAYER DEVELOPMENT In the past decade, the Company has built a strong player development and scouting system based on a consistently applied approach to player evaluation, instruction and coaching. Since 1991, under the direction of General Manager John Hart, the Indians' minor league organization has greatly improved and in 1996 was ranked the best in professional baseball in a poll conducted by The Sporting News. Of the 40 players currently on the major league roster, 18 have played in the Indians' minor league organization prior to their first major league appearance. In addition to providing a source of talent for the Indians' major league roster, the Club's player development efforts also enhance its ability to obtain proven major league players in trades with other teams. The Indians employ 28 full-time scouts and several part-time scouts in their player development program. The scouts are evaluated in part by the success of the prospects they find. The Club also uses independent scouts who are paid a finders' fee for prospects. The Club's player development efforts are based on a business-like approach to the evaluation and development of player talent. The Club's staff of seasoned scouts are trained to assess and evaluate player talent consistently throughout the organization. In addition, the managerial and coaching staffs at all of the Club's minor league affiliates use instructional principles that are applied consistently at all levels of the Club's system. The Company believes that this standardized approach to player development improves the chances of the most talented minor league players succeeding at the major league level. The Club's minor league system involves the establishment of an individual plan for every player in the system. The plan is intended to cover all aspects of player development, including mental and physical development and baseball fundamentals. The Company's player development program also includes the Winter Development Program, which brings minor league prospects to Cleveland in the off-season to better prepare young players for the transition to the major league level. Participants in the Winter Development Program receive intensive instruction in various baseball skills and conditioning methods. In addition, participants receive instruction in a number of off-field areas which the Company believes are essential to their success in Major League Baseball. These include seminars focusing on media and fan relations and financial planning. Players from Puerto Rico and Latin American countries are an important source of talent for the Indians and other MLB clubs. Players from countries other than the United States and Canada are not part of the MLB Rule 4 draft, and the Club can enter into contracts with these players subject to MLB rules. See "Major League Baseball -- Major League Rules -- Signing Players." The Indians sponsor baseball programs in The Dominican Republic and Venezuela in which coaches affiliated with the Club work to develop the skills of promising young players in those countries. The Indians have a full-time member of the front office who is fluent in Spanish and who works closely with Latin American prospects, the Club's minor league coaching staffs and other Indians personnel in order to promote the development of these players. The Club provides these prospects with instruction in the English language and assistance in adjusting to cultural differences between the United States and their native countries. The Indians also work with Club personnel in order to promote an understanding of cultural differences and to prevent these differences from adversely affecting player development. The Indians are affiliated with seven minor league teams of which they own two (the Burlington Indians and the Dominican Summer League Indians). No revenues are derived from the club-owned affiliates. A large portion of the expenses associated with all of the minor league teams, including player salaries, are paid by the Club. MLB clubs are not permitted to be affiliated with more than one Class AA and one Class AAA team. In the 1990s, the overall record for the Club's minor league organization through the end of the 1997 season is 41 43 2,978 wins and 2,552 losses, a winning percentage of .539, placing it second among the minor league organizations of all MLB clubs. The Indians' minor league affiliates are as follows:
TEAM CLASS LEAGUE LOCATION ---- ----- ------ -------- Buffalo Bisons............... AAA International League Buffalo, New York Akron Aeros.................. AA Eastern League Akron, Ohio Columbus Redstixx............ A South Atlantic League Columbus, Georgia Kinston Indians.............. A Carolina League Kinston, North Carolina Watertown Indians............ A New York-Penn League Watertown, New York Burlington Indians........... Rookie Appalachian League Burlington, North Carolina Dominican Summer League Indians.................... Rookie Dominican Summer League Santiago, Dominican Republic
FACILITIES DOWNTOWN SPORTS COMPLEX The current home of the Indians is Jacobs Field, which is part of the Gateway Sports and Entertainment Complex (the "Complex") in downtown Cleveland. The Complex is the product of cooperation and planning among the Gateway Economic Development Corporation of Greater Cleveland, an Ohio nonprofit corporation ("Gateway"), the City of Cleveland (the "City"), Cuyahoga County, Ohio (the "County"), the Cleveland Cavaliers (the "Cavs"), a National Basketball Association franchise, and the Company. The Complex contains Jacobs Field, which is leased to the Company, and Gund Arena, which is home of the Cavs, the Cleveland Lumberjacks, a professional minor league hockey team, and the Cleveland Rockers, a women's professional basketball team. JACOBS FIELD General. Jacobs Field, completed in 1994, was designed as a premier, baseball-only facility offering a fan-friendly, intimate environment. Jacobs Field combines modern stadium design and amenities with many features evoking historic Major League Baseball ballparks. For example, Jacobs Field's outfield dimensions are irregular, like many older ballparks, and it features a 19 foot left field wall reminiscent of Fenway Park's "Green Monster." Jacobs Field also has some of its own signature features, such as the "home run porch," an open area located behind the left field foul pole available to fans who purchase standing room only tickets. Jacobs Field also features a high-tech, electronic left field scoreboard incorporating a large screen television that airs highlights and promotional features during breaks in the on-field action. Fans visiting concession and merchandise stands during the game can keep track of the game by viewing one of the approximately 700 television monitors located throughout Jacobs Field. Private Suites and Party Suites. Jacobs Field has 132 private suites which include a living area, wet bar and private bathroom, and covered seating with a premium view of the game. Of the total suites, 98 are leased by the Company to guests for four- and five-year terms, 24 are leased on a ten-year, prepaid basis and ten suites are reserved for Club use. Depending on the size of the suite, each leaseholder must purchase at least eight to 12 tickets, with the option to purchase up to four additional tickets for each home game. Suite guests may purchase a wide range of catered, buffet-style meals during each game. The lease entitles suite guests access to the Club Seat Lounge, a full-scale bar and lounge located inside the ballpark directly behind the club seats which contains a full-service bar, food court and televisions providing a close-circuit broadcast of the game. Jacobs Field also contains three party suites, each with a seating capacity of 40, which are rented for single games. Club Seats. Club seats offer larger seats, service of an extended menu of concessions and access to the Club Seat Lounge. Like the private suites, club seats are leased for various terms. A club seat lease gives the holder the right to the club seat amenities, which include access to the Club Seat Lounge, in-seat food and beverage service during the game and the right to buy a club seat ticket for each home game. 42 44 The Terrace Club. Jacobs Field houses the Terrace Club, a full-service restaurant with a windowed, terraced view of the playing field. Club members pay an annual membership fee which entitles them to the right to book reservations for meals before or during each game. The Terrace Club is open to the public for lunch (except on days when the Indians have an afternoon home game). The Terrace Club, as well as a catering service, is available for private parties. Executive Offices. Jacobs Field also houses the Company's executive offices. CHAIN OF LAKES PARK The Indians' spring training facility is located in Winter Haven, Florida, and spring training home games are played at Chain of Lakes Park. The Indians relocated spring training to Winter Haven in 1993, after more than 40 years in Tucson, Arizona. In addition to providing the Indians with modern, well-maintained training facilities, Winter Haven is located in proximity to the spring training facilities of many other Major League clubs. This allows the Indians' players to sharpen their skills against a wide variety of Major League opponents, and enhances the Club's ability to assess the skills of the Indians' players and minor league prospects. Winter Haven is located less than an hour's drive from the cities of Tampa and Orlando, which facilitates visits to the Indians' spring training facilities by Northeastern Ohio fans. Pitchers and catchers report to spring training the third week of February and exhibition games begin in late February and continue through the end of March. The Company employs a full-time manager to oversee the operations of Chain of Lakes Park. The facility is owned by the city of Winter Haven and is available to the Company through October 31, 2003. The Company has four options to renew the use agreement for five-year terms. Revenues derived from sources similar to those derived at Jacobs Field, including ticket sales, concessions, advertising and media rights, are allocated between the Company and Winter Haven. OPERATING AGREEMENTS AND LEASES Gateway Agreements. The Company and Gateway are parties to various agreements relating to Jacobs Field. Gateway leases to the Company the ballpark land and improvements pursuant to a Lease Agreement which excludes the baseball playing field and improvements thereon. The playing field portion of Jacobs Field is leased to the Company pursuant to a Ground Lease Agreement for which the Company pays nominal rent. Management of the ballpark facility is governed by a Management Agreement, while the rights and obligations of the parties regarding the common areas of the Complex are governed by a Common Area Maintenance Agreement. (The Lease Agreement, Ground Lease, Management Agreement and Common Area Maintenance Agreement are collectively referred to as the "Gateway Agreements.") Under the Gateway Agreements, the Company has the exclusive right to use the baseball facility to host Major League Baseball games and to conduct related activities. The Company also has the right to sponsor special events at Jacobs Field. The Company is obligated to play all of its home games, including playoff games, at Jacobs Field and is prohibited from transferring the Indians franchise to any location other than Jacobs Field or making any application to MLB for approval of such a transfer. Gateway is responsible for all routine maintenance and capital repairs of the baseball facility under the Ground Lease. However, pursuant to the Management Agreement, Gateway has assigned to the Company the responsibility to perform routine maintenance and pay for all costs and expenses related thereto. Gateway has retained responsibility for performance of and payment for all capital repairs. Capital repairs include work required to repair, restore or replace facility components, such as heating and air conditioning units, carpeting, scoreboards, field lighting bulbs and worn-out seats. The Management Agreement grants the Company the exclusive right to manage and operate Jacobs Field for an annual fee. The fee is equal to the sum of (i) one-third of any net main scoreboard advertising revenue in excess of $1,500,000 (adjusted each year for inflation) and (ii) one-quarter of any net special event revenue. Fees paid to Gateway pursuant to the Management Agreement were $193,000 in 1997, $78,951 in 1996 and $79,000 in 1995. Under the Management Agreement, the Company is entitled to the exclusive right to operate all ballpark concessions, including operation of the Terrace Club and catering for the private suites 43 45 and club seats, and is entitled to all revenues therefrom. The Company also has the exclusive right to sell and lease space for, and enter into agreements regarding, advertising in and around Jacobs Field. Gateway has the right to conduct special events at Jacobs Field if certain conditions are met, including establishing to the satisfaction of the Company that the event would not render the playing field unsuitable for the playing of baseball. The Gateway Agreements (excluding the Ground Lease) terminate upon the sooner of (i) the end of the year in which the 20th full season is played or (ii) the retirement or discharge of all the stadium revenue bonds. The term of the Ground Lease is for 40 years following the initial season. Following termination of the Agreements, the Company must surrender the ballpark facility to Gateway. The Ground Lease and the Lease Agreement do not provide for an option by the Company to renew the agreement upon their expiration. Nevertheless, the Company believes it will be able to enter into a new lease agreement for the facility in 2014 under commercially reasonable and competitive terms. Pursuant to the Ground Lease, the Company has a leasehold interest in the playing field and the improvements thereon until the year 2034 and has received assurances from the City and County that they will commence discussions with the Company regarding a new lease agreement for Jacobs Field two years before the current lease has expired. Naming Rights Agreement. Gateway, the City, the County, the Company and Mr. Jacobs entered into a Naming Rights Agreement regarding the naming of the ballpark which expires in 2013. In March 1998, Mr. Jacobs assigned all of his interests in the Naming Rights Agreement to the Company. COMPETITION The Indians compete with other sports, entertainment and recreational activities for entertainment and advertising dollars. During portions of its season, the Indians experience competition from professional basketball (the Cavs and the Rockers) and professional minor league hockey (the Cleveland Lumberjacks). Moreover, the City of Cleveland is currently building a new football-only stadium. If certain conditions are met, the NFL will be obligated to provide to the City an NFL franchise by the fall of 1999. This team is expected to use the established and popular name and heritage of the former Cleveland NFL franchise, the Cleveland Browns, and will likely have loyal fan support from its inception. The Indians also compete for attendance and advertising revenue with a wide range of other entertainment available in Northeastern Ohio. The Indians compete with other MLB teams to obtain the services of available players. EMPLOYEES As of March 31, 1998, the Company employed 321 baseball personnel (including 228 players) and 126 non-baseball personnel on a full-time basis. The Company also employs approximately 2,000 part-time personnel, including ushers, novelty sales people, vendors and statisticians. At March 31, 1998, approximately 750 of the Company's part-time employees, in addition to players on the major league roster, were members of labor unions. The Company considers relations with its employees to be good. LITIGATION The Company and MLB are involved in various lawsuits arising in the ordinary course of business. Management does not believe that the outcome of these matters will have a material adverse effect on the Company's financial condition, results of operations and cash flows. 44 46 MAJOR LEAGUE BASEBALL TEAMS Major League Baseball is comprised of 30 baseball clubs. The Arizona Diamondbacks and the Tampa Bay Devil Rays are expansion clubs that are competing for the first time in the 1998 season. MLB clubs belong to either the American League or the National League. Each league currently has three divisions: the East, West and Central. Beginning with the 1998 season, the clubs are aligned as follows:
AMERICAN LEAGUE - ------------------------------------------------------------------------------------ AMERICAN LEAGUE EAST AMERICAN LEAGUE CENTRAL AMERICAN LEAGUE WEST - --------------------- ----------------------- -------------------- Baltimore Orioles Chicago White Sox Anaheim Angels Boston Red Sox Cleveland Indians Oakland Athletics New York Yankees Detroit Tigers Seattle Mariners Tampa Bay Devil Rays Kansas City Royals Texas Rangers Toronto Blue Jays Minnesota Twins
NATIONAL LEAGUE - ------------------------------------------------------------------------------------ NATIONAL LEAGUE EAST NATIONAL LEAGUE CENTRAL NATIONAL LEAGUE WEST - --------------------- ----------------------- -------------------- Atlanta Braves Chicago Cubs Arizona Diamondbacks Florida Marlins Cincinnati Reds Colorado Rockies Montreal Expos Houston Astros Los Angeles Dodgers New York Mets Milwaukee Brewers San Diego Padres Philadelphia Phillies Pittsburgh Pirates San Francisco Giants St. Louis Cardinals
REGULAR SEASON AND POST-SEASON PLAY During the regular season, which typically begins in early April and extends to late September, each MLB team is scheduled to play a total of 162 games. Half of the games are played at home and half are played away. For the most part, a club competes against other clubs in the same league during the regular season. However, interleague play was introduced during the 1997 season and each club played 15 games against teams from the corresponding division in the other league (16 games for the Western Division in each league). Interleague games for the 1998 season have been scheduled in a similar manner. Interleague play is scheduled to expire after the 1998 season, unless further extended by agreement of the clubs and the Players Association. At the end of the regular season, four clubs from each league compete in the Division Series. The clubs with the best season record in each division and the club in each league with the best season record of the remaining clubs in the respective league play a best-of-five series. The two winners of the Division Series in each league then compete against each other in the League Championship Series. Each League Championship Series is a best-of-seven series. The resulting American League Champion and National League Champion play in the World Series, which is a best-of-seven series. MLB GOVERNANCE The Major League Baseball clubs are organized into two leagues, the American League, which has 14 members, and the National League of Professional Baseball Clubs (the "National League"), which has 16 members. Each league is governed by its own Constitution. The leagues and their members are parties to a Major League Agreement, which establishes the Office of the Commissioner (the "Commissioner") and governs matters concerning MLB clubs (including voting rules, dispute resolution and administration). The members of each league elect the Commissioner, whose functions include serving as the chief executive officer of MLB, investigating complaints regarding MLB and regulating the conduct of teams, owners, coaches and players. The Commissioner has the power to impose sanctions, including fines and suspensions, for violations of MLB rules. The Major League Agreement also establishes an Executive Council, consisting of the 45 47 Commissioner, the presidents of each league and four team representatives from each league, which has jurisdiction over various other matters, including the promotion of baseball and investigations into possible changes in how the game is played. Mr. Jacobs currently serves on the Executive Council. The position of Commissioner has been vacant since September 1992. During periods of vacancy, the Major League Agreement provides that the Executive Council is responsible for discharging the duties of the Commissioner. During this period, Allan H. "Bud" Selig, owner of the Milwaukee Brewers and Chairman of the Executive Council, has performed the day-to-day duties otherwise conducted by a sitting Commissioner. Under the terms of the Major League Agreement, various levels of member approval are required under certain circumstances, including in connection with the sale or relocation of a member. The Major League Agreement provides that members are prohibited from resorting to the courts to enforce or maintain rights or claims against other members, and all disputes must be submitted to the Commissioner for his determination, and such determination, when rendered, is final and binding. However, courts have not always dismissed lawsuits filed by members naming the leagues or their members as defendants. Accordingly, there can be no assurance that the Company will not be named as a defendant in lawsuits involving other MLB teams. The Indians play in the American League and are subject to its Constitution. The Constitution establishes a board of directors that generally supervises and manages the affairs and business of the league. The board consists of six league members and rotates membership, with two board members retiring and two board members coming on each year. Each member serves on the board for a three-year term and is off of the board for a four- or five-year period before returning. The President of the American League has governance and executive duties over the American League. The President is sole arbitrator over disputes among American League members and has final and binding determination regarding such matters. The current President of the American League is Gene A. Budig. RESTRICTIONS ON OPERATIONS MLB requires that the Company submit to the Commissioner for approval, which may be withheld in the Commissioner's sole discretion, any agreement that might affect control of the team prior to execution of that agreement. Such agreements specifically include loan agreements, ballpark leases, television and radio rights agreements, concession agreements and any other agreement on any subject with a potential duration of five years or more. These agreements cannot be signed prior to the Commissioner's approval even if they, by their terms, are subject to such approval. Furthermore, should the Company decide or be required to relocate the Indians to another city, at least a 75% vote of the American League members, and a majority vote of the members of the National League, must be obtained. If the relocation is to a city located within the same geographic area as an existing National League franchise, the minimum requisite affirmative vote of the National League members increases to 75%. The Governing Documents require that the Company be a single-purpose entity. Should management determine that it is beneficial to the Company to expand into other business areas, the expansion plan must be reviewed and approved by the Commissioner prior to being put into effect. The Governing Documents limit the amount of debt that may be secured by the assets of, or ownership interests in, an MLB club and require that the parties to any secured loan that is approved execute an agreement limiting the rights of the lenders and the club (or shareholder) under certain circumstances, including upon an event of default or foreclosure. MLB or the American League could in the future adopt different or additional restrictions which could adversely affect the shareholders. CONTROL REQUIREMENT AND OWNERSHIP RESTRICTIONS The Ownership Guidelines require that Mr. Jacobs (or a group of no more than 20 individuals) maintain at least a 10% economic interest in the Company and at least 90% voting control of the Company at all times. Upon completion of the Formation Transactions and the Offering, Mr. Jacobs' beneficial ownership of Class B Common Shares will satisfy both the economic interest and voting control requirements of the Ownership Guidelines. See "Risk Factors--Control by Richard E. Jacobs; Voting Rights" and "Formation Transactions." 46 48 Any transfer of a controlling interest in a club must be submitted for review to an MLB ownership committee and requires approval by 75% of the members of the American League and a majority of the members of the \National League. In addition, each MLB club must designate an individual who is accountable to the Office of the Commissioner for the Club's operation and its compliance with MLB rules and who is responsible for and empowered to make all club decisions. This requirement must be satisfied regardless of whether a club is owned in corporate or partnership form, and a change in the designated person constitutes a control interest transfer under the Governing Documents and, therefore, requires league approval. Mr. Jacobs serves in this capacity for the Indians. The Governing Documents contain limitations on the ownership by clubs and their owners, shareholders, officers, directors and employees of stock and other financial interests in other MLB clubs. In particular, any person acquiring more than a 5% interest in a publicly-traded entity that owns a club must obtain approval of the Commissioner before making such acquisition. To ensure the Club's compliance with the Governing Documents, the Company's Amended and Restated Articles of Incorporation provide that no person (other than Mr. Jacobs) may beneficially own 5% or more of the Class A Common Shares without first receiving written approval from the Office of the Commissioner. The Amended and Articles of Incorporation also require any person owning 5% or more of the Class A Common Shares to submit at the Company's request a statement stating such information as the Company may request in order to ensure compliance with the Articles of Incorporation and the Governing Documents. Failure by a holder of Class A Common Shares to comply with these provisions may result in a forced sale of such holder's interest or the repurchase of such interest by the Company. The Company's Amended and Restated Articles of Incorporation 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 shares without the approval of MLB. These provisions will be summarized in a legend on each certificate issued evidencing Class A Common Shares. AMERICAN LEAGUE ASSESSMENTS Each club in the American League is required to pay an annual assessment to the American League based on gate receipts net of local ticket taxes, if any. In recent years, the assessment has ranged from 2.5% to 3.5%. In 1997, the assessment was 3.25%, and the Company paid $1.6 million to the American League. POST-SEASON GATE RECEIPTS ALLOCATIONS The Governing Documents and the Collective Bargaining Agreement govern the allocation of gate receipts attributable to post-season play. The terms of the allocation depend on whether the Players Association decides to exercise its option to extend the Collective Bargaining Agreement for the 2001 season. If the agreement is extended, 60% of the total gate receipts of the first three games of the Division Series will be allocated to a players' pool. The remaining receipts from those games, and 100% of the gate receipts from the fourth and fifth games, if played, are split between the two competing teams net of the applicable league assessment. If the Players Association's option is not exercised, 80% (instead of 60%) of such receipts will be allocated to the players' pool for the 1997 through 2000 seasons. Until it is known whether or not the option is exercised, the amount representing the difference between 60% and 80% of such receipts is distributed by MLB to each team annually on a pro rata basis. Each team is obligated to maintain a fictional account for such amount plus interest, and if the option is not exercised, each team will be required to distribute the amount in that account to the Players Association following the 2000 season. The Company has $96,922 allocated under the fictional account as of the end of the 1997 season. In the League Championship Series, 60% of the gate receipts of the first four games are allocated to the players' pool and 40% of such receipts are allocated to the competing teams. The gate receipts from the remaining games, if any, are allocated according to each league. The American League allocates such receipts equally between the competing teams, net of the American League assessment. For the World Series, 60% of the gate receipts from the first four games is paid to the players' pool, 15% is allocated to the Office of the Commissioner and the remainder is split between the competing teams and their respective leagues. Fifteen percent of gate receipts from the remaining games, if any, are allocated to the Office of the Commissioner and the remainder is divided in four equal shares among the competing teams and their respective leagues. 47 49 COLLECTIVE BARGAINING AGREEMENT In the Fall of 1996, Major League Baseball Clubs and the Players Association reached agreement with respect to a Collective Bargaining Agreement. The Agreement became effective on January 1, 1997 and, with respect to certain provisions, was retroactive to the 1996 season. The Agreement expires on the later of October 31, 2000 or the day following the last game of the 2000 World Series, except that the Players Association has the unilateral option to extend the Agreement to October 31, 2001 or the day after the last game of the 2001 World Series, whichever is later. In addition, if antitrust legislation jointly proposed by the MLB clubs and the Players Association is not enacted by December 31, 1998, the Agreement is extended until December 31, 2000 with the Players Association retaining the one-year option to extend through October 31, 2001. The Collective Bargaining Agreement introduced a new revenue sharing system and implemented, for the first time, interleague play and a luxury tax on club payrolls. Revenue Sharing. The MLB clubs participate in a revenue sharing system, which was significantly overhauled as part of the Collective Bargaining Agreement. The revenue sharing system, which was retroactively effective for the 1996 season, is being phased in over a five-year period and will be fully implemented in the 2000 season. The revenue sharing rate, which applies to a club's net local revenue, was 12% in 1996 and 1997 and will be 16% in 1998, 17% in 1999 and 20% in 2000. Net local revenue is defined in the Collective Bargaining Agreement as all revenue received by a team or a related party excluding any centrally-generated revenues of the club that are administered by MLB, such as revenues from the Major Leagues Central Fund and MLB Properties. In determining net local revenue, a club may deduct any expenses directly attributable to stadium operations and certain other specified expenses. For 1998 and beyond, each club contributes the applicable percentage of its net local revenue to a pool. Once the pool is accumulated, 75% of it is re-distributed to the clubs equally on a pro rata basis. The remaining 25% is distributed to teams whose total revenue was below the average revenue for all clubs based on the extent to which that team's revenue was below the average. The Florida Marlins and the Colorado Rockies, as expansion teams, were exempt from the revenue sharing system for the 1996 and 1997 seasons, but both teams will participate in revenue sharing for the 1998 season. The Tampa Bay Devil Rays and the Arizona Diamondbacks are currently exempt from revenue sharing and will not participate until the 2000 season. The Company was a payor under the revenue sharing system for the 1997 season and estimates that its final contribution will be $7.2 million. Luxury Tax. The luxury tax first introduced in the Collective Bargaining Agreement became effective at the beginning of the 1997 season. A club that has an actual club payroll for a season above a specified threshold minimum for that season may be subject to the luxury tax, but the threshold minimum is adjusted so that no more than five teams are required to pay the luxury tax in any season. The adjusted threshold minimum was $55.6 million for 1997, and, unless further adjusted, will be $59.9 million for 1998 and $64.2 million for 1999. Actual club payroll is determined by adding the total compensation cost including cost of benefits, signing bonuses, performance bonuses and deferred compensation for each player the club has under a major league contract. Compensation amounts guaranteed under multi-year contracts are reported on the basis of an average annual value. The luxury tax rate for 1997 and 1998 is 35% and 34% for 1999. There is no luxury tax imposed in the 2000 season. The amount that is taxed is the difference between a club's total actual payroll and the threshold minimum. Proceeds collected from the luxury tax are used to fund revenue sharing or the Industry Growth Fund, which has a stated objective of promoting the growth of baseball throughout the world by enhancing fan interest and increasing the sport's popularity. In 1997, the Indians paid $2.1 million pursuant to the luxury tax. Salary Arbitration and MLB Free Agency. Certain player rights provided in the Collective Bargaining Agreement are determined by credited major league service. A player is credited for a day of major league service for each day of the baseball season that he is on a club's active roster. A total of 172 days of major league service constitutes a year. Under the Collective Bargaining Agreement, any club, or any player with a total of three or more (but less than six) years of major league service, may submit the issue of that player's salary to final and binding arbitration without the consent of the other party upon expiration of his then current contract. Those players with more than two years but less than three years of major league service are also 48 50 eligible for arbitration if they fall within the top 17% of such players based on major league service. When a player completes six years of major league service and the term of his then current contract has expired, he becomes eligible for free agency. An eligible player may elect to become a free agent with respect to the following season by giving notice to the Players Association within a 15-day period beginning on the later of October 15 or the day following the last game of the World Series. Generally, once a player is a free agent, he has the right to negotiate and contract with any MLB club subject to his former team's right to offer, prior to December 7, to sign the free agent and arbitrate the contract salary amount. If the former club does not offer to arbitrate or the free agent does not accept the offer, the former club loses its rights to negotiate with or sign the free agent until the succeeding May 1. Clubs are compensated with draft choices if a ranking free agent signs with another club prior to December 7 or after his former club's offer to arbitrate. Additionally, a player who has at least three years of major league service and whose contract is assigned outright to a minor league team or a player whose contract is being assigned outright to a minor league team for the second or any subsequent time, may reject the assignment and elect free agency. Prior to eligibility for arbitration, a player's salary may be established by the club subject to the MLB minimum base salary and maximum reduction rules. MAJOR LEAGUE RULES The MLB clubs operate under the Major League Rules (the "Rules"). The Rules govern matters including drafting, signing and trading players, the minor league system and team and player conduct. MLB Draft System. Professional baseball conducts an annual draft of first year players referred to as the "Rule 4" draft each June. Eligible players are limited to those players who reside in the United States, Canada, Puerto Rico and other United States territories or possessions and who have not previously contracted with a major league or minor league club. A player eligible for the draft may be signed only after the selection meeting. The draft is limited to 50 rounds. The order of selection is based on the prior season overall win-loss record in the respective league excluding post-season games. Selections alternate between American League and National League clubs. The first selection is made by an American League club in odd-numbered years and by a National League club in even-numbered years. Signing Players. A club has the exclusive right to contract with the players it selects in the Rule 4 draft for a period of one year following the draft, subject to MLB's signing rules. If the drafting club has not signed the player, he may be eligible for the next Rule 4 draft. Generally, a player who is a high school student in the United States (including Puerto Rico and other United States territories and possessions) or Canada is not eligible to enter into a professional baseball contract during any period he is eligible to participate in high school athletics. Generally, once a player has attended a college class he is not eligible for selection in the draft again until he has completed his junior year or has withdrawn from college and remained out of college for a period of 120 days. A player who is not eligible for the draft because he is not a resident of the United States or Canada must be 17 years of age at the time of signing or will attain 17 years of age prior to the later of September 1 or the last day of the season for which the player has contracted. All player contracts for major league and minor league service are uniform agreements and there is a minimum salary for each level of play. Major league and minor league contracts can include certain additional provisions that establish performance incentives and provide benefits to the player. Generally, players selected by a club initially enter into a contract for minor league service. After three or four seasons in the minor leagues, depending on the player's age at the time he is drafted, if a player has not been put on a club's major league team 40-man roster, he is eligible to be selected by another major league club for its major league roster pursuant to the "Rule 5" draft. The Rule 5 draft is held each December. If a club selects a player in the Rule 5 draft, the selecting club must keep the player on its active 25-man roster for the entire next season. If the player is not kept on the active roster, the selecting club must obtain waivers from all other MLB clubs and offer the player back to his original team before the player may be assigned to a minor league affiliate of the selecting club. 49 51 Reserve System. Each MLB club is required to maintain and file with the Commissioner a major league reserve list and a minor league reserve list for each of its minor league affiliates. A player on a club's major league or minor league reserve list is not eligible to play or negotiate with any other major league or minor league club unless that player's contract has been terminated or assigned. A club may reserve, and retain the rights to, a maximum of 40 players for its major league club, 38 players for a Class AAA club, 37 players for a Class AA club and 35 players for each Class A club and each Rookie League club. From Opening Day until August 31 of each season, the maximum number of players allowed on a major league active list is 25 and from September 1 until the end of the season, the maximum number is 40. Inactive Lists. Upon application to the Commissioner, a club may request that a player unable to play because of injury or illness be placed on a disabled list for a minimum period of 15 or 60 days based on the severity of the ailment. Players on the 15-day list count against the reserve list, but not against the active list, while players on the 60-day list do not count against either the reserve or active list. Players may be put on the voluntarily retired, restricted, disqualified or ineligible list and do not count against the reserve or active lists. Players put on the suspended list by the Commissioner count against both the active and reserve lists. Termination of Player Contracts. A club may unconditionally release a player from a major league contract at any time, subject to the player's contractual right to termination pay, if the Club has received waivers of that player's contract from all the other major league clubs. A waiver is permission granted for certain assignments or unconditional release of a major league player. Any other major league team may claim the player's contract for $1 if unconditional release waivers are requested. Once claimed, a released player has the option of terminating his contract or accepting the assignment to the major league team claiming such player. If more than one team in the same league makes a waiver claim, the contract will go to the club with the lowest standing in the win-loss records. If claims are made by clubs in different leagues, the contract will go to a club in the same league as the releasing club. Assignment of Player Contracts. A team may assign a player's contract to another major league club (for example, in connection with a trade with that club) or a minor league club subject to certain rights of the player and other clubs. A player with at least five years of major league service may not be assigned to a minor league club without his written consent. A player with at least five years of major league service at the time of the assignment of his contract and whose contract covers the next succeeding season, may elect, at the conclusion of the season following the assignment, that his contract be assigned to another major league club and he may specify not more than six clubs that are unacceptable to him for such assignment. If the club fails to assign the contract in accordance with the player's request, the player is eligible to become a free agent. Once a player's contract has been assigned pursuant to that player's request, he does not have the right to require another assignment or become a free agent until he has completed another three years of service. During the period beginning August 1 and ending on the last day of the season, waivers from other clubs must be obtained prior to any assignment to another major league club. A player with at least ten years of major league service, the last five of which have been with one club, may not be assigned to any club without his written consent. A major league player's contract may be assigned to a minor league club with options to recall that player for up to three seasons without obtaining waivers. Waivers are required for an optional assignment to the minor leagues if the player has three or more years of major league service. A club may only have an optional agreement in place for a player for three seasons, and the maximum number of optional agreements that any club can have in effect at one time is 16. If a major league club proposes to remove a player from its 40-man roster by making an outright assignment of that player's contract to a minor league team or to cancel a right to recall a player under an existing optional agreement, waivers are required. If a club is awarded the assignment of a contract pursuant to that club making a waiver claim, the consideration to be paid to the assignor club is established by agreement between the clubs, but may not be less than $20,000. 50 52 MLB PROPERTIES Major League Baseball Properties ("MLB Properties") was established in 1966 and markets and manages the licensing of the names, logos, uniforms, mascots, stadium names and other trademarks and intellectual property rights ("Marks") of all MLB clubs, the American League, the National League, MLB and MLB's special events (including All-Star and post-season games). Each club owns its own Marks and has appointed MLB Properties as its exclusive agent to license its Marks. Each club has the right to operate club-owned stores within a 200-mile radius of the team's home field. All of the Company's Indians Team Shops are located within the prescribed area. MLB Properties conducts licensing activities worldwide and enters into agreements to permit use of the Marks with corporate sponsors and manufacturers of retail products and media publishers and producers. MLB Marks are incorporated into advertising campaigns, featured in clothing and novelties and used in videos, motion pictures and print media. In addition to promoting MLB and MLB clubs, the activities of MLB Properties generate a significant amount of revenue. After payment of an agency commission to MLB Properties, the net revenues are distributed equally among the MLB clubs. MAJOR LEAGUES CENTRAL FUND The Major Leagues Central Fund serves as a receipt and disbursement fund for certain transactions that are shared by the 30 MLB clubs. The Major Leagues Central Fund's primary sources of funds are national television (broadcast and cable) and radio broadcasting revenue. The Major Leagues Central Fund's excess of revenue over expenses is distributed to the clubs or used for specific purposes, as approved by the clubs. Currently, the Commissioner, as agent for the MLB clubs, has agreements with each of Fox Broadcasting Company, Fox Sports Net and The National Broadcasting Company, Inc. for the telecasting of Major League Baseball games through the 2000 season and agreements with ESPN, Inc., and Turner Broadcasting System, Inc. through the 2002 season. The agreements provide for the telecasting of a specified number of regular season games, the All-Star Game, the Division Series, the League Championship Series and the World Series. MLB has an agreement with ESPN Radio for broadcasting Major League Baseball games through the 2002 season. The agreement provides for the broadcasting of regular season games, the All-Star Game and post-season games. In addition, MLB clubs that have broadcast agreements with, or cable distribution through, cable "superstations" are obligated to contribute a portion of the revenues derived from those agreements to the Major Leagues Central Fund. 51 53 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors, proposed directors and executive officers of the Company. The Board of Directors currently consists of two members, Richard E. Jacobs and Martin J. Cleary. The Company will expand the Board of Directors on or prior to completion of the Offering to five members to include Robert W. Brown, M.D., Edward G. Ptaszek, Jr. and William B. Summers, Jr. The directors named below have been or will be elected to serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Executive officers of the Company serve at the pleasure of the Board of Directors, subject to the terms of their employment agreements.
NAME AGE POSITION WITH THE COMPANY ---- --- ------------------------- Richard E. Jacobs................... 72 Chairman of the Board, President and Chief Executive Officer John H. Hart........................ 49 Executive Vice President and General Manager Dennis Lehman....................... 46 Executive Vice President, Business Daniel J. O'Dowd.................... 38 Vice President, Baseball Operations and Assistant General Manager Jeffry L. Overton................... 41 Vice President, Marketing and Communications Kenneth E. Stefanov................. 40 Vice President, Finance David W. Pancoast................... 56 Secretary Anthony W. Weigand.................. 60 Treasurer Martin J. Cleary.................... 62 Director Robert W. Brown, M.D................ 73 Proposed Director Edward G. Ptaszek, Jr............... 47 Proposed Director William B. Summers, Jr.............. 47 Proposed Director
Biographical information with respect to the Company's executive officers, other than Mr. Pancoast and Mr. Weigand, is set forth under the heading "Business -- Business Operations -- Ownership and Management." Biographical information concerning the Company's directors, proposed directors, Mr. Pancoast and Mr. Weigand is set forth below. Richard E. Jacobs is Chairman of the Board, President and Chief Executive Officer of the Company. Mr. Jacobs has been Chairman of the Board, Chief Executive Officer and President of CBC, the general partner of the Partnership, and has been the controlling owner of the Indians since 1986. Mr. Jacobs is also Chairman of the Board and Chief Executive Officer of The Richard E. Jacobs Group Inc., a real estate management and development company ("The Jacobs Group"). Martin J. Cleary has been Vice Chairman of The Jacobs Group since January 1998. From 1981 to January 1998 he was President and Chief Operating Officer of The Jacobs Group. David W. Pancoast has been General Counsel and Secretary of The Jacobs Group since 1992. Anthony W. Weigand has been Vice President and Treasurer of The Jacobs Group since 1975. From 1975 to December 1997 he was also Chief Financial Officer of The Jacobs Group. Robert W. (Bobby) Brown, M.D., has been retired since 1994. From 1984 to 1994 he served as President of the American League. Prior to serving as President of the American League, Dr. Brown had a distinguished career as a cardiologist. Dr. Brown is a former MLB player. Edward G. Ptaszek, Jr. has been a partner with the law firm of Baker & Hostetler LLP, Cleveland, Ohio since 1985. From 1978 to 1985 he was an associate with the firm. Baker & Hostetler provides legal services to the Company. William B. Summers, Jr. is the President and Chief Executive Officer of McDonald & Company Investments, Inc. and is Chairman and Chief Executive Officer of its wholly owned subsidiary, McDonald & Company Securities, Inc. Mr. Summers has been President of McDonald & Company Investments, Inc. since 52 54 1989 and Chief Executive Officer since 1994. He served as President of McDonald & Company Securities, Inc. from 1989 to 1995. AUDIT COMMITTEE OF THE BOARD OF DIRECTORS Upon completion of the Offering, the Company's Board of Directors will have an Audit Committee. The Company's Audit Committee will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and nonaudit fees, review the independent public accountants' letter of comments and management's responses, review the adequacy of the Company's internal accounting controls and review major accounting or reporting changes contemplated or made. The members of the Audit Committee will be Messrs. Cleary, Ptaszek and Summers. INDEMNIFICATION The Company's Code of Regulations provides for the indemnification of directors and officers of the Company to the maximum extent permitted by Ohio law, and for the advancement of expenses incurred in connection with the defense of any action, suit or proceeding that he was a party to by reason of the fact that he is or was a director of the Company upon the receipt of an undertaking to repay such amount unless it is ultimately determined that the director is entitled to indemnification. The Company has entered into indemnification agreements with each of its directors and executive officers. These agreements generally: (i) confirm the existing indemnity provided to them under the Company's Code of Regulations and assure that this indemnity will continue to be provided; (ii) provide that if the Company does not maintain directors' and officers' liability insurance, the Company will, in effect, become a self-insurer of the coverage; (iii) provide that, in addition, the directors and officers shall be indemnified to the fullest extent permitted by law against all expenses (including legal fees), judgments, fines, and settlement amounts paid or incurred by them in any action or proceeding, including any action by or in the right of the Company, on account of their service as a director, officer, employee, or agent of the Company or at the request of the Company as a director, officer, employee, trustee, fiduciary, manager, member or agent of another corporation, partnership, trust, limited liability company, employee benefit plan or other enterprise; and (iv) provide for the mandatory advancement of expenses to the executive officer or director in connection with the defense of any proceedings, provided the executive officer or director agrees to reimburse the Company for that advancement if it is ultimately determined that the executive officer or director is not entitled to indemnification for that proceeding under the agreement. Coverage under the agreements is excluded: (A) on account of conduct which is finally adjudged to be knowingly fraudulent, deliberately dishonest, or willful misconduct; or (B) if a final court of adjudication shall determine that such indemnification is not lawful; or (C) in respect of any suit in which judgment is rendered for violation of Section 16(b) of the Securities Exchange Act of 1934 or similar provisions of any federal, state, or local statutory law; or (D) on account of any remuneration paid which is finally adjudged to have been in violation of law; or (E) on account of conduct occurring prior to the time the executive officer or director became an officer, director, employee, or agent of the Company or its subsidiaries (but in no event earlier that the time such entity became a subsidiary of the Company); or (F) with respect to proceedings initiated or brought voluntarily by the executive officer or director and not by way of defense, except for proceedings brought to enforce rights under the indemnification agreement. The Company maintains a directors' and officers' liability insurance policy which insures the officers and directors of the Company from any claim arising out of an alleged wrongful act by such persons in their respective capacities as officers and directors of the Company. COMPENSATION OF DIRECTORS Each member of the Company's Board of Directors who is not also an employee of the Company receives an annual fee of $15,000 for serving as a director of the Company and a fee of $1,000 for each Board meeting 53 55 and committee meeting attended. The Company has established a Directors' Deferred Compensation Plan pursuant to which each non-employee director may elect to defer up to 100% of annual and meeting fees to be paid by the Company. Amounts deferred are converted into units equivalent to the Class A Common Shares such that the value of a participant's account will fluctuate based on the market price of the Class A Common Shares. Directors who are also employees of the Company do not receive any additional compensation for their services as directors. The Company reimburses out-of-pocket expenses incurred by all directors in connection with attending Board and committee meetings. In connection with the Offering, the Company will grant to each non-employee director options to purchase 15,000 Class A Common Shares at an exercise price equal to the initial public offering price. The options will vest in three equal annual increments beginning one year after the date of grant and will expire ten years after the date of grant. EXECUTIVE COMPENSATION The following table sets forth the annual base salary expected to be paid to the chief executive officer and the other four most highly compensated executive officers of the Company (each a "Named Executive Officer") during 1998.
NAME PRINCIPAL POSITION BASE SALARY ---- ------------------ ----------- Richard E. Jacobs.................... Chairman of the Board, President and Chief Executive Officer $700,000 John H. Hart......................... Executive Vice President and General Manager $600,000 Dennis Lehman........................ Executive Vice President, Business $300,000 Daniel J. O'Dowd..................... Vice President, Baseball Operations and Assistant General Manager $300,000 Jeffry L. Overton.................... Vice President, Marketing and Communications $225,000
STOCK OPTION PLAN The Company's Board of Directors has adopted a Long-Term Incentive Plan (the "Stock Option Plan"). The purpose of the Stock Option Plan is to enable the Company to attract, retain and reward key employees of the Company and its affiliates and members of the Board of Directors of the Company and to strengthen the mutuality of interest between such key employees and the Company's shareholders. Grants of incentive or nonqualified share options, restricted shares, share appreciation rights in tandem with options ("SARs"), other share-based awards or any combination thereof, may be issued under the Stock Option Plan to officers and key employees of the Company, including employees of the Partnership, who are responsible for or contribute to the management, growth or profitability of the business of the Company and its affiliates. The Board of Directors administers the Stock Option Plan and is responsible for determining the type, amount and timing of grants and awards. The Company has reserved 700,000 Class A Common Shares for issuance under the Stock Option Plan. No participant in the Stock Option Plan may be granted stock options or other share awards in any calendar year for more than 100,000 shares. The share limitations, shares reserved and the terms of outstanding awards will be adjusted, as the Board of Directors deems appropriate, in the event of a share dividend, split or other change in the corporate structure of the Company affecting the shares. The term of each option granted under the Stock Option Plan will not exceed ten years from the date of grant. The Board of Directors may grant tandem SARs to any person granted an option under the Stock Option Plan. Each tandem SAR will represent the right to receive, in cash or shares as the Board of Directors determines, a distribution in an amount equal to the excess of the fair market value of the option shares (to which the SAR corresponds) on the date of exercise over the exercise price for those shares. Each tandem SAR expires at the same time as its corresponding option. The exercise of an option will result in an immediate forfeiture of its corresponding SAR, and the exercise of an SAR will cause an immediate forfeiture 54 56 of its corresponding option. The Stock Option Plan provides that all options and tandem SARs will become exercisable on a change in control (as defined in the Stock Option Plan) of the Company. The Board of Directors may award Common Shares under the Stock Option Plan and may place restrictions on the transfer or defer the date of receipt of those shares. Each award will specify any applicable restrictions or deferral date, the duration of those restrictions, and the time at which the restrictions lapse. Participants may be required to deposit shares with the Company during the period of any restrictions. The Stock Option Plan provides for vesting, exercise or forfeiture of rights granted under the Stock Option Plan on death, disability, termination of employment or a change of control. The Board of Directors may modify, suspend or terminate the Stock Option Plan as long as it does not impair the rights of any participant. Upon completion of the Offering, the Company expects to grant to employees of the Company options to purchase not more than 220,000 Class A Common Shares with an exercise price equal to the initial public offering price, including options for the Named Executive Officers as follows: Mr. Jacobs -- 0; Mr. Hart -- 15,000; Mr. Lehman -- 15,000; Mr. O'Dowd -- 7,500; and Mr. Overton -- 7,500. The Options will vest in three equal annual increments beginning one year after the date of grant and will expire ten years from the date of grant. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with each of Messrs. Hart, O'Dowd, Lehman and Overton. The term of each agreement is described in "Business -- Business Operations -- Ownership and Management." Pursuant to their respective agreements, the executives agree to devote their full time and efforts exclusively to the Company, agree not to engage in conduct which is detrimental to the Company and agree to abide by and be subject to the discipline of the Commissioner. The Company has the right to terminate an executive prior to the expiration of that executive's agreement if the executive fails to comply with the employment agreement or is fraudulent or dishonest in the performance of his duties. If an executive is terminated without cause, the agreements require the executive to seek and accept other comparable employment, either from another club or another baseball or non-baseball employer, and the amount received by the executive from such other employment, if obtained, reduces the amount the executive is owed by the Company. By their terms, the agreements are subject to and are governed by all applicable rules and regulations of Major League Baseball and the American League. Each agreement establishes an annual salary for each year of the term of the agreement, including the option years. The salaries for each of the executives for 1998 are set forth under "-- Executive Compensation." The agreements provide for specified salary increases over the terms of the agreements. In addition, the agreements provide for varying bonuses based on the achievement of specified Company objectives. The agreements permit the executives to elect to defer the payment of a portion of their salaries. 55 57 PRINCIPAL SHAREHOLDERS The following table sets forth, upon completion of the Offering, certain information regarding the beneficial ownership of each class of the Company's Common Shares by each of the Company's (i) directors, proposed directors and Named Executive Officers, (ii) each person who is known by the Company to beneficially own five percent or more of the outstanding Class A Common Shares or Class B Common Shares, and (iii) all of the directors, and executive officers of the Company as a group.
CLASS A COMMON SHARES CLASS B COMMON SHARES TOTAL ----------------------- ----------------------- PERCENTAGE NUMBER OF PERCENT OF NUMBER OF PERCENT OF VOTING NAME(1) SHARES CLASS SHARES CLASS CONTROL ------- --------- ---------- --------- ---------- ---------- Richard E. Jacobs(2)................. 133,200 3.2 2,281,667 99.9 99.9 Martin J. Cleary..................... 6,176 * 2,290 * * Robert W. Brown, M.D................. -- -- -- -- -- Edward G. Ptaszek, Jr................ -- -- -- -- -- William B. Summers, Jr............... -- -- -- -- -- John H. Hart......................... -- -- -- -- -- Dennis Lehman........................ -- -- -- -- -- Daniel J. O'Dowd..................... -- -- -- -- -- Jeffry L. Overton.................... -- -- -- -- -- All directors and executive officers as a group (seven persons)......... 139,376 3.2 2,283,957 100.0 99.9
- --------------- * Less than one percent. (1) Unless otherwise indicated, the listed beneficial owner has sole voting and investment power over such shares. The table assumes no exercise of the Underwriters' over-allotment option. (2) Consists of shares held by Richard E. Jacobs as sole trustee under Declaration of Trust dated April 23, 1987 (the "Richard Jacobs Trust"), and as sole trustee of the David H. Jacobs Marital Trust (the "David Jacobs Trust"). Of the shares listed, 75% are held by the Richard Jacobs Trust, of which Mr. Jacobs is currently the sole beneficiary, and 25% are held by the David Jacobs Trust, of which the heirs of David H. Jacobs are the beneficiaries. Does not include 6,043,334 Class A Common Shares issuable to CBC (of which the Jacobs family trusts are the sole shareholders) upon exchange of limited partnership interests in the Partnership. See "The Partnership -- Limited Partner Rights." 56 58 CERTAIN TRANSACTIONS In connection with the formation of the Company in March 1998, the Jacobs family trusts, of which Richard E. Jacobs is the sole trustee, acquired 100 Common Shares of the Company for a price of $1,500. Upon the amendment and restatement of the Company's articles of incorporation to provide for two classes of Common Shares, the 100 shares became 100 Class A Common Shares. In connection with the Formation Transactions, the Jacobs family trusts will receive 2,281,667 Class B Common Shares, 133,100 Class A Common Shares (in addition to those described in the preceding paragraph) and $55.7 million in cash, and Martin J. Cleary will receive 2,290 Class B Common Shares, 6,176 Class A Common Shares and $55,800 in cash. Richard E. Jacobs, the sole trustee of the Jacobs family trusts, is the Chairman of the Board, President and Chief Executive Officer of the Company, and Mr. Cleary is a Director of the Company. See "Formation Transactions." As of the date of this Prospectus, the Partnership has borrowed an aggregate of $35.5 million under the MLB Credit Facility. Substantially all of those funds have been loaned to CBC. In March 1998, the Partnership distributed $49.2 million to its partners and CBC repaid its $35.5 million debt to the Partnership. Mr. Jacobs is Chairman of the Board and Chief Executive Officer of The Jacobs Group, a real estate development and management company, and Mr. Cleary, a director of the Company, is Vice Chairman of The Jacobs Group. The Company has paid The Jacobs Group for certain legal, accounting and administrative services it provided to the Company. For the years ended December 31, 1995, 1996 and 1997, the aggregate amounts paid for these services were $327,000, $335,000 and $267,000, respectively. In addition, during 1996, the Company paid $523,000 of payroll and related taxes to Ballpark Services, Inc., a company controlled by the Jacobs family trusts, for the provision of game day labor services. The Company anticipates that The Jacobs Group will continue to provide to the Company certain administrative services, including cash management, following the Offering. The Company operates four Cleveland Indians Team Shops in shopping malls owned and managed by The Jacobs Group. Pursuant to leases between the Company and affiliates of The Jacobs Group, the Company paid $194,000, $213,000 and $554,000 in 1995, 1996 and 1997, respectively. The Company believes the terms of its administrative services arrangements and its leases with The Jacobs Group are at least as favorable as those that could be obtained from an unrelated third party in an arms'-length transaction. Mr. Jacobs, individually and as trustee of the David H. Jacobs Marital Trust, is the guarantor of any outstanding amounts under the Company's line of credit with KeyBank. The maximum amounts outstanding during 1995, 1996 and 1997 were $5.5 million, $0 and $0, respectively. Edward G. Ptaszek, Jr., a proposed director of the Company, is a partner with the law firm of Baker & Hostetler LLP. Baker & Hostetler has provided legal services to the Company in the past and in connection with the Offering, and the Company expects that the firm will continue to provide such services. William B. Summers, Jr., a proposed director of the Company, is the Chairman and Chief Executive Officer of McDonald & Company Securities, Inc., the managing underwriter for the Offering. McDonald & Company Securities, Inc. has provided investment services to the Company in the past, and the Company expects the firm will provide such services to the Company in the future. Following the Offering, all transactions between the Company and its directors, officers or principal shareholders will require the prior approval of the Audit Committee of the Board of Directors. 57 59 THE PARTNERSHIP The following is a summary of the material terms of the Partnership Agreement. This summary, including the descriptions of certain provisions set forth elsewhere in this Prospectus, is qualified in its entirety by reference to the Partnership Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. ORGANIZATION AND MANAGEMENT The Partnership is organized as an Ohio limited partnership pursuant to the terms of the Partnership Agreement. The Company, as the sole general partner of the Partnership (the "General Partner"), will have full, exclusive, and complete responsibility and discretion in the management and control of the Partnership, and the limited partner will have no authority to transact business for, or participate in the management activities or decisions of, the Partnership. Any decision for the Partnership, however, to make a general assignment for the benefit of creditors, or to appoint or acquiesce in the appointment of a custodian, receiver, or trustee for all or any part of the assets of the Partnership, to take title to any property other than in the name of the Partnership, to institute any proceeding for bankruptcy, to dissolve the Partnership or to amend the Partnership Agreement, except to admit new limited partners or to reflect changes in percentage interests in the Partnership, would require the consent of the limited partner. Upon completion of the Formation Transactions and the Offering, CBC will be the sole limited partner of the Partnership. TRANSFERABILITY OF INTERESTS The Partnership Agreement provides that the General Partner may not voluntarily withdraw from the Partnership, or transfer or assign its interest in the Partnership, except with the consent of the limited partner, after a vote amending the Partnership Agreement. CBC, as the limited partner, may transfer its interests in the Partnership without the consent of the General Partner, subject to certain limitations. CAPITAL CONTRIBUTIONS The Partnership Agreement provides that if the Partnership requires additional funds at any time or from time to time in excess of funds available to the Partnership from operations, borrowings or capital contributions, the General Partner may borrow such funds from a financial institution or other lender and lend such funds to the Partnership on the same terms and conditions as are applicable to the General Partner's borrowing of such funds or, to the extent that the General Partner does not borrow all the required funds, the General Partner may make capital calls for such funds. The limited partner has no obligation to make any additional capital contribution but the limited partner's interest in the Partnership will be diluted if the General Partner makes additional capital contributions pursuant to a capital call and the limited partner does not. LIMITED PARTNER RIGHTS The limited partner is entitled to exchange all or a portion of its Units in the Partnership for Class A Common Shares, although the Company has the right to substitute cash for the shares. The limited partner rights permit CBC to exchange each Unit owned by it for one Class A Common Share. This one-for-one exchange ratio will be adjusted in the event of a stock split, stock dividend, or other event having a dilutive or anti-dilutive effect on the limited partner rights. If an exercise of the limited partner rights would result in CBC receiving cash, the amount of the cash payment would be based upon the trading price of the Class A Common Shares for the five trading days prior to exercise. The limited partner rights may be exercised by CBC at any time commencing one year after the date of this Prospectus, in whole or in part. The limited partner rights will expire upon the termination of the Partnership if not exercised prior to that date. 58 60 REGISTRATION RIGHTS For a description of certain piggy-back registration rights held by CBC with respect to Class A Common Shares it receives upon exercise of limited partner rights, see "Shares Eligible for Future Sale." TAX MATTERS The General Partner will be the tax matters partner of the Partnership and, as such, will have authority to make tax elections under the Internal Revenue Code of 1986, as amended (the "Code"), on behalf of the Partnership. ALLOCATION OF NET INCOME OR NET LOSS The net income or net loss of the Partnership generally will be allocated to the General Partner and the limited partner in accordance with their respective percentage interests in the Partnership, subject to compliance with the provisions of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. A number of special allocations will be made in respect of tax items of the General Partner and the Partnership. Under Section 754 of the Code, the General Partner will receive additional amortization attributable to the stepped-up basis in the Partnership as a result of the General Partner's acquisition of partnership interests for cash. See "Formation Transactions." Gain recognized by the Partnership on the sale of Partnership assets which is unrealized gain attributable to the period prior to the completion of the Offering will be allocated entirely to the limited partner. Any excess gain recognized by the Partnership on the sale of Partnership assets will be allocated in accordance with the partners' percentage interests in the Partnership. DISTRIBUTIONS The Company, as the General Partner of the Partnership, is generally not permitted to distribute any portion of Net Operating Cash Flow or Net Sales Proceeds (in each case as defined in the Partnership Agreement). However, the Company is required to cause the Partnership to distribute cash to the partners on a quarterly basis an amount estimated to approximate the partners' federal, state and local income taxes as a result of the Partnership's net income for such period using certain assumptions specified in the Partnership Agreement. In addition, the Company may cause the Partnership to make distributions to its partners if, prior to the making of such distributions, the Board of Directors of the Company shall have, (i) by resolution adopted by a majority of the directors who are not affiliates of the limited partner, approved a cash dividend on its Common Shares in an amount equal to the Company's share of such distribution, or (ii) by resolution unanimously adopted by all of the directors who are not affiliates of the limited partner, made a determination that it is in the best interests of the General Partner's shareholders that the funds that would be the subject of such distribution be used to meet existing obligations of the General Partner or obligations anticipated to be incurred by the General Partner within six months of the date of such distribution. All such distributions will be made in accordance with the partners' percentage interests in the Partnership. OPERATIONS Pursuant to the Partnership Agreement, the Partnership will assume and pay when due, or reimburse the General Partner for payment of all costs and expenses relating to the formation, continuity of existence, and operations of the General Partner. TERM The Partnership will continue in full force and effect until , 2048, or until sooner dissolved upon the dissolution or termination of the General Partner (unless the limited partner elects to continue the Partnership), the election of the General Partner and the limited partner to dissolve the Partnership, or the sale or other disposition of all or substantially all the assets of the Partnership. 59 61 DESCRIPTION OF CAPITAL SHARES GENERAL As of May 12, 1998, the Company's authorized capital shares consisted of 850 Common Shares, without par value, 100 of which were outstanding and owned by the Jacobs family trusts. In anticipation of the Formation Transactions and the Offering, the current shareholders of the Company will adopt Amended and Restated Articles of Incorporation (the "Articles") to authorize 27,000,000 Class A Common Shares, without par value, 3,000,000 Class B Common Shares, without par value, and 1,000,000 preferred shares, the terms of which will be set by the Board of Directors upon issuance (the "Preferred Shares"). Upon the effectiveness of the Articles, each of the 100 outstanding Common Shares will become 100 Class A Common Shares. COMMON SHARES Upon completion of the Formation Transactions and the Offering, there will be 4,139,376 Class A Common Shares outstanding (4,739,376 shares if the Underwriters' over-allotment option is exercised in full) and 2,283,957 Class B Common Shares outstanding. The Class A Common Shares and Class B Common Shares are identical in all respects, except (i) that each Class A Common Share is entitled to one vote and each Class B Common Share is entitled to 10,000 votes and (ii) Class B Common Shares are subject to certain restrictions on transfer described below. In the event of a liquidation, dissolution or winding up of the Company, the holders of Class A Common Shares and Class B Common Shares are entitled to share equally and ratably in the assets of the Company, if any, remaining after paying all debts and liabilities of the Company. Subject to the rights of holders of Preferred Shares, the holders of Class A and Class B Common Shares are entitled to receive dividends, on a share-for-share basis if, as and when declared by the Board of Directors out of funds legally available therefor, subject to the Governing Documents. See "Dividend Policy." Beginning one year after the date of this Prospectus, holders of Class B Common Shares are entitled to exchange each Class B Common Share for one Class A Common Share at any time. Holders of Common Shares have the right to cumulate their votes in the election of directors. However, because of the voting control held by Mr. Jacobs, holders of Class A Common Shares will not be able to impact the election of directors even if they cumulate their votes. The Class B Common Shares are not generally transferrable except (i) in very limited instances to family members, trusts, other holders of Class B Common Shares, charitable organizations and entities controlled by such persons and (ii) in connection with a merger, consolidation or other transaction which provides that all holders of Class A Common Shares will be entitled to receive the same type and amount of consideration in respect of their shares as is provided to the holders of Class B Common Shares. These restrictions are in addition to those imposed by the Governing Documents. Any amendment to these provisions requires, in addition to a vote of the holders of Class B and Class A Common Shares voting together, the vote of a majority of the Class A Common Shares, exclusive of any Class A Common Shares held by a holder of Class B Common Shares or an affiliate of any such holder. These restrictions on transfer are subject to a one-time exception that will permit the holders of Class B Common Shares to transfer Class B Common Shares to any person or group of persons (collectively, an "Acquiring Person") in a transaction within three years following Mr. Jacobs' death. This exception will not apply to any subsequent transfer by an Acquiring Person, and all Class B Common Shares acquired by an Acquiring Person will be subject to the restrictions on transfer described above. In addition, for a period of three years following the date that an Acquiring Person first becomes the beneficial owner of Class B Common Shares (the "Acquisition Date") neither the Acquiring Person nor any affiliate of the Acquiring Person may make a tender offer for Class A Common Shares or merge or consolidate with the Company, propose to acquire or authorize the acquisition by the Acquiring Person or its affiliates of substantially all the assets of the Company, or authorize or vote any Common Shares in favor of an amendment to the Articles to effect any recapitalization, reverse stock split or other similar transaction with respect to the Common Shares which, if effected, would directly or indirectly increase the Acquiring Person's beneficial ownership of Common Shares, unless in any such case, all holders of Class A Common Shares receive or are entitled to receive for their Class A Common Shares consideration having a value equal to the greater of: (i) the average price per share that the Acquiring Person paid for the Common Shares (or securities convertible into or exchangeable for 60 62 Common Shares) in connection with the transaction or series of transactions in which the Acquiring Person became such; and (ii) the fair market value of a Class A Common Share on the date prior to the public announcement of any of the transactions described above (determined on the basis of the average closing price of a Class A Common Share during the 20 trading days preceding the date of such announcement). The Governing Documents contain limitations on the ownership by clubs and their owners, shareholders, officers, directors and employees of stock and other financial interests in other MLB clubs. In particular, the Governing Documents require that any person acquiring more than a 5% interest in a publicly-traded entity that owns a club obtain approval of the Commissioner before making such acquisition. To ensure the Club's compliance with the Governing Documents, the Company's Amended and Restated Articles of Incorporation state that no person (other than Mr. Jacobs) may beneficially own 5% or more of the Class A Common Shares without first receiving written approval from the Office of the Commissioner. The Company's Amended and Restated Articles of Incorporation also require any person beneficially owning 5% or more of the Class A Common Shares to submit at the Company's request a statement stating such information as the Company may request in order to ensure compliance with the Amended and Restated Articles of Incorporation and the Governing Documents. Failure by a holder of Class A Common Shares to comply with these restrictions may result in a forced sale of such holder's interest or the repurchase of such interests by the Company. The Company's Articles of Incorporation 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 Class A Common Shares without the approval of MLB. These restrictions will be contained in a legend on each certificate issued evidencing Class A Common Shares. All of the Common Shares to be issued in connection with the Formation Transactions will be fully paid and nonassessable, and all of the shares of Class A Common Shares offered hereby, when issued, will be fully paid and nonassessable. PREFERRED SHARES The Board of Directors is authorized to issue, from time to time, without further action by the shareholders, Preferred Shares in one or more classes or series, and to fix or alter the designations, powers and preferences, and relative, participating, optional or other rights, if any, and qualifications, limitations or restrictions thereof, including, without limitation, dividend rights (and whether dividends are cumulative), conversion rights, if any, rights and terms of redemption (including sinking fund provisions, if any), redemption price and liquidation preferences of any unissued shares or wholly unissued series of Preferred Shares. In addition, the Board may establish the number of shares constituting any such class or series and the designation thereof, and increase or decrease the number of shares of any such class or series subsequent to the issuance of shares of such class or series, but not below the number of shares of such class or series then outstanding. CERTAIN PROVISIONS OF OHIO LAW Section 1701.59 of the Ohio Revised Code (the "Ohio Code") provides, with certain limited exceptions, that a director shall be held liable in damages for any action he takes or fails to take as a director only if it is proved by clear and convincing evidence that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the corporation or with reckless disregard for its best interest. In addition, Section 1701.59 of the Ohio Code provides that a director of an Ohio corporation, in determining what he reasonably believes to be in the best interests of the corporation, shall consider the interests of the corporation's shareholders and may consider, in his discretion, any of the following: (i) the interests of the corporation's employees, suppliers, creditors and customers; (ii) the economy of the State of Ohio and the nation; (iii) community and societal considerations; and (iv) the long-term as well as short-term interests of the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation. The Ohio Code also authorizes Ohio corporations to indemnify officers and directors from liability if the officer or director acted in good faith and in a manner reasonably believed by the officer or director to be in or 61 63 not opposed to the best interests of the corporation, and, with respect to any criminal actions, if the officer or director had no reason to believe his action was unlawful. In the case of an action by or on behalf of a corporation, indemnification may not be made (i) if the person seeking indemnification is adjudged liable for negligence or misconduct, unless the court in which such action was brought determines such person is fairly and reasonably entitled to indemnification or (ii) if liability asserted against such person concerns certain unlawful distributions. The indemnification provisions of the Ohio Code require indemnification if a director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding that he was a party to by reason of the fact that he is or was a director or officer of the corporation. The indemnification authorized under Ohio law is not exclusive and is in addition to any other rights granted to officers and directors under the articles of incorporation or code of regulations of the corporation or any agreement between officers and director and the corporation. A corporation may purchase and maintain insurance or furnish similar protection on behalf of any officer or director against any liability asserted against him and incurred by him in his capacity, or arising out of the status, as an officer or director, whether or not the corporation would have the power to indemnify him against such liability under the Ohio Code. Section 1707.041 of the Ohio Code regulates control bids for corporations in Ohio having certain concentrations of Ohio shareholders and permits the Ohio Division of Securities to suspend a control bid if certain information is not provided to offerees. A control bid includes the purchase or offer to purchase any equity security of the Company from a resident of Ohio if, after the purchase of that security, the offeror would be directly or indirectly the beneficial owner of more than 10% of any class of issued and outstanding equity securities of the Company. Section 1707.043 of the Ohio Code, the so-called "green mail disgorgement" statute, provides an Ohio corporation, or in certain circumstances the shareholders of an Ohio corporation, the right to recover profits realized under certain circumstances by persons who dispose of securities of a corporation within 18 months of proposing to acquire such corporation. It is possible that the foregoing provisions will discourage other persons from making a tender offer for or acquisition of substantial amounts of the Company's Common Shares, or may delay changes in control or management of the Company. The Company has elected in its Articles of Incorporation not to be subject to Ohio's "Merger Moratorium" statute (Chapter 1704 of the Ohio Revised Code) and its "Control Share Acquisition" statute (Section 1701.831 of the Ohio Revised Code) in light of the control of the Company represented by the Class B Common Shares and the Ownership Restrictions imposed by the Governing Documents. REGISTRAR AND TRANSFER AGENT The registrar and transfer agent for the Class A Common Shares is National City Bank of Cleveland, Ohio. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, of the 27,000,000 authorized Class A Common Shares, 4,139,376 Class A Common Shares will be issued and outstanding or reserved for issuance pursuant to the exercise of presently exercisable stock options. Of these 4,139,376 Class A Common Shares, the 4,000,000 shares purchased in the Offering by persons who are not "affiliates" of the Company will be freely tradeable, without restriction under the Securities Act. The Company believes that the 139,376 Class A Common Shares and the 2,283,957 Class B Common Shares to be issued to the Jacobs family trusts and Mr. Cleary in the Formation Transactions will be considered "restricted securities" under the Securities Act and the Jacobs family trusts and Mr. Cleary may not utilize Rule 144 until such shares have been held for at least one year. Each of the 6,043,334 limited partnership Units of the Partnership held by CBC is exchangeable, beginning one year after the date hereof, into one Class A Common Share. The Class A Common Shares issuable upon such exchange will be restricted securities within the meaning of the Securities Act. However, the Company has granted to CBC certain "piggy-back" registration rights with respect to the Class A Common Shares issued in exchange for Partnership Units. These rights permit CBC to include, at the cost of the Company, such Class A 62 64 Common Shares in certain registration statements filed by the Company with respect to Class A Common Shares. The up to 700,000 Class A Common Shares reserved for issuance upon exercise of options that may be granted pursuant to the Stock Option Plan will become eligible for resale under Rule 144 one year subsequent to the date or dates that the holders of such options exercise the same. Subsequent to the Offering, however, the Company intends to file a registration statement on Form S-8 with respect to the 700,000 Class A Common Shares reserved for issuance upon exercise of options that may be granted pursuant to the Stock Option Plan. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned his or her shares for at least one year, including an "affiliate," as that term is defined below, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares or the average weekly trading volume of the then outstanding shares during the four calendar weeks preceding each such sale. A person (or persons whose shares are aggregated) who is not deemed an "affiliate" of the Company, and who has beneficially owned shares for at least two years, is entitled to sell such shares under Rule 144 without regard to the volume limitations described above. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly, through the use of one or more intermediaries, controls, or is controlled by, or is under the common control with, such issuer. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Class A Common Shares prevailing from time to time. Sales of substantial amounts of Class A Common Shares (including shares issued upon the exercise of the outstanding stock options), or the perception that such sales could occur, could adversely affect the prevailing market prices for the Class A Common Shares. The Company and the directors, proposed directors, executive officers and current shareholders of the Company have agreed that they will not, directly or indirectly, without the prior written consent of McDonald & Company Securities, Inc., sell, offer to sell, contract to sell, grant any option for the sale, transfer, distribute or otherwise dispose of (or publicly announce any intention to do any of the foregoing) any Class A Common Shares, or any securities convertible into, or exchangeable or exercisable for, Class A Common Shares, for a period of 270 days from the date of this Prospectus, subject to certain exceptions. 63 65 UNDERWRITING In the Underwriting Agreement, the Underwriters, represented by McDonald & Company Securities, Inc. (the "Representative"), have agreed, severally, subject to the terms and conditions therein set forth, to purchase from the Company, and the Company has agreed to sell to them, the number of Class A Common Shares totaling 4,000,000 shares, set forth opposite their respective names below. The Underwriters are committed to take and pay for all shares if any shares are purchased.
NUMBER OF UNDERWRITERS SHARES ------------ --------- McDonald & Company Securities, Inc.......................... --------- Total............................................. 4,000,000 =========
The Company has been advised by the Representative that the Underwriters propose to offer the Class A Common Shares to the public at the public offering price set forth on the cover page of this Prospectus. The Underwriters may allow to certain selected dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per share, and the Underwriters may allow, and such selected dealers may re-allow, a discount not exceeding $ per share to other dealers who are members of the NASD. After the Offering, the public offering price and the discount to dealers may be changed by the Representative. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 600,000 Class A Common Shares at the public offering price, less the underwriting discount, as set forth on the cover page of this Prospectus. The Underwriters may exercise that option only to cover over-allotments in the sale of the Class A Common Shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase the same percentage of the option shares as the number of shares to be purchased and offered by that Underwriter in the table above bears to the total. The Company has agreed to indemnify the Underwriters against certain liabilities which may be incurred in connection with the Offering, including liabilities under the Securities Act of 1933. The Company and the directors, proposed directors, executive officers and current shareholders of the Company have agreed that they will not, directly or indirectly, without the prior written consent of McDonald & Company Securities, Inc., sell, offer to sell, contract to sell, grant any option for the sale, transfer, distribute or otherwise dispose of (or publicly announce any intention to do any of the foregoing) any Class A Common Shares, or any securities convertible into or exchangeable for Class A Common Shares, for a period of 270 days from the date of this Prospectus, subject to certain exceptions. The Representative has advised the Company that the Underwriters do not intend to confirm sales of Class A Common Shares offered by this Prospectus to any accounts over which they exercise discretionary authority. Class A Common Shares will be offered in round lots (100 shares and multiples thereof) only. In connection with the Offering and in compliance with applicable law, the Underwriters may over-allot or effect transactions that stabilize, maintain, or otherwise affect the market price of the Class A Common Shares at levels above those that might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of 64 66 any bid, or the effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of a security. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the Offering. A penalty bid means an arrangement that permits McDonald & Company Securities, Inc., as managing underwriter, to reclaim a selling concession from a syndicate member in connection with the Offering when securities originally sold by the syndicate member are purchased in stabilizing or syndicate covering transactions. These transactions may be effected on the Nasdaq National Market or otherwise. The Underwriters are not required to engage in any of these activities. Any such activities, if commenced, may be discontinued at any time. McDonald & Company Securities, Inc. is one of the Company's major advertisers and has had a significant advertising relationship with the Company since 1994. Its advertising expenditures include the purchase of advertising signage at Jacobs Field, co-sponsorship of Indians' radio and television broadcasts and sponsorship or co-sponsorship of a variety of advertising and promotional activities involving the Indians. Prior to the Offering, there has not been any public market for Class A Common Shares. Consequently, the initial public offering price for the Class A Common Shares included in the Offering will be determined by negotiations between the Company and the Representative. Among the factors considered in determining that price will be the history of and prospects for the Company's business and the industry in which it competes, recent sales prices of Major League Baseball franchises, an assessment of the Company's management and the present state of the Company's development, the past and present revenues and earnings of the Company, the prospects for growth of the Company's revenues and earnings, and the current state of the economy in the United States and the Cleveland, Ohio, metropolitan area. Since the Company will be one of a few public companies dedicated primarily to professional sports, and the only current public company the principal business of which is Major League Baseball, the Company and the Representative were not able to use market prices of securities of other companies in the same industry as a basis for setting the initial public offering price. EXPERTS The combined financial statements of Cleveland Indians Baseball Company Limited Partnership and Ballpark Management Company as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 and the balance sheet of Cleveland Indians Baseball Company, Inc. as of March 31, 1998 included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and have been included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. VALIDITY OF SHARES The validity of the issuance of the Class A Common Shares offered hereby will be passed upon for the Company by Baker & Hostetler LLP, Cleveland, Ohio. Certain legal matters will be passed upon for the Underwriters by Calfee, Halter & Griswold LLP, Cleveland, Ohio. Edward G. Ptaszek, Jr., a proposed director of the Company, is a Baker & Hostetler LLP partner. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (of which this Prospectus is a part) under the Securities Act with respect to the Class A Common Shares offered hereby. This Prospectus does not contain all of the information contained in the Registration Statement, certain portions of which have been omitted as permitted by the rules and regulations of the Commission, and reference is made to the Registration Statement and the exhibits thereto for further information with respect to the Company and the Class A Common Shares to which this Prospectus relates. Statements contained herein concerning the provisions of any contract, agreement or other document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement for a more complete description of the matter involved, and each such statement is qualified in its 65 67 entirety by such reference. The Registration Statement, including the exhibits and schedules filed therewith, may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60606. Copies of these documents may be obtained, upon payment of a duplication fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The Commission also maintains a Web site (address http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company intends to furnish its shareholders with annual reports containing audited financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited summary financial information. 66 68 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CLEVELAND INDIANS BASEBALL COMPANY, INC. Independent Auditors' Report................................ F-2 Balance Sheet as of March 31, 1998.......................... F-3 Note to Balance Sheet....................................... F-4 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY Independent Auditors' Report................................ F-5 Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited)................................ F-6 Combined Statements of Income for the Years Ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998 (unaudited)............................. F-7 Combined Statements of Accumulated Equity (Deficit) for the Years Ended December 31, 1995, 1996 and 1997 and three months ended March 31, 1998 (unaudited)................... F-8 Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998 (unaudited)................. F-9 Notes to Combined Financial Statements for the Years Ended December 31, 1995, 1996 and 1997 and three months ended March 31, 1997 and 1998 (unaudited)....................... F-10
F-1 69 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Cleveland Indians Baseball Company, Inc. Cleveland, Ohio We have audited the accompanying balance sheet of Cleveland Indians Baseball Company, Inc. as of March 31, 1998. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement 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 balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, such balance sheet presents fairly, in all material respects, the financial position of Cleveland Indians Baseball Company, Inc. as of March 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Cleveland, Ohio April 1, 1998 F-2 70 CLEVELAND INDIANS BASEBALL COMPANY, INC. BALANCE SHEET MARCH 31, 1998 ASSETS...................................................... $ ==== LIABILITIES AND SHAREHOLDERS' EQUITY COMMITMENTS AND CONTINGENCIES (Note 1) SHAREHOLDERS' EQUITY: Common shares, without par value; 850 shares authorized, 100 shares issued and outstanding...................... $1,500 Subscriptions receivable.................................. (1,500) ---- Total shareholders' equity............................. ---- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ ====
See note to balance sheet. F-3 71 CLEVELAND INDIANS BASEBALL COMPANY, INC. NOTE TO BALANCE SHEET MARCH 31, 1998 1. ORGANIZATION FORMATION, OFFERING AND USE OF PROCEEDS -- Cleveland Indians Baseball Company, Inc. (the "Company"), is an Ohio corporation, incorporated on March 17, 1998. The Company has been organized to acquire the sole general partnership interest of, and controlling interest in, Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Partnership"), through several concurrent transactions, more fully described below, with the intent of selling 4,000,000 Class A Common Shares to the public through an initial public offering (the "Offering"). The following transactions are being contemplated: - ISSUANCE OF COMMON STOCK PRIOR TO OFFERING -- The Company will issue and sell 133,233 common shares to the original shareholders and Martin J. Cleary at $15.00 per share. - MERGERS OF BALLPARK MANAGEMENT COMPANY AND MJC BASEBALL, INC. -- Ballpark Management Company ("Ballpark Management") and MJC Baseball, Inc. ("MJC") will be merged with and into the Company. - CONTRIBUTION OF BALLPARK MANAGEMENT ASSETS, BUSINESS AND CONTRACT RIGHTS TO THE PARTNERSHIP -- Upon completion of the mergers described above, the Company will contribute to the Partnership all of the assets, business, contract rights and liabilities held by Ballpark Management immediately prior to the mergers in exchange for partnership interests in the Partnership. - PURCHASE OF ADDITIONAL GENERAL PARTNERSHIP INTERESTS -- Upon completion of the contribution described above, the Company will purchase additional general partnership interests from Cleveland Baseball Company ("CBC") with the net proceeds of the Offering. Upon completion of the purchase, the Company will be the sole general partner of the Partnership with at least a 51% interest in the Partnership. Upon completion of the sale of partnership interests, CBC will convert its remaining general partnership interest into a 49% limited partnership interest in the Partnership. AMENDMENT OF ARTICLES OF INCORPORATION -- In conjunction with the above transactions, the Company will amend its Articles of Incorporation to authorize preferred shares and two classes of common shares. The amendment will authorize 1,000,000 Preferred Shares, without par value, 27,000,000 Class A Common Shares, without par value, and 3,000,000 Class B Common Shares, without par value. Each Class A Common Share will entitle the holder to one vote and each Class B Common Share will entitle the holder to 10,000 votes. PARTNERSHIP AGREEMENT -- In accordance with the Limited Partnership Agreement of the Partnership (the "Partnership Agreement"), all allocations of distributions and profits and losses are to be made in proportion to the percentage ownership interests of the respective partners. As sole general partner of the Partnership, the Company will have the exclusive authority under the Partnership Agreement to manage and conduct the business of the Partnership, subject to certain limitations contained in the Partnership Agreement. EXCHANGE RIGHTS -- Pursuant to the Partnership Agreement, and subject to certain limits, the limited partner will be granted rights to exchange all, or a portion of, its limited partnership interests in the Partnership for Class A Common Shares, subject to the right of the Company to substitute cash for shares. F-4 72 INDEPENDENT AUDITORS' REPORT To the Partners of Cleveland Indians Baseball Company Limited Partnership and the Board of Directors of Ballpark Management Company Cleveland, Ohio We have audited the accompanying combined balance sheets of Cleveland Indians Baseball Company Limited Partnership and Ballpark Management Company (collectively the "Company") as of December 31, 1996 and 1997, and the combined statements of income, accumulated equity (deficit) and cash flows for each of the three years in the period ended December 31, 1997. These entities are under common ownership and common management. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the combined financial position of Cleveland Indians Baseball Company Limited Partnership and Ballpark Management Company as of December 31, 1996 and 1997, and the combined results of their operations and their combined cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Cleveland, Ohio February 14, 1998 (March 31, 1998 as to Note 17) F-5 73 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY COMBINED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31, -------------------- ----------- 1996 1997 1998 -------- -------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 654 $ 3,732 $ 2,055 Investments............................................. 40,985 57,909 63,881 Receivables and accrued income.......................... 3,662 7,867 8,078 Merchandise inventories................................. 1,249 1,568 2,196 Prepaid expenses and other current assets............... 2,159 5,040 6,007 Deposit for grievance settlement (Note 12).............. 11,519 9,079 9,195 -------- -------- -------- Total current assets............................ 60,228 85,195 91,412 FIXED ASSETS: Leasehold improvements, furniture and fixtures and other equipment, at cost......................... 5,813 7,685 8,054 Less accumulated depreciation and amortization.......... 1,896 2,757 2,962 -------- -------- -------- Total fixed assets, net......................... 3,917 4,928 5,092 PREPAID SIGNING BONUSES AND PLAYER CONTRACTS (Net of accumulated amortization)....................... 6,383 10,743 10,779 INTANGIBLE ASSETS (Net of accumulated amortization) (Note 3)...................................................... 11,745 11,048 10,850 OTHER ASSETS (Notes 9 and 11)............................. 4,999 6,238 6,904 -------- -------- -------- TOTAL..................................................... $ 87,272 $118,152 $125,037 ======== ======== ======== LIABILITIES AND ACCUMULATED EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued liabilities (Note 6)....... $ 12,703 $ 16,941 $ 15,536 Deferred revenue........................................ 33,415 41,375 73,261 Current portion of long-term liabilities (Note 7)....... 416 7,496 2,663 Deferred expansion revenue (Note 8)..................... 4,071 Reserve for players' grievance damages (Note 12)........ 11,519 9,079 9,195 -------- -------- -------- Total current liabilities....................... 62,124 74,891 100,655 LONG-TERM LIABILITIES (Note 7)............................ 33,458 45,811 50,708 COMMITMENTS AND CONTINGENCIES (Notes 12 and 13) ACCUMULATED EQUITY (DEFICIT): Common shares, without par value (750 shares authorized, 100 shares issued and outstanding)................... -- -- -- Owners' Investment...................................... 15,037 32,950 (26,326) Loan to general partner (Note 5)........................ (23,347) (35,500) -- -------- -------- -------- Total accumulated equity (deficit).............. (8,310) (2,550) (26,326) -------- -------- -------- TOTAL..................................................... $ 87,272 $118,152 $125,037 ======== ======== ========
See notes to combined financial statements. F-6 74 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY COMBINED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------- ------------------- 1995 1996 1997 1997 1998 ------- ------- ------- ------- -------- (UNAUDITED) REVENUES: Net ticket sales...................... $32,267 $45,658 $49,279 $ 1,402 $ 1,093 Local radio and television............ 9,667 13,631 17,014 38 Concession and catering (Note 10)..... 11,872 14,726 14,095 110 20 Private suite and club seat rentals... 5,635 7,035 8,704 Advertising and promotion............. 5,742 6,891 8,754 Merchandise........................... 15,024 14,683 17,449 1,043 1,432 Major Leagues Central Fund (Note 4)... 6,633 12,369 15,505 Other (primarily Major League Baseball Properties)........................ 2,979 3,002 3,365 648 675 Post-season (Note 16)................. 9,888 1,933 13,051 Provision for revenue sharing (Note 15)................................ (2,056) (5,731) (7,186) (204) (223) ------- ------- ------- ------- -------- Total revenues................ 97,651 114,197 140,030 2,999 3,035 ------- ------- ------- ------- -------- OPERATING EXPENSES: Major league team (Note 15)........... 38,904 53,420 66,125 1,512 2,430 Player development (Note 14).......... 8,298 8,735 11,146 2,436 2,484 Ballpark operations................... 9,071 10,389 10,965 1,844 1,973 Cost of merchandise sold.............. 9,224 11,692 12,982 1,435 1,582 Administrative and general (Note 14)................................ 9,769 9,275 10,292 2,271 2,473 Major Leagues Central Fund (Note 4)... 1,498 4,146 4,938 260 303 Advertising and promotion............. 3,805 2,960 3,854 1,284 927 Post-season (Note 16)................. 5,457 1,309 6,252 Amortization of signing bonuses and player contracts................... 3,242 3,212 3,630 104 225 Depreciation and amortization......... 1,361 1,326 1,629 385 397 ------- ------- ------- ------- -------- Total operating expenses...... 90,629 106,464 131,813 11,531 12,794 ------- ------- ------- ------- -------- OPERATING INCOME (LOSS)................. 7,022 7,733 8,217 (8,532) (9,759) OTHER INCOME (EXPENSE): Interest income (Note 5) Affiliate (Note 5)................. 770 1,733 2,023 394 595 Other.............................. 888 2,122 2,649 837 1,353 Interest expense...................... (2,005) (2,045) (2,301) (429) (661) Gain (loss) on player transactions.... 71 616 2,696 (1,604) League expansion proceeds (Note 8).... 9,286 ------- ------- ------- ------- -------- NET INCOME (LOSS)....................... $ 6,746 $10,159 $22,570 $(7,730) $(10,076) ======= ======= ======= ======= ========
See notes to combined financial statements. F-7 75 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY COMBINED STATEMENTS OF ACCUMULATED EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
OWNERS' LOAN TO ACCUMULATED COMMON INVESTMENT GENERAL EQUITY SHARES (DEFICIT) PARTNER (DEFICIT) ------- ---------- -------- ----------- BALANCE, January 1, 1995....................... $ -- $ (7,168) $(10,615) $(17,783) Distributions................................ -- (6,600) -- (6,600) Repayment of loan to general partner......... -- -- 3,100 3,100 Net income................................... -- 6,746 -- 6,746 ------- -------- -------- -------- BALANCE, December 31, 1995..................... -- (7,022) (7,515) (14,537) Contributions................................ -- 13,900 -- 13,900 Distributions................................ -- (2,000) -- (2,000) Loan to general partner...................... -- -- (15,832) (15,832) Net income................................... -- 10,159 -- 10,159 ------- -------- -------- -------- BALANCE, December 31, 1996..................... -- 15,037 (23,347) (8,310) Distributions................................ -- (4,657) -- (4,657) Loan to general partner...................... -- -- (12,153) (12,153) Net income................................... -- 22,570 -- 22,570 ------- -------- -------- -------- BALANCE, December 31, 1997..................... -- 32,950 (35,500) (2,550) Distributions (unaudited).................... -- (49,200) -- (49,200) Repayment of loan to general partner (unaudited)............................... -- -- 35,500 35,500 Net loss (unaudited)......................... -- (10,076) -- (10,076) ------- -------- -------- -------- BALANCE, March 31, 1998 (unaudited)............ $ -- $(26,326) $ -- $(26,326) ======= ======== ======== ========
See notes to combined financial statements. F-8 76 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY COMBINED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, ------------------------------ ------------------- 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 6,746 $ 10,159 $ 22,570 $ (7,730) $(10,076) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 4,603 4,538 5,259 489 622 (Gain) loss on player transactions...................... (71) (616) (2,696) -- 1,604 League expansion proceeds............................... -- -- (9,286) -- -- (Increase) decrease in receivables and accrued income... (2,656) 868 (1,205) (8,804) (211) Decrease (increase) in merchandise inventories.......... 220 (363) (319) (899) (628) Decrease in prepaid expenses and other current assets... (542) (2,292) (781) (2,343) (967) Decrease (increase) in other assets..................... 766 (999) 1,643 1,090 (666) Increase (decrease) in accounts payable and accrued liabilities........................................... 1,121 2,959 2,710 197 (1,058) Increase (decrease) in deferred revenue................. 36,833 (10,556) 7,960 39,293 31,667 (Decrease) increase in deferred compensation............ (323) 2,854 4,981 285 614 Increase in long-term liabilities....................... 300 300 300 75 75 -------- -------- -------- -------- -------- Net cash provided by operating activities........... 46,997 6,852 31,136 21,653 20,976 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments, net................... (16,376) (23,021) (16,924) (20,236) (5,972) Purchase of long-term investments......................... -- (2,227) (4,154) -- -- Expenditures for cash surrender value of life insurance... -- -- (900) -- -- Proceeds from sale of player contracts.................... 185 510 185 -- 363 Proceeds from expansion teams............................. 2,285 1,786 5,215 -- -- Capital expenditures...................................... (1,214) (2,701) (1,699) (437) (408) Expenditures for the purchase of player contracts and signing bonuses......................................... (1,754) (3,045) (5,028) (893) (2,936) Decrease (increase) in loan to general partner............ 3,100 (15,832) (12,153) -- 35,500 -------- -------- -------- -------- -------- Net cash (used in) provided by investing activities........................................ (13,774) (44,530) (35,458) (21,566) 26,547 -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Major League Baseball Revolving Credit Agreement............................................... -- 2,847 12,153 -- -- Principal payment on Major League Baseball Revolving Credit Agreement........................................ (4,300) (1,200) -- -- -- Payment of debt issuance costs............................ -- -- (96) -- -- Proceeds from note payable borrowings..................... 3,500 360 -- -- -- Repayment of notes payable................................ (5,500) (360) -- -- -- Contributions from general partner........................ -- 13,900 -- -- -- Distributions to general partner.......................... (6,600) (2,000) (4,657) -- (49,200) -------- -------- -------- -------- -------- Net cash (used in) provided by financing activities........................................ (12,900) 13,547 7,400 -- (49,200) -------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 20,323 (24,131) 3,078 87 (1,677) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 4,462 24,785 654 654 3,732 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 24,785 $ 654 $ 3,732 $ 741 $ 2,055 ======== ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for interest.................. $ 2,218 $ 2,026 $ 2,399 $ 429 $ 647 ======== ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: Increase in receivables relating to player transactions... $ -- $ 169 $ 3,000 $ -- $ -- ======== ======== ======== ======== ======== Increase in payables relating to player transactions...... $ 246 $ 230 $ 3,451 $ -- $ 1,967 ======== ======== ======== ======== ========
See notes to combined financial statements. F-9 77 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND BASIS OF PRESENTATION The accompanying combined financial statements include only those assets, liabilities and results of operations which relate to the business of Cleveland Indians Baseball Company Limited Partnership (the "Partnership") and Ballpark Management Company ("Ballpark Management"). The Partnership, an Ohio limited partnership, has been organized to acquire, own, maintain, operate and control the membership of the Cleveland Indians Baseball Club (the "Indians") in the American League of Professional Baseball Clubs ("American League"). Cleveland Baseball Corporation ("CBC") (an Ohio corporation) is the 99.9% general partner of the Partnership and MJC Baseball, Inc. ("MJC") is the 0.1% limited partner of the Partnership. Ballpark Management (an Ohio Corporation) was formed for the purpose of operating and managing a baseball facility ("Jacobs Field") under a long-term management agreement with Gateway Economic Development Corporation of Greater Cleveland ("Gateway"). Ballpark Management is an S Corporation owned by the Jacobs family trusts. These entities are affiliated through common ownership and common management and are collectively referred to as the "Company." The combined financial statements as of March 31, 1998 and for the three months ended March 31, 1997 and 1998, are unaudited; however, in the opinion of Management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of these interim periods have been included. The results for the interim periods ended March 31, 1997 and 1998, are not necessarily indicative of the results to be obtained for the full fiscal year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue and Expense Recognition -- Revenue from ticket sales, radio and television broadcasting and advertising and promotions generally are recorded at the time the game, to which such proceeds relate, is played. Major league team expenses, principally player compensation and game and post-season expenses, are recorded as expense on the same basis. Accordingly, advance ticket sales, payments on private suite and club seat rentals and payments for team and game expenses not earned or incurred are recorded as deferred revenues, prepaid signing bonuses and as a component of prepaid expenses and other. Such amounts are amortized ratably as regular season games are played. Administrative and general and advertising and promotional expenses are charged to operations as incurred. Ticket sales are presented net of local admission taxes of $1,972, $3,009 and $3,968 for the years ended December 31, 1995, 1996 and 1997, respectively, and net of the American League's assessment of $1,150, $1,598 and $1,612 for the years ended December 31, 1995, 1996 and 1997, respectively. Cash Equivalents -- Cash equivalents consist primarily of highly liquid investments with maturities of three months or less at date of purchase. Investments -- The Company participates in a cash management arrangement, along with other entities affiliated through common ownership. Through an affiliate, cash is accumulated and invested in certificates of deposit, bankers' acceptances, deposit notes and various debt securities. Included in the combined balance sheets is the Company's proportionate share of investments. All marketable securities are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. These securities are stated at estimated fair value based upon market quotes. Unrealized gains F-10 78 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) and losses are computed on the basis of specific identification and are included in equity. Due to the nature of the investments, there were no significant differences between amortized cost and estimated fair value at December 31, 1997. The following table presents the relative composition of investments by category at December 31, 1997: Certificates of deposit, bankers' acceptances and deposit notes.................................................... 22% U.S. government securities................................. 58 U.S. agency securities..................................... 12 Commercial paper........................................... 8 --- Total...................................................... 100% ===
The relative contractual maturities at December 31, 1997 are as follows: Due in one year or less.................................... 40% Due after one year through five years...................... 50 Due after five years....................................... 10 --- Total...................................................... 100% ===
During 1997, the investment policy was changed resulting in a change in the composition of the portfolio. Prior to the change in the policy, the instruments held were classified as held to maturity securities and carried at amortized cost which approximates market. Merchandise Inventories -- Inventories consist primarily of apparel and novelty merchandise and are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Fixed Assets -- Leasehold improvements, furniture and fixtures and other equipment are stated at cost. Depreciation and amortization are provided by using accelerated methods over the estimated useful lives of the assets which range from 5 to 20 years. Leasehold improvements are being depreciated over the original terms of the respective leases. Prepaid Signing Bonuses and Player Contracts -- The basis of all major league player contracts acquired and signing bonuses paid are amortized on a straight-line basis over the term of the respective player's contract. Minor league player contracts acquired and signing bonuses paid are amortized on a straight-line basis over the estimated useful lives of the players, currently estimated to be 4 to 5 years. For dispositions of players not involving a trade or sale, whether by outright release, or expiration of all ownership rights, the Company's policy is to write-off the net book value of the signing bonus and any contract cost in the year of disposition. The Company accounts for trades of players as like-kind exchanges, whereby the recorded basis of the acquired player(s) is equal to the net book value of the traded player(s) (including signing bonuses and any contract cost) plus or minus any cash consideration. Gains or losses resulting from sales are recognized in F-11 79 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) the current period. Pre-paid signing bonuses and player contract costs consisted of the following at December 31, 1996 and 1997 and March 31, 1998:
DECEMBER 31 ----------------- MARCH 31, 1996 1997 1998 ------- ------- --------- Prepaid signing bonuses....................... $ 9,135 $14,928 $14,652 Player contract costs......................... 1,743 1,038 1,045 ------- ------- ------- 10,878 15,966 15,697 Less accumulated amortization................. 4,495 5,223 4,918 ------- ------- ------- Total......................................... $ 6,383 $10,743 $10,779 ======= ======= =======
Membership in American League -- The membership in the American League represents an allocation of the original purchase price of the franchise based on an independent appraisal and is amortized using the straight-line method over a 25-year period. Accumulated amortization of the membership was $6,138 and $6,752 at December 31, 1996 and 1997 and $6,905 at March 31, 1998, respectively. Deferred Lease and Other Costs -- Certain initial direct lease costs associated with the leases of baseball facilities discussed in Note 9, primarily legal and consulting services rendered to the Company during lease negotiations, have been capitalized in the accompanying combined balance sheets. The costs are being amortized on a straight-line basis over the original terms of the respective leases. Accumulated amortization of the deferred lease costs was $447, $601 and $641 at December 31, 1996 and 1997 and March 31, 1998, respectively. Deferred Expansion Revenue -- Proceeds received from expansion franchises were deferred from recognition as revenue until substantial completion of obligations under the expansion agreement. Deferred Compensation -- Provisions of employment contracts of specific players and front office personnel provide for the deferral of a portion of their total compensation. The contracts generally provide that payments will begin upon retirement from baseball. Compensation expense is accrued as earned. Self Insurance -- The Company is substantially self-insured for losses related to workers' compensation claims. Losses are accrued based upon the Company's estimates of aggregate liability for claims incurred based on Company experience and certain actuarial assumptions followed in the insurance industry. Income Taxes -- No provision has been made for federal and state income taxes since these taxes are the responsibility of the owners. Fair Value of Financial Instruments -- The carrying values of cash and cash equivalents, marketable securities, accounts receivable, mutual fund shares included in other assets, accounts payable, accrued expenses and long-term liabilities are equal to, or approximate, their fair values. 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 disclosure 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. F-12 80 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) New Accounting Pronouncements -- During June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." During February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 130 requires an enterprise to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. SFAS No. 131 requires a public enterprise to report financial and descriptive information about its reportable operating segments such as a measure of segment profit or loss, certain specific revenue and expense items and segment assets. SFAS No. 132 requires an enterprise to disclose certain information about their pension and postretirement benefits, including a reconciliation of beginning and ending balances of the benefit obligation, the funded status of the plans, and the amount of net periodic benefit cost recognized. The Company is required to adopt these statements for the year ending December 31, 1998. The Company does not believe these statements will have a material impact on the combined financial statements. On January 1, 1998 the Company adopted SFAS No. 130. Such adoption had no impact on the Company's financial statements as of and for the three months ended March 31, 1998. 3. INTANGIBLE ASSETS Intangible assets consisted of the following at December 31, 1996 and 1997 and March 31, 1998:
DECEMBER 31, ----------------- MARCH 31, 1996 1997 1998 ------- ------- --------- Membership in American League...................... $15,345 $15,345 $15,345 Deferred lease and other costs..................... 2,985 3,081 3,081 ------- ------- ------- 18,330 18,426 18,426 Less accumulated amortization...................... 6,585 7,378 7,576 ------- ------- ------- Total.............................................. $11,745 $11,048 $10,850 ======= ======= =======
4. MAJOR LEAGUES CENTRAL FUND The Major Leagues Central Fund ("MLCF") was established by the Commissioner of Baseball to collect certain revenues and pay certain expenses that relate to the operation of Major League Baseball ("MLB"). Substantially all of the net revenues of the MLCF are distributed to the 28 major league baseball teams. The principal component of MLCF revenue is national television and radio revenue. The principal component of the MLCF expenses is the contribution to the Major League Baseball Players' Benefit Plan (see Note 11). The remaining expenses are for the Office of the Commissioner, the Major League Baseball Player Relations Committee, Inc. and the MLCF operating and administrative costs. 5. LOAN TO GENERAL PARTNER A loan to the general partner of $23,347 and $35,500 was outstanding at December 31, 1996 and 1997, respectively. The note is payable upon demand and interest accrues at rates consistent with the Company's borrowings under the Major League Baseball Revolving Credit Agreement (see Note 7). F-13 81 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consisted of the following at December 31, 1996 and 1997 and March 31, 1998:
DECEMBER 31, MARCH 31, ----------------- --------- 1996 1997 1998 ------- ------- --------- Accrued player bonus/signing bonus..................... $ 1,324 $ 2,775 $ 1,000 Accounts payable....................................... 3,726 3,001 4,106 Accrued payroll and related benefits................... 1,882 3,839 2,170 Other accrued liabilities.............................. 5,771 7,326 8,260 ------- ------- ------- Total.................................................. $12,703 $16,941 $15,536 ======= ======= =======
Other accrued liabilities include liabilities for revenue sharing, luxury tax payments and other obligations. 7. LONG-TERM LIABILITIES Long-term liabilities consisted of the following at December 31, 1996 and 1997 and March 31, 1998:
DECEMBER 31, MARCH 31, ----------------- --------- 1996 1997 1998 ------- ------- --------- Major League Baseball Revolving Credit Agreement....... $23,347 $35,500 $35,500 Deferred compensation (Note 11)........................ 7,308 12,197 12,810 Deferred revenue....................................... 1,434 1,524 1,298 Other.................................................. 1,785 4,086 3,763 ------- ------- ------- 33,874 53,307 53,371 Less current portion................................... 416 7,496 2,663 ------- ------- ------- Total.................................................. $33,458 $45,811 $50,708 ======= ======= =======
Major League Baseball Revolving Credit Agreement -- In June of 1996, the Company entered into a revolving credit facility ("facility") which replaced the previous agreement arranged by MLB and funded by a bank group. The facility is administered by a trust established by MLB. The trust has borrowings from the syndicated lenders, the funds of which have been loaned to the participating clubs. Commitment fees of .25% of the unused portion of the facility are required. The interest rate is based upon the lender's Commercial Base Rate or LIBOR plus .875% (LIBOR plus 1.125% in 1996) and was 6.75%, 6.78% and 6.78% at December 31, 1996 and 1997 and March 31, 1998, respectively. Total credit available of $25,000, $35,500 and $35,500 at December 31, 1996 and 1997 and March 31, 1998, respectively, is reduced by a labor contingency reserve sufficient to service nine months' interest expense as mandated by the agreement. The facility contains various covenants of which the Company was in compliance at December 31, 1996 and 1997. Additionally, MLB has represented to the Company that the trust is in compliance with various covenants at December 31, 1996 and 1997. The Company's borrowings against the facility are secured by its interest in, rights under, and funds from existing and future national broadcasting contracts, rights under certain licensing contracts, and rights under the Major League Agreements. Repayment terms under the facility are as follows: $4,750 in 1998; $6,250 in 1999; and $24,500 in 2000. At March 31, 1998 the current portion of the facility has been reflected as a long term liability as a result of the re-negotiation of the terms of the agreement in April 1998. The new terms of the agreement require F-14 82 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) interest only payments through April 2001 at which time the facility may convert to a four year term loan with principal repayments on the outstanding balance as follows: 15% in the first year, 20% in the second year, 25% in the third year and 40% in the fourth year. The interest rate on the facility, based upon LIBOR plus .35%, was 6.07% at April 17, 1998. Deferred Revenue -- Deferred revenue includes club seat deposits which will be applied against the final year payment or refunded in the final year of the related club seat license agreements. Line of Credit -- The Company has a line of credit agreement with a bank that provides for borrowings up to $9,000 at either the bank's base lending rate or LIBOR plus 1.75%. Availability is reduced to $2,000 during the period from December 1 to February 28, and the line must be repaid in full for a period of 30 consecutive days throughout the term of the note. During 1996, this agreement was amended to provide for an extension of the maturity date to November 1, 1998, at which time the outstanding loan balance may be converted to a four-year term note, subject to certain terms and conditions. No borrowings on this line were outstanding at December 31, 1996 and 1997 and March 31, 1998. The principals of the general partner are guarantors on the note. Availability under the line of credit was reduced by a $375 standby letter of credit at December 31, 1996 and 1997 and March 31, 1998 (see Note 13). Scheduled maturities on long-term liabilities as of December 31, 1997 were as follows: Year ending December 31, 1998...................................................... $ 7,496 1999...................................................... 7,706 2000...................................................... 28,363 2001...................................................... 454 2002...................................................... 1,027 Thereafter................................................ 8,261 ------- Total..................................................... $53,307 =======
8. LEAGUE EXPANSION PROCEEDS In March 1995, the American and National Leagues and the 28 existing member clubs signed an agreement to award expansion franchises to two expansion groups. The expansion groups each paid a fee of $130,000 in installments from July of 1995 through November of 1997. In 1995, 1996 and 1997, the Company received $2,285, $1,786 and $5,215, respectively, representing its share of the installment payments. The Company recognized these fees as income upon completion of the expansion draft in 1997. 9. LEASE, MANAGEMENT AND NAMING RIGHTS AGREEMENTS Jacobs Field -- The Company is a party to a lease agreement (the "Agreement") with Gateway for the construction and use of Jacobs Field. Jacobs Field is owned by Gateway and leased to and operated by the Company. The term of the Agreement is 20 years and commenced in April 1994, the date the Company occupied Jacobs Field. There is no minimum annual lease payment required, although the Company is liable for rental payments if certain paid attendance levels are achieved, as defined in the Agreement. If paid attendance is less than 1.85 million, then no rent is due. The Company incurred $1,303, $1,634 and $2,144 in rent for 1995, 1996 F-15 83 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) and 1997, respectively. Additionally, the Company has the ability under the Agreement to offset certain capital expenditures incurred against rental payments due to Gateway. Under the terms of a related common area management agreement, the Company receives one-third of all net revenues, as defined, generated from the common areas. No revenues were received from common areas for the years ended December 31, 1995, 1996 and 1997. Management Agreement -- Concurrent with entering into the Agreement, the Company entered into a management agreement with Gateway to manage and operate Jacobs Field and to market and license all premium seating, as defined. The term of the management agreement coincides with that of the Agreement. Under the terms of the management agreement, the Company has the exclusive right to receive all ballpark related revenues, as defined. The annual management rights fee payable to Gateway is based upon a share of net main scoreboard advertising revenue in excess of a base amount as adjusted annually for increases in the Consumer Price Index plus a share of net special event revenue, as defined in the management agreement. The Company's management rights fee expense was $78, $79 and $193 for the years ended December 31, 1995, 1996 and 1997, respectively. Pursuant to the management agreement, the Company is required to market and license all premium seating, as defined. Funds collected from premium seating are remitted to a trustee to the extent of certain portions of Gateway's debt service obligations. The Company is entitled to revenues in excess of the debt service obligations, which cannot exceed $2,950 in a term year, as defined in the management agreement. The Company acts in the capacity of an agent in regards to the collection of these funds and, accordingly, has reflected only that amount in excess of Gateway's debt service obligations as revenue in the accompanying combined statements of income. The total funds collected and remitted to the trustee in 1995, 1996 and 1997 in connection with the 1995, 1996 and 1997 baseball seasons were $2,505, $2,507 and $2,505, respectively. Included in other assets at December 31, 1996 and 1997 are deposits for long-term club seat rentals totaling $1,207 and $1,298, respectively, representing restricted funds that will be applied against the final year payment under the related club seat license agreement. Additionally, as a result of the MLBPA strike during 1994 and 1995, the Company provided rent credits to non-Founder private suite and club seat licensees in the amount of $833 during 1995 based on 9 of the 81 home games being canceled during the 1995 season. The credits were utilized to reduce rental payments due to the Company for the 1996 season. Naming Rights Agreement -- The Company and Richard E. Jacobs are parties to an agreement with Gateway for the naming rights to the baseball facility. The term of the naming rights agreement coincides with that of the Agreement. Under the terms of the naming rights agreement, the parties are able to change the name of the facility throughout the term of the agreement and have the exclusive merchandising and use rights for the commercial exploitation of the baseball facility name. Richard E. Jacobs has assigned to the Company all of his rights under the naming rights agreement and any future revenue generated from the sale or marketing of the baseball facility name. The Company is required to make annual payments to Gateway of $400 annually through 2003 and $989 annually thereafter through 2013. The payments are to be made from premium seating revenue proceeds. The Company has recognized expense on a straight-line basis over the term of the agreement. Retail, Warehouse Space and Spring Training Facilities -- The Company has entered into various agreements to lease retail, warehouse space and spring training facilities. Rental expense under the provisions of these agreements was $320, $403 and $970 inclusive of rental expense to related parties of $194, $213 and F-16 84 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) $554, for the years ended December 31, 1995, 1996 and 1997, respectively. Additionally, the Company shares advertising, ticket, concession and parking revenues with the City of Winter Haven, Florida, for the use of its spring training facilities. Future minimum annual commitments under the retail and warehouse space leases, the spring training facilities lease and miscellaneous other leases are as follows:
THIRD-PARTY RELATED PARTY LEASES LEASES TOTAL ----------- ------------- ------ 1998............................................. $ 580 $ 320 $ 900 1999............................................. 549 320 869 2000............................................. 313 320 633 2001............................................. 215 320 535 2002............................................. 21 261 282 Thereafter....................................... -- 895 895 ------ ------ ------ Total............................................ $1,678 $2,436 $4,114 ====== ====== ======
10. CONCESSION AND CATERING AGREEMENTS The Company and Cleveland Sportservice, Inc. ("Sportservice") have a concession agreement granting Sportservice the exclusive rights to manage and operate certain Jacobs Field food and beverage concession facilities. The Company and D.B. Kaplan's Delicatessen Limited Partnership II ("Levy") have an agreement, whereby Levy provides certain other food, beverage and catering services at Jacobs Field. Pursuant to the terms of the concession and catering agreements, the Company receives as a commission certain percentages of food and beverage concession and catering sales at Jacobs Field. In addition, the Company receives a percentage of the Sportservice and Levy fiscal year net profits earned at Jacobs Field, as defined. 11. BENEFIT PLANS Major League Baseball Players' Benefit Plan -- The Company's major league baseball players and coaches are covered under the Major League Baseball Players' Benefit Plan which is administered by the MLCF and represents a multiemployer defined benefit plan. Payments to the Players' Benefit Plan are made out of proceeds received by the MLCF (see Note 4). The Company's share of the contribution to the plan was $293, $2,429 and $2,429 in 1995, 1996 and 1997, respectively. The 1995 contribution was based upon an agreement between the MLBPA and the Office of the Commissioner of Baseball that a reduced contribution would be made for the 1995 strike-shortened season. Major League Baseball Pension Plan for Non-Uniformed Personnel -- The Company also participates in the Major League Baseball Pension Plan for Non-Uniformed Personnel, which is administered by the Office of the Commissioner of Baseball. The benefits are based on years of service and the employee's compensation during the last five years of employment. The plan is a single-employer defined benefit plan which covers substantially all employees of the Company exclusive of major league players and coaches. F-17 85 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Significant assumptions used in the non-uniformed plan actuarial valuation were as follows:
1995 1996 1997 ----- ----- ----- Discount rate............................................ 7.5% 7.5% 7.0% Expected rate of increase in compensation................ 5.5% 5.5% 5.5% Expected long-term rate of return on assets.............. 9.0% 9.0% 9.0%
Net periodic pension costs for the non-uniformed plan include the following:
1995 1996 1997 ----- ----- ----- Service cost-benefits earned during the period........... $ 266 $ 469 $ 570 Interest cost on projected benefit obligation............ 192 265 283 Return on assets......................................... (341) (257) (529) Amortization and deferral of gains and losses............ 160 67 325 ----- ----- ----- Net periodic pension cost................................ $ 277 $ 544 $ 649 ===== ===== =====
The following table sets forth the plan's funded status and amounts recognized in the combined balance sheets at December 31, 1996 and 1997:
1996 1997 ------- ------- Actuarial present value of benefit obligations: Vested benefit obligation................................. $ 2,297 $ 3,183 Nonvested benefit obligation.............................. 126 253 ------- ------- Accumulated benefit obligation.............................. $ 2,423 $ 3,436 ======= ======= Projected benefit obligation................................ $ 3,751 $ 5,039 Fair value of plan assets (primarily listed stocks)......... 2,431 3,043 ------- ------- Projected benefit obligation in excess of plan assets....... 1,320 1,996 Unrecognized net transition obligation...................... (7) (7) Unrecognized prior service cost............................. (31) (64) Unrecognized net loss....................................... (155) (343) ------- ------- Accrued pension cost........................................ $ 1,127 $ 1,582 ======= =======
Deferred Compensation Plans -- The Company has nonqualified deferred compensation programs which permit certain current and former players and employees to annually elect (via individual contracts) to defer a portion of their compensation, on a pre-tax basis. Certain amounts under deferred compensation contracts earn a guaranteed rate of return while other amounts deferred earn variable rates of return consistent with certain mutual fund indices (see Note 2). To assist in the funding of these plans, commencing in 1996 the Company purchased partnership-owned annuity contracts and shares of mutual funds which are consistent with the indices that certain of the contracts specify. The cash surrender value of these policies and the market value of the mutual fund shares included in non-current "other assets" totaled $3,494, $5,966 and $6,632 at December 31, 1996 and 1997 and March 31, 1998, respectively, and $2,100 in prepaid expenses and other current assets at December 31, 1997 and March 31, 1998. Gains and losses on investments directly offset the deferred compensation liability. F-18 86 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 12. LEGAL MATTERS During 1987 and 1988, two Arbitrators (Roberts and Nicolau) ruled that the 26 Major League Clubs (the "Clubs"), including the Company, violated Article XVIII(H) of the Basic Agreement with the Major League Baseball Players Association (the "Basic Agreement") by acting in concert with respect to those players who became free agents following the 1985 and 1986 seasons. A similar grievance alleging violation of Article XVIII(H) and certain other provisions of the Basic Agreement was filed by the MLBPA with respect to players who became free agents following the 1987 season. No further grievances were filed by the MLBPA. In August 1989, Arbitrator Roberts issued an interim award of $10,528, representing his judgment of the aggregate amount by which salaries of approximately 140 players were reduced in 1986 by reason of the contract violation following the 1985 season. On October 31, 1989, the MLCF, on behalf of the Clubs, deposited $10,528 in an interest-bearing escrow account, to be distributed in accordance with Arbitrator Roberts' instructions in a subsequent phase of the remedial proceedings. The Company's portion of the deposit was $405. In December 1990, the owners of the Clubs voted in favor of settling all collusion claims for the sum of $280 million, plus the grant of "second look" free agency rights to a group of 16 players, none of whom were employed by the Company. For the years ended December 31, 1995, 1996 and 1997, the escrow deposit earned interest of $16,968, $17,284 and $15,847, respectively. During the years ended December 31, 1995, 1996 and 1997, $9,964, $-0- and $81,230, respectively, was distributed to the players. The remaining balance will be distributed in subsequent years. The Company funded its remaining liability under the settlement of $10,361 in 1991 through reductions in the distributions from the MLCF and prior year charges against operations. The funds withheld by the MLCF have been classified as "deposit for grievance settlement" in the accompanying combined balance sheets. The balance at December 31, 1996 and 1997 represents the net effect of the Company's share of interest earned on the deposit and distributions made to players since 1991. The interest and distributions made have been treated as non-cash activities and have not been reflected in the combined statements of income. The Company is involved in various other legal proceedings and claims which are incidental to its business. Management believes that they have meritorious defenses and will vigorously defend themselves in these actions. Although the ultimate disposition of these proceedings is not presently determinable, management does not believe that such proceedings would have a material adverse effect upon the financial condition, results of operations or cash flows of the Company. 13. CONTINGENT LIABILITIES, COMMITMENTS AND OTHER CONTRACTS Because the American League and MLB are non-profit associations, the Indians and other members of MLB are generally jointly and severally liable for the debts and obligations of the associations. Any failure of other members of MLB to pay their pro rata share of any such debt or obligation could adversely affect the Company. Under the terms of working agreements, the Company is required to reimburse various minor league clubs for certain expenses. Payments under these agreements amounted to $1,078, $1,071 and $1,227, for the years ended December 31, 1995, 1996 and 1997, respectively. F-19 87 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Employment contracts provide for, among other things, aggregate compensation in future years as follows: 1998................................................. $ 62,381 1999................................................. 54,421 2000................................................. 32,593 2001................................................. 23,075 2002 and thereafter.................................. 12,825 -------- Total................................................ $185,295 ========
Certain player contracts require payments that are contingent upon playing performance, length of employment with the Indians or attendance at a college prescribed by the College Scholarship Plan. Payments under these contracts amounted to $1,621, $1,467 and $1,664 for the years ended December 31, 1995, 1996 and 1997, respectively. The Company is contingently liable for payments under these plans aggregating $8,400 at December 31, 1996 and $21,872 at December 31, 1997. These amounts, which are not included in the accompanying combined financial statements, relate to contracts in effect at December 31, 1997, or entered into thereafter through February 14, 1998, the date of the auditors' report. The contracts are contingent upon continued employment with the Company, but do guarantee payment in the event a player is unable to play due to injury or death. The Company has obtained disability insurance policies for substantially all of its players under multi-year contracts. In the event of injuries sustained resulting in lost services as defined in the policies, the policies provide for payment to the Company of a portion of the player's salary for the remaining term of the contract or until the player can resume playing. The Company is substantially self-insured with respect to workers' compensation in the State of Ohio and in connection therewith, maintains a $375 standby letter of credit with a bank in order to satisfy state deposit requirements. The current letter of credit expires December 31, 1999. 14. RELATED PARTY TRANSACTIONS Included in administrative and general expense for the years ended December 31, 1995, 1996 and 1997 are allocations of legal and accounting expenses from an affiliate of $327, $335 and $267, respectively. Included in ballpark operations expense during 1996 are $523 of payroll and related taxes for game day labor services from an affiliate. Included in deferred lease costs at December 31, 1996 and 1997 are $1,423 of legal and consulting charges from an affiliate for costs incurred in connection with the development of Jacobs Field. 15. COLLECTIVE BARGAINING AGREEMENT In the Fall of 1996, MLB Owners and the MLBPA reached an agreement with respect to a five-year Collective Bargaining Agreement. The agreement became effective on January 1, 1997 and, with respect to certain provisions, was retroactive to the 1996 season. The agreement expires on the later of October 31, 2000 or the day following the last game of the 2000 World Series; except that, the MLBPA has the unilateral option to extend the agreement to October 31, 2001 or the day after the last game of the 2001 World Series, whichever is later. The Collective Bargaining Agreement introduced a new revenue sharing system and implemented for the first time a luxury tax on payrolls. F-20 88 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Revenue Sharing -- Member clubs of MLB participate in a revenue sharing system. The new revenue sharing system is being phased in over a five-year period and will be fully implemented in the 2000 season. Under the system, each club must contribute a portion, 12% in 1996 and 1997, of its net local revenue to a revenue sharing pool. The revenue sharing rate will be 16% in 1998, 17% in 1999 and 20% in 2000 and thereafter. Net local revenue is defined in the Collective Bargaining Agreement. Once the pool is accumulated, it is re-distributed to the clubs on a basis defined in the Collective Bargaining Agreement that disproportionately benefits clubs with below average revenue. Prior to 1996, local revenue sharing was generally limited to ticket receipts and local cable revenues, pursuant to which, the visiting club received a percentage of net gate receipts and local cable television revenues on a per game basis from the home team during the regular season. The 1995 combined statement of income has been presented in a similar manner as those in 1996 and 1997 to reflect the comparable effects of the previous arrangement with other clubs. Luxury Tax -- The luxury tax became effective at the beginning of the 1997 season and is only assessed on the five clubs with the highest actual payroll, as defined, above a specified threshold minimum for that season. The threshold minimum was $55,600 for 1997, and will be $59,900 for 1998 and $64,200 for 1999. If more than five teams have payrolls that exceed the threshold, the threshold is increased so that only five teams are subject to the tax. The luxury tax rate for 1997 and 1998 is 35% and for 1999 is 34%. There is no luxury tax imposed in the 2000 season. The amount that is taxed is the difference between a club's total actual payroll and the threshold minimum, as adjusted if necessary. In 1997, the Indians were assessed $2,065 pursuant to the luxury tax and have included this amount in major league team expenses in the accompanying combined statements of income. 16. POST-SEASON During 1995, 1996 and 1997, the Indians advanced to post-season play and participated in fifteen, four and eighteen post-season games, respectively. The following table sets forth the revenues and expenses relating to the post-season activity:
1995 1996 1997 ------ ------ ------- REVENUES: Net ticket sales..................................... $4,302 $ 695 $ 6,847 Local radio and television........................... 413 108 515 Concession and catering.............................. 1,473 446 2,114 Private suite rentals................................ 29 17 198 Merchandise.......................................... 2,991 282 2,507 League Championship Series distribution.............. 300 300 Other................................................ 380 385 570 ------ ------ ------- Total revenues............................... 9,888 1,933 13,051 ------ ------ ------- OPERATING EXPENSES: Major league team.................................... 705 190 1,054 Ballpark operations.................................. 1,345 518 1,901 Cost of merchandise sold............................. 1,632 224 1,421 Administrative and general........................... 1,385 106 1,417 Advertising and promotion............................ 390 271 459 ------ ------ ------- Total operating expenses..................... 5,457 1,309 6,252 ------ ------ ------- $4,431 $ 624 $ 6,799 ====== ====== =======
F-21 89 CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 17. SUBSEQUENT EVENT On March 31, 1998, the Partnership made distributions totaling $49,200 to its partners and CBC, its general partner, repaid its indebtedness of $35,500 to the Partnership. In addition, subsequent to year end, the Partnership, Ballpark Management and their respective owners, CBC, MJC and the Jacobs family trusts are reorganizing through several concurrent transactions, more fully described below, with the intent of selling shares of a newly formed corporation, Cleveland Indians Baseball Company, Inc. ("CIBC") to the public through an initial public offering (the "Offering"). The net proceeds of the Offering will be used to acquire the controlling general partnership interests in the Partnership from CBC and MJC. The following Reorganization Transactions are being contemplated: Mergers of Ballpark Management and MJC -- Ballpark Management and MJC will be merged with and into CIBC, with CIBC as the surviving corporation. Contribution of Ballpark Management Assets, Business and Contract Rights to the Partnership -- Upon completion of the mergers described above, CIBC will contribute to the Partnership all of the assets, business, contract rights and liabilities held by Ballpark Management immediately prior to the mergers in exchange for additional partnership interests. Sale of General Partnership Interests -- Upon completion of the contribution described above, CIBC will purchase partnership interests from CBC with proceeds generated from the Offering as a result of which CIBC will be the sole general partner of the Partnership with at least a 51% interest in the Partnership. Upon completion of the sale of partnership interests, CBC will convert its remaining general partnership interests to a 49% limited partnership interest in the Partnership. This limited partnership interest will be exchangeable for Class A Common Shares of CIBC, subject to the right of CIBC to substitute cash for shares. F-22 90 Photograph depicting the playing field, stands and scoreboard at Jacobs Field, along with photographs of merchandise, fans and Company employees 91 ============================================================ NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY CLASS A COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IN NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.............................. 3 Risk Factors.................................... 8 Formation Transactions.......................... 17 Use of Proceeds................................. 19 Dividend Policy................................. 19 Dilution........................................ 19 Capitalization.................................. 20 Selected Financial Data......................... 21 Pro Forma Financial Data........................ 23 Management's Discussion and Analysis of Results of Operations and Financial Condition......... 26 Business........................................ 34 Major League Baseball........................... 45 Management...................................... 52 Principal Shareholders.......................... 56 Certain Transactions............................ 57 The Partnership................................. 58 Description of Capital Shares................... 60 Shares Eligible for Future Sale................. 62 Underwriting.................................... 64 Experts......................................... 65 Validity of Shares.............................. 65 Additional Information.......................... 65 Index to Financial Statements................... F-1
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS. ============================================================ ============================================================ 4,000,000 SHARES LOGO CLEVELAND INDIANS BASEBALL COMPANY, INC. CLASS A COMMON SHARES --------------------- PROSPECTUS --------------------- MCDONALD & COMPANY SECURITIES, INC. , 1998 ============================================================ 92 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered hereunder. Except for the Commission registration fee, the NASD filing fee and the Nasdaq National Market listing fee, all amounts are estimates. Securities and Exchange Commission Registration Fee......... $ 21,712 The Nasdaq Stock Market Listing Fee......................... 65,000 National Association of Securities Dealers, Inc. Filing Fee....................................................... 7,860 Blue Sky Fees and Expenses (including counsel fees)......... 5,000 Printing and Engraving Expenses............................. 650,000 Accounting Fees and Expenses................................ 665,000 Director and Officer Liability Insurance.................... 220,000 Legal Fees and Expenses..................................... 300,000 Transfer Agent's and Registrar's Fees and Expenses.......... 35,000 Miscellaneous............................................... 30,428 ---------- Total............................................. $2,000,000 ==========
- --------------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Ohio Revised Code (the "Code") authorizes Ohio corporations to indemnify officers and directors from liability if the officer or director acted in good faith and in a manner reasonably believed by the officer or director to be in or not opposed to the best interests of the corporation, and, with respect to any criminal actions, if the officer or director had no reason to believe his action was unlawful. In the case of an action by or on behalf of a corporation, indemnification may not be made (i) if the person seeking indemnification is adjudged liable for negligence or misconduct, unless the court in which such action was brought determines such person is fairly and reasonably entitled to indemnification or (ii) if liability asserted against such person concerns certain unlawful distributions. The indemnification provisions of the Ohio Code require indemnification if a director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding that he was a party to by reason of the fact that he is or was a director or officer of the corporation. The indemnification authorized under Ohio law is not exclusive and is in addition to any other rights granted to officers and directors under the articles of incorporation or code of regulations of the corporation or any agreement between officers and directors and the corporation. A corporation may purchase and maintain insurance or furnish similar protection on behalf of any officer or director against any liability asserted against him and incurred by him in his capacity, or arising out of the status, as an officer or director, whether or not the corporation would have the power to indemnify him against such liability under the Ohio Code. The Registrant's Code of Regulations provides for the indemnification of directors and officers of the Registrant to the maximum extent permitted by Ohio law as authorized by the Board of Directors of the Registrant, for the advancement of expenses incurred in connection with the defense of any action, suit or proceeding that he was a party to by reason of the fact that he is or was a director of the Registrant upon the receipt of an undertaking to repay such amount unless it is ultimately determined that the director is entitled to indemnification. The Code of Regulations authorizes the Registrant to purchase and maintain insurance on behalf of any director, officer, employee or agent of the Registrant against any liability asserted against them in such capacity or arising out of their status as such, whether or not the Registrant would have power to indemnify such officer, employee or agent against such liability under the provisions of the Code of Regulations of the Registrant. II-1 93 The Company has entered into indemnification agreements with each of its directors and executive officers. These agreements generally: (i) confirm the existing indemnity provided to them under the Company's Code of Regulations and assure that this indemnity will continue to be provided; (ii) provide that if the Company does not maintain directors' and officers' liability insurance, the Company will, in effect, become a self-insurer of the coverage; (iii) provide that, in addition, the directors and officers shall be indemnified to the fullest extent permitted by law against all expenses (including legal fees), judgments, fines, and settlement amounts paid or incurred by them in any action or proceeding, including any action by or in the right of the Company, on account of their service as a director, officer, employee, or agent of the Company or at the request of the Company as a director, officer, employee, trustee, fiduciary, manager, member or agent of another corporation, partnership, trust, limited liability company, employee benefit plan or other enterprise; and (iv) provide for the mandatory advancement of expenses to the executive officer or director in connection with the defense of any proceedings, provided the executive officer or director agrees to reimburse the Company for that advancement if it is ultimately determined that the executive officer or director is not entitled to indemnification for that proceeding under the agreement. Coverage under the agreements is excluded: (A) on account of conduct which is finally adjudged to be knowingly fraudulent, deliberately dishonest, or willful misconduct; or (B) if a final court of adjudication shall determine that such indemnification is not lawful; or (C) in respect of any suit in which judgment is rendered for violation of Section 16(b) of the Securities Exchange Act of 1934 or similar provisions of any federal, state, or local statutory law; or (D) on account of any remuneration paid which is finally adjudged to have been in violation of law; or (E) on account of conduct occurring prior to the time the executive officer or director became an officer, director, employee, or agent of the Company or its subsidiaries (but in no event earlier that the time such entity became a subsidiary of the Company); or (F) with respect to proceedings initiated or brought voluntarily by the executive officer or director and not by way of defense, except for proceedings brought to enforce rights under the indemnification agreement. The Registrant maintains a directors' and officers' liability insurance policy which insures the officers and directors of the Registrant from any claim arising out of an alleged wrongful act by such persons in their respective capacities as officers and directors of the Registrant. Reference is made to Section 10 of the Underwriting Agreement, a copy of which is filed herewith as Exhibit 1.1, for information concerning indemnification arrangements among the Registrant and the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In connection with the formation of the Company, 100 Common Shares were issued and sold to Richard E. Jacobs, Trustee Under Declaration of Trust dated April 23, 1987 and Richard E. Jacobs, Trustee of the David H. Jacobs Marital Trust (together, the "Trusts") on April 2, 1998 for $15.00 per share. Also on such date, the Trusts and Martin J. Cleary, a director of the Company, agreed to purchase 133,233 Class A Common Shares at $15.00 per share, payable concurrently with the closing of the transactions contemplated by the Reorganization Agreement filed as Exhibit 2.1 hereto. Further, pursuant to the Reorganization Agreement, the Trusts and Mr. Cleary will receive Class A and Class B Common Shares in connection with the Formation Transactions. The obligations of the Trusts and Mr. Cleary to pay for the shares they have agreed to purchase and to complete the Formation Transactions are not subject to any conditions other than completion of the Offering. The Company relied upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933 for each of the foregoing transactions. II-2 94 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS -- The following is a list of exhibits in this Registration Statement.
EXHIBIT NO. DESCRIPTION - ------- ----------- *1.1 Proposed Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization dated April 2, 1998 among Cleveland Indians Baseball Company, Inc., Cleveland Baseball Corporation, MJC Baseball, Inc., Ballpark Management Company, Cleveland Indians Baseball Company Limited Partnership, Richard E. Jacobs, Trustee Under Declaration of Trust dated April 23, 1987, Richard E. Jacobs, Trustee of the David H. Jacobs Marital Trust and Martin J. Cleary. *3.1 Amended and Restated Articles of Incorporation of the Company. 3.2 Code of Regulations of the Company. **4.1 Form of Share Certificate for Class A Common Shares. **4.2 Form of Share Certificate for Class B Common Shares. *5.1 Opinion of Baker & Hostetler LLP regarding the legality of the Class A Common Shares being registered. 10.1 Basic Agreement between the American League, the National League and the Players Association dated December 7, 1996 (the Collective Bargaining Agreement). 10.2 Lease Agreement between Gateway and the Partnership dated July 3, 1991. 10.3 Ground Lease Agreement between Gateway and the Partnership dated July 3, 1991. 10.4 Management Agreement between Gateway and Ballpark Management dated July 3, 1991. 10.5 Common Area Maintenance Agreement between Gateway, the Partnership and Ballpark Management dated July 31, 1991. 10.6 Amended and Restated Use Agreement by and between the City of Winterhaven, Florida and the Partnership dated October 15, 1993, as amended. *10.7 Club Trust Revolving Credit Agreement among Major League Baseball Trust, Fleet Bank and the Club Trusts, dated April 17, 1998. *10.8 Ratification Agreement among Indians Club Trust and Fleet National Bank, dated April 17, 1998. *10.9 Club Trust Pledge and Security Agreement between Indians Club Trust and Major League Baseball Trust dated April 17, 1998. 10.10 Transfer Agreement between the Partnership and Indians Club Trust, dated May 22, 1992. 10.11 Amendment and Confirmation of Transfer Agreement between the Partnership and Indians Club Trust dated June 28, 1996. 10.12 Credit Agreement among the Partnership, Ballpark Management and Key Bank, N.A. (formerly known as Society National Bank) dated September 1, 1994, as amended. *10.13 Cleveland Indians Baseball Company, Inc. Long-Term Incentive Plan. 10.14 Form of Indemnification Agreement between the Company and each of its Directors. 10.15 Form of Indemnification Agreement between the Company and each of its executive officers. *10.16 Second Amendment and Confirmation of Transfer Agreement between the Partnership and Indians Club Trust, dated April 17, 1998. *10.17 Form of First Amended and Restated Agreement of Limited Partnership of the Partnership. 10.18 Second Amendment to the Club Trust Reducing Revolving Credit Agreement and the Club Trust Pledge and Security Agreement dated May 27, 1997. *10.19 Cleveland Indians Baseball Company, Inc. Directors' Deferred Compensation Plan. *10.20 Employment Agreement between the Company and John Hart. *10.21 Employment Agreement between the Company and Dennis Lehman. *10.22 Employment Agreement between the Company and Daniel J. O'Dowd. *10.23 Employment Agreement between the Company and Jeff Overton. *10.24 Employment Agreement between the Company and Ken Stefanov. *23.1 Consent of Baker & Hostetler LLP (to be contained in Exhibit 5.1). *23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney. *27.1 Financial Data Schedule.
II-3 95
EXHIBIT NO. DESCRIPTION - ------- ----------- 99.1 Consent of Edward G. Ptaszek, Jr. *99.2 Consent of Dr. Robert W. Brown. *99.3 Consent of William B. Summers, Jr.
- --------------- * Filed herewith. ** To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES Not applicable. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, 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 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 hereunder, 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 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. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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. II-4 96 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused Amendment No. 1 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Cleveland, State of Ohio, on the 12th day of May, 1998. CLEVELAND INDIANS BASEBALL COMPANY, INC. By: /s/ RICHARD E. JACOBS ----------------------------------------- Richard E. Jacobs, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1 to this Registration Statement has been signed below by the following persons in the capacities indicated on the 12th day of May, 1998.
SIGNATURE TITLE --------- ----- /s/ RICHARD E. JACOBS Chairman of the Board, - ------------------------------------------------ President, Chief Executive Richard E. Jacobs Officer and Director (principal executive officer) /s/ KENNETH E. STEFANOV Vice President, Finance - ------------------------------------------------ (principal financial officer and Kenneth E. Stefanov principal accounting officer) /s/ MARTIN J. CLEARY Director - ------------------------------------------------ Martin J. Cleary
97 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- *1.1 Proposed Form of Underwriting Agreement. 2.1 Agreement and Plan of Reorganization dated April 2, 1998 among Cleveland Indians Baseball Company, Inc., Cleveland Baseball Corporation, MJC Baseball, Inc., Ballpark Management Company, Cleveland Indians Baseball Company Limited Partnership, Richard E. Jacobs, Trustee Under Declaration of Trust dated April 23, 1987, Richard E. Jacobs, Trustee of the David H. Jacobs Marital Trust and Martin J. Cleary. *3.1 Amended and Restated Articles of Incorporation of the Company. 3.2 Code of Regulations of the Company. **4.1 Form of Share Certificate for Class A Common Shares. **4.2 Form of Share Certificate for Class B Common Shares. *5.1 Opinion of Baker & Hostetler LLP regarding the legality of the Class A Common Shares being registered. 10.1 Basic Agreement between the American League, the National League and the Players Association dated December 7, 1996 (the Collective Bargaining Agreement). 10.2 Lease Agreement between Gateway and the Partnership dated July 3, 1991. 10.3 Ground Lease Agreement between Gateway and the Partnership dated July 3, 1991. 10.4 Management Agreement between Gateway and Ballpark Management dated July 3, 1991. 10.5 Common Area Maintenance Agreement between Gateway, the Partnership and Ballpark Management dated July 31, 1991. 10.6 Amended and Restated Use Agreement by and between the City of Winterhaven, Florida and the Partnership dated October 15, 1993, as amended. *10.7 Club Trust Revolving Credit Agreement among Major League Baseball Trust, Fleet Bank and the Club Trusts, dated April 17, 1998. *10.8 Ratification Agreement among Indians Club Trust and Fleet National Bank, dated April 17, 1998. *10.9 Club Trust Pledge and Security Agreement between Indians Club Trust and Major League Baseball Trust dated April 17, 1998. 10.10 Transfer Agreement between the Partnership and Indians Club Trust, dated May 22, 1992. 10.11 Amendment and Confirmation of Transfer Agreement between the Partnership and Indians Club Trust dated June 28, 1996. 10.12 Credit Agreement among the Partnership, Ballpark Management and Key Bank, N.A. (formerly known as Society National Bank) dated September 1, 1994, as amended. *10.13 Cleveland Indians Baseball Company, Inc. Long-Term Incentive Plan. 10.14 Form of Indemnification Agreement between the Company and each of its Directors. 10.15 Form of Indemnification Agreement between the Company and each of its executive officers. *10.16 Second Amendment and Confirmation of Transfer Agreement between the Partnership and Indians Club Trust, dated April 17, 1998. *10.17 Form of First Amended and Restated Agreement of Limited Partnership of the Partnership. 10.18 Second Amendment to the Club Trust Reducing Revolving Credit Agreement and the Club Trust Pledge and Security Agreement dated May 27, 1997. *10.19 Cleveland Indians Baseball Company, Inc. Directors' Deferred Compensation Plan. *10.20 Employment Agreement between the Company and John Hart. *10.21 Employment Agreement between the Company and Dennis Lehman. *10.22 Employment Agreement between the Company and Daniel J. O'Dowd. *10.23 Employment Agreement between the Company and Jeff Overton. *10.24 Employment Agreement between the Company and Ken Stefanov. *23.1 Consent of Baker & Hostetler LLP (to be contained in Exhibit 5.1). *23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney. *27.1 Financial Data Schedule. 99.1 Consent of Edward G. Ptaszek, Jr. *99.2 Consent of Dr. Robert W. Brown. *99.3 Consent of William B. Summers, Jr.
- --------------- * Filed herewith. ** To be filed by amendment. EX-1.1 2 EXHIBIT 1.1 1 Exhibit 1.1 DRAFT AS OF 5-12-98 CLEVELAND INDIANS BASEBALL COMPANY, INC. 4,000,000 Class A Common Shares* UNDERWRITING AGREEMENT ---------------------- ______________, 1998 McDonald & Company Securities, Inc. As Representative of the Several Underwriters c/o McDonald & Company Securities, Inc. McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114 Dear Sirs: 1. INTRODUCTORY. Cleveland Indians Baseball Company, Inc., an Ohio corporation (the "Company"), proposes to issue and sell 4,000,000 of its Class A Common Shares, without par value (the "Common Shares"), which are authorized but unissued, to the public through the underwriters named in Schedule A annexed hereto (the "Underwriters") for whom you are acting as the Representative. The 4,000,000 Common Shares to be purchased from the Company are hereinafter referred to as the "Firm Stock." The Company also proposes to sell to the Underwriters, at their option, an aggregate of not more than 600,000 additional Common Shares solely to cover over-allotments, which are hereinafter referred to as the "Option Stock." The Firm Stock and the Option Stock are hereinafter collectively referred to as the "Stock" and are more fully described in the Registration Statement and the Prospectus (as hereinafter defined). The Company hereby confirms its agreements, as set forth herein, with you, acting as the Representative of the Underwriters. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Underwriters that: (a) The Company does not own or control, directly or indirectly, any corporation, association or other entity. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of Ohio with corporate power and - ------------------ * Plus an option to purchase up to 600,000 additional shares to cover over-allotments. 2 authority to own and lease its properties and conduct its business as described in the Prospectus (as hereinafter defined). Upon completion of the transactions described under the heading "Formation Transactions" in the Registration Statement (the "Formation Transactions"), except for Cleveland Indians Baseball Company Limited Partnership (the "Baseball Partnership"), the Company will not have any subsidiaries (as defined in Rule 1-02(x) of Regulation S-X). The Baseball Partnership has been formed and is validly existing as a partnership in good standing under the laws of Ohio with power and authority to own and lease its properties and conduct its business. Each of the Company and the Baseball Partnership is duly qualified to do business as a foreign corporation or partnership, as the case may be, and is in good standing in all jurisdictions (i) in which the conduct of business, as presently being conducted, requires such qualification and (ii) in which the Company or the Baseball Partnership owns or leases real property (except for those jurisdictions in which the failure to so qualify will not in the aggregate have a material adverse effect on the Company and the Baseball Partnership, taken as a whole). Except as disclosed in the Registration Statement and except for the partnership interest in the Baseball Partnership owned by the Company, neither the Company nor the Baseball Partnership owns, directly or indirectly, any equity securities or securities convertible into or exchangeable for equity securities of any other corporation, partnership, joint venture, Massachusetts or other business trust or any other business enterprise. (b) This Agreement has been duly and validly authorized, executed and delivered on behalf of the Company. (c) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission"), in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations of the Commission thereunder (as hereinafter defined), a registration statement on Form S-1 (Registration No. 333-49357) including a preliminary prospectus relating to the Company's Stock, and such amendments to such registration statement as may have been required prior to the date hereof have been similarly prepared and filed with the Commission. The registration statement as amended at the time when it becomes effective, or, if applicable, as amended at the time the most recent post-effective amendment to such registration statement filed with the Commission prior to the execution and delivery of this Agreement became effective (the "Effective Date"), and including information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act, and deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act is hereinafter referred to as the "Registration Statement"; the prospectus in the form first used to confirm sales of Stock, whether or not filed with the Commission pursuant to Rule 424(b) under the Act is hereinafter referred to as the "Prospectus." If an abbreviated registration statement is prepared and filed with the Commission in accordance with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the term "Registration Statement" as used in this Agreement includes the Abbreviated Registration Statement. (d) As of the Effective Date, and at all times subsequent thereto up to and including the respective Closing Dates (as hereinafter defined) of the offering, the Registration Statement and the Prospectus, and any amendments thereof or supplements thereto, -2- 3 will contain all statements of material facts which are required to be stated therein in accordance with the Act and the applicable rules, regulations and interpretive releases of the Commission thereunder (the "Rules and Regulations"), and will in all material respects conform to the requirements of the Act and the Rules and Regulations; and neither the Registration Statement nor the Prospectus, nor any amendment thereof or supplement thereto, will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representations, warranties or agreements as to information contained in the Registration Statement or the Prospectus or any such amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company through you as the Representative specifically for use in the preparation thereof. (e) The Company's duly authorized, issued and outstanding capital stock is as set forth under "Capitalization" in the Prospectus; all of the outstanding shares of capital stock of the Company are duly authorized and validly issued, fully paid and nonassessable, are free of any preemptive rights, rights of first refusal or similar rights, were issued and sold in compliance with the applicable Federal and state securities laws and conform in all material respects to the description thereof in the Prospectus; except as set forth or contemplated in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue any shares of capital stock of the Company or any security convertible or exchangeable or exercisable for capital stock of the Company. There are no holders of securities of the Company who, by reason of the filing of the Registration Statement have the right (and have not waived such right) to request the Company to include in the Registration Statement securities owned by them, other than such rights as have been satisfied by the inclusion of securities in the Registration Statement. (f) The Common Shares of the Company conform in substance to all statements in relation thereto contained in the Registration Statement and the Prospectus; the Stock to be sold by the Company hereunder has been duly authorized and, when issued and delivered pursuant to this Agreement, will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus. All corporate action required to be taken for the issuance of the Stock by the Company has been validly taken. No preemptive rights of security holders of the Company exist with respect to the issuance and sale of the Stock by the Company pursuant hereto. (g) Upon completion of the Formation Transactions, all of the general partner interests in the Baseball Partnership will be owned by the Company and all of the limited partner interests in the Baseball Partnership will be owned by Cleveland Baseball Corporation, an Ohio corporation, in each case free and clear of all liens, encumbrances, equities, security interests or claims; and there will be no outstanding options, warrants or other rights calling for the issuance of, and there will be no commitments, plans or arrangements to issue, any interests in the Baseball Partnership or any security convertible or exchangeable or exercisable for interests in the Baseball Partnership. -3- 4 (h) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus up to and including the respective Closing Dates (as hereinafter defined), except as set forth or contemplated in the Prospectus, (i) there has not been and will not have been any change on a pro forma basis or otherwise in the capital stock (or partnership interests in the case of the Baseball Partnership) or funded debt of the Company and the Baseball Partnership which is material or any material adverse change in the business or the financial position or results of operations of the Company and the Baseball Partnership, taken as a whole, and (ii) no loss or damage (whether or not insured) to the property of the Company and the Baseball Partnership has been sustained which materially and adversely affects the operations of the Company and the Baseball Partnership taken as a whole. (i) The consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms and provisions of, or constitute a default under, the Articles of Incorporation or the Code of Regulations of the Company, or the Certificate of Limited Partnership or Partnership Agreement of the Baseball Partnership, or any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or the Baseball Partnership is a party or by which the Company or the Baseball Partnership is bound, or any order, rule or regulation applicable to the Company or the Baseball Partnership of any court or of any federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Company or the Baseball Company or any of their properties, or any rule, regulation, guideline, bulletin, directive, policy or agreement pertaining to Major League Baseball, including, without limitation, the American League Constitution, the Major League Agreement, the Major League Rules, the MLB Collective Bargaining Agreement and Ownership Guidelines (together, the "MLB Governing Documents"). (j) The balance sheet of the Company and the combined financial statements of the Baseball Partnership and Ballpark Management Company ("Ballpark Management") included in the Registration Statement and the Prospectus fairly present the financial position and results of operations of the Company and the combined financial position and results of operations of the Baseball Partnership and Ballpark Management at the respective dates and for the respective periods to which they apply, and such balance sheet and combined financial statements have been prepared in conformity with generally accepted accounting principles consistently applied throughout the periods involved. The pro forma financial statements of the Company included in the Prospectus fairly present the pro forma financial position and results of operations of the Company and the Baseball Partnership at the dates and for the periods to which they apply, and have been prepared to give effect to certain assumptions and proposed transactions made on reasonable bases which are fully and accurately described in the Prospectus, and the pro forma adjustments have been properly applied on the bases described therein. (k) Deloitte & Touche LLP, who have examined and expressed their opinion on the balance sheet of the Company and the combined financial statements of the Baseball Partnership and Ballpark Management referenced in their opinions set forth in the -4- 5 Prospectus, are independent accountants within the meaning of the Act and the Rules and Regulations. (l) Upon completion of the Formation Transactions, the Company and the Baseball Partnership will hold all necessary material authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies (collectively the "licenses") required for the conduct of its business as described in the Prospectus, and all such licenses will be valid and in full force and effect, and the Company and the Baseball Partnership will be operating in compliance in all material respects with the terms and provisions of such licenses and with all material laws, regulations, orders and decrees applicable to the Company and the Baseball Partnership, and their respective businesses and assets. (m) Neither the Company nor the Baseball Partnership is in violation of any applicable Federal, state or local laws, statutes, rules, regulations or ordinances relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposal to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or other controlled, prohibited or regulated substances, which violation would have a material adverse effect on the business, condition (financial or other) or results of operations of the Company and the Baseball Partnership, taken as a whole, or which might materially and adversely affect the consummation of the transactions contemplated by this Agreement. In addition, and irrespective of such compliance, to the Company's knowledge, neither the Company nor the Baseball Partnership is subject to any liabilities for environmental remediation or clean-up, including any liability or class of liability of the lessee under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or the Resource Conservation and Recovery Act of 1976, as amended, which liability would have a material adverse effect on the business, condition (financial or other) or results of operations of the Company and the Baseball Partnership, taken as a whole, or which might materially and adversely affect the consummation of the transactions contemplated by this Agreement. (n) There are no legal or governmental actions, suits or proceedings pending or, to the knowledge of the Company, threatened to which the Company or the Baseball Partnership, or any of their respective executive officers or directors is a party or of which the business or property (including, without limitation, any of the licenses referred to in (l) above) of the Company or the Baseball Partnership or any of their respective employees is the subject which could have a material adverse effect on the business, condition (financial or other) or results of operations of the Company and the Baseball Partnership, taken as a whole, except as set forth or contemplated in the Prospectus. (o) The Company is not in violation of its Articles of Incorporation or its Code of Regulations and the Baseball Partnership is not in violation of its Certificate of -5- 6 Limited Partnership or Partnership Agreement, and no material default exists by the Company or the Baseball Partnership in the due performance and observance of any term, covenant or condition of any agreement material to the Company and the Baseball Partnership to which the Company or the Baseball Partnership is a party or by which the Company or the Baseball Partnership is bound. (p) The Company and the Baseball Partnership have or, upon completion of the Formation Transactions, will have good title to, or valid and enforceable leasehold estates in, all properties and assets used for their businesses (including the property described in the Prospectus as being owned, leased or used by the Company), in each case free and clear of all liens, encumbrances and defects other than those set forth or referred to in the Registration Statement or Prospectus or those which do not materially affect the value of such property or leasehold and do not materially interfere with the use made or proposed to be made of such property or leasehold by the Company and the Baseball Partnership; and all of the leases and subleases under which the Company and the Baseball Partnership hold such properties are in full force and effect. (q) Except as set forth or contemplated in the Prospectus, (i) upon completion of the Formation Transactions, the Company and the Baseball Partnership will own or possess, or will be able to acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets, applications and other unpatented or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, and trade names (collectively, "Proprietary Rights") used in or necessary for the conduct of their businesses as now conducted and as proposed to be conducted as described in the Prospectus; (ii) upon completion of the Formation Transactions, the Company and the Baseball Partnership will have the right to use all Proprietary Rights used in or necessary for the conduct of their businesses without infringing the rights of any person or violating the terms of any licensing or other agreement to which the Company or the Baseball Partnership is a party, and to the knowledge of the Company no person is infringing upon any Proprietary Right which the Company or the Baseball Partnership has the sole and exclusive right to use which would have a material adverse effect on the Company and the Baseball Partnership, taken as a whole; (iii) no charges, claims or litigation have been asserted and remain pending or to the knowledge of the Company have been threatened against the Company or the Baseball Partnership and not withdrawn that contest the right of the Company or the Baseball Partnership to use, or the validity of, any Proprietary Right or challenging or questioning the validity or effectiveness of any license or agreement pertaining thereto or asserting the misuse thereof, and, to the Company's knowledge, no valid basis exists for the assertion of any such charge, claim or litigation; (iv) upon completion of the Formation Transactions, all licenses and other agreements to which the Company or the Baseball Partnership will be a party relating to Proprietary Rights will be in full force and effect and will constitute valid, binding and enforceable obligations of the Company or the Baseball Partnership, and, to the Company's knowledge, the other respective parties thereto, and, to the Company's knowledge, there will not be any defaults thereunder which would have a material adverse effect on the Company and the Baseball Partnership, taken as a whole, and no event will have occurred which (whether by notice or lapse of time or both) would constitute such a default under any license or other agreement affecting Proprietary Rights -6- 7 used in or necessary for the conduct of the businesses of the Company and the Baseball Partnership by any party; and (v) the validity, continuation and effectiveness of all such licenses and other agreements and the current terms thereof will not be affected by the transactions contemplated by this Agreement. (r) No approval, authorization, consent or other order of any public board or body (other than in connection with or in compliance with the provisions of the Act and the securities or Blue Sky laws of various jurisdictions) is legally required for the sale of the Stock by the Company. (s) The Common Shares have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, and have been authorized for inclusion in the Nasdaq National Market ("Nasdaq") subject to notice of issuance or sale, as the case may be. (t) The outstanding debt, the properties and the business of the Company and the Baseball Partnership conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus. (u) The Company and the Baseball Partnership have filed on a timely basis all necessary federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof and have paid all taxes shown as due thereon; and no tax deficiency has been asserted against the Company or the Baseball Partnership that has not been satisfied, nor does the Company know of any tax deficiency which is likely to be asserted against the Company or the Baseball Partnership which if determined adversely to the Company or the Baseball Partnership could materially adversely affect the business, prospects, properties, assets, results of operations or condition (financial or otherwise) of the Company and the Baseball Partnership, taken as a whole. All tax liabilities are adequately provided for on the books of the Company. (v) The Company and the Baseball Partnership each maintain insurance of the types and in the amounts generally deemed adequate for their businesses, including, but not limited to, insurance covering (i) personal injury claims and (ii) real and personal property owned or leased by the Company and the Baseball Partnership against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (w) Except as set forth or contemplated in the Prospectus, to the best of the Company's knowledge, no labor problem exists with its employees or is threatened or imminent that could materially adversely affect the Company and the Baseball Partnership, taken as a whole, and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, contractors or customers that could be expected to materially adversely affect the business, prospects, properties, assets, results of operation or condition (financial or other) of the Company and the Baseball Partnership, taken as a whole. -7- 8 (x) The Company has obtained the agreement of each of its executive officers, directors and shareholders that, for a period of 270 days from the date of the final prospectus, such persons will not, without the prior written consent of McDonald & Company Securities, Inc., directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of Common Shares (including, without limitation, Common Shares which may be deemed to be beneficially owned by such persons in accordance with the 1934 Act Regulations) or any securities convertible into Common Shares (including, without limitation, Class B Common Shares). (y) Neither the Company nor any of its officers, directors or affiliates (as defined in the Act and the Rules and Regulations), has taken or will take, directly or indirectly, any action designed to stabilize or manipulate, or which has constituted, or might in the future reasonably be expected to cause or result in, stabilization or manipulation of, the price of the Stock of the Company in order to facilitate the sale or resale of the Stock or otherwise. (z) The Company's system of internal accounting controls is sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company's financial statements; and, to the best of the Company's knowledge, neither the Company nor any employee or agent of the Company or of the Baseball Partnership has made any payment of funds of the Company or the Baseball Partnership or received or retained any funds and no funds of the Company or the Baseball Partnership have been set aside to be used for any payment in violation of any law, rule or regulation. (aa) Neither the Company nor the Baseball Partnership is, or upon completion of the transactions contemplated in the Prospectus will be, required to register as an "investment company" under the Investment Company Act of 1940, as amended. (bb) All contracts and documents which are required to be filed as exhibits to the Registration Statement have been so filed. 3. SALE, PURCHASE AND DELIVERY OF STOCK. (a) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company hereby agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from the Company the respective number of shares of the Firm Stock set forth opposite the Underwriter's name in Schedule A hereto, at a price of $______ per share. (b) The Company will deliver the Firm Stock to you for the respective accounts of the several Underwriters at the office of McDonald & Company Securities, Inc., McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114, at 10:00 a.m., Cleveland time, or to your designee at a specified place at the same time, against payment of the purchase price at the place of such Closing, by wire transfer in immediately available funds to the account designated by the Company in writing on the third full business day after the effective date of the Registration Statement (or, if the Firm Stock is priced after 4:30 p.m., -8- 9 Cleveland time on the effective date of the Registration Statement, the fourth full business day after the effective date of the Registration Statement), or at such other time not later than seven full business days after such initial public offering as shall be determined by agreement between you and the Company, such time and place being herein referred to as the "Closing Date." The certificates for the Firm Stock so to be delivered will be in such denominations and registered in such names as you may specify to the Company at or before 3:00 p.m., Cleveland time, on the second full business day prior to the Closing Date. Such certificates will be made available for checking and packaging at least 24 hours prior to the Closing Date. (c) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to 600,000 additional shares in the aggregate of the Option Stock at the purchase price set forth in Section 3(a) hereof, for use solely in covering any over-allotments made by the Underwriters in the sale and distribution of the Firm Stock. The option granted hereunder may be exercised at any time (but not more than once) within 30 days after the date the Registration Statement becomes effective, upon written or telegraphic notice by the Representative to the Company setting forth the aggregate number of shares of the Option Stock as to which the Underwriters are exercising the option and the time and place at which certificates will be delivered, such time (which, unless otherwise determined by you and the Company, shall not be earlier than three nor later than seven full business days after the exercise of said option) being herein called the "Second Closing Date." The number of shares of the Option Stock to be sold by the Company to each Underwriter and purchased by such Underwriter from the Company shall be the same percentage of the total number of shares of the Option Stock to be purchased by the several Underwriters on the Second Closing Date as such Underwriter purchased of the total number of shares of the Firm Stock, as adjusted by the Representative to avoid fractions and to reflect any adjustment required by Section 13 hereof. The Company will deliver certificates for the shares of the Option Stock being purchased by the several Underwriters to you on the Second Closing Date at the place and time of such Closing, or to your designee at a specified place at the same time, against payment of the purchase price at the place of such Closing by wire transfer in immediately available funds to an account designed by the Company in writing. The certificates for the Option Stock so to be delivered will be in such denominations and registered in such names as you may specify to the Company at or before 3:00 P.M., Cleveland time, on the second full business day prior to the Second Closing Date. Such certificates will be made available for checking and packaging at least 24 hours prior to the Second Closing Date. The option granted hereby may be cancelled by you as the Representative of the several Underwriters, as to the shares of the Option Stock for which the option is unexercised, at any time prior to the expiration of the 30-day period, upon notice to the Company. 4. OFFERING BY UNDERWRITERS. Subject to the terms and conditions hereof, the several Underwriters agree that (i) they will offer the Stock to the public as set forth in the Prospectus as soon after the Registration Statement becomes effective as may be practicable, but in no event later than 5:00 p.m., Cleveland time, on the 15th business day subsequent to the date that the Registration Statement becomes effective, and (ii) they will offer and sell the Stock to the public only in those jurisdictions, and in such amounts, where due qualification and/or -9- 10 registration has been effected or an exemption from such qualification and/or registration is available under the applicable securities or Blue Sky laws of such jurisdiction; it being understood, however, that such agreement only covers the initial sale of the Stock by the Underwriters and not any subsequent sale of such Stock in any trading market which may develop after the public offering. 5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each of the Underwriters that: (a) The Company will make every reasonable effort to cause the Registration Statement to become effective and will advise you when it is effective under the Act. The Company will not file any amendment to the Registration Statement, or supplement to the Prospectus, of which you have not been previously advised and furnished with a copy, or to which you have reasonably objected in writing. (b) The Company will advise you promptly of any request of the Commission for amendment of the Registration Statement or Prospectus or for additional information and of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose of which it has knowledge, and the Company will make every reasonable effort to prevent the issuance of any such stop order and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will comply, to the best of its ability, with the Act so as to permit the continuance of sales of and dealings in the Stock under the Act for such period as may be required by the Act; whenever it is necessary to amend or supplement the Prospectus to make the statements therein not misleading, furnish, without charge to you as the Representatives, either amendments to the Prospectus or supplemental information, so that the statements in the Prospectus as so amended or supplemented will not be misleading; and file a post-effective amendment to the Registration Statement whenever such an amendment may be required and furnish, without charge to you, a reasonable number of copies of any such amendment and related Prospectus. (d) Not later than the 45th day following the end of the fiscal quarter first occurring after the first anniversary of the Effective Date, the Company will make generally available to its security holders and deliver to you an earnings statement (which need not be audited) covering a period of at least 12 months beginning not earlier than the Effective Date which shall satisfy the provisions of Section 11(a) of the Act or Rule 158 promulgated under the Act. (e) The Company will furnish to you copies of the Registration Statement (one of which will be signed and will include all exhibits thereto), each preliminary prospectus, the Prospectus, all amendments of and supplements to such documents, and all correspondence between the Commission and the Company or its counsel or accountants relating thereto, in each case as soon as available and in such quantities as you may reasonably request. -10- 11 (f) For a period of three years from the date of the Prospectus, the Company will deliver to you (i) within 90 days after the end of each fiscal year, consolidated balance sheets, statements of income, statements of cash flow and statements of changes in stockholders' equity of the Company and its consolidated subsidiaries, if any, as at the end of and for such year and the last preceding year, all in reasonable detail and certified by independent accountants, (ii) within 45 days after the end of each of the first three quarterly periods in each fiscal year, unaudited consolidated balance sheets and statements of income, statements of cash flow and statements of changes in stockholders' equity of the Company and its consolidated subsidiaries, if any, as at the end of and for such period, all in reasonable detail, (iii) as soon as available, all such proxy statements, financial statements and reports as the Company shall send or make available to its stockholders or the stockholders or partners, as the case may be, of any subsidiary any of whose stock or partnership interests are owned by any person other than the Company or any subsidiary, and (iv) copies of all annual or periodic reports as the Company or any subsidiary shall file with the Commission as required by the Act, the Exchange Act and any rules or regulations thereunder, which are available for public inspection at the Commission, or any material reports filed in connection with the Company's listing on any stock exchange. (g) The Company will apply the net proceeds from the sale of the Stock sold by it in the manner set forth in the Prospectus. (h) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A promulgated under the Act, then promptly following the execution of this Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with Rule 430A and Rule 424(b) promulgated under the Act, copies of an amended Prospectus or, if required by such Rule 430A, a post-effective amendment (including an amended Prospectus), containing all information so omitted. (i) The Company will file with Nasdaq all documents and notices required of companies that have issued securities that are traded in the over-the-counter market and quotations for which are reported by Nasdaq. (j) The Company will cooperate with you and your counsel to qualify the Stock for sale under the securities or Blue Sky laws of such jurisdictions within the United States as you designate, including furnishing such information and executing such instruments as may be required, and will continue such qualifications for as long as necessary to complete the offering; provided, however, the Company shall not be required to register or qualify as a foreign corporation or as a dealer in securities nor, except as to matters and transactions relating to the offer and sale of the Stock, consent to a service of process in any jurisdiction. (k) For a period of 270 days from the time of the initial public offering of the Stock by the Underwriters, the Company will not publicly sell, except with your prior written consent, any Common Shares or securities convertible into Common Shares for cash, -11- 12 except pursuant to the exercise of any outstanding stock options of the Company that are described in the Prospectus. (l) After the Closing Dates, the Company and the Baseball Partnership will be in compliance with the financial record-keeping requirements and internal accounting control requirements of Section 13(b)(2) of the Exchange Act. 6. PAYMENT OF EXPENSES. The Company will pay or cause to be paid all costs and expenses incident to the performance of the obligations of the Company hereunder, including, but not limited to, the reasonable fees and disbursements of its counsel; the reasonable fees, costs and expenses of preparing, printing and delivering the certificates for the Stock; the reasonable fees, costs and expenses of the transfer agent and registrar for the Common Shares; the reasonable fees and disbursements of its accountants; the filing fees and reasonable expenses incurred in connection with the qualification, registration or exemption of the Stock under state securities or Blue Sky laws and the fees and disbursements of counsel for the Underwriters in connection with such qualification, registration or exemption and the preparation and printing of the preliminary and final Blue Sky Surveys; the filing fees and reasonable expenses paid and incurred by the Underwriters, including fees and disbursements of counsel for Underwriters, in connection with the review of the terms of the underwriting arrangements by the NASD; the costs and expenses in connection with the preparation, printing and filing of the Registration Statement (including exhibits thereto) and the Prospectus and the furnishing to the Underwriters of such copies of each preliminary and final Prospectus as the Underwriters may reasonably require; and the costs and expenses in connection with the printing of this Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement and other documents distributed to the Underwriters. 7. CONDITIONS OF THE OBLIGATION OF THE UNDERWRITERS. The obligations of the several Underwriters to purchase and pay for the Firm Stock on the Closing Date and the Option Stock on the Second Closing Date shall be subject to the condition that the representations and warranties made by the Company herein are true and correct as of the date hereof and as of the respective Closing Dates, to the condition that the written statements of Company officers made pursuant to the provisions hereof are true and correct, to the condition that the Formation Transactions shall have been consummated, and to the performance by the Company of their obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:00 P.M., Cleveland time, on the date of this Agreement, or at such later time as shall have been consented to by you, and prior to each Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or to the knowledge of the Company or you, shall be contemplated by the Commission. (b) You shall not have advised the Company that the Registration Statement or Prospectus or any amendment thereof or supplement thereto contains an untrue statement of fact which, in the reasonable opinion of Calfee, Halter & Griswold LLP, counsel for -12- 13 the Underwriters, is material, or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) You shall have received as of each Closing Date (or prior thereto as indicated) the following: (i) An opinion of Baker & Hostetler LLP, dated the respective Closing Dates, to the effect that: (aa) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of Ohio with all requisite corporate power and authority to own its properties and conduct its business as described in the Prospectus. The Baseball Partnership has been duly formed and is validly existing as a partnership in full force and effect under the laws of Ohio, with all requisite partnership power and authority to own and lease its properties and conduct its business. The Company and the Baseball Partnership are duly qualified to do business as a foreign corporation or partnership, as the case may be, and are in good standing in all jurisdictions in which the conduct of business, as presently being conducted, or the ownership or leasing of its properties, requires such qualification (except for those jurisdictions in which the failure to so qualify will not in the aggregate have a material adverse effect on the Company and the Baseball Partnership, taken as a whole). (bb) The authorized capital stock of the Company is as set forth under "Capitalization" in the Prospectus; all issued and outstanding Common Shares of the Company have been duly authorized and validly issued and are fully paid and nonassessable, and are free of statutory preemptive rights of stockholders or, to the best knowledge of such counsel, contractual preemptive rights, rights of first refusal or similar contractual rights. Except as described in the Prospectus, to the best knowledge of such counsel, there are no outstanding options, warrants or other rights calling for the issuance of and there are no commitments, plans or arrangements to issue any shares of capital stock of the Company or any security convertible or exchangeable or exercisable for capital stock of the Company, and, to the best knowledge of such counsel, there are no holders of securities of the Company who, by reason of the filing of the Registration Statement, have the right (and have not waived such right) to request the Company to include in the Registration Statement securities owned by them. (cc) The Common Shares of the Company to be issued and sold by the Company hereunder have been duly authorized, and, when issued, delivered and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable. No statutory or, to the best knowledge of such counsel, any other preemptive rights of security holders of the Company exist with respect to the issuance and sale of the Stock by the Company pursuant to this Agreement. The Common Shares of the Company conform to the description thereof contained in the Prospectus and the certificates for the Common Shares of the Company (including the Stock) are in due and legal form under Ohio law. -13- 14 (dd) The Company has the corporate power and authority to enter into and perform this Agreement, and to issue and deliver the Stock as provided herein. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all necessary action of the Company. This Agreement constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as rights to indemnity may be limited by public policy and applicable federal or state securities laws and except as enforcement thereof may be limited by bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights or limitations upon the availability of certain remedies that may be precluded by general principles of equity. (ee) Except as disclosed in the Registration Statement and except for the partnership interest in the Baseball Partnership owned by the Company, neither the Company nor the Baseball Partnership owns, directly or indirectly, any shares of capital stock of any corporation or has any equity interest in any firm, partnership, joint venture, association or other entity. (ff) Upon completion of the Formation Transactions, all of the general partner interests in the Baseball Partnership will be owned by the Company and all of the limited partner interests in the Baseball Partnership will be owned by Cleveland Baseball Corporation, an Ohio corporation, in each case, to the best knowledge of such counsel, free and clear of all liens, encumbrances, equities, security interests or claims; and, to the best knowledge of such counsel, there are no outstanding options, warrants or other rights calling for the issuance of, and there are no commitments, plans or arrangements to issue, any interests in the Baseball Partnership or any security convertible or exchangeable or exercisable for interests in the Baseball Partnership. (gg) The Registration Statement has become effective under the Act and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act. The Registration Statement and the Prospectus, and each amendment thereof or supplement thereto (except for the financial statements and schedules included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations (except for the financial statements and schedules included therein as to which such counsel need express no opinion); the statements in the Prospectus under the captions "Business - Operating Agreements and Leases," "Major League Baseball - Collective Bargaining Agreement," "Management - Stock Option Plan; - Employment Agreements" and "Description of Capital Shares," in each case insofar as such statements constitute summaries of the legal matters, documents or proceeding referred to therein, fairly present the information called for by the Act with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein; and such counsel does not know of any legal or governmental proceedings, pending or threatened, which are required by the Act and the Rules and Regulations to be described in the Prospectus and which are not described as so required, or of any leases, contracts or other documents that are required by the Act and the Rules and Regulations to be -14- 15 described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement and which are not described or filed as so required. (hh) The consummation of the transactions herein contemplated and the fulfillment of the terms hereof do not result in a breach of any of the terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or the Baseball Partnership is a party and of which such counsel has knowledge, or the Articles of Incorporation or Code of Regulations of the Company, or the Certificate of Limited Partnership or partnership agreement of the Baseball Partnership, or any of the MLB Governing Documents, or, to the knowledge of such counsel, any approval, consent, order, rule or regulation applicable to the Company or the Baseball Partnership of any court or of any federal or state regulatory body or administrative agency or other governmental body having jurisdiction over the Company or the Baseball Partnership or the properties of any of them, except for such breaches or defaults as will not have a material adverse effect on the consummation of the transactions herein contemplated and the fulfillment of the terms hereof by the Company, except such as may be required under the securities or Blue Sky laws of any jurisdiction as to which such counsel need express no opinion. (ii) The Company is not required to register as an "investment company" under the Investment Company Act of 1940, as amended. Such counsel shall also state that no facts have come to the attention of such counsel which would lead such counsel to believe that either the Registration Statement at the time it became effective and at the Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus as of the date thereof and as of the Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and schedules included therein). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent specified in such opinion, if at all, upon an opinion or opinions of other counsel, familiar with the applicable laws; and (B) as to matters of fact on certificates of officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and the Baseball Partnership. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and, in their opinion, you and they are justified in relying thereon. (ii) Such opinion or opinions of Calfee, Halter & Griswold LLP, counsel for the Underwriters, dated the respective Closing Dates, with respect to the sufficiency of all corporate proceedings and other legal matters relating to this Agreement, the -15- 16 validity of the Stock, the Registration Statement, the Prospectus, and other related matters as you may reasonably request, and the Company shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters. In connection with such opinions, such counsel may rely on representations or certificates of officers of the Company. (iii) A certificate of the Company executed by the principal executive officer and the principal financial and accounting officer of the Company, dated each respective Closing Date, to the effect that: (aa) The representations and warranties of the Company in Section 2 of this Agreement are true and correct as of each respective Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to each respective Closing Date. (bb) No stop order suspending the effectiveness of the Registration Statement has been issued and, to the knowledge of the respective signers of the certificate, no proceedings for that purpose have been instituted or are pending or are contemplated under the Act. (cc) The signers of the certificate have carefully examined the Registration Statement and the Prospectus; no facts have come to their attention which would lead them to believe that either the Registration Statement at the time it became effective (or any amendment thereof or supplement thereto made prior to the Closing Date or the Second Closing Date, as the case may be, as of the date of such amendment or supplement) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of the date thereof (or any amendment thereof or supplement thereto made prior to the Closing Date or the Second Closing Date, as the case may be, as of the date of such amendment or supplement) contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; since the latest respective dates as of which information is given in the Registration Statement, there has been no material adverse change in the financial position, business or results of operations of the Company and its Subsidiaries, except as set forth in or contemplated by the Prospectus; and since the Effective Date of the Registration Statement there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. (iv) Letters from Deloitte & Touche LLP dated respectively the date of this Agreement and each respective Closing Date, addressed to you and the Company and in form and substance previously approved by you, with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and the Prospectus. -16- 17 (d) Prior to the Closing Date the Company shall have furnished to you such further certificates and documents indicated in the Closing Memorandum prepared by counsel for the Underwriters and furnished to the Company prior to the date hereof. (e) Prior to each Closing Date no stop orders suspending the qualification of the Stock under the securities or Blue Sky laws of the states in which the Stock is to be offered and sold shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or to the knowledge of the Company or you, shall be contemplated by the applicable state securities administrators. If any condition of the Underwriters' obligations hereunder to be satisfied prior to any Closing Date is not so satisfied, this Agreement may be terminated by you prior to such Closing Date, by notice in writing or by telegram confirmed in writing to the Company. All such opinions, certificates, letters and documents furnished to you pursuant to this Section 7 will be in compliance with the provisions hereof only if they are in all material respects satisfactory to you and to Calfee, Halter & Griswold LLP, counsel for the Underwriters, as to which both you and such counsel shall act reasonably. The Company will furnish you with such executed and conformed copies of such opinions, certificates, letters and documents as you may request. You, on behalf of the Underwriters, may waive in writing the compliance by the Company of any one or more of the foregoing conditions or extend the time for their performance. 8. REPRESENTATIONS OF THE UNDERWRITERS. Each of the Underwriters severally represents and warrants to the Company that the information furnished to the Company in writing by such Underwriters or by you expressly for use in the preparation of the Registration Statement or the Prospectus does not, and any amendments thereof or supplements thereto thus furnished will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Through you each Underwriter has furnished to the Company expressly for such use, only those statements made in the last paragraph of the cover page of the Prospectus and the statements relating to the terms of the offering by the several Underwriters set forth in the first, second, sixth, and seventh paragraphs under the caption "Underwriting" in the Prospectus. 9. TERMINATION OF AGREEMENT. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Stock may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been released by the Commission. At any time before the happening of such occurrence, the Company may, by notice to you, terminate this Agreement; and at any time prior to such time, you, as the Representative of the several Underwriters, may, by notice to the Company, terminate this Agreement. -17- 18 This Agreement may also be terminated by you, as the Representative of the several Underwriters, by notice to the Company on or after the Effective Date of the Registration Statement and prior to each respective Closing Date, if at any time during such period any of the following has occurred: (i) except as disclosed in or contemplated by the Registration Statement, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business affairs, management or business prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business; (ii) any outbreak of hostilities or escalation in existing hostilities anywhere in the world or other national or international calamity or crisis or change in economic or political conditions, if the effect of such outbreak, escalation, calamity, crisis or change on the financial markets in the United States would, in your reasonable judgment, make it impracticable to offer for sale or to enforce contracts made by the Underwriters for the resale of the Stock agreed to be purchased hereunder; (iii) any general suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange or the Nasdaq or any general limitation on prices for such trading or any general restrictions on the distribution of securities, all to such a degree as would in your reasonable judgment materially adversely affect the market for the Stock; or (iv) a banking moratorium shall have been declared by either Federal, Ohio or New York State authorities. This Agreement may also be terminated as provided in Sections 7 and 11 hereof. If this Agreement shall be terminated by you because of any failure on the part of the Company to comply with any of the terms or to fulfill any of the conditions of this Agreement, the Company shall pay, in addition to the costs and expenses referred to in Section 6, all reasonable out-of-pocket expenses incurred by the Underwriters in contemplation of the performance by them of their obligations hereunder, including but not limited to the reasonable fees and disbursements of counsel for the Underwriters, the Underwriters' reasonable printing and traveling expenses and postage, telegraph and telephone charges relating directly to the offering contemplated by the Prospectus, and also including reasonable advertising expenses of the Representative incurred after the Effective Date of the Registration Statement and so relating, it being understood that such out-of-pocket expenses shall not include any compensation, salaries or wages of the officers, partners or employees of any of the Underwriters. Only such out-of-pocket expenses as shall be accounted for by the Underwriters shall be paid to the Underwriters by the Company. The Company shall not in any event be liable to the several Underwriters for damages on account of loss of anticipated profits arising out of the transactions contemplated by this Agreement. 10. INDEMNIFICATION. (a) The Company will indemnify and hold harmless each Underwriter, and each person, if any, who controls each Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, to which such -18- 19 Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company contained herein or any failure of the Company to perform its obligations hereunder, or arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any related preliminary prospectus (if used prior to the Effective Date), the Prospectus or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and, subject to the provisions of Section 10(c), will reimburse each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 10(a) with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter or to the benefit of any person controlling such Underwriter in respect of any loss, claim, damage, liability or action asserted by a person who purchases shares of the Stock from such Underwriter, if such Underwriter failed to send or give a copy of the Prospectus (as the same may then be amended or supplemented) to such person with or prior to written confirmation of the sale to such person; and provided, further, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment thereof or supplement thereto in reliance upon or in conformity with written information furnished to the Company by an Underwriter specifically for use in the preparation thereof, as referred to in the last sentence of Section 8 hereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of the Act, each of its directors, and each of its officers who have signed the Registration Statement, against any losses, claims, damages or liabilities to which the Company, or any such director or officer may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus, or any amendment thereof or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment thereof or supplement thereto in reliance upon or in conformity with written information furnished to the Company by such Underwriter through you, as the Representative of the Underwriters, specifically for use in the preparation thereof, as referred to in the last sentence of Section 8 of this Agreement; and will reimburse the Company and each such director or officer for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity agreement will be in addition to any liability which the Underwriters may otherwise have. -19- 20 (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section, notify each party against whom indemnification is to be sought in writing of the commencement thereof; but the omission so to notify an indemnifying party will not relieve it from any liability which they may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and to the extent that it may wish, to assume the defense thereof, with counsel approved by such indemnified party (which approval shall not be unreasonably withheld), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying parties, (ii) the named parties to any such action include both the indemnifying party and the indemnified party, and the indemnified party shall have reasonably concluded that there is an actual or potential conflict of interest between the indemnifying parties and the indemnified party in the conduct of the defense of such action (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iii) the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying parties. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one or separate but similar or related actions in the same jurisdiction arising out of the same allegations or circumstances. Anything in this Section to the contrary notwithstanding, no indemnifying party shall, without the written consent of the indemnified party, such consent not to be unreasonably withheld, effect the settlement or compromise of, or consent to the entry to any judgment with respect to, any pending or threatened action or claim in respect of which indemnification may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or failure to act, by or on behalf of any indemnified party. (d) In order to provide for contribution in circumstances in which the indemnification provided for in this Section is for any reason held to be unavailable from the Company or the Underwriters or is insufficient to hold harmless a party indemnified hereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provisions (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company, any -20- 21 contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company) to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Stock or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in this Section, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omissions or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 10(d) were determined by pro rata allocation even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 10(d), (i) in no case shall any Underwriter (except as may be provided in the Agreement Among Underwriters) be liable or responsible for any amount in excess of the underwriting discounts and commissions applicable to the Stock purchased by such Underwriter hereunder and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person, if any, who was not guilty of such fraudulent misrepresentation. For purposes of this Section 10(d), each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of this Section 10(d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section 10(d), notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 10(d) or otherwise. Anything in this Section to the contrary notwithstanding, no party shall be liable, without the written consent of such party, such consent not to be unreasonably withheld, for any settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim for contribution which may be sought hereunder (whether or not such party is an actual or -21- 22 potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of such party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or failure to act, by or on behalf of such party. 11. DEFAULT OF THE UNDERWRITERS. If any Underwriter or Underwriters default in their obligations to purchase the Stock hereunder and arrangements satisfactory to you and the Company, evidenced by a writing or writings signed by you and the Company, for the purchase of such Stock by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company (except that the Company shall be liable for the expenses to be paid by it pursuant to the provisions of Section 6), provided, however, that if the number of shares of the Stock which all such defaulting Underwriters have agreed but failed to purchase shall not exceed 10% of the number of shares of the Firm Stock or the Option Stock, as the case may be, agreed to be purchased pursuant to this Agreement (other than the shares agreed to be taken up hereunder which the defaulting Underwriters failed to purchase) by all non-defaulting Underwriters, the non-defaulting Underwriters shall be obligated proportionately to take up and pay for the shares of the Firm Stock or the Option Stock which such defaulting Underwriters failed to purchase. If any such default occurs, either you or the Company shall have the right to postpone the Closing Date for not more than seven business days in order that the necessary changes in the Registration Statement, Prospectus and any other documents, as well as any other arrangement, may be effected. As used in this Agreement, the term "Underwriters" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from its liability to the other several Underwriters and the Company for its default hereunder. 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective indemnities, agreements, representations and warranties of the Company and the several Underwriters, set forth in or made pursuant to this Agreement, will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Company or any of its officers or directors or any controlling person, and will survive delivery of and payment for the Stock and, in the case of the agreements contained in Sections 6, 9 and 10 hereof, will survive any termination of this Agreement. 13. NOTICES. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to you at McDonald & Company Securities, Inc., McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114, Attention: Ralph M. Della Ratta, Jr., with a copy to Calfee, Halter & Griswold LLP, 1400 McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114, Attention: Thomas F. McKee, Esq., or if sent to the Company, will be mailed, delivered or telegraphed and confirmed to the Company at 2401 Ontario Street, Cleveland, Ohio 44115, Attention: Dennis Lehman, Executive Vice President, with a copy to Baker & Hostetler LLP, 3200 National City Center, 1900 East Ninth Street, Cleveland, Ohio 44114, Attention: Edward G. Ptaszek, Jr., Esq. -22- 23 14. SUCCESSORS, GOVERNING LAW. This Agreement will inure solely to the benefit of and be binding upon the parties hereto and the officers and directors and controlling persons referred to in Section 10 hereof and their respective successors, assigns, heirs, executors and administrators, and no other persons will have any right or obligation hereunder. This Agreement will be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflicts of laws thereof. 15. EXECUTION IN COUNTERPARTS. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 16. AUTHORITY OF THE REPRESENTATIVE. You represent and warrant that you have been authorized by the several Underwriters to enter into this Agreement on their behalf and to act for them in the manner hereinbefore provided. -23- 24 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed copies hereof, whereupon it will become a binding agreement by and between the Company and the several Underwriters in accordance with its terms. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY, INC. By: --------------------------------- Its: -------------------------- The foregoing Agreement is hereby confirmed and accepted by us in Cleveland, Ohio, acting on our own behalf and as the Representative of the several Underwriters named on Schedule A annexed hereto, as of the date first above written. McDONALD & COMPANY SECURITIES, INC. As Representative of the Several Underwriters By: ---------------------------------------- Managing Director -24- 25 SCHEDULE A UNDERWRITERS Number of Shares to Underwriter be Purchased ----------- ------------ McDonald & Company Securities, Inc.................... Total ............................................... A-1 EX-3.1 3 EXHIBIT 3.1 1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION ---------------------------------------------- OF -- CLEVELAND INDIANS BASEBALL COMPANY, INC. ---------------------------------------- FIRST: The name of the Corporation is Cleveland Indians Baseball Company, Inc. SECOND: The place in the State of Ohio where the principal office of the Corporation is located is Cleveland, Cuyahoga County. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code. FOURTH: The number of shares which the Corporation is authorized to have outstanding is thirty-one million (31,000,000), consisting of twenty-seven million (27,000,000) Class A Common Shares, without par value ("Class A Common Shares"), three million (3,000,000) Class B Common Shares, without par value ("Class B Common Shares" and, together with the Class A Common Shares, the "Common Shares"), and one million (1,000,000) Preferred Shares. Each Common Share issued and outstanding immediately prior to the filing of these Amended and Restated Articles of Incorporation is and shall be changed, effective upon that filing, into one (1) Class A Common Share. DIVISION A: PREFERRED SHARES The Preferred Shares shall have the following express terms: Section 1. SERIES. The Preferred Shares may be issued from time to time in one or more series. All Preferred Shares shall be of equal rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of a series shall be identical with all other shares of such series, except as to the dates from which dividends shall accrue and be cumulative. Subject to the provisions of Sections 2 through 5, both inclusive, which provisions shall apply to all Preferred Shares, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series to determine and fix prior to the issuance thereof (and thereafter, to the extent provided in paragraph (b) of this Section) the following: (a) the designation of the series, which may be by distinguishing number, letter or title; (b) the authorized number of shares of the series, which number the Board of Directors may (except when otherwise provided in the creation of the series) increase or decrease from time to time before or after the issuance thereof (but not below the number of shares thereof then outstanding); 2 (c) the dividend rate or rates of the series, including the means by which such rates may be established; (d) the date or dates from which dividends shall accrue and be cumulative and the dates on which and the period or periods for which dividends, if declared, shall be payable, including the means by which such dates and periods may be established; (e) the redemption rights and price or prices, if any, for shares of the series; (f) the terms and amount of the sinking fund, if any, for the purchase or redemption of shares of the series; (g) the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; (h) whether the shares of the series shall be convertible into any class of Common Shares or shares of any other class and, if so, the conversion rate or rates or price or prices, any adjustments thereof and all other terms and conditions upon which such conversion may be made; and (i) restrictions (in addition to those set forth elsewhere in these Amended and Restated Articles of Incorporation) on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to these Amended and Restated Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) through (i), both inclusive, of this Section 1 and is authorized to take such actions with respect thereto as may be required by law in order to effect such amendments. Section 2. DIVIDENDS. (a) The holders of Preferred Shares of each series, in preference to the holders of Common Shares and of any other class of shares ranking junior to the Preferred Shares, shall be entitled to receive out of any funds legally available therefor, if, when and as declared by the Board of Directors, dividends in cash at the rate or rates for such series fixed in accordance with the provisions of Section 1 above and no more, payable on the dates fixed for such series. Such dividends shall accrue and be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends shall be paid upon or declared or set apart for any series of the Preferred Shares for any dividend period unless at the same time a like proportionate dividend for the then current dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall have been paid upon or declared or set apart for all Preferred Shares of all series then issued and outstanding and entitled to receive such dividend. (b) So long as any Preferred Shares shall be outstanding, no dividend, except a dividend payable in Common Shares or other shares ranking junior to the Preferred Shares, shall be paid or declared or any distribution be made, except as aforesaid, in respect of the Common Shares or any other shares ranking junior to the Preferred Shares, nor shall any Common Shares Page 2 3 or any other shares ranking junior to the Preferred Shares be purchased, retired or otherwise acquired by the Corporation, except out of the proceeds of the sale of Common Shares or other shares of the Corporation ranking junior to the Preferred Shares received by the Corporation subsequent to the date of first issuance of Preferred Shares of any series, unless: (1) all accrued and unpaid dividends on Preferred Shares, including the full dividend for all current dividend periods shall have been declared and paid or a sum sufficient for payment therefor set apart; and (2) there shall be no arrearages with respect to the redemption of Preferred Shares of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division A. (c) The foregoing restrictions on the payment of dividends or other distributions on, or on the purchase, redemption, retirement or other acquisition of, Common Shares or any other shares ranking junior to the Preferred Shares shall be inapplicable to (i) any payments in lieu of issuance of fractional shares thereof, whether upon any merger, conversion, stock dividend or otherwise, (ii) the conversion of Preferred Shares into Common Shares, and (iii) the exercise by the Corporation of its rights pursuant to Division C or any similar provisions hereafter contained in these Amended and Restated Articles of Incorporation with respect to any other class or series of shares hereafter created or authorized. Section 3. REDEMPTION. (a) Subject to the express terms of each series, the Corporation: (1) may, from time to time at the option of the Board of Directors, redeem all or any part of any redeemable series of Preferred Shares at the time outstanding at the applicable redemption price for such series fixed in accordance with Section 1 of this Division A; and (2) shall, from time to time, make such redemptions of each series of Preferred Shares as may be required to fulfill the requirements of any sinking fund provided for shares of such series at the applicable sinking fund redemption price fixed in accordance with Section 1 of this Division A; and shall in each case pay all accrued and unpaid dividends to the redemption date. (b) (1) Notice of every such redemption shall be mailed, postage prepaid, to the holders of record of the Preferred Shares to be redeemed at their respective addresses then appearing on the books of the Corporation, not less than seven (7) days nor more than sixty (60) days prior to the date fixed for such redemption, or such other time prior thereto as the Board of Directors shall fix for any series pursuant to Section 1 of this Division A prior to the issuance thereof. At any time after notice as provided above has been deposited in the mail, the Corporation may deposit the aggregate redemption price of Preferred Shares to be redeemed, together with unpaid dividends thereon for the then current dividend period to the redemption date, with any bank or trust company in Cleveland, Ohio, or New York, New York, having capital and surplus of not less than $100,000,000, named in such notice and direct that there be Page 3 4 paid to the respective holders of the Preferred Shares so to be redeemed amounts equal to the redemption price of the Preferred Shares so to be redeemed together with such accrued and unpaid dividends thereon for the then current dividend period, on surrender of the share certificate or certificates held by such holders; and upon the deposit of such notice in the mail and the making of such deposit of money with such bank or trust company, such holders shall cease to be shareholders with respect to such shares; and from and after the time such notice shall have been so deposited and such deposit of money shall have been so made, such holders shall have no rights or claim against the Corporation with respect to such shares, except only the right to receive such money from such bank or trust company without interest or to exercise before the redemption date any unexpired privilege of conversion. If less than all of the outstanding Preferred Shares are to be redeemed, the Corporation shall select by lot the shares so to be redeemed in such manner as shall be prescribed by the Board of Directors. (2) If the holders of Preferred Shares which have been called for redemption shall not within six (6) years after such deposit claim the amount deposited for the redemption thereof, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company and the Corporation shall be relieved of all responsibility in respect thereof and to such holders. (c) Any Preferred Shares which are (1) redeemed by the Corporation pursuant to this Section 3, (2) purchased and delivered in satisfaction of any sinking fund requirement provided for shares of such series, (3) converted in accordance with the express terms thereof, or (4) otherwise acquired by the Corporation, shall resume the status of authorized but unissued Preferred Shares without serial designation. (d) Except in connection with the exercise of the Corporation's rights pursuant to Division C or any similar provisions hereafter contained in these Amended and Restated Articles of Incorporation, the Corporation may not purchase or redeem (for sinking fund purposes or otherwise) less than all of the Preferred Shares then outstanding except in accordance with a purchase offer made to all holders of record of Preferred Shares, unless all unpaid dividends on all Preferred Shares then outstanding shall have been paid or funds therefor set apart and all accrued sinking fund obligations applicable thereto shall have been complied with. Section 4. LIQUIDATION. (a) (1) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Preferred Shares of any series shall be entitled to receive in full, out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares or any other shares ranking junior to the Preferred Shares, the amounts fixed with respect to shares of such series in accordance with Section 1 of this Division A, plus an amount equal to all dividends declared and unpaid thereon. If the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding Preferred Shares of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon all outstanding Preferred Shares in proportion to the full preferential amount to which each such share is entitled. Page 4 5 (2) After payment to the holders of Preferred Shares of the full preferential amounts as aforesaid, the holders of Preferred Shares, as such, shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other Corporation, the merger of any other Corporation into it, or the sale, lease or conveyance of all or substantially all the assets of the Corporation, shall not be deemed to be a dissolution, liquidation or winding up for purposes of this Section. Section 5. VOTING. (a) The holders of Preferred Shares shall have no voting rights, except as provided in this Section or required by law. (b) (1) If, and so often as, the Corporation shall not have fully paid, or shall not have declared and set aside a sum sufficient for the payment of, dividends on any series of Preferred Shares at the time outstanding, for a number of dividend payment periods (whether or not consecutive) which in the aggregate contain at least five hundred forty (540) days, the holders of all series of such Preferred Shares, voting separately as a class, shall be entitled to elect, as herein provided, two (2) members of the Board of Directors of the Corporation; but the holders of the Preferred Shares shall not exercise such special class voting rights except at meetings of such shareholders for the election of directors at which the holders of not less than fifty percent (50%) of the Preferred Shares are present in person or by proxy; and the special class voting rights provided for in this paragraph when the same shall have become vested shall remain so vested until the Corporation shall have fully paid, or shall have set aside a sum sufficient for the payment of, dividends on such Preferred Shares then outstanding for a number of consecutive dividend payment periods which in the aggregate contain at least three hundred sixty (360) days, whereupon the holders of the Preferred Shares shall be divested of their special class voting rights in respect of subsequent elections of directors, subject to the revesting of such special class voting rights in the event above specified in this paragraph. (2) On an event entitling holders of Preferred Shares to elect two (2) directors as specified in paragraph (1) of this subsection 5(b), a special meeting of such holders for the purpose of electing such directors shall be called by the Secretary of the Corporation upon written request of, or may be called by, the holders of record of at least ten percent (10%) of the Preferred Shares of the affected series and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; but the Corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be called to be held within one hundred twenty (120) days after the date of receipt of the foregoing written request from the holders of Preferred Shares. At any meeting at which the holders of Preferred Shares shall be entitled to elect directors, holders of fifty percent (50%) of the Preferred Shares, present in person or by proxy, shall be sufficient to constitute a quorum, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be such a quorum shall be sufficient to elect the members of the Board of Directors which the holders of Preferred Shares are entitled to elect as herein provided. Notwithstanding any provision of these Amended and Restated Articles of Incorporation or the Code of Regulations of the Corporation or any action taken by the holders of any class of shares fixing the number of directors of the Page 5 6 Corporation, the two (2) directors who may be elected by the holders of Preferred Shares pursuant to this subsection shall serve in addition to any other directors then in office or proposed to be elected otherwise than pursuant to this Subsection. Nothing in this Subsection shall prevent any change otherwise permitted in the total number of or classifications of directors of the Corporation nor require the resignation of any director elected otherwise than pursuant to this Subsection. Notwithstanding any classification of the other directors of the Corporation, the two (2) directors elected by the holders of Preferred Shares, as provided in this Section 5, shall be elected annually for terms expiring at the next succeeding annual meeting of shareholders. (3) Upon any divesting of the special class voting rights of the holders of the Preferred Shares in respect of elections of directors as provided in this Subsection, the terms of office of all directors then in office elected by such holders shall terminate immediately thereupon. If the office of any director elected by such holders voting as a class becomes vacant by reason of death, resignation, removal from office or otherwise, the remaining director elected by such holders voting as a class may elect a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. (c) The affirmative vote of the holders of at least a majority of the Preferred Shares at the time outstanding, voting separately as a class, given in person or by proxy either in writing or at a meeting called for the purpose, shall be necessary to effect either of the following: (1) Any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of the Amended and Restated Articles of Incorporation or of the Code of Regulations of the Corporation which affects adversely and materially the preferences or voting or other rights of the holders of Preferred Shares which are set forth in these Amended and Restated Articles of Incorporation; but neither an amendment of these Amended and Restated Articles of Incorporation so as to authorize, create or change the authorized or outstanding number of Preferred Shares or of any shares ranking on a parity with or junior to the Preferred Shares nor an amendment of the Code of Regulations so as to change the number or classification of directors of the Corporation shall be deemed to affect adversely and materially preferences or voting or other rights of the holders of Preferred Shares; or (2) The authorization, creation or increase in the authorized number of any shares, or any security convertible into shares, in either case ranking prior to such Preferred Shares. (d) If, and only to the extent, that (1) Preferred Shares are issued in more than one series and (2) Ohio law permits the holders of a series of a class of shares to vote separately as a class, the affirmative vote of the holders of at least a majority of each series of the Preferred Shares at the time outstanding, voting separately as a class, given in person or by proxy either in writing or at a meeting called for the purpose of voting on such matters, shall be required for any amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the provisions of these Amended and Restated Articles of Incorporation or of the Code of Regulations of the Corporation which affects adversely and materially the preferences or voting or other rights of the holders of such series which are set forth in these Amended and Restated Articles of Incorporation; but neither an amendment of these Amended and Restated Articles of Incorporation, so as to authorize, create or change the authorized or outstanding number of Page 6 7 Preferred Shares or of any shares remaining on a parity with or junior to the Preferred Shares nor an amendment of the Code of Regulations so as to change the number or classification of directors of the Corporation shall be deemed to affect adversely and materially preferences or voting or other rights of the holders of such series. DIVISION B: COMMON SHARES The Common Shares have the following express terms: Section 1. VOTING RIGHTS AND POWERS. With respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to take action in writing without a meeting and except as otherwise required by statute, the holders of the outstanding Class A Common Shares and Class B Common Shares shall vote together without regard to class, and every holder of any outstanding Class A Common Shares shall be entitled to cast thereon one (1) vote in person or by proxy for each Class A Common Share standing in such holder's name, and every holder of any outstanding Class B Common Shares shall be entitled to cast thereon ten thousand (10,000) votes in person or by proxy for each Class B Common Share standing in such holder's name. Section 2. DIVIDEND RIGHTS. The holders of Common Shares shall be entitled to receive, when, as, and if declared by the Board of Directors of the Corporation, out of the assets of the Corporation which are by law available therefor, dividends or distributions payable in cash, in property or in securities of the Corporation; provided, however, that no dividend or other distribution may be declared or paid on the outstanding shares of one class of Common Shares unless a dividend or other distribution, as the case may be, of equal amount is declared or paid, as the case may be, on the outstanding shares of the other class of Common Shares. The Corporation shall not subdivide (by share split or otherwise) or combine or pay or declare any share dividend on the outstanding shares of either class of Common Shares unless the outstanding shares of the other class of Common Shares shall be proportionately subdivided or combined or the holders of such other class shall receive a proportionate share dividend. The Corporation may only issue or distribute Class A Common Shares in connection with a subdivision, combination or share division in respect of outstanding Class A Common Shares and may only issue or distribute Class B Common Shares in connection with a subdivision, combination or share dividend in respect of outstanding Class B Common Shares. Section 3. CONVERSION OF CLASS B COMMON SHARES. Each Class B Common Share may at any time be converted at the election of the holder thereof into one (1) fully paid and nonassessable Class A Common Share. Any holder of Class B Common Shares may elect to convert any or all of such shares at one time or from time to time in such holder's discretion. Such right shall be exercised by the surrender of the certificate representing each Class B Common Share to be converted to the agent for the transfer of the Class B Common Shares at its office, or to the Corporation at its principal executive offices, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the transfer agent or by the Corporation) by instruments of transfer, in form satisfactory to the transfer agent and to the Corporation, duly executed by such holder or such holder's duly authorized attorney. The issuance of a certificate or certificates for Class A Common Shares upon conversion of Class B Common Shares shall be made without charge for any stamp or other similar tax in respect of Page 7 8 such issuance. As promptly as practicable after the surrender for conversion of a certificate or certificates representing Class B Common Shares, the Corporation will deliver or cause to be delivered at the office of the transfer agent to, or upon the written order of, the holder of such certificate or certificates, a certificate or certificates representing the number of Class A Common Shares issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate or certificates representing Class B Common Shares (but if on such date the transfer books of the Corporation shall be closed, then immediately prior to the close of business on the first date thereafter that said books shall be open), and all rights of such holder arising from ownership of the Class B Common Shares being converted shall cease at such time, and the person or persons in whose name or names the certificate or certificates representing Class A Common Shares are to be issued pursuant to such conversion shall be treated for all purposes as having become the record holder or holders of such Class A Common Shares at such time and shall have and may exercise all the rights and powers appertaining thereto. No adjustments in respect of past cash dividends shall be made upon the conversion of any Class B Common Share. The Corporation shall at all times reserve and keep available, solely for the purpose of issuance upon conversion of outstanding Class B Common Shares, such number of Class A Common Shares as may be issuable upon conversion of all such outstanding Class B Common Shares. The Corporation will endeavor to list Class A Common Shares required to be delivered upon conversion prior to such delivery upon any national securities exchange or national market system on which the outstanding Class A Common Shares may be listed at the time of such delivery. All Class A Common Shares which may be issued upon conversion of the Class B Common Shares will, upon issuance, be validly issued, fully paid and nonassessable. Class B Common Shares converted into Class A Common Shares, as provided in this Section 3, shall become authorized but unissued Class B Common Shares. Section 4. OTHER RIGHTS. The provisions of Section 3 regarding the voluntary conversion of Class B Common Shares into Class A Common Shares are in addition to the provisions of Division C, Section 2 which provide for the automatic conversion of Class B Common Shares into Class A Common Shares under the circumstances provided therein. Except as otherwise required by Chapter 1701 of the Ohio Revised Code or as otherwise provided in these Amended and Restated Articles of Incorporation (including Section 3 of this Division B) or the Regulations of the Corporation, each Class A Common Share and Class B Common Share shall have identical powers, preferences and rights, including rights in liquidation. DIVISION C: RESTRICTIONS ON TRANSFER OF COMMON SHARES Section 1. DEFINITIONS. For purposes of this Division C of this Article FOURTH, the following terms shall have the following meanings set forth below: "Beneficial Ownership" shall mean possession of the power to vote or direct the vote or to dispose or direct the disposition of the Common Shares in question, and a "Beneficial Owner" of Common Shares shall be the Person having Beneficial Ownership thereof. "Control" shall mean, with respect to a corporation, the power to elect or appoint a majority of the board of directors or like governing body thereof, and with respect to a Page 8 9 partnership or limited liability company, the power to cause such partnership or limited liability company to vote and dispose of Common Shares subject to a proposed Transfer to such partnership or limited liability company. "Effective Time" shall mean the date on which these Amended and Restated Articles of Incorporation became effective pursuant to Section 1701.73 of the Ohio Revised Code. "Equity Shares" shall mean the Class A Common Shares, the Class B Common Shares and any class of Preferred Shares of the Corporation. "Family Members" shall have the meaning set forth in Section 2(a)(1) of this Division C. "Holder" shall mean a holder of Class B Common Shares. "Initial Public Offering" shall mean the sale of Class A Common Shares pursuant to the Corporation's first effective registration statement for Class A Common Shares filed under the Securities Act of 1933, as amended. "Market Price" on any date shall mean the average of the Closing Price for the five consecutive Trading Days ending on such date. The "Closing Price" on any date shall mean the last sale price, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the Nasdaq National Market or, if the applicable Equity Shares are not quoted on the Nasdaq National Market, on the principal national securities exchange on which such Equity Shares are listed or admitted to trading or, if the Equity Shares are not quoted on the Nasdaq National Market or listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Corporation for the purpose or, if such prices are not available, the fair market value set by, or in a manner established by, the Board of Directors in good faith. "Permitted Transferee" shall mean and include only such Persons as are described in Sections 2(a)(1) through 2(a)(7) of this Division C. "Person" shall mean an individual, corporation, partnership, limited liability company, estate, trust, or other entity and also includes a "group" as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. "Redemption Shares" shall have the meaning set forth in Section 3(a) of this Division C below. "Trading Day" shall mean a day on which the principal national securities exchange on which the applicable Equity Shares are listed or admitted to trading is open for the transaction of business or, if those Equity Shares are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. Page 9 10 "Transfer" (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of Equity Shares, whether voluntary or involuntary, whether of record or beneficially and whether by operation of law or otherwise. "Transfer" (as a verb) shall have the correlative meaning. Section 2. LIMITATIONS ON TRANSFER OF CLASS B COMMON SHARES. (a) Subject to the provisions of Section 2(i) of this Division C, no Holder may Transfer, and the Corporation shall not register the Transfer of, Class B Common Shares or any interest therein, except to a Permitted Transferee of such person unless all Holders of Class A Common Shares receive or are entitled to receive for their Class A Common Shares the same kind and amount of consideration per share to be received by any Holder of Class B Common Shares in connection with such Transfer. The term "Permitted Transferee" shall mean and include only the persons described in Sections 2(a)(1) through 2(a)(7) below: (1) In the case of a Holder who is a natural person and the holder of record and beneficial owner of Class B Common Shares subject to a proposed Transfer, "Permitted Transferee" means: (A) The Holder, the spouse of such Holder, any lineal descendant of a grandparent of such Holder, or any spouse of such lineal descendant (herein collectively referred to as such Holder's "Family Members"); (B) The trustee of a trust solely for the benefit of such Holder or such Holder's Family Members, provided that such trust may also grant a general or special power of appointment to one or more of such Holder's Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Holder's Family Members payable by reason of the death of such Family Members; (C) The trustee of a trust which is not solely for the benefit of such Holder or such Holder's Family Members so long as such Holder or one or more of such Holder's Permitted Transferees (determined under this Section 2(a)(1)), or both, possess the power to vote or direct the vote of the Class B Common Shares held by such trustee; (D) A corporation, if control thereof is exercisable by shareholders thereof consisting exclusively of, or a partnership or limited liability company, if control thereof is exercisable by partners or members thereof consisting exclusively of, the Holder and his Permitted Transferees determined under this Section; provided, however, that if for any reason, including without limitation any change in the ownership or the voting rights of the stock of such corporation, or in such partners or partnership interests, or in such members or membership interests, or otherwise, such corporation, partnership or limited liability company would no longer qualify as a Permitted Transferee of such Holder or his Permitted Transferees, all Class B Common Shares then held by such corporation, partnership or limited liability company shall immediately and automatically, without further act or deed on the part of the Corporation Page 10 11 or any other person, be converted into shares of Class A Common Shares on a share-for-share basis, and stock certificates formerly representing such Class B Common Shares shall thereupon and thereafter be deemed to represent the like number of Shares of Class A Common Shares; (E) An organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended; or (F) The executor, administrator or personal representative of the estate of such Holder or the guardian or conservator of such Holder adjudged disabled by a court of competent Jurisdiction, acting in his capacity as such. (2) In the case of a Holder holding the shares subject to a proposed Transfer as trustee pursuant to a trust (other than a trust described in Section 2(a)(3) below), "Permitted Transferee" means (A) the person who established such trust, and (B) any Permitted Transferee of such person determined pursuant to Section 2(a)(1) above. (3) In the case of any Holder holding shares subject to a proposed Transfer as trustee pursuant to a trust which was irrevocable as of the Effective Time, "Permitted Transferee" means (A) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise, and (B) any Permitted Transferee of any such person determined pursuant to Section 2(a)(1) above. (4) In the case of a Holder which is a partnership or a limited liability company holding shares subject to a proposed Transfer, "Permitted Transferee" means (A) any partner or member thereof owning more than ten percent (10%) of the equity of such partnership or limited liability company as of the Effective Time, and (B) any Permitted Transferee of such partner or member. (5) In the case of a Holder which is a corporation (other than an organization described in Section 2(a)(1)(E) above) holding shares subject to a proposed Transfer, "Permitted Transferee" means (A) any Person owning more than ten percent (10%) of the equity capital of such corporation as of the Effective Time, (B) any Permitted Transferee of such Person, (C) the survivor of a merger or consolidation of such corporation (provided that such surviving entity is otherwise a Permitted Transferee determined pursuant to Section 2(a)(1) above), or (D) any Person who transferred to such corporation the Class B Common Shares that are the subject of the proposed Transfer. (6) In the case of a Holder who is the executor, administrator or personal representative of the estate of a deceased Holder, a guardian or conservator of the estate of a disabled Holder, or a trustee of the estate of a bankrupt or insolvent Holder, "Permitted Transferee" means a Permitted Transferee of such deceased, disabled, bankrupt or insolvent Holder as determined pursuant to this Section 2(a) of this Division C. (7) In the case of any Holder, "Permitted Transferee" includes any holder of record as of the Effective Time of any Class B Common Shares, provided that if such holder of record is a corporation, control thereof is exercisable, as of the date of a proposed Page 11 12 Transfer, by shareholders consisting exclusively of Persons who would have been Permitted Transferees of such corporation as of the Effective Time (an "Original Holder"), provided that, in each case, if a transferee under this Section 2(a)(7) is a corporation, partnership or limited liability company, all of the provisions of Section 2(a)(1)(D) of this Division C shall apply to such Person and the shares transferred to such Person. (b) Notwithstanding anything to the contrary set forth herein, any holder of Class B Common Shares may pledge such shares to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares may not be transferred to or registered in the name of the pledgee unless such pledgee is a Permitted Transferee. In the event of foreclosure or other similar action by the pledgee, such pledged Class B Common Shares shall automatically, without any act or deed on the part of the Corporation or any other Person, be converted into Class A Common Shares on a share-for-share basis, unless within five (5) business days after such foreclosure or other similar event such pledged shares are returned to the pledgor or transferred to a Permitted Transferee of the pledgor. (c) For purposes of this Section 2 of this Division C: (1) The relationship of any Person that is derived by or through legal adoption shall be considered a natural one. (2) Each joint owner of Class B Common Shares shall be deemed a Holder of such shares. (3) A minor for whom Class B Common Shares are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Holder of such shares. (4) The giving of a proxy in connection with a solicitation of proxies subject to the provisions of Section 14 of the Securities Exchange Act of 1934 (or any successor provision thereof and the rules and regulations promulgated thereunder shall not be deemed to constitute the Transfer of an interest in the Class B Common Shares which are the subject of such proxy. (d) Any purported Transfer of Class B Common Shares other than to a Permitted Transferee shall automatically, without any further act or deed on the part of the Corporation or any other person, result in the conversion of such shares into Class A Common Shares on a share-for-share basis, effective on the date of such purported Transfer. The Corporation may, as a condition to Transfer or registration of Transfer of Class B Common Shares to a purported Permitted Transferee, require that the record holder establish to the satisfaction of the Corporation, by filing with the Corporation or the transfer agent an appropriate affidavit or certificate or such other proofs as the Corporation may deem necessary, that such transferee is a Permitted Transferee. (e) Anything in this Division C notwithstanding but subject to the provisions of Section 2(i), no Class B Common Share may be held of record but not beneficially by a broker or dealer in securities, a bank or voting trustee or a nominee of any such, or otherwise held of record but not beneficially by a nominee of the beneficial owner of such share other than by a trustee of a trust which would be a Permitted Transferee pursuant to Section 2(a)(1)(B) or Page 12 13 2(a)(1)(C) (any such form of prohibited holding being, referred to herein as holding in "street" or nominee name); provided, however, that if any Person establishes to the satisfaction of the Corporation in accordance with this Section 2(e) that he is the beneficial owner of any such Class B Common Shares, the Corporation shall issue such share in the name of such beneficial owner. Any such beneficial owner who desires to have Class B Common Shares issued in his name in the circumstances described in this Section 2(e) shall file an affidavit or certificate with the Secretary of the Corporation setting forth the name and address of such beneficial owner and certifying that he is the beneficial owner of the Class B Common Shares in question. (f) The Corporation shall note on all certificates representing Class B Common Shares that there are restrictions on transfer and registration of transfer to the extent imposed by this Section 2. (g) The Board of Directors may, from time to time, establish, amend or revoke practices and procedures and promulgate, amend or revoke rules and regulations, in addition to those set forth in this Division C, regarding the evidence necessary to establish entitlement of any transferee or purported transferee of Class B Common Shares to be registered as a Permitted Transferee. Should the transferee or purported transferee of any such share wish to contest any decision of the Corporation on the question whether the transferee or purported transferee has established entitlement to be registered as a Permitted Transferee of Class B Common Shares, then the Board of Directors shall in its sole discretion make the final determination. (h) Notwithstanding the restrictions on Transfer set forth in Section 2(a) of this Division C, a Holder of Class B Common Shares shall, subject to the provisions of Section 3(a) of this Division C, be entitled to Transfer Class B Common Shares to any Person (collectively, an "Acquiring Person") in one or more transactions completed during the period beginning on the date of Richard E. Jacobs' death and ending on the third anniversary of such date. This exception will not apply to any subsequent Transfer by an Acquiring Person, and all Class B Common Shares acquired by an Acquiring Person will be subject to the restrictions on Transfer described above. In addition, for a period of three (3) years following the date that an Acquiring Person first becomes the beneficial owner of Class B Common Shares (the "Acquisition Date"), neither the Acquiring Person nor any affiliate of the Acquiring Person may make a tender offer for Class A Common Shares or merge or consolidate with the Corporation, propose to acquire or authorize the acquisition by the Acquiring Person or its affiliates of substantially all the assets of the Corporation, or authorize or vote Common Shares of any class in favor of an amendment to these Amended and Restated Articles of Incorporation to effect any recapitalization, reverse stock split or other similar transaction with respect to the Common Shares which, if effected, would directly or indirectly increase the Acquiring Person's beneficial ownership of Common Shares, unless in any such case, all holders of Class A Common Shares receive or are entitled to receive for their Class A Common Shares consideration having a value equal to the greater of: (i) the average price per share that the Acquiring Person paid for the Common Shares (or securities convertible into or exchangeable for Common Shares) in connection with the transaction or series of transactions in which the Acquiring Person became such; and (ii) the market value of a Class A Common Share on the date prior to the public announcement of any of the transactions described above (determined on the basis of the average Page 13 14 Closing Price of a Class A Common Share during the twenty (20) Trading Days preceding the date of such announcement). Section 3. OWNERSHIP RESTRICTION. (a) Except as set forth in Section 3(g) below, no Person other than (i) Richard E. Jacobs, (ii) any other Person who is the record or beneficial owner of Common Shares on the Effective Date, and (iii) their respective Permitted Transferees shall have Beneficial Ownership of outstanding Equity Shares equal to or in excess of five percent (5%) of the number of outstanding shares of any class of Equity Shares without first receiving written approval from the Office of the Commissioner of Major League Baseball. The number of Equity Shares as to which a Person has Beneficial Ownership that causes such Person to equal or exceed such percentage are referred to herein as "Redemption Shares." (b) If the Corporation, or its designee, shall at any time determine that a violation of Section 3(a) of this Division C has occurred or that a Person intends to acquire or has attempted to acquire Beneficial Ownership of any Equity Shares in violation of Section 3(a) of this Division C, the Corporation shall take such action as it considers advisable to refuse to give effect to or to prevent any Transfer or other transaction which has or will cause such violation, including, but not limited to, refusing to give effect to any Transfer or other transaction on the books of the Corporation or instituting proceedings to enjoin such Transfer or other transaction. (c) Any Person who acquires or attempts to acquire Equity Shares in violation of Section 3(a) of this Division B shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request. (d) Each Person who is a Beneficial Owner of five percent (5%) or more of the outstanding shares of any class of Equity Shares and each Person (including the shareholder of record) who is holding Equity Shares for such a Beneficial Owner shall, at the request of the Corporation, provide to the Corporation a written statement or affidavit stating such information as the Corporation may request in order to ensure compliance with the Ownership Restriction set forth in this Section 3 of this Division C and applicable rules of Major League Baseball. (e) Redemption Shares shall be considered to have been offered for sale to the Corporation, or its designee, on the date of the event that created such Redemption Share status at a price per share equal to the lesser of (i) the price per share in the event that created such Redemption Share status (or, if such price is not readily determinable as in the case of a devise or gift, the Market Price at the time of such event) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right, directly or through its designee, to accept such offer for a period of ninety (90) days after the later of (i) the date of the event which created such Redemption Share status and (ii) the date the Corporation determines in good faith that an event occurred that created such Redemption Share status, if the Corporation does not receive a notice of such event. (f) The Ownership Restriction set forth in Section 3(a) shall not apply to the acquisition of Equity Shares by an underwriter in connection with its participation in a firm Page 14 15 commitment underwritten public offering of such shares for a period of 180 days following the purchase by such underwriter of such shares. (g) Nothing contained in this Division B shall limit the authority of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its shareholders to ensure compliance with the Ownership Restriction set forth in Section 3(a) of this Division C. (h) In the case of any ambiguity in the application of any provision of this Division C, including any definition contained herein, the Board of Directors shall have the power to determine the application of that provision. (i) Each certificate for Equity Shares shall bear a legend substantially to the following effect: "The [Class A Common Shares, Class B Common Shares, or Preferred Shares] represented by this certificate are subject to restrictions on transfer. No Person may beneficially own [Class A Common Shares, Class B Common Shares, or Preferred Shares] equal to or in excess of 5% of the number of outstanding [Class A Common Shares, Class B Common Shares, or Preferred Shares] of any class without the approval of the Office of the Commissioner of Major League Baseball. Each beneficial owner of 5% or more of the outstanding [Class A Common Shares, Class B Common Shares, or Preferred Shares] is required to furnish the Corporation such information as the Corporation may request pursuant to Division C. Section 3(d) of the Corporation's Amended and Restated Articles of Incorporation. If the above limitation is violated, the [Class A Common Shares, Class B Common Shares, or Preferred Shares] represented hereby equal to or in excess of the limitation shall be subject to redemption by the Corporation at the lower of the original cost or Market Value, by operation of the Corporation's Amended and Restated Articles of Incorporation. All capitalized terms in this legend have the meanings defined in the Corporation's Amended and Restated Articles of Incorporation, as they may be amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests." Page 15 16 FIFTH: To the extent permitted by law, the Corporation, by action of its Board of Directors, may purchase or otherwise acquire shares of any class issued by it at such times, for such consideration and upon such terms and conditions as its Board of Directors may determine. SIXTH: Notwithstanding any provision of the Ohio Revised Code Sections 1701.01 to 1701.98, inclusive, now or hereafter in force, requiring for the authorization or the taking of any action the vote or consent of the holders of shares entitling them to exercise two-thirds or any other proportion of the voting power of the Corporation or of any class or classes of shares thereof, such action, unless otherwise expressly required by law or these Amended and Restated Articles of Incorporation, may be authorized or taken by the vote or consent of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes thereof; provided, however, that any amendment to the provisions of Article Fourth, Division C, Sections 1 or 2 of these Amended and Restated Articles of Incorporation or to this proviso shall require for its authorization, in addition to such vote, the affirmative vote or consent of the holders of Class A Common Shares entitling them to exercise a majority of the voting power of the Class A Common Shares, excluding from such vote (and from the determination of the majority of the voting power of the Class A Common Shares) any Class A Common Shares Beneficially Owned by a Beneficial Owner of Class B Common Shares and any affiliate of such Beneficial Owner (as the term affiliate is defined in Rule 12b-2 of the Securities and Exchange Commission under the Securities Exchange Act of 1934). SEVENTH: No holder of shares of the Corporation of any class shall be entitled as such, as a matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized, or to subscribe for or purchase securities convertible into or exchangeable for shares of the Corporation or to which shall be attached or appertain any warrants or rights entitling the holder thereof to subscribe for or purchase shares, except such rights or subscription or purchase, if any, for such considerations and upon such terms and conditions as its Board of Directors from time to time may determine. EIGHTH: Any director or officer of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation as a vendor, purchaser, employee, agent, lessor, lessee or otherwise. No transaction, contract or other act of the Corporation shall be void or voidable or in any way affected or invalidated by reason of the fact that any director or officer, or any firm or corporation in which such director or officer is a member or is a shareholder, director or officer, is in any way interested in such transaction, contract or other act provided the fact that such director, officer, firm or corporation is so interested shall be disclosed or shall be known to the Board of Directors or such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such transaction, contract or other act shall be taken; nor shall any such director or officer be accountable or responsible to the Corporation for or in respect of any such transaction, contract or other act of the Corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer is interested in such transaction contract or other act; and any such director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize or take action in respect of any transaction, contract or other act, and may vote thereat to authorize, ratify or approve any such transaction, contract or other act with like force and effect as if he or Page 16 17 any firm of which he is a member or any corporation of which he is a shareholder, director or officer were not interested in such transaction, contract or other act. NINTH: If any provision (or portion thereof) of these Amended and Restated Articles of Incorporation shall be found to be invalid, prohibited, or unenforceable for any reason, the remaining provisions (or portions thereof) of these Amended and Restated Articles of Incorporation shall remain in full force and effect, and shall be construed as if such invalid, prohibited, or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its shareholders that each such remaining provision (or portion thereof) of these Amended and Restated Articles of Incorporation remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, notwithstanding any such finding. TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Amended and Restated Articles of Incorporation, in the manner now or hereafter prescribed herein or by statute, and all rights conferred upon shareholders herein are granted subject to this reservation. ELEVENTH: Chapter 1704 of the Ohio Revised Code does not apply to the Corporation. Section 1701.83 of the Ohio Revised Code does not apply to control share acquisitions of shares of the Corporation. TWELFTH: These Amended and Restated Articles of Incorporation, as of their effective date, supersede the existing Articles of Incorporation of the Corporation. Page 17 EX-5.1 4 EXHIBIT 5.1 1 Exhibit 5.1 [BAKER & HOSTETLER LLP LETTERHEAD] May 12, 1998 Cleveland Indians Baseball Company, Inc. 2401 Ontario Street Cleveland, Ohio 44115 Gentlemen: As counsel for Cleveland Indians Baseball Company, Inc., an Ohio corporation (the "Company"), we are familiar with the Company's Registration Statement on Form S-1 (the "Registration Statement"), as amended, filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"), in connection with a proposed public offering and sale of up to 4,600,000 Class A Common Shares, without par value (the "Shares"), of the Company including 4,000,000 Shares to be issued and sold to the Underwriters identified in the Registration Statement (the "Underwritten Shares"), and up to an additional 600,000 Shares subject to an over-allotment option granted to the Underwriters by the Company (the "Option Shares"). In connection with the foregoing, we have examined (a) the proposed Amended and Restated Articles of Incorporation (the "Articles") in the form filed as an exhibit to the Registration Statement and the Code of Regulations of the Company, (b) the proposed form of Underwriting Agreement filed as an exhibit to the Registration Statement (the "Underwriting Agreement") with respect to the Shares, and (c) such records of the corporate proceedings of the Company and such other documents as we deemed necessary to render this opinion. Based upon such examination, we are of the opinion that, when the Articles have been duly filed with the Ohio Secretary of State pursuant to the Ohio Revised Code (in substantially the form filed as an exhibit to the Registration Statement), the Shares will be duly authorized and, when issued and sold pursuant to the duly executed Underwriting Agreement (in substantially the form filed as an exhibit to the Registration Statement) and in the manner contemplated by the Registration Statement, the Underwritten Shares and the Option Shares will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and the reference to us under the caption "Validity of Shares" in the Prospectus that is a part of the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ Baker & Hostetler LLP Baker & Hostetler LLP EX-10.7 5 EXHIBIT 10.7 1 Exhibit 10.7 ================================================================================ CLUB TRUST REVOLVING CREDIT AGREEMENT (the "Club Trust Credit Agreement") among MAJOR LEAGUE BASEBALL TRUST and FLEET NATIONAL BANK and CLUB TRUSTS DEEMED TO BE PARTIES HERETO Dated as of April 17, 1998 ================================================================================ 2 TABLE OF CONTENTS PAGE ARTICLE I Definitions and Accounting Terms.........................................................................1 SECTION 1.01. Certain Defined Terms.....................................................................1 SECTION 1.02. Computation of Time Periods...............................................................1 SECTION 1.03. Accounting Terms..........................................................................1 ARTICLE II Amounts and Terms of the Loans...........................................................................1 SECTION 2.01. The Club Trust Loans......................................................................1 SECTION 2.02. Making the Loans..........................................................................2 SECTION 2.03. Fees......................................................................................3 SECTION 2.04. Reduction of Maximum Available Amount.....................................................4 SECTION 2.05. Principal Repayment.......................................................................7 SECTION 2.06. Interest..................................................................................8 SECTION 2.07. Additional Interest......................................................................10 SECTION 2.08. Interest Rate Determination and Protection...............................................11 SECTION 2.09. Prepayments..............................................................................12 SECTION 2.10. Increased Costs..........................................................................14 SECTION 2.11. Illegality...............................................................................14 SECTION 2.12. Payments; Limited Recourse; No Cross Collateralization and Computations....................................................................15 SECTION 2.13. Taxes....................................................................................18 SECTION 2.14. Additional Club Trusts; Creation of Additional Sub-Facilities............................23 ARTICLE III Conditions of Lending...................................................................................26 SECTION 3.01. Condition Precedent to Initial Loans.....................................................26 SECTION 3.02. Conditions Precedent to Each Loan........................................................28 ARTICLE IV Representations and Warranties..........................................................................30 SECTION 4.01. Representations and Warranties of each Club Trust........................................30 ARTICLE V Covenants of the Club Trusts............................................................................31 SECTION 5.01. Affirmative Covenants....................................................................31 SECTION 5.02. Negative Covenants.......................................................................34
3 ARTICLE VI Default.................................................................................................37 SECTION 6.01. Club Trust Events of Default.............................................................37 SECTION 6.02. Remedies.................................................................................41 ARTICLE VII The Facilitating Agent..................................................................................41 SECTION 7.01. Authorization and Action.................................................................41 SECTION 7.02. Facilitating Agent's Reliance, etc. .....................................................42 SECTION 7.03. Indemnification..........................................................................42 SECTION 7.04. Successor Facilitating Agent.............................................................43 ARTICLE VIII Miscellaneous...........................................................................................44 SECTION 8.01. Amendments, etc..........................................................................44 SECTION 8.02. Notices, etc.............................................................................45 SECTION 8.03. No Waiver; Remedies......................................................................47 SECTION 8.04. Costs and Expenses; Indemnification......................................................47 SECTION 8.05. Binding Effect; Third Party Beneficiary; Liquidity Funding Event...........................................................................48 SECTION 8.06. The Register.............................................................................49 SECTION 8.07. Limitation of Liability..................................................................49 SECTION 8.08. Governing Law; Consent to Jurisdiction; Other Matters....................................50 SECTION 8.09. Execution in Counterparts................................................................50 ANNEX A Definitions EXHIBIT A Club Trust Promissory Note EXHIBIT B Form of Notice of Borrowing EXHIBIT C Form of Club Trust Pledge and Security Agreement EXHIBIT D Form of Ratification Agreement EXHIBIT E Form of Administration Agreement SCHEDULE Schedule of Club Trusts, Participating Clubs and Maximum Available Amounts
ii 4 CLUB TRUST REVOLVING CREDIT AGREEMENT Dated as of April 17, 1998 MAJOR LEAGUE BASEBALL TRUST, a Delaware business trust (the "MLB Trust"), FLEET NATIONAL BANK, a national banking association ("Fleet"), as facilitating agent (the "Facilitating Agent") for the MLB Trust and the Club Trusts deemed to be parties hereto as a result of the execution of a Ratification Agreement. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. Unless otherwise defined herein, capitalized terms shall have the meanings set forth in Annex A hereto. In addition, the interpretive guidelines set forth in such Annex A shall be applicable to this Agreement. SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. ARTICLE II AMOUNTS AND TERMS OF THE LOANS SECTION 2.01. THE CLUB TRUST LOANS. The MLB Trust agrees, on the terms and subject to the conditions hereinafter set forth, to make Loans to the Club Trusts pursuant to this Agreement from time to time on any Monthly Settlement Date during the period from the 5 date hereof until the Revolver Termination Date in an amount with respect to each Club Trust up to the Maximum Available Amount for such Club Trust and in an aggregate amount not to exceed at any time the sum of all the outstanding Maximum Available Amounts corresponding to the Club Trust Sub-Facilities (initially, $405,000,000), as such amount shall be reduced pursuant to Section 2.04 and increased pursuant to Section 2.14 and 8.01 (the "Total Commitment"); PROVIDED, HOWEVER, that the aggregate amount of all Loans made to any particular Club Trust shall not at any time exceed such Club Trust's Maximum Available Amount under its Club Trust Sub-Facility (initially $45,000,000). Each Loan with respect to a Club Trust shall be in a minimum of $1,000,000 and an integral multiple of $500,000; PROVIDED, HOWEVER, that at any time any Loan(s) shall be outstanding hereunder with respect to such Club Trust, such Loan(s) shall aggregate at least $5,000,000. The Loans with respect to each Club Trust shall be evidenced by a Club Trust Note. Each Club Trust Note shall be payable as set forth in Section 2.05. Within the limits of the Commitment and its Maximum Available Amount, and provided that all conditions set forth in Section 3.01 or 3.02, as the case may be, have been satisfied, each Club Trust may borrow, prepay pursuant to Section 2.09 and reborrow under this Section 2.01. SECTION 2.02. MAKING THE LOANS. (a) Each Loan to a Club Trust shall be made on notice, given not later than 12:00 noon (Boston time) on the third Business Day prior to the Monthly Settlement Date of the proposed Loan, by the related Club Trust to the MLB Trust and the Facilitating Agent. Any such notice of a Borrowing (a "Notice of Borrowing") shall be by telecopier, telex or cable, confirmed immediately in writing, in substantially the form of Exhibit B hereto, specifying therein (i) the Club Trust with respect to which the Loan is requested, (ii) the related Monthly Settlement Date of such Loan, (iii) the amount of such Loan and (iv) any amount of such Loan which is to be subject to a LIBO Rate Option (which amount shall be a minimum of $1,000,000 and an integral multiple of $500,000) and the initial Interest Period (consistent with the provisions of Section 2.06(b)) for any such amount which is to be subject to a LIBO Rate Option. On the date of each Loan and upon fulfillment of the applicable conditions set forth in Article III, the MLB Trust shall make available such Loan proceeds to the Club 2 6 Trusts in their respective Distribution Accounts or such account as a Club Trust Administrator shall designate in writing. (b) Each Notice of Borrowing shall be irrevocable and binding on the related Club Trust. Subject to the provisions of Section 2.12, each Club Trust shall indemnify the MLB Trust against any loss, cost or expense incurred by the MLB Trust as a result of any failure to fulfill, on or before the date specified in such Notice of Borrowing for any related Loan, the applicable conditions related to its Loan set forth in Article III, including any loss payable by the MLB Trust to any Lender pursuant to MLB Credit Agreement because such related Loan is not made on such date. SECTION 2.03. FEES. (a) Each Club Trust agrees to pay to the MLB Trust, prior to a Liquidity Funding Event, a program fee payable in the amounts and on the dates set forth in the Blue Keel Fee Letter. (b) Each Club Trust agrees to pay to the MLB Trust an underwriting fee payable in the amount and on the date set forth in the Underwriting Fee Letter. (c) Each Club Trust agrees to pay to the MLB Trust a liquidity commitment fee on the average daily unused portion of the Total Liquidity Commitment attributable to such Club Trust from the date hereof until the Termination Date at the rate of 1/4 of 1% per annum, payable in arrears on the last day of each March, June, September and December during the term of the Total Liquidity Commitment, commencing June 30, 1998, and ending on the Termination Date (or, if any such day is not a Business Day, the immediately following Business Day); PROVIDED, HOWEVER, that if within 270 days after any Collective Bargaining Agreement Expiration Date, there does not occur a subsequent Collective Bargaining Agreement Effective Date, then until a subsequent Collective Bargaining Agreement Effective Date occurs, the liquidity commitment fee shall be increased to 3/8 of 1% per annum; and, provided further, that after a Liquidity Funding Event, such commitment fee shall continue to 3 7 be paid and shall be paid to the MLB Trust on the average daily unused portion of the Total Commitment attributable to such Club Trust. (d) Each Club Trust agrees to pay to the MLB Trust a structuring fee and an annual administrative fee payable in the amounts and on the dates set forth in the Administrative Agent Fee Letter. (e) All fees payable pursuant to this Section 2.03 shall be paid on the date due in immediately available funds or fees shall be withheld by the MLB Trust from any Loan if the Administrative Agent, in accordance with the terms of the MLB Credit Agreement, shall have withheld such fees from the Club Trust Related Advances made to the MLB Trust corresponding to such Loan. Once paid, all fees shall be nonrefundable under all circumstances. SECTION 2.04. REDUCTION OF MAXIMUM AVAILABLE AMOUNT. (a) VOLUNTARY REDUCTIONS. Prior to the Termination Date, each Club Trust shall have the right, upon at least three Business Days' prior notice to the MLB Trust and the Facilitating Agent, to terminate in whole or reduce in part the unused portion of the Maximum Available Amount under its Club Trust Sub-Facility; PROVIDED that each partial reduction shall be in the aggregate amount of $250,000 and integral multiples thereof; and PROVIDED FURTHER that such Club Trust shall not be permitted prior to the Termination Date to reduce its Maximum Available Amount below $5,000,000, unless the Maximum Available Amount with respect to such Club Trust shall be reduced to zero. Any Club Trust which shall have (i) reduced its Maximum Available Amount under its Sub-Facility to zero, (ii) paid in full all other amounts owed by it hereunder and under its Club Trust Pledge and Security Agreement and (iii) caused the agreement with respect to the continuation of certain of its and its related Participating Club's obligations to be delivered as contemplated in Section 11 of the related Club Trust Pledge and Security Agreement shall be deemed no longer to be a party to this Agreement. 4 8 (b) REQUIRED REDUCTIONS. (i) On each Reduction Date, unless the Lenders and the Liquidity Banks unanimously consent to the contrary, all Revenues deposited into the Collection Account pursuant to Section 7 of the MLB Pledge and Security Agreement between January 1 and July 1 of the year in which such Reduction Date occurs allocable to each Club Trust shall be transferred into the Debt Service Account, held in escrow in the sub-account of such Club Trust for such period and invested in Permitted Investments as provided in such Agreement, other than amounts required to pay interest on such Club Trust's Loans and the related Borrowings and fees in accordance with this Agreement and the MLB Credit Agreement, which amounts shall be distributed to the Lenders in accordance with the provision of Section 7 of the MLB Pledge and Security Agreement. (ii) if as of July 1 of such calendar year, Annual National Media Revenues are not greater than or equal to eighty percent (80%) of Base Annual National Media Revenues, the Maximum Available Amount under each Club Trust's Sub-Facility shall be reduced to the corresponding amounts set forth below based on actual Annual National Media Revenues as of July 1 of such year:
ANNUAL NATIONAL MEDIA REVENUES MAXIMUM AVAILABLE AMOUNT - ------------------------------ ------------------------ * 80% of Base Annual National Media Revenues $35,000,000 * 70% of Base Annual National Media Revenues $30,000,000 * 60% of Base Annual National Media Revenues $25,000,000 * 50% of Base Annual National Media Revenues $20,000,000 * Less than
(iii) from and after a Reduction Date, no Club Trust may receive the proceeds of any Loans if such Loans, together with the Club Trust's outstanding Loans (but 5 9 excluding accrued interest not yet due thereon), would exceed the Maximum Available Amount as reduced pursuant to Section 2.04(b)(ii) above. (iv) Notwithstanding the provisions of Section 2.04(b)(ii), if after any July 1 following the occurrence of a Reduction Date but prior to the next Reduction Date, Annual National Media Revenues are restored to an amount greater than the amount on such July 1 and greater than or equal to fifty percent (50%) of Base Annual National Media Revenues, then (i) all amounts on deposit in each Club Trust's sub-account of the Debt Service Account shall, to the extent not required to be retained in such sub-account pursuant to the Debt Service and Distribution Schedule then in effect, be transferred to such Club Trust's Distribution Account, and (ii) each Club Trust's Maximum Available Amount shall be restored to either (A) the amount specified in subsection 2.04(b)(ii) or (B), if Annual National Media Revenues are restored to an amount greater than or equal to eighty percent (80%) of Base Annual National Media Revenues, the amount otherwise in effect under this Agreement without giving effect to Section 2.04(b)(ii). (v) In addition to the foregoing, on and after any Collective Bargaining Agreement Expiration Date but prior to a subsequent Collective Bargaining Agreement Effective Date, the Maximum Available Amount under each Club Trust's Sub-Facility shall be reduced, pursuant to a temporary reduction of the unused portion of the MLB Trust's Total Commitment attributable to such Club Trust, by an amount equal to the Labor Contingency Interest Reserve for such Club Trust; PROVIDED, HOWEVER, that such Labor Contingency Interest Reserve shall be eliminated and such Club Trust's Maximum Available Amount shall be restored to the amount otherwise in effect under this Agreement without giving effect to this Section 2.04(b)(ii) on and after any Collective Bargaining Agreement Effective Date until the next Collective Bargaining Agreement Expiration Date; and PROVIDED, FURTHER, that with respect to such a reduction occurring on and after any Collective Bargaining Agreement Expiration Date, the Labor Contingency Interest Reserve shall be established or reestablished as the case may be by each Club Trust either (i) reducing its Maximum Available Amount pursuant to a temporary reduction of the unused portion of the MLB Trust's Total 6 10 Commitment attributable to such Club Trust or, (ii) if it does not have a sufficient unused portion repaying (and not reborrowing) a corresponding amount of unpaid principal of all outstanding Loans from the MLB Trust to such Club Trust under its Club Trust Sub-Facility (in accordance with and subject to the provisions of Section 2.12) ratably during the three-month period prior to the applicable Collective Bargaining Agreement Expiration Date if projected revenues from the National Media Contracts during such three-month period are sufficient in the reasonable judgment of the Facilitating Agent to effect such a reduction and if not, a period comprising a sufficient number of months in the reasonable judgment of the Facilitating Agent to effect such a reduction prior to the applicable Collective Bargaining Agreement Expiration Date. (vi) In addition to the foregoing, if at any other time the aggregate outstanding amount of all Loans from the MLB Trust to a Club Trust exceeds the Maximum Available Amount under such Club Trust's Sub-Facility, such Club Trust shall immediately repay the Loans in the amount of such excess. SECTION 2.05. PRINCIPAL REPAYMENT. Following a Revolver Termination Date, the MLB Trust shall no longer be obligated to make Loans and each Club Trust shall repay the outstanding principal amount of all Loans from the MLB Trust to such Club Trust under its Club Trust Sub-Facility (subject to the provisions of Section 2.12) in the following manner. (i) on January 10 of the first calendar year after the calendar year in which the Revolver Termination Date occurs, such Club Trust shall repay an amount equal to fifteen percent (15%) of the outstanding principal of all Loans as of the Revolver Termination Date; (ii) on January 10 of the second calendar year after the calendar year in which the Revolver Termination Date occurs, such Club Trust shall repay an amount equal to twenty percent (20%) of the outstanding principal of all Loans as of the Revolver Termination Date; 7 11 (iii) on January 10 of the third calendar year after the calendar year in which the Revolver Termination Date occurs, such Club Trust shall repay an amount equal to twenty-five percent (25%) of the outstanding principal of all Loans as of the Revolver Termination Date; and (iv) on the Final Payment Date, such Club Trust shall repay all remaining outstanding principal of all Loans. SECTION 2.06. INTEREST. (a) ORDINARY INTEREST. Each Club Trust shall pay interest on the unpaid principal amount of each Loan made to it by the MLB Trust from the date of such Loan until such principal amount shall be paid in full at the interest rate or rates determined pursuant to Section 2.08(a). Interest on each Loan (or portion thereof) shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing June 30, 1998, and interest on each LIBO Rate Portion of any Loan shall be payable on the last day of each Interest Period and, if such Interest Period has a duration of six months, on the day which is three months after the first day of such Interest Period and on the last day of such Interest Period. (b) INTEREST PERIODS. Subject to Section 2.02(a), Section 2.08(c) and Section 2.10, any Administrator on behalf of the related Club Trust may (i) request in any Notice of Borrowing delivered pursuant to Section 2.02(a) that interest on the Loan requested in such Notice of Borrowing (or on a specified principal amount thereof) be based on the LIBO Rate or (ii) request in any Notice of Borrowing delivered pursuant to Section 2.02(a) that interest on any then outstanding Loan (or on a specified principal amount thereof) be based on the LIBO Rate, in each case for a period beginning on a Monthly Settlement Date and ending on a day immediately preceding a Monthly Settlement Date (an "Interest Period") for such Loan (or portion thereof) of one, three or six months; PROVIDED, HOWEVER, that: 8 12 (i) any Notice of Borrowing given on the Closing Date shall satisfy the prior notice requirements set forth in Section 2.02(a) and the first Interest Period shall run from the Closing Date through the applicable Monthly Settlement Date. (ii) if any Club Trust fails so to select the duration of any Interest Period, the duration of such Interest Period shall be one month; (iii) no more than three Interest Periods shall be outstanding with respect to any Club Trust; (iv) prior to a Liquidity Funding Event, no Interest Period may extend beyond the Revolver Termination Date, and at all times, no Interest Period may extend beyond the Final Payment Date; (v) a Club Trust may not select any Interest Period which ends after any principal repayment or reduction date unless, after giving effect to such selection, the aggregate unpaid principal amount of Loans (or portions thereof) with respect to such Club Trust which are not then subject to a LIBO Rate Option, together with the appropriate unpaid principal amount of LIBO Rate Portions of Loans having Interest Periods which end on or prior to such principal repayment or reduction date shall be at least equal to the principal amount of Loans with respect to such Club Trust due and payable on and prior to such date; (vi) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; PROVIDED that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (vii) if any Club Trust (through its Administrator on behalf of the Club Trust) shall not have delivered to the MLB Trust and the Facilitating Agent, not later than 9 13 12:00 noon (Boston time) on the third Business Day prior to the termination of any Interest Period, a Notice of Borrowing requesting that interest on the LIBO Rate Portion (or any portion thereof) corresponding to such Interest Period be based on the LIBO Rate for a new Interest Period, then the interest on the amount of such LIBO Rate Portion (or any portion thereof as to which such Club Trust has not requested that interest be based on a LIBO Rate) shall be calculated pursuant to Section 2.06(a)(i) of the MLB Credit Agreement following termination of the applicable Interest Period and prior to a Liquidity Funding Event, such Club Trust shall be deemed to have selected an Interest Period of one month; and PROVIDED, FURTHER, that in the case of a Business Interruption Event, the selection of new Interest Periods for outstanding Loans shall continue to be permitted. (c) DEFAULT INTEREST. Each Club Trust shall pay interest on the unpaid principal amount of each Loan made to such Club Trust that is not paid when due and on the unpaid amount of all interest, fees and other amounts payable hereunder that is not paid when due, payable on demand, at a rate per annum equal at all times to (i) in the case of any amount of principal, 2% per annum above the rate per annum required to be paid on such Loan immediately prior to the date on which such amount became due and (ii) in the case of all other amounts, 2% per annum above the Base Rate in effect from time to time; PROVIDED, however, that in no event shall the amount contracted for and agreed to be paid by any Club Trust under any provision of this Agreement or its Club Trust Note exceed the highest lawful rate permissible under any law applicable thereto. (d) BUSINESS INTERRUPTION EVENT INTEREST. Upon the occurrence of a Business Interruption Event, each Club Trust shall pay interest on the unpaid principal amount of each Loan at a rate per annum equal at all times to 2% per annum above the rate per annum that would otherwise be required to be paid on such Loan under this Agreement without giving effect to this Section 2.06(d); PROVIDED, that following the earlier of the termination of the strike or dispute which gave rise to a Business Interruption Event or the resumption of games involving players of Major League Baseball and not replacement players, the interest rate shall 10 14 be restored to the rate that would otherwise be required under this Agreement without giving effect to this Section 2.06(d). SECTION 2.07. ADDITIONAL INTEREST. Each Club Trust shall pay to the MLB Trust the amount of any additional interest required to be paid by the MLB Trust to any Lender pursuant to Section 2.07 of the MLB Credit Agreement with respect to the Club Trust Related Advances corresponding to the Loan(s) made by the MLB Trust to such Club Trust under its Club Trust Sub-Facility. Such amounts shall be paid to the MLB Trust at or prior to the time that the MLB Trust shall be required to pay such amount to any Bank. SECTION 2.08. INTEREST RATE DETERMINATION AND PROTECTION. (a) The interest rate for each Club Trust's Loan under its Sub-Facility shall be the interest rate or rates on the Club Trust Related Advances corresponding to such Loan as determined pursuant to Section 2.06 of the MLB Credit Agreement. (b) The Facilitating Agent shall give prompt notice to the related Club Trust of the applicable interest rate or rates determined by the Administrative Agent under the MLB credit Agreement for purposes of Section 2.06. (c) If, pursuant to Section 2.08(c) of the MLB Credit Agreement, the Administrative Agent determines that the LIBO Rate for any Interest Period for the Club Trust Related Advances which correspond to the Loans made to the Club Trusts hereunder is not available, or if following a Liquidity Funding Event the Required Lenders notify the MLB Trust that the LIBO Rate for any Interest Period for the Club Trust Related Advances which correspond to the Loans made to the Club Trusts hereunder will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Club Trust Related Advances for such Interest Period: (i) the MLB Trust (or the Facilitating Agent on its behalf) shall forthwith notify the Club Trusts of such event; 11 15 (ii) consistent with this Section 2.08 and Section 2.08(c) of the MLB Credit Agreement, the Lenders shall continue to make Club Trust Related Advances in accordance with the other terms and conditions of this Agreement, but the Base Rate shall be the applicable interest rate for each such Loan hereunder from and after the last day of the then existing Interest Period therefor; and (iii) the LIBO Rate Option shall be suspended until reinstated pursuant to paragraph (d) below. (d) The LIBO Rate Option shall be reinstated upon notification by the MLB Trust (or the Facilitating Agent on its behalf) to the Club Trusts that the circumstances giving rise to the suspension of the LIBO Rate Option pursuant to paragraph (c) above are no longer applicable. SECTION 2.09. PREPAYMENTS. (a) In addition to the required repayment of principal specified in Section 2.05, with respect to each Club Trust, on any July 1 on which the Maximum Available Amount under such Club Trust's Sub-Facility is reduced pursuant to Section 2.04(b)(ii), principal in the amount equal to the excess, if any, of (i) all outstanding Loans to such Club Trust under its Sub-Facility over (ii) the Maximum Available Amount as so reduced shall be payable as set forth hereunder and a "Club Trust Prepayment Event" with respect to such excess shall be deemed to have occurred. Upon the occurrence of a Club Trust Prepayment Event, all amounts held in escrow in the Debt Service Account (other than amounts required to pay interest and fees) pursuant to Section 2.04 shall immediately be applied by the Administrative Agent to repay such excess principal and all Revenues allocable to such Club Trust deposited into the Collection Account pursuant to Section 7 of the MLB Pledge and Security Agreement between July 1 of such year and January 10 of the immediately succeeding year (plus all interest earned on such amounts) shall be transferred into the Debt Service Account and applied to repay such excess principal, after the application of amounts required to pay interest on such Club Trust's Loans and the related Borrowings and fees in accordance with 12 16 this Agreement and the MLB Credit Agreement. If a Club Trust Prepayment Event occurs and all excess principal with respect to any Club Trust's Loans is not repaid in full by January 10 of the year immediately succeeding the year in which such Club Trust Prepayment Event occurs so that such Club Trust's Loans outstanding as of the end of such day do not exceed such Club Trust's Maximum Available Amount as so reduced, it shall constitute a Club Trust Event of Default with respect to such Club Trust pursuant to Section 6.01(a). (b) Other than with respect to any prepayment pursuant to the provisions of paragraph (c) below, each Club Trust may, upon at least three Business Days' notice in the case of any LIBO Rate Loan and one Business Day's notice in the case of any Base Rate Loan to the MLB Trust and the Facilitating Agent stating the Club Trust with respect to which any such prepayment relates, the proposed date and aggregate principal amount of each such prepayment, prepay the Loan(s) under its Club Trust Sub-Facility in whole or ratably in part, and, if such notice is given, the related Club Trust shall prepay the Loan(s) under its Club Trust Sub-Facility in whole or ratably in part in the aggregate principal amount designated in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid; PROVIDED, HOWEVER, that with respect to each Club Trust (i) each partial prepayment shall be in an aggregate principal amount not less than $250,000, (ii) any prepayment of any LIBO Rate Portion of any Club Trust's Loan(s) under its Club Trust Sub-Facility shall be made on, and only on, the last day of an Interest Period for such LIBO Rate Portion (PROVIDED, THAT prepayments may be made at other times as long as all costs payable pursuant to Section 8.04(b) are paid) and (iii) no prepayment shall be permitted pursuant to this Section 2.09 if, after giving effect to such prepayment, the aggregate principal amount of Loans outstanding under such Club Trust's Sub-Facility shall be less than $5,000,000, unless the amount of Loans outstanding under such Club Trust Sub-Facility shall be reduced by such prepayment to zero. (c) In accordance with the provisions of Section 2.07 of each Club Trust Agreement, each Club Trust may, upon at least three Business Days' notice to the MLB Trust and the Facilitating Agent stating the Club Trust with respect to which any such prepayment 13 17 relates and the proposed date and aggregate principal amount of such prepayment, prepay all of its Loans under its Club Trust Sub-Facility in whole, and, if such notice is given, the related Club Trust shall prepay any and all Loans under its Sub-Facility in whole, together with accrued interest to the date of such prepayment on the principal amount prepaid. Any Club Trust which shall have (i) made such a prepayment pursuant to this paragraph (c), (ii) paid in full all other amounts owed by it hereunder and under its Club Trust Pledge and Security Agreement and (iii) caused the agreement with respect to the continuation of certain of its and its related Participating Club's obligations to be delivered as contemplated in Section 11 of the related Club Trust Pledge and Security Agreement shall be deemed no longer to be a party to this Agreement. SECTION 2.10. INCREASED COSTS. Each Club Trust shall pay to the MLB Trust the amount of any increased costs required to be paid by the MLB Trust to any Lender or Liquidity Bank pursuant to Section 2.10 of the MLB Credit Agreement with respect to the Club Trust Related Advances corresponding to the Loan(s) made by the MLB Trust to such Club Trust under its Club Trust Sub-Facility and its allocable portion of the Liquidity Commitment. Such amounts shall be paid to the MLB Trust at or prior to the time that the MLB Trust shall be required to pay such amount to any Lender or Liquidity Bank. SECTION 2.11. ILLEGALITY. (a) Notwithstanding any other provision of this Agreement but subject to the provisions of this Section, if, pursuant to Section 2.11 of the MLB Credit Agreement, any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Lending Office to perform its obligations thereunder to make, fund or maintain Club Trust Related Advances subject to a LIBO Rate Option thereunder, (i) the obligation of the MLB Trust to make Loans (or portions thereof) subject to a LIBO Rate Option under any Club Trust Sub-Facility shall be suspended until the Administrative Agent under the MLB Credit Agreement shall notify the MLB Trust and the Lenders that the circumstances causing such suspension no longer 14 18 exist (prompt notice of which will be given to the Club Trusts by the MLB Trust (or the Facilitating Agent on its behalf)) and (ii) the Base Rate shall be the applicable interest for all Loans unless such Club Trust, within five Business Days of notice from the MLB Trust (or the Facilitating Agent on its behalf) of the above described events, elects to prepay in full all Loans (or portions thereof) subject to a LIBO Rate Option under its Club Trust Sub-Facility then outstanding, together with interest accrued thereon. (b) Upon the occurrence of the events specified in Section 2.11(a), the MLB Trust shall continue to make Loans in accordance with the other terms and conditions of this Agreement, but the Base Rate shall be the applicable interest rate for each such Loan until the MLB Trust and the Club Trusts receive the notice described in 2.11(a)(i) above. SECTION 2.12. PAYMENTS; LIMITED RECOURSE; NO CROSS COLLATERALIZATION AND COMPUTATIONS. (a) Subject to the provisions of this Section, on any day on which any amount is due hereunder or under the related Club Trust Pledge and Security Agreement with respect to any Club Trust Sub-Facility or on which any Club Trust in accordance with Section 2.09 elects to make a principal payment, subject to the provisions of the MLB Pledge and Security Agreement, amounts on deposit in the Debt Service Account attributable to the related Club Trust shall be withdrawn from the Debt Service Account and such amounts shall be applied to make actual or deemed distributions with respect thereto. Deemed distributions consist of payments to the Lenders and the Liquidity Banks under MLB Credit Agreement with respect to Club Trust Related Advances and related obligations (including Secured Obligations) corresponding to the such Club Trust's outstanding Loans, payment with respect to which will satisfy such Club's payment obligation to the MLB Trust hereunder or under the MLB Trust Agreement. (b) [Reserved]. 15 19 (c) Each Club Trust's obligations hereunder shall (subject to Section 2.12(d)) be satisfied solely by recourse to the assets of such Club Trust and its related Club Trust Collateral and none of the Major League Clubs (except as provided in any Transfer Agreement), the Commissioner, the National League or the American League or any of their Affiliates shall be obligated with respect thereto. (d) (i) The assets of a particular Club Trust and its related Club Trust Collateral shall be used solely to pay obligations attributable to such Club Trust and in no event, except as provided in (iii) below, shall the Club Trust Collateral of one Club Trust be used to pay any obligations attributable to another Club Trust. Obligations hereunder or under the MLB Pledge and Security Agreement not specifically attributable to a Club Trust shall be allocated equally among the Club Trusts. (ii) As further provided in paragraphs (e), (f) and (g) below, the MLB Trust and the Facilitating Agent agree to account for all Loans under the Club Trust Sub-Facilities, payments and the Club Trust Collateral so as to prevent cross-collateralization between the assets and obligations attributable to each of the Club Trusts. Except as permitted in (iii) below, any amounts received by the MLB Trust in satisfaction of any obligations attributable to any Club Trust from the assets of, or assets attributable to, another Club Trust shall be deposited by the MLB Trust into the Debt Service Account and the obligation previously satisfied by such deposited amounts shall be reinstated effective as of the date on which such amount was incorrectly applied. (iii) The assets attributable to a particular Club Trust or Club Trusts and any other portion of the Club Trust Collateral attributable to such Club Trust or Club Trusts may be used to the extent provided in this clause (iii) to satisfy the obligations of any other Club Trust (A) if for any reason any such other Club Trust receives less than its Pro Rata share of Revenues or (B) if (x) such other Club Trust's related Participating Club is expelled or withdraws from its respective League or Major League Baseball, as a whole, and such other Club Trust's share of Revenues is reduced or eliminated and (y) the American League or the 16 20 National League, as appropriate, elects to allow a new Major League Club to become a member of Major League Baseball. The amount permitted to be paid with respect to the obligations of any such adversely affected Club Trust (x) in the case of subclause (A), shall equal the incremental dollar increase in Revenues allocated to the nonadversely affected Club Trusts as a result of such nonadversely affected Club Trusts' Pro Rata share of Revenues being increased by such reduction in or elimination of the adversely affected Club Trust's Pro Rata share of Revenues and (y) in the case of subclause (B), shall equal any amounts paid to the remaining Participating Clubs and included the Club Trusts' Rights in connection with the addition of the next Major League Club following the expulsion or withdrawal of such Club; PROVIDED, HOWEVER, that in the case of each of the immediately preceding clause (x) and clause (y), in no event shall the aggregate amounts paid by all nonadversely affected Club Trusts exceed the amount of the obligations of the adversely affected Club Trust under the Transaction Documents. The obligation of any nonadversely affected Club Trust or Club Trusts to pay any amount on behalf of an adversely affected Club Trust or Club Trusts shall be allocated Pro Rata based upon Maximum Available Amount among the nonadversely affected Club Trusts. (e) The MLB Trust shall maintain an account or accounts evidencing the indebtedness of each Club Trust resulting from each Loan under such Club Trust's Sub-Facility made by the MLB Trust to such Club Trust from time to time, including the amounts of principal and interest payable and paid to the MLB Trust from time to time under this Agreement, the Club Trust Pledge and Security Agreement or the MLB Pledge and Security Agreement with respect to such Club Trust. (f) The Facilitating Agent shall maintain the Register pursuant to Section 8.07 hereof in which Register shall be reported with respect to each Club Trust and its Sub-Facility (i) each Loan hereunder made with respect to such Club Trust and the amount of each such Loan, (ii) the Interest Period and principal amount of each LIBO Rate Portion of each such Loan, (iii) the amount of any principal or interest due and payable or to become due and payable with respect to each such Loan and (iv) the amount of any sum received by the MLB 17 21 Trust hereunder, under the Club Trust Pledge and Security Agreement or under the MLB Pledge and Security Agreement from such Club Trust. (g) The entries made in the accounts or the Register maintained pursuant to paragraphs (e) and (f) of this Section 2.12 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and the amounts of the obligations of each Club Trust with respect to each Loan therein recorded; PROVIDED, HOWEVER, that the failure of the Facilitating Agent to maintain any such accounts or such Register, as applicable, or any error therein shall not in any manner affect the obligation of any Club Trust in accordance with the terms hereof. (h) It is the intent of the parties hereto that all computations of interest on the Loans hereunder correspond to the calculation of interest on the corresponding Club Trust Related Advances and that the calculation of fees hereunder correspond to the calculation of fees under the MLB Credit Agreement. Consistent with such intent, all computations of interest based on the LIBO Rate shall be made by the Facilitating Agent on the basis of a year of 360 days, and all computations of interest based on the Base Rate and of fees shall be made by the Facilitating Agent on the basis of a year of 365 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or additional interest are payable. Each determination by the Facilitating Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (i) Whenever any payment hereunder or under the Club Trust Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or any fee, as the case may be; PROVIDED, HOWEVER, that if such extension would cause payment to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. 18 22 SECTION 2.13. TAXES. (a) Any and all payments by each Club Trust hereunder or under the Club Trust Notes shall be made, in accordance with Section 2.12, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each of the MLB Trust and the Facilitating Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which the MLB Trust or the Facilitating Agent (as the case may be) is organized or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Club Trust shall be required by law to deduct any Taxes from or in respect of, any sum payable hereunder or under the Club Trust Notes to the MLB Trust or the Facilitating Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under Section 2.13(a), (b) or (c)) the MLB Trust or the Facilitating Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Club Trust shall make such deductions and (iii) such Club Trust shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Club Trust agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Club Trust Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes or any other Transaction Document (hereinafter referred to as "Other Taxes"). (c) Each Club Trust will indemnify the MLB Trust and the Facilitating Agent for the full amount of Taxes or Other Taxes which are attributable to such Club Trust (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under Section 2.13(a), (b) or (c)) paid by the MLB Trust or the Facilitating Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with 19 23 respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within 30 days from the date the MLB Trust or the Facilitating Agent (as the case may be) makes written demand therefor. If the MLB Trust or the Facilitating Agent shall become aware or shall be notified by any Club Trust that it is entitled to receive a refund in respect of Taxes or Other Taxes as to which it has been indemnified by such Club Trust pursuant to Section 2.13(a), (b) or (c), it shall promptly notify such Club Trust of the availability of such refund and shall, within 30 days after receipt of a written request by any such Club Trust, apply for such refund at the such Club Trust's expense. If the MLB Trust or the Facilitating Agent receives a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by any Club Trust pursuant to Section 2.13(a), (b) or (c), it shall promptly notify the appropriate Club Trust of such refund and shall, within 30 days after receipt of a written request by such Club Trust (or promptly upon receipt, if such Club Trust has requested application for such refund pursuant hereto), repay such refund to such Club Trust (to the extent of amounts that have been paid by such Club Trust under Section 2.13(a), (b) or (c) with respect to such refund), net of all out-of-pocket expenses (including the net amount of taxes, if any, imposed on such MLB Trust or Facilitating Agent with respect to such refund) of the MLB Trust or the Facilitating Agent, PROVIDED that each Club Trust, upon the request of the MLB Trust or Facilitating Agent, agrees to return such refund (plus penalties, interest or other charges) to the MLB Trust or Facilitating Agent in the event the MLB Trust or the Facilitating Agent is required to repay such refund to any person, including the relevant taxing authority. (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by a Club Trust in respect of any payment to the MLB Trust or the Facilitating Agent, each Club Trust will furnish to the Facilitating Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) (i) Each Club Trust, without duplication of any amounts paid or indemnified pursuant to Section 2.13(a), (b) or (c), shall indemnify the MLB Trust and the Facilitating Agent for any MLB Taxes required to be paid by the MLB Trust or Facilitating Agent (as the 20 24 case may be) to any Lender, Liquidity Bank, Bank Transferee, and the Administrative Agent pursuant to Section 2.13 of the MLB Credit Agreement in an amount equal to the sum of (x) the amount of MLB Taxes that are specifically attributable to such Club Trust and (y) an amount equal to the product of (I) the amount of MLB Taxes not specifically attributable to any Club Trust and (II) the quotient of (A) the sum of the amount of the Loans made to such Club Trust that is outstanding on each day in the period to which such MLB Taxes relate divided by the number of days in such period divided by (B) the sum of the amount of the Loans made to all the Club Trusts that is outstanding on each day in the period to which such MLB Taxes relate divided by the number of days in such period; PROVIDED, HOWEVER, that with respect to MLB Taxes described in clause (y)(I) if (C) there are no Loans outstanding during any period to which such MLB Taxes relate or (D) such MLB Taxes would have been imposed if none of the Loans to any Club Trust were outstanding, then each such Club Trust shall indemnify the MLB Trust and the Facilitating Agent in an amount equal to the amount of such MLB Taxes divided by the number of Club Trusts parties to this Agreement; PROVIDED FURTHER, HOWEVER, that if for any reason after the application of the foregoing formulas to determine the amount that a Club Trust must indemnify the MLB Trust and the Facilitating Agent with respect to MLB Taxes, an amount of MLB Taxes has not been indemnified, then each such Club Trust shall indemnify the MLB Trust and Facilitating Agent in an amount equal to the amount of such MLB Taxes that has not been indemnified divided by the number of Club Trusts parties to this Agreement; and PROVIDED FURTHER that no Club Trust shall be responsible for the payment of any such amounts payable by any other Club Trust. Any such MLB Taxes that are required to be indemnified by a Club Trust shall be paid by such Club Trust at or prior to the time that the MLB Trust or Facilitating Agent shall be required to pay such MLB Taxes. The Facilitating Agent shall have the exclusive authority to apply and interpret the provisions of this Section 2.13(e) to determine the amounts each Club Trust is required to indemnify the MLB Trust or Facilitating Agent pursuant to this Section 2.13(e). (ii) If the MLB Trust or the Facilitating Agent shall become aware that it is entitled to receive a refund in respect of MLB Taxes as to which it has been indemnified by any Club Trust pursuant to this Section 2.13(e), it shall promptly notify the Club Trust(s) that 21 25 made the related indemnity payment(s) of the availability of such refund and shall, within 30 days after receipt of a written request by any such Club Trust, apply or cause any Lender, Liquidity Bank, Bank Transferee or Administrative Agent to apply for such refund at the expense of such Club Trust(s). If the MLB Trust or the Facilitating Agent receives a refund in respect of any MLB Taxes as to which it has been indemnified by any Club Trust(s) pursuant to this Section 2.13(e), it shall promptly notify the appropriate Club Trust(s) of such refund and shall, within 30 days after receipt of a written request by such Club Trust(s) (or promptly upon receipt, if such Club Trust has requested application for such refund pursuant hereto), repay to such Club Trust an amount equal to the product of (x) such refund, including any interest thereon, net of all out-of-pocket expenses (including expenses incurred to apply for such refund and the net amount of taxes, if any, imposed on the MLB Trust or the Facilitating Agent in respect of such refund) of the MLB Trust or the Facilitating Agent, and (y) the quotient of (I) the amount paid by such Club Trust and (II) the total amounts paid by all the Club Trusts, each pursuant to this Section 2.13(e) with respect to the MLB Taxes giving rise to such refund (excluding any expense reimbursements paid to the MLB Trust or Facilitating Agent with respect to such refund), plus an amount equal to any expense reimbursed by such Club Trust to the MLB Trust or Facilitating Agent pursuant to this Section 2.13(e) to apply for such refund which was deducted by the MLB Trust from the amount of such refund as an out-of-pocket expense, PROVIDED that each Club Trust, upon request of the MLB Trust or Facilitating Agent, agrees to return such refund (plus penalties, interest or other charges) to the MLB Trust or Facilitating Agent in the event the MLB Trust or the Facilitating Agent is required to repay such refund to any person, including the relevant taxing authority. (iii) This Section 2.13(e) is intended to equitably apportion the burden of MLB Taxes among the Club Trusts and equitably apportion the benefit of any refund received in respect of MLB Taxes. Each Club Trust, the MLB Trust and the Facilitating Agent agree to negotiate in good faith to amend this Section 2.13(e) to achieve the intent of this Section 2.13(e) if, as a result of any unusual circumstances, pursuant to Section 2.13(e) the burden of MLB Taxes is not equitably apportioned among the Club Trusts or the benefit of 22 26 refunds of MLB Taxes are not equitably apportioned among the Club Trusts; PROVIDED, HOWEVER, each Club Trust shall comply with this Section 2.13(e) until any such amendment. (f) Without prejudice to the survival of any other agreement of each Club Trust hereunder, the agreements and obligations of each Club Trust contained in this Section 2.13 shall survive the payment in full of principal and interest hereunder and under the related Club Trust Note. (g) If any Club Trust is required to pay any amount pursuant to this Section 2.13 to any Lender, Liquidity Bank, Bank Transferee, Administrative Agent, Facilitating Agent, taxing jurisdiction, or other third party, the Administrative Agent shall have the power and authority (but not the duty) to pay such amounts as specified in the MLB Pledge and Security Agreement. SECTION 2.14. ADDITIONAL CLUB TRUSTS; CREATION OF ADDITIONAL SUB-FACILITIES. (a) Subsequent to the Closing Date, but prior to the Revolver Termination Date, at any time upon sixty (60) days prior written notice to the Administrative Agent, additional Club Trusts may be added as parties to this Agreement and, in connection with any such addition, a Club Trust Sub-Facility with respect to each such additional Club Trust shall be created hereunder. The consent of the Club Trusts party hereto at the time of any such proposed addition shall not be required in connection with such proposed addition; PROVIDED, HOWEVER, that such proposed addition shall be subject to the satisfaction of any conditions thereto established by the Administrative Agent on behalf of the MLB Trust; and PROVIDED FURTHER, HOWEVER, that any proposed addition shall be at a minimum subject to the satisfaction of the conditions that: (i) the Maximum Available Amount under such proposed Club Trust's Club Trust Sub-Facility shall not exceed $45,000,000, subject to all required reductions in any Club Trust's Maximum Available Amount pursuant to Section 2.04(b)); 23 27 (ii) the Total Commitment and Total Liquidity Commitment shall have been increased under and in accordance with the provisions of the MLB Credit Agreement to make Club Trust Related Advances to the Borrower in an amount equal to such proposed Club Trust's Maximum Available Amount under its Sub-Facility; (iii) no Club Trust Event of Default or event which would constitute a Club Trust Event of Default but for the requirement that notice be given or time elapse or both will result from the proposed addition of such Club Trust and such Club Trust's related Participating Club must be entitled to, and must have transferred to such Club Trust, a full Pro Rata Share of the Rights and Revenues; (iv) the representations and warranties contained in Section 3 of the MLB Pledge and Security Agreement and the representations and warranties contained in Section 4.01 of this Agreement and Section 3 of the Club Trust Pledge and Security Agreement with respect to such Club Trust will be true and correct in all material respects as of the date of such proposed addition; (v) subject to provisions of paragraph (c) below, such proposed Club Trust shall have delivered to the MLB Trust and the Facilitating Agent those items required to be delivered to them by a Club Trust and such Club Trust shall have taken such actions as are required to be taken by a Club Trust pursuant to Section 3.01; (vi) the conditions under the MLB Credit Agreement to the proposed addition of any Club Trust and the corresponding increase in the Total Commitment thereunder to make Club Trust Related Advances and Total Liquidity Commitment shall have been satisfied; (vii) such proposed Club Trust shall have entered into a Ratification Agreement; 24 28 (viii) the MLB Trust and the Facilitating Agent shall have received such other approvals, opinions or documents as the MLB Trust and Facilitating Agent shall have reasonably requested; and (ix) such proposed Club Trust shall be responsible for the payment of its allocable share of all amounts payable by the MLB Trust to the Lenders pursuant to Section 8.04(b) of the MLB Credit Agreement as a result of any reallocation of the Club Trust Related Advances among the Lenders in connection with the increase in the aggregate Club Trust Related Advances of the Lenders related to the addition of such propose Club Trust. (b) Following the addition of any such proposed Club Trust, (i) all references herein or any Transaction Document to Club Trust, Participating Club, Administrator, Maximum Available Amount and Club Trust Sub-Facility shall be deemed to include such proposed Club Trust, its related Participating Club and Administrator and, as appropriate, such proposed Club Trust's Maximum Available Amount and Club Trust Sub-Facility and (ii) for all purposes such proposed Club Trust shall be deemed to be a party to this Agreement. (c) In connection with the addition of any proposed Club Trust whose related Participating Club is located outside of the United States, the Administrative Agent may, in addition to or in lieu of any Uniform Commercial Code financing statements (and any related requests for information) required to be delivered in connection with (i) the perfection of the ownership interest of such proposed Club Trust in the Rights and Revenues contributed to it by such proposed Club Trust's related Participating Club and (ii) the perfection of the security interest created by such proposed Club Trust in the Club Trust Collateral pursuant to its Club Trust Pledge and Security Agreement, require such proposed Club Trust to deliver such other documents and/or any Opinion of Counsel as the Administrative Agent may deem appropriate or necessary to assure itself of such proposed Club Trust's perfected ownership interest in the Rights and Revenues under the laws of such other jurisdiction. In addition, with respect to any proposed Club Trust whose related Participating Club is located outside of the United 25 29 States, the Administrative Agent may require such proposed Club Trust to deliver such other documents and/or any Opinion of Counsel necessary to assure itself of the absence of any withholding tax imposed by such other jurisdiction with respect to such proposed Club Trust's Rights and Revenues. (d) As contemplated in and subject to the provisions of Section 8.01(b), this Agreement, the MLB Credit Agreement and the MLB Pledge and Security Agreement may be amended to the extent necessary or desirable in the sole judgment of the Administrative Agent in connection with the addition of a proposed Club Trust. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. CONDITION PRECEDENT TO INITIAL LOANS. The obligation of the MLB Trust to make its initial Loan to any Club Trust under its Sub-Facility hereunder is subject to the condition precedent that the MLB Trust and the Facilitating Agent shall have received on or before the day of the initial Loan thereunder the following, each dated such day, in form and substance satisfactory to the MLB Trust and the Facilitating Agent (except for the Club Trust Note): (a) A pledge and security agreement, duly executed by such Club Trust and the MLB Trust in substantially the form of Exhibit C hereto (the "Club Trust Pledge and Security Agreement"), together with (i) executed copies of proper financing statements to be filed under the Uniform Commercial Code of all jurisdictions that the MLB Trust may deem necessary or desirable in order to perfect the ownership interest in the Rights and Revenues contributed by such Club Trust's related Participating Club to such Club Trust and (ii) executed copies of proper financing statements to be filed under the Uniform Commercial Code of all jurisdictions that the MLB Trust may deem necessary or desirable in order to perfect the security interests by such Club Trust in the Club Trust Collateral pursuant to the Club Trust Pledge and Security Agreement. 26 30 (b) A certificate of the Club Trustee certifying the names and true signatures of their officers authorized to sign each Transaction Document to which such Club Trust is a party and the other documents to be delivered hereunder or thereunder. (c) The list of Authorized officers for each Administrator. (d) Certified copies of all corporate or partnership action taken by such Club Trust's related Participating Club, including appropriate resolutions authorizing the execution, delivery and performance of the Transaction Documents to which it is a party and each other document delivered pursuant to such documents. (e) Copies of the Ratification Agreement executed by such Club Trust. (f) A Certificate of such Club Trust's Administrator certifying that (a) as of the date of such Club Trust's Ratification Agreement no event has occurred and is continuing, or would result from any Loan under such Club Trust's Sub-Facility or from the application of the proceeds therefrom on such date, which constitutes a Club Trust Event of Default or would constitute a Club Trust Event of Default but for the requirement that notice be given or time elapse or both and (b) as of the date of the initial Loan, with respect to each Club Trust in existence prior to the date of this Agreement, such Club Trust's related Participating Club is Solvent, and with respect to each Club Trust organized after the date of this Agreement, such Club Trust's related Participating Club is Solvent prior to, and will be Solvent after giving effect to, the transfer of the Rights and Revenues to such Club Trust and that such Participating Club is receiving fair and reasonably equivalent value for the transfer of the Rights and Revenues to its related Club Trust. (g) The Club Trust Note with respect to the related Club Trust to the order of the MLB Trust. (h) Copies of the Transfer Agreement executed by such Club Trust. 27 31 (i) The delivery of all collateral with respect to such Club Trust under the Club Trust Pledge and Security Agreement (including the related Club Trust Note) to the Administrative Agent for the benefit of all the Lenders and the third party benefit of the Liquidity Banks under the MLB Credit Agreement. (j) A favorable opinion of counsel to such Club Trust, substantially in the form of Exhibit B to its Transfer Agreement and as to such other matters as the MLB Trust and the Facilitating Agent may reasonably request. (k) Copies of the Administration Agreement executed by such Club Trust. (1) Copies of all documents, certificates and opinions delivered by such Club Trust or its related Participating Club pursuant to the Transaction Documents. (m) Such other documents as the MLB Trust or the Facilitating Agent shall reasonably request. SECTION 3.02. CONDITIONS PRECEDENT TO EACH LOAN. The obligation of the MLB Trust to make a Loan (including the initial Loan) under any Club Trust's Sub-Facility shall be subject to the receipt by the MLB Trust of the Club Trust Related Advances with respect to the related Club Trust necessary to make such Loans and to the further conditions precedent that on the date of such Loan (i) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing with respect to such Club Trust and the acceptance of the Loan proceeds by such Club Trust shall constitute a representation and warranty by such Club Trust that on the date of such Loan such statements are true): (a) the representations and warranties contained in Section 3 of the MLB Pledge and Security Agreement and the representations and warranties with respect to such Club Trust contained in Section 4.01 of this Agreement and Section 3 of the Club Trust Pledge and Security Agreement are correct in all material respects on and as of the date of such Loan, 28 32 before and after giving effect to such Loan and to the application of the proceeds therefrom, as though made on and as of such date; (b) no event has occurred and is continuing, or would result from such Loan or from the application of the proceeds therefrom, which constitutes a Club Trust Event of Default or would constitute a Club Trust Event of Default but for the requirement that notice be given or time elapse or both; (c) no Business Interruption Event has occurred and is continuing as evidenced by a notice from the Facilitating Agent to the Club Trusts; (d) except as provided in the Transaction Documents, none of the Central Fund Custody Account, the MLB Properties Royalty Account, the Collection Account or the Debt Service Account or Eligible Investments otherwise to the credit of, the Central Fund Custody Account, the MLB Properties Royalty Account, the Collection Account or the Debt Service Account shall be subject to any Lien, writ, judgment, warrant of attachment, execution or other similar process; PROVIDED, that with respect to the Central Fund Custody Account and the MLB Properties Royalty Account, this restriction shall not apply to any Lien, writ, judgment, warrant of attachment, execution or other similar process which (i) attaches or relates solely to the interests of the non-Participating Clubs in such accounts or (ii) relates only to the interests of a specific Club Trust in such accounts and not the interests of the Club Trust requesting the Loan, all of the Club Trusts or the MLB Trust in such accounts; (e) the MLB Trust shall have received such evidence and instruments (including stamped receipt Uniform Commercial Code release statements) as it or the Facilitating Agent may request with respect to the release of any Lien (other than any Lien created pursuant to the Transaction Documents) on the Club Trust Collateral existing on the Closing Date as described in Schedule 3.02(b)(v) of the related Transfer Agreement; and 29 33 (f) the MLB Trust and the Facilitating Agent shall have received from such Club Trust such other approvals, opinions or documents as the MLB Trust and the Facilitating Agent may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF EACH CLUB TRUST. Each Club Trust represents and warrants to the MLB Trust as follows: (a) Such Club Trust is a Delaware business trust duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The execution, delivery and performance by such Club Trust of each Transaction Document to which it is or will be a party are within such Club Trust's trust powers, have been duly authorized by all necessary trust action, and do not contravene (i) such Club Trust's certificate of trust or the related Club Trust Agreement or (ii) any law or any contractual restriction binding on or affecting such Club Trust, and do not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant hereto or the related Club Trust Pledge and Security Agreement) upon or with respect to any of its properties. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Club Trust of any Transaction Document to which it is or will be a party. (d) This Agreement is, and each other Transaction Document to which such Club Trust will be a party when delivered hereunder will be, legal, valid and binding obligations of such Club Trust enforceable against such Club Trust in accordance with their respective terms, 30 34 except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (e) There is no pending or, to the knowledge of such Club Trust, threatened action or proceeding affecting such Club Trust or the related Club Trust Collateral before any court, governmental agency or arbitrator, which may materially adversely affect the financial condition or operations of such Club Trust or the related Club Trust Collateral or which purports to affect the legality, validity or enforceability of this Agreement or any Transaction Document to which such Club Trust will be a party. (f) Such Club Trust is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. (g) The proceeds of each Loan are being used solely for the purpose of (i) refinancing existing indebtedness under the Major League Baseball League Wide Credit Facility, (ii) paying Transaction Costs and (iii) making distributions for general corporate purposes of such Participating Club including, without limitation, refinancing such Participating Club's existing indebtedness (including indebtedness to Affiliates). ARTICLE V COVENANTS OF THE CLUB TRUSTS SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Club Trust's Club Trust Note shall remain unpaid or any Club Trust Secured Obligation of such Club Trust hereunder shall be outstanding or the MLB Trust shall have any Commitment under such Club Trust's 31 35 Club Trust Sub-Facility, such Club Trust will, unless the MLB Trust shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith. (b) EXISTENCE. Keep in full effect its existence, rights and franchises as a business trust under the laws of the State of Delaware and obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement, any other Transaction Document and each other instrument or agreement included in the Collateral. (c) REPORTING REQUIREMENTS. Furnish to the MLB Trust, the Facilitating Agent for distribution to the Lenders, the Liquidity Agent for distribution to the Liquidity Banks and the Rating Agency: (i) as soon as possible and in any event within five days after the occurrence of each Club Trust Event of Default and each event which, with the giving of notice or lapse of time, or both, would constitute a Club Trust Event of Default, which is continuing on the date of such statement, a statement of such Club Trust setting forth details of such Club Trust Event of Default or other event and the action which such Club Trust has taken and proposes to take with respect thereto; (ii) promptly after the filing or receiving thereof, copies of all reports and notices which such Club Trust files under ERISA with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which such Club Trust receives from such corporation; and 32 36 (iii) such other information respecting the condition or operations, financial or otherwise, of such Club Trust as the MLB Trust or Facilitating Agent may from time to time reasonably request. (d) FINANCIAL STATEMENTS AND ANNUAL STATEMENT AS TO COMPLIANCE. Cause to be delivered to the Facilitating Agent for distribution to the Lenders, the Liquidity Agent for distribution to the Liquidity Banks and the Rating Agency, within 120 days after the end of each fiscal year of such Club Trust (commencing with the fiscal year 1998), a balance sheet of such Club Trust and the related statement of income and cash flows audited upon by the Accountants, together with a certificate of such accounting firm stating that: (i) a review of the activities of such Club Trust during such year and of performance under this Agreement and each other Transaction Document has been made; and (ii) based on such review, such Club Trust has fulfilled all its obligations under this Agreement and each other Transaction Document throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to the Accountants and the nature and status thereof. (e) ADMINISTRATOR'S CERTIFICATE. Cause to be delivered to the Facilitating Agent for distribution to the Lenders, the Liquidity Agent for distribution to the Liquidity Banks and the Rating Agency, within 120 days after the end of each fiscal year of such Club Trust (commencing with the fiscal year 1998), a certificate of an Authorized Officer of the such Club Trust's Administrator stating that: (i) a review of the activities of such Club Trust during such year and of performance under this Agreement and each other Transaction Document has been made; and (ii) based on such review, such Club Trust has fulfilled all its obligations under this Agreement and each other Transaction Document throughout such year, or, if there 33 37 has been a default in the fulfillment of any such obligation, specifying each such default known to such Administrator and the nature and status thereof. (f) PROTECTION OF COLLATERAL. In addition to any obligation under the Club Trust Pledge and Security Agreement, from time to time execute and deliver all such supplements and amendments to the Club Trust Pledge and Security Agreement and all such financing statements, continuation statements, instruments of further assurance and other instruments, and take such other action reasonably requested by the MLB Trust and the Facilitating Agent necessary or advisable to: (i) maintain or preserve the lien and security interest (and the priority thereof) of the Club Trust Pledge and Security Agreement and the MLB Pledge and Security Agreement or carry out more effectively the purposes of this Agreement and any other Transaction Document and the transactions contemplated hereby or thereby; (ii) perfect, publish notice of or protect the validity of any Grant made or to be made by the Club Trust Pledge and Security Agreement; (iii) enforce any agreements included in the Club Trust Collateral; or (iv) preserve and defend title to and the rights of the MLB Trust in the Club Trust Collateral against the claims of all persons and parties. Pursuant to the Transfer Agreement, the Club Trust Pledge and Security Agreements and the MLB Pledge and Security Agreement, each Participating Club, each Club Trust and the MLB Trust have designated the Administrative Agent as its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required by such party pursuant to the Transfer Agreement, the Club Trust Pledge and Security Agreement, the MLB Pledge and Security Agreement or this Agreement, as appropriate. 34 38 SECTION 5.02. NEGATIVE COVENANTS. So long as any Club Trust's Club Trust Note shall remain unpaid or any obligation of such Club Trust shall be outstanding or the MLB Trust shall have any Commitment under such Club Trust's Club Trust Sub-Facility, such Club Trust will not, without the written consent of the MLB Trust: (a) DISPOSE OF COLLATERAL. Except as expressly permitted by this Agreement or the Club Trust Pledge and Security Agreement, sell, transfer, exchange or otherwise dispose of any of the properties or assets of such Club Trust or the related Club Trust Collateral unless directed to do so by the Administrative Agent (acting at the direction of or with the consent of all the Lenders and all the Liquidity Banks); (b) SECURITY INTEREST. (i) Permit the validity or effectiveness of the Club Trust Pledge and Security Agreement to be impaired, or permit the lien of the Club Trust Pledge and Security Agreement to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the obligations under this Agreement or the Club Trust Pledge and Security Agreement except as may be expressly permitted hereby or thereby, (ii) permit any lien, charge, excise, claim, security interest, mortgage or other encumbrance (other than any Lien under any Transaction Document) to be created on or extend to or otherwise arise upon or burden the related Club Trust Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens and other liens that arise by operation of law) or (iii) permit the lien of the Club Trust Pledge and Security Agreement not to constitute a valid first priority (other than with respect to any such tax or other lien or the lien of the MLB Pledge and Security Agreement) security interest in the related Club Trust Collateral. (c) NO OTHER ACTIVITY. Engage in any activity other than borrowing amounts with respect to Loans in the manner contemplated by this Agreement, the Club Trust Agreement or any other Transaction Document and activities reasonably incidental thereto or otherwise contemplated by the Transaction Documents. 35 39 (d) NO BORROWING. Issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any Debt (including, without limitation, interest rate swap agreements, interest rate collar agreements, interest rate futures contracts and interest rate option contracts) except for the Club Trust Secured Obligations or any other obligation hereunder or under the Club Trust Pledge and Security Agreement. (e) GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except as contemplated by this Agreement or any other Transaction Document, make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person. (f) CAPITAL EXPENDITURES. Make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty). (g) REMOVAL OF ADMINISTRATOR. Remove its Administrator without cause and the written consent of the MLB Trust, the Facilitating Agent and the Liquidity Agent, which consent shall not be unreasonably withheld. (h) RESTRICTED PAYMENTS. Directly or indirectly, (i) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to the Club Trustee or any owner of a beneficial interest in such Club Trust or otherwise with respect to any ownership or equity interest or security in or of such Club Trust, (ii) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or security or (iii) set aside or otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that the Club Trust may pay, or cause to be paid, amounts to the Commissioner, the Club Trust Trustee and such Club Trust's Administrator and such Club 36 40 Trust may make, or cause to be made, distributions as permitted by, and to the extent funds are available for such purpose under, the MLB Pledge and Security Agreement and the related Club Trust Agreement. (i) MERGERS, ETC. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) any or all of its assets (whether now owned or hereafter acquired) to any Person except as permitted by the Club Trust Pledge and Security Agreement. (j) FEDERAL INCOME TAX. Take any action which might cause it to be classified for Federal income tax purposes as an association taxable as a corporation. ARTICLE VI DEFAULT SECTION 6.01. CLUB TRUST EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute a "Club Trust Event of Default" with respect to the Sub-Facility of any Club Trust and any Loans made to such Club Trust hereunder: (a) default shall be made by such Club Trust in the payment of any principal of any Loan outstanding under such Club Trust's Sub-Facility when and as the same shall become due and payable, whether at the due date thereof or by acceleration thereof or otherwise; (b) default shall be made by such Club Trust in the payment of any interest on any Loan outstanding under such Club Trust's Sub-Facility or any fee or any other amount allocable to such Club Trust (other than an amount referred to in paragraph (a) above) due hereunder, under any other Transaction Document or under any other agreement with the MLB Trust with respect to such Sub-Facility, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three days; 37 41 (c) any representation or warranty made (or deemed made pursuant to Section 3.02) by such Club Trust in or in connection with the execution and delivery of this Agreement or any Transaction Document to which such Club Trust is a party or the Loans hereunder or in any document, certificate, written statement or report delivered to the MLB Trust, the Facilitating Agent, the Administrative Agent, any Lender, the Liquidity Agent or any Liquidity Bank pursuant to this Agreement or any Transaction Document executed by such Club Trust, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (d) default shall be made by such Club Trust in the due observance or performance of any covenant or agreement of such Club Trust contained herein (other than those specified in (a), (b) or (c) above or specified elsewhere in this Section) or in any Transaction Document executed by such Club Trust, and such default shall continue unremedied for a period of ten days after the giving of written notice of such default to such Club Trust by the MLB Trust, which notice shall be given by the MLB Trust at the request of the Facilitating Agent (itself acting at the request, or with the consent of the Required Lenders) or may be given by the MLB Trust with the consent of the Facilitating Agent (itself acting at the request, or with the consent of the Required Lenders); (e) default shall be made by such Club Trust's related Participating Club in the due observance or performance of any covenant or agreement of such Participating Club under its Transfer Agreement or any Transaction Document executed by such Participating Club, and such default shall continue unremedied for a period of ten days after the giving of written notice of such default to such Participating Club by the MLB Trust, which notice shall be given by the MLB Trust at the request of the Facilitating Agent (itself acting at the request, or with the consent of the Required Lenders) or may be given by the MLB Trust with the consent of the Facilitating Agent (itself acting at the request, or with the consent of the Required Lenders); 38 42 (f) the occurrence of any Bankruptcy Event with respect to such Club Trust or its related Participating Club; (g) any judgment, writ, warrant of attachment or execution or similar process involving an amount in excess of $125,000 shall be issued or levied against any of the properties of such Club Trust and such judgment, writ, warrant of attachment or execution or similar process shall not be released, vacated or fully bonded within 30 days of its issue or levy; (h) the occurrence of any event of default under any interest rate swap agreement, interest rate cap agreement , interest rate collar agreement, interest rate futures contract, interest rate option contract or other similar agreement or arrangement acceptable to the Administrative Agent entered into by or obtained for the benefit of such Club Trust with an Agent Bank with respect to the Loans under such Club Trust's Sub-Facility; (i) any representation or warranty made by such Club Trust's related Participating Club in or in connection with the execution and delivery of its Transfer Agreement or any other Transaction Document executed by such Participating Club or in any document, certificate, written statement or written report delivered to such Club Trust, the MLB Trust, the Facilitating Agent, the Administrative Agent, any Lender, the Liquidity Agent or any Liquidity Bank pursuant to such Transfer Agreement or any Transaction Document shall prove to have been false or misleading in any material respect when so made or furnished; (j) the failure of such Club Trust at any time, to have a valid unencumbered ownership interest (other than any Lien under the Transaction Documents and other than tax liens and other liens that arise by the operation of law) in the Club Trust Collateral (including the Rights and Revenues contributed by the such Club Trust's related Participating Club to such Club Trust pursuant to the related Transfer Agreement); 39 43 (k) the failure of the MLB Trust at any time, to have a first priority unencumbered security interest (other than any Lien under the Transaction Documents and other than tax liens and other liens that arise by the operation or law) in the Club Trust Collateral (including the Rights and Revenues) pledged to the MLB Trust by such Club Trust pursuant to its Club Trust Pledge and Security Agreement except as permitted by Section 5.02(b); (1) the occurrence of any material adverse event with respect to such Club Trust's related Participating Club, which event has or may have the effect of reducing or delaying the receipt of Revenues by such Club Trust or otherwise materially impairing the assets of such Club Trust or delaying payment of any obligation of such Club Trust under its Club Trust Sub-Facility or Club Trust Note or any obligation under such Club Trust's Club Trust Pledge and Security Agreement; PROVIDED, HOWEVER, that a Business Interruption Event shall not constitute a Club Trust Event of Default under this Section 6.01(1) so long as such Club Trust makes all payments required to be made by it hereunder or under any Transaction Document on a timely basis during such period; (m) any accumulated funding deficiency, prohibited transaction, reportable event, penalty, withdrawal liability, disqualification or termination under (and as such words and phrases are defined in) ERISA or the Code, as applicable, in respect of any Plan shall occur, or any action, suit or proceeding involving or affecting any Plan or any assets of properties of any Plan shall be adversely determined, that would have or has had (in the reasonable judgment of the MLB Trust) a material and adverse effect on the related Participating Club and its ERISA affiliates; (n) the occurrence of (i) any Club Trust Event of Default under Sections 6.01(b) or (c) of the MLB Credit Agreement with respect to such Club Trust or (ii) any Event of Default under Section 6.02 of the MLB Credit Agreement; or (o) if as a result of an arbitration between a National Media Contract Obligor and the Commissioner under any National Media Contract, an award is made in favor of such 40 44 National Media Contract Obligor and such award remains outstanding under any material National Media Contract at the time such National Media Contract is renewed or extended or a replacement contract is executed, and such renewal, extension or replacement contract contains a provision which offsets future fees payable under such renewal, extension or replacement contract in order to cause the National Media Contract Obligor in whose favor the award was entered to be paid the remaining balance of the award. SECTION 6.02. REMEDIES. In the event that any Club Trust Event of Default has occurred and is continuing, the MLB Trust shall at the request, or may with the consent of the Facilitating Agent (itself acting at the request, or with the consent of the Required Lenders) (a) declare its obligation to make Loans under the Sub-Facility to any Club Trust that is the subject of the Club Trust Event of Default to be terminated and (b) declare the Club Trust Note for the Club Trust which is the subject of the Club Trust Event of Default, all interest thereon and all other amounts payable hereunder to be forthwith due and payable, whereupon such Club Trust Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are waived by such Club Trust hereunder; PROVIDED, HOWEVER, that, in the event of an actual or deemed entry of an order for relief with respect to any Club Trust under the Federal Bankruptcy Code, (A) the obligation of the MLB Trust to make Loans to such Club Trust under its Club Trust Sub-Facility shall automatically be terminated and (B) the related Club Trust Note, all such interest and all such amounts shall automatically become due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by such Club Trust. ARTICLE VII THE FACILITATING AGENT SECTION 7.01. AUTHORIZATION AND ACTION. The MLB Trust hereby appoints and authorizes the Facilitating Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Transaction Documents as are delegated to the 41 45 Facilitating Agent by the terms hereof or thereof, as the case may be, together with such powers as are reasonably incidental thereto. SECTION 7.02. FACILITATING AGENT'S RELIANCE, ETC. Neither the Facilitating Agent, nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Transaction Document, except for its or their own gross negligence, willful misconduct or unlawful conduct hereunder. Without limitation of the generality of the foregoing, the Facilitating Agent: (a) may consult with legal counsel (including counsel for the MLB Trust), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to MLB Trust and shall not be responsible to the MLB Trust for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Transaction Document; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the Transaction Documents on the part of any Club Trust or to inspect the property (including the books and records) of the Club Trusts; (d) shall not be responsible to the MLB Trust for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any Transaction Document or any other instrument or document furnished pursuant hereto; and (e) shall incur no liability under or in respect of this Agreement or any Transaction Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. INDEMNIFICATION. Subject to the provisions of Section 2.12, the MLB Trust agrees to indemnify the Facilitating Agent (to the extent not reimbursed by the Club Trusts), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Facilitating Agent, in any way 42 46 relating to or arising out of this Agreement, any Transaction Document or any action taken or omitted by the Facilitating Agent under this agreement or any Transaction Document; PROVIDED that the MLB Trust shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Facilitating Agent's gross negligence, willful misconduct or unlawful conduct hereunder. Without limitation of the foregoing, the MLB Trust agrees to reimburse the Facilitating Agent (from equal and several assessments to each Club Trust) promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by the Facilitating Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Facilitating Agent is not reimbursed for such expenses directly or indirectly by the Club Trusts. SECTION 7.04. SUCCESSOR FACILITATING AGENT. The Facilitating Agent may resign at any time by giving written notice thereof to the MLB Trust and the Club Trusts and the Facilitating Agent may be removed at any time with or without cause by the MLB Trust. Upon any such resignation or removal, the MLB Trust shall have the right to appoint a successor or Facilitating Agent. If no such successor shall have been so appointed by the MLB Trust and shall have accepted such appointment, within 30 days after the retiring Facilitating Agent's giving of notice of resignation or the MLB Trust's removal of the retiring Facilitating Agent, then the retiring Facilitating Agent may, on behalf of the MLB Trust, appoint a successor Facilitating Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Facilitating Agent hereunder by a successor Facilitating Agent, such successor Facilitating Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Facilitating Agent, and the retiring Facilitating Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Facilitating Agent's resignation or removal hereunder as Facilitating Agent, the provisions of this Article VII shall 43 47 inure to its benefit as to any actions taken or omitted to be taken by it while it was Facilitating Agent under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. AMENDMENTS, ETC. (a) GENERAL AMENDMENTS, ETC. Subject to paragraph (b) with respect to certain amendments, no amendment or waiver of any provision of this Agreement or the Club Trust Notes, nor consent to any departure by any Club Trust therefrom, shall in any event be effective unless the same shall be in writing and signed by the MLB Trust and the Facilitating Agent (at the request or with the consent of the Required Lenders and the Required Liquidity Banks), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in writing and signed by the Facilitating Agent (at the request or with the consent of all of the Lenders and all the Liquidity Banks), in addition to the MLB Trust, affect Section 2.04 or Section 2.05 of this Agreement, the Revolver Termination Date or the rights or duties of the Facilitating Agent under this Agreement or any Club Trust Note. (b) CLUB TRUST CONSENT; ADDITIONAL CLUB TRUST RELATED AMENDMENTS. No amendment of this Agreement shall be effective unless the same shall be in writing and signed by a majority in number of the Club Trusts; PROVIDED, HOWEVER, that no such amendment shall be effective to reduce the number of Club Trusts required to consent to any such amendment, without the consent of all the Club Trusts; PROVIDED, FURTHER, that no amendment to this Agreement to change the Final Payment Date shall be effective without the consent of (i) all the Club Trusts deemed to be parties hereto at the time of such proposed amendment and (ii) all Clubs which are no longer Participating Clubs but which have (or their related Club Trusts have) continuing obligations pursuant to Section 2.12(d)(iii) of this Agreement as contemplated by Section 11 of the related Club Trust Pledge Agreements. Notwithstanding the foregoing, this Agreement, the MLB Credit Agreement and the MLB 44 48 Pledge and Security Agreement, to the extent necessary or appropriate in the sole judgment of the Administrative Agent, may be amended (i) in case of this Agreement, by action of only the Facilitating Agent acting at the direction of the Administrative Agent, which direction shall be given by the Administrative Agent with the consent of the Required Lenders and the Required Liquidity Banks, or (ii) in the case of the MLB Credit Agreement or the MLB Pledge and Security Agreement, by action of only the Administrative Agent with the consent of the Required Lenders and Required Liquidity Banks in connection with any amendment (i) to give effect to the addition of any additional Club Trust and the creation of an additional Sub-Facility hereunder with respect to such addition pursuant to Section 2.14 and to give effect to the corresponding increase in the Total Commitment hereunder and Total Liquidity Commitment, and (ii) to give effect to any increase in the Total Commitment hereunder and Total Liquidity Commitment as a result of any increase in the Maximum Available Amount of any Club Trust under its Club Trust Sub-Facility (which increase shall be subject to the conditions determined by the Administrative Agent); PROVIDED, HOWEVER, that any such amendment shall be subject to the condition that such amendment not have a material adverse effect on the Club Trusts party hereto immediately prior to the time of such amendment. Promptly following any amendment as provided in the immediately preceding sentence, the Administrative Agent shall provide duplicate copies of such amendments to the MLB Trust and the Club Trusts. SECTION 8.02. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the MLB Trust, at its address at Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration (facsimile number (302) 651-8882), with copies to (a) the Commissioner at The Baseball Office of the Commissioner, 350 Park Avenue, New York, N.Y. 10022, Attention: Jeffrey White (facsimile number (212) 888-8632), (b) Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, N.Y. 10019 Attention: Matthew Nimetz, Esq. (facsimile number (212) 757-3990), (c) the Facilitating Agent, at its address at One Federal Street, Boston, MA 02211, Attention: Patrick 45 49 F. McAuliffe (facsimile number (617) 346- 0590), (d) the Liquidity Agent, at its address at One Federal Street, Boston, MA 02211, Attention: Patrick F. McAuliffe (facsimile number (617) 346-0590) and (e) Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109, Attention: Lyman G. Bullard, Jr., Esq. (facsimile number (617) 248-4000); if to the Facilitating Agent, at its address at One Federal Street, Boston, MA 02211, Attention: Patrick F. McAuliffe (617) 346-0590), with copies to (a) the Administrative Agent, at its address at One Federal Street, Boston, MA 02211, Attention: John H. Molloy (facsimile number (617) 346-0590), (b) the Liquidity Agent, at its address at One Federal Street, Boston, MA 02211, Attention: Patrick F. McAuliffe (facsimile number (617) 346-0590), (c) Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, MA 02109, Attention: Lyman G. Bullard, Jr., Esq. (facsimile number (617) 248-4000) and (d) Global Securitization Services, LLC, 25 West 43rd Street, Suite 704, New York, N.Y. 10036, Attention: Kevin Burns (facsimile number (212) 302-8767); if to the Rating Agency, at its address at 55 East Munroe Street, Suite 3800, Chicago, Illinois 60603, Attention: Joseph S. Tuczak (facsimile number (312) 368-2069); if to any Club Trust, at its address at Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration (facsimile number (302) 651-1576), with copies to (a) its Administrator at the address set forth in the related Administration Agreement, (b) the Commissioner at The Baseball Office of the Commissioner, 350 Park Avenue, New York, N.Y. 10022, Attention: Jeffrey White (facsimile number (212) 888-8632), and (c) Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, N.Y. 10019 Attention: Matthew Nimetz, Esq. (facsimile number (212) 757-3990); or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall; when mailed, telecopied, telegraphed, telexed or cabled, be effective either three days after being deposited in the mails or when received, or when telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Facilitating Agent pursuant to Article II or VII shall not be effective until received by the Facilitating Agent. 46 50 SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of the MLB Trust or the Facilitating Agent to exercise, and no delay in exercising, any right under any Transaction Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. COSTS AND EXPENSES; INDEMNIFICATION. (a) Subject to the conditions that each Club Trust shall be responsible for the payment of (x) all amounts specifically attributable solely to it and (y) an equal portion of all amounts not attributable solely to any other Club Trust, the Club Trusts are to equally pay on demand all costs and expenses of the Facilitating Agent and the MLB Trust in connection with the preparation, execution, delivery, administration, modification and amendment of the Transaction Documents and the other documents to be delivered under the Transaction Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Facilitating Agent with respect thereto. Subject to the same conditions set forth in the immediately preceding sentence, each Club Trust further agrees to pay on demand all costs and expenses of the MLB Trust and the Facilitating Agent, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement against such Club Trust (whether through negotiations, legal proceedings or otherwise) of the Transaction Documents and the other documents to be delivered under the Transaction Documents, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a); PROVIDED, HOWEVER, that the costs and expenses incurred solely with respect to any amendment contemplated in Section 8.01(b) shall be borne equally by the Club Trust(s) with respect to which such amendment relates. (b) If any payment of principal of the LIBO Rate Portion of any Loan under a Club Trust Sub-Facility is made other than on the last day of an Interest Period relating to such LIBO Rate Portion, as a result of a payment pursuant to Section 2.09 or 2.11 or acceleration of the maturity of the Club Trust Notes pursuant to Section 6.02 or for any other 47 51 reason, the related Club Trust shall, upon demand by the MLB Trust (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of the MLB Trust any amounts required to compensate the MLB Trust for any additional losses, costs or expenses which it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired to fund or maintain such Loan. (c) Subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), (i) each Club Trust hereby indemnifies and holds harmless each Indemnified Party from and against all Liabilities arising from or relating to such Club Trust or the Club Trust Collateral owned by such Club Trust and (ii) all of the Club Trusts hereby ratably and severally indemnify and hold harmless each Indemnified Party from and against all Liabilities arising in any other manner, in each case other than any such Liability that arises out of the gross negligence or willful misconduct of such Indemnified Party. SECTION 8.05. BINDING EFFECT; THIRD PARTY BENEFICIARY; LIQUIDITY FUNDING EVENT. (a) This Agreement shall become effective (a) with respect to the MLB Trust and the Facilitating Agent, when it shall have been executed by the MLB Trust and the Facilitating Agent and (b) with respect to each Club Trust, when such Club Trust shall have signed and the Administrative Agent shall have accepted its Ratification Agreement and, thereafter, this Agreement shall be binding upon and inure to the benefit of the MLB Trust, the Facilitating Agent and each Club Trust party hereto and their respective successors and assigns, except that none of the MLB Trust or the Club Trusts party hereto shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the other. (b) Each Club Trust and the Facilitating Agent acknowledge and agree that the Liquidity Agent is an intended third party beneficiary of this Agreement. Each Club Trust 48 52 and the Facilitating Agent further acknowledge and agree that, upon the occurrence of a Liquidity Funding Event, the Liquidity Agent shall become the Facilitating Agent hereunder and all references to the Facilitating Agent shall be deemed to be references to the Liquidity Agent; PROVIDED, that the indemnification provisions set forth in this Agreement shall continue to apply to Blue Keel and its assignees following a Liquidity Funding Event. SECTION 8.06. THE REGISTER. The Facilitating Agent shall maintain at one of its offices in The City of Boston a register (the "Register") in which it shall record the identity of each Club Trust, the Maximum Available Amount for each Club Trust under its Sub-Facility, the principal amount of each Loan and the Interest Period and principal amount of each LIBO Rate Portion of each outstanding Loan under the related Club Trust Sub-Facility for each Club Trust. The Facilitating Agent will make reasonable efforts to maintain the accuracy of the Register and to promptly update the Register from time to time, as necessary. The Register shall be available for inspection by the MLB Trust, each Club Trust and its related Participating Club, at any reasonable time and from time to time upon reasonable prior notice. SECTION 8.07. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as trustee of the MLB Trust under the MLB Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the MLB Trust is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose for binding only the MLB Trust, (c) except as Wilmington Trust Company shall otherwise expressly agree, nothing herein contained shall be construed as creating any liability on Wilmington Trust Company, individually or personally, to perform any covenant either expressly or implied contained herein, all such liability, if any, being expressly waived by the Facilitating Agent, the Administrative Agent and the Lenders and by any Person claiming by, through or under any of them and (d) under no circumstances shall Wilmington Trust company be personally liable for the payment of any indebtedness or expense of the MLB Trust or be liable for the breach 49 53 or failure of any obligation, representation, warranty or covenant made or undertaken by the MLB Trust under this Agreement or the other Transaction Documents. SECTION 8.08. GOVERNING LAW; CONSENT TO JURISDICTION; OTHER MATTERS. This Agreement and the Club Trust Notes shall be governed by, and construed in accordance with, the laws of the State of New York without reference to its choice of law provisions. Each Club Trust hereby submits to the extent effective under applicable law to the jurisdiction and venue of the state and Federal courts of New York and agrees that the MLB Trust may, at its option, enforce its rights hereunder in such courts. To the extent permitted by applicable law, each Club Trust hereby irrevocably waives the defense of an inconvenient forum to maintenance of any action or proceeding by the MLB Trust in such courts. Each Club Trust hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement or any other Transaction Document or any of the transactions contemplated hereby or thereby. SECTION 8.09. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original. 50 54 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument by their respective officers thereunto duly authorized, as of the date first above written. MAJOR LEAGUE BASEBALL TRUST, as Lender, By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as MLB Trustee By: /s/ David A. Vanaskey ----------------------------------------- Name: David A. Vanaskey Title: Assistant Vice President FLEET NATIONAL BANK, as Facilitating Agent By: /s/ Patrick F McAuliffe ----------------------------------------- Patrick F. McAuliffe Executive Vice President Acknowledged and Accepted: FLEET NATIONAL BANK, as Administrative Agent By: /s/ Patrick F. McAuliffe ------------------------------------ Patrick F. McAuliffe Executive Vice President EX-10.8 6 EXHIBIT 10.8 1 Exhibit 10.8 RATIFICATION AGREEMENT ---------------------- RATIFICATION AGREEMENT dated as of April 17, 1998 among INDIANS CLUB TRUST, a Delaware business trust, and FLEET NATIONAL BANK, as Administrative Agent under the Revolving Credit Agreement dated as of April 17, 1998 (the "MLB Credit Agreement"), among Major League Baseball Trust, a Delaware business trust (the "MLB Trust"), the certain Lenders party thereto and Fleet National Bank, as Administrative Agent. Capitalized terms used but not defined herein shall have the meaning assigned thereto in Annex A to the MLB Credit Agreement. 1. The Indians Club Trust desires to become a party to the Club Trust Revolving Credit Agreement dated as of April 17, 1998 (the "Club Trust Credit Agreement"), among MLB Trust, Fleet National Bank, as Facilitating Agent and the Club Trusts deemed to be parties thereto, and upon acceptance hereof by the Administrative Agent on behalf of the MLB Trust, has requested that the MLB Trust make available to the Indians Club Trust a sub-facility having an initial Maximum Available Amount of $45,000,000 (the "Club Trust Sub-Facility"). As a condition precedent to the establishment of such Club Trust Sub-Facility, the MLB Trust has required, among other things, that the Indians Club Trust enter into this Ratification Agreement (this "Agreement") in order to undertake expressly certain representations, warranties, covenants, agreements and other rights and obligations of a Club Trust under and pursuant to the Club Trust Credit Agreement and the MLB Credit Agreement. Accordingly, the Indians Club Trust hereby agrees as follows with the MLB Trust and the Administrative Agent (for the benefit of the Lenders and the Liquidity Banks): (i) the Indians Club Trust hereby acknowledges and agrees and confirms that by its execution of this Agreement the Indians Club Trust will be deemed to be a party to the Club Trust Credit Agreement and, with respect to its Club Trust Sub-Facility, shall be a Club Trust for all purposes of the Club Trust Credit Agreement and shall have all of the obligations of a Club Trust thereunder as if it had executed the Club Trust Credit Agreement. The Indians Club Trust hereby ratifies, as of the date hereof, and agrees to be bound by all the terms, provisions and additions contained in the Club Trust Credit Agreement including (i) the representations and warranties of a Club Trust set forth in Section 4.01 thereof, (ii) all the affirmative and negative covenants set forth in Sections 5.01 and 5.02 thereof and (iii) the obligation to pay Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents, Secured Obligations attributable to such Club Trust, whether at the due date thereof or by acceleration thereof. 2. The Indians Club Trust hereby designates the following address as its address for notices and other communications under the Club Trust Credit Agreement (unless and until the Indians Club Trust shall have designated another address, telecopy or other number in a notice complying with the provisions of Section 8.02 of the Club Trust Credit Agreement to each other party to such agreement): 2 Indians Club Trust c/o Wilmington Trust Company 1100 North Market Street Wilmington, Delaware 19890 Attention: Corporate Trust Administration With a copy to: Cleveland Indians Baseball Company, Limited Partnership Jacobs Field, 2401 Ontario St. Cleveland, OH 44115 Attention: Mr. Ken Stefanov with a copy to: Baker & Hostetler 1900 East Ninth Street, Suite 3200 Cleveland, OH 44114 Attention: Edward Ptaszek, Esq. 3. If Indians Club Trust is becoming a Club Trust on a date other than the Closing Date, the Indians Club Trust hereby represents and warrants that all the conditions precedent set forth in Section 2.14(a) of the Club Trust Credit Agreement and Section 2.15(a) of the MLB Credit Agreement have been satisfied as of the date hereof. 4. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. 5. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as trustee of the Indians Club Trust under its Club Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the Indians Club Trust is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose for binding only the Indians Club Trust, (c) except as Wilmington Trust Company shall otherwise expressly agree, nothing herein contained shall be construed as creating any liability on Wilmington Trust Company, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the Facilitating Agent, the Administrative Agent and the Lenders and by any Person claiming by, through or under any of them and (d) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expense of the Indians Club Trust or be liable 3 for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Indians Club Trust under this Agreement or the other Transaction Documents. [Remainder of This Page Intentionally Left Blank and Signature Pages Follow] 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. INDIANS CLUB TRUST, By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Club Trustee, By: /s/ David A. Vanaskey ------------------------------- Name: David A. Vanaskey Title Assistant Vice President Acknowledged and Accepted: FLEET NATIONAL BANK, as Administrative Agent, By: /s/ Patrick F. McAuliffe ----------------------------- Patrick F. McAuliffe Executive Vice President EX-10.9 7 EXHIBIT 10.9 1 Exhibit 10.9 - -------------------------------------------------------------------------------- CLUB TRUST PLEDGE AND SECURITY AGREEMENT (the "CLUB TRUST PLEDGE AND SECURITY AGREEMENT") between INDIANS CLUB TRUST and MAJOR LEAGUE BASEBALL TRUST Dated as of April 17, 1998 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page 1. Definitions...........................................................................2 2. Pledge, Assignment and Grant of Security Interest; Consent to Assignment and Enforcement...........................................................................2 3. General Representations, Warranties, Covenants and Agreements.........................3 4. Special Provisions Regarding Rights and Revenues......................................7 5. Special Provisions Regarding Certain Club Trust Collateral, Pledged Collateral............................................................................8 6. Special Provisions Regarding Club Trust Assigned Documents............................8 7. Special Provisions Regarding Collection Account and Debt Service Account.............10 8. Power of Attorney....................................................................10 9. Remedies upon Club Trust Event of Default............................................11 10. Application of Proceeds..............................................................13 11. Continuing Agreement.................................................................13 12. Miscellaneous........................................................................14 13. Limitation of Liability..............................................................16
Annex A -- Definitions Schedule A -- Chief Executive Offices Schedule B -- List of Accounts 3 CLUB TRUST PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement" or the "Club Trust Pledge and Security Agreement") dated as of April 17, 1998, by and between INDIANS CLUB TRUST, a Delaware business trust (the "Indians Club Trust"), and MAJOR LEAGUE BASEBALL TRUST, a Delaware business trust (the "MLB Trust"). W I T N E S S E T H: WHEREAS the MLB Trust, Fleet National Bank, as Facilitating Agent and the Club Trusts deemed to be parties thereto, have entered into a Club Trust Revolving Credit Agreement dated as of April 17, 1998 (as modified or amended from time to time, the "Club Trust Credit Agreement"). WHEREAS the Indians Club Trust has executed a Ratification Agreement dated as of April 17, 1998, pursuant to which, upon its acceptance by the Administrative Agent, such Club Trust will be deemed to be a party to the Club Trust Credit Agreement. WHEREAS the MLB Trust will make Loans to the Indians Club Trust and each of the other Club Trusts deemed to be parties to the Club Trust Credit Agreement under their respective Club Trust Sub-Facilities. WHEREAS the assets of each Club Trust (including the Indians Club Trust) consist primarily of the Rights and Revenues contributed by the related Participating Club and the proceeds thereof. WHEREAS, as a condition precedent to entering into the Club Trust Credit Agreement, and the making of any Loans under a Club Trust's Club Trust Sub-Facility, the MLB Trust has required, among other things, that each Club Trust (including the Indians Club Trust) Grant to the MLB Trust a first priority perfected lien on, security interest in and collateral assignment of certain of the Club Trust's assets as collateral security for the Loans and other obligations incurred by such Club Trust under its Sub-Facility. WHEREAS, to acquire the funds necessary to make Loans to the Club Trusts (including the Indians Club Trust), the MLB Trust has entered into a Revolving Credit Agreement dated as of April 17, 1998 (as modified or amended from time to time, the "MLB Credit Agreement"), among Fleet National Bank, as Administrative Agent, the Lenders and the MLB Trust. WHEREAS, as a condition precedent to entering into the MLB Credit Agreement, the Lenders have required, among other things, that (a) the MLB Trust pursuant to the MLB 4 Pledge and Security Agreement Grant to the Administrative Agent a lien on, security interest in and collateral assignment of, among other things, the collateral pledged to the MLB Trust by the Club Trusts (including the Indians Club Trust) as security for their Loans under their Club Trust Sub-Facilities and (b) each of the Club Trusts consent to such collateral assignment to the Administrative Agent. WHEREAS the MLB Trust, the Club Trusts and the Lenders under the MLB Credit Agreement wish to establish, pursuant to the MLB Pledge and Security Agreement, the Collection Account and the Debt Service Account for the benefit of the Lenders and the Liquidity Banks and for use in connection with the administration of collections with respect to the Rights and Revenues and other collateral thereunder. NOW, THEREFORE, for and in consideration of the acceptance by the MLB Trust of the Indians Club Trust, as a borrower under the Club Trust Credit Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings set forth in Annex A hereto. In addition, the interpretive guidelines set forth in such Annex A shall be applicable to this Agreement. 2. PLEDGE, ASSIGNMENT AND GRANT OF SECURITY INTEREST; CONSENT TO ASSIGNMENT AND ENFORCEMENT. (a) SECURITY INTEREST. To secure the prompt payment and performance in full when due, whether by lapse of time, acceleration or otherwise, of the Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), Secured Obligations attributable to the Indians Club Trust, the Indians Club Trust hereby assigns and pledges to the MLB Trust and hereby Grants to the MLB Trust a security interest in and a right to setoff against (and only against the above-described obligations of such Club Trust), and acknowledges and agrees that the MLB Trust (and, with respect to rights of setoff, each of the Lenders under the MLB Credit Agreement) has and shall continue to have a continuing security interest in and a right of setoff against, any and all right, title and interest of the Indians Club Trust, whether now existing or hereafter acquired or arising, in (all of which are herein called the "Club Trust Collateral"): (i) the Rights and Revenues transferred and assigned to the Indians Club Trust by its related Participating Club pursuant to the Transfer Agreement; (ii) amounts on deposit from time to time in the Collection Account and the Debt Service Account attributable to the Indians Club Trust; (iii) the Club Trust Assigned Documents; 2 5 (iv) any and all other assets of the Indians Club Trust (excluding amounts on deposit in the Indians Club Trust Distribution Account; and (v) all products and the proceeds of the foregoing items. The Indians Club Trust acknowledges and agrees that, in applying the law of any jurisdiction that has heretofore enacted or hereafter enacts all or substantially all of the uniform revisions of Article 8 of the Uniform Commercial Code, with new provisions added to Article 9 as contemplated by such revision, all as approved in 1994 by the American Law Institute and the National Conference of Commissioners on Uniform State Laws, the foregoing definitions of Collateral and Pledged Collateral shall be deemed to include "investment property", as applicable, as defined in such new provisions of Article 9, it being the intent of the Indians Club Trust and the MLB Trust that such property be included in the foregoing definition of Collateral, whether prior to or after the effectiveness of such revision in any such jurisdiction. (b) CONSENT TO ASSIGNMENT AND ENFORCEMENT. The Indians Club Trust hereby acknowledges and consents to each of (i) the assignment to the Administrative Agent pursuant to the MLB Pledge and Security Agreement of the Grant of the MLB Trust's security interest hereunder in the Club Trust Collateral and (ii) the delivery of any or all of the Club Trust Collateral to the Administrative Agent. In connection with such assignment, the Indians Club Trust acknowledges and agrees that the MLB Trust is the direct beneficiary of certain rights and benefits hereunder and that, as the assignee pursuant to the MLB Pledge and Security Agreement of the MLB Trust's rights hereunder, the Administrative Agent is entitled to the benefits and protections of and may enforce this Agreement as if it were a party thereto. 3. GENERAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The Indians Club Trust hereby represents and warrants to, and covenants and agrees with, the MLB Trust that: (a) CLUB TRUST REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties as to the Rights and Revenues set forth below is true and correct in all material respects as of the date hereof and as of the date deemed made pursuant to the Club Trust Credit Agreement: (i) MEMBERSHIP. The Indians Club Trust's related Participating Club is a member in good standing of its League and Major League Baseball. (ii) COMPLIANCE The Indians Club Trust's related Participating Club is in compliance with all requirements imposed by the Commissioner, its League or Major League Baseball, except where the failure to do so would not materially adversely affect the Rights and Revenues transferred to the Indians Club Trust pursuant to the Transfer Agreement and pledged to the MLB Trust pursuant to this Agreement; the Indians Club Trust's related Participating Club is in compliance with the terms of the Major League Agreement, the Central Fund Agreement, its League Agreement, the MLB Agreements 3 6 and each of the National Media Contracts, except where the failure to do so would not materially adversely affect the Rights and Revenues transferred to the Indians Club Trust pursuant to the Transfer Agreement and pledged to the MLB Trust pursuant to this Agreement. (iii) BOUND BY AGREEMENTS. With respect to the Indians Club Trust's related Participating Club, all the provisions of the constitutive documents of its League and the Major League Agreement, including any amendments from time to time, all Commissioner resolutions and all resolutions of the Executive Council, and rules or policies as the Executive Council or the Commissioner may issue from time to time that are within the issuing party's jurisdiction, are, unless the same by their terms are not applicable to such Participating Club, binding and enforceable against such Participating Club, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (iv) NATIONAL MEDIA CONTRACTS. (A) To the best knowledge of the Indians Club Trust, each National Media Contract is legally binding and enforceable against the Obligor thereunder, in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity) (B) the Indians Club Trust is the owner of a Pro Rata interest in each National Media Contract and such Pro Rata interest is not subject to any prior Lien (other than the Lien of this Agreement or the MLB Pledge and Security Agreement); (C) to the best knowledge of the Indians Club Trust, no Bankruptcy Event has occurred or is threatened with respect to the Obligor under any material National Media Contract; and (D) the Indians Club Trust is entitled to receive a Pro Rata portion of the Revenues from National Media Contracts payable from time to time. (v) VALID TRANSFER. The transfer and assignment by the Indians Club Trust's related Participating Club pursuant to the Transfer Agreement constituted a true transfer, by capital contribution, of its Rights and Revenues from such Participating Club to the Indians Club Trust such that such Participating Club retained no interest in, or any risk with respect to, such Rights and Revenues and such that the beneficial interest in and title to its Rights and Revenues will not be part of the debtor's estate in the event of the filing of a bankruptcy petition by or against such Participating Club under any bankruptcy law. Immediately prior to such transfer and assignment, such Participating Club had good and marketable title to all its Rights and Revenues, free and clear of all Liens (other than the Liens, if any, referred to on Schedule 3.02(b)(v) of the related Transfer Agreement), and, immediately upon the transfer thereof, the Indians Club Trust had good and marketable title to all such Rights and Revenues, free and clear of all Liens (other than the Lien of this Agreement or the MLB Pledge and Security Agreement or any Lien under any 4 7 Transaction Document or the Liens, if any, referred to in Schedule 3.02(b)(v) of the related Transfer Agreement); and the transfer was perfected under the UCC. (vi) LAWFUL ASSIGNMENT. None of the Participating Club's Rights or Revenues is subject to the laws of any jurisdiction under which the transfer and assignment of such Rights or Revenues under the Transfer Agreement, the Club Trust Credit Agreement, the MLB Credit Agreement, the MLB Pledge and Security Agreement or this Agreement was or is unlawful, void or voidable. (vii) ALL FILINGS MADE. All filings (including UCC filings) necessary in any jurisdiction to give the Indians Club Trust a first perfected ownership interest in the Rights and Revenues have been made. (b) LOCATION OF OFFICES AND BUSINESS. As of the date hereof (and, except as noted on Schedule A, for the four months immediately preceding the date hereof), each of the Club Trust's, the MLB Trust's, the Commissioner's and MLB Properties' chief executive office and chief place of business is as shown on Schedule A and each of the Indians Club Trust, the MLB Trust, the Commissioner and MLB Properties has no executive offices or places of business other than those listed on Schedule A. (c) PRIORITY. The Club Trust Collateral and every part thereof is and will be free and clear of all liens, charges, excises, claims, security interests, mortgages or other encumbrances (including, without limitation, statutory liens) of every kind, nature and description, whether voluntary or involuntary, on the use thereof, except for (i) the security interest pursuant to this Agreement, which interest pursuant to the MLB Pledge and Security Agreement will be assigned to the Administrative Agent, (ii) the security interest of the Administrative Agent, (iii) any lien, charge, excise, claim, security interest, mortgage or other encumbrance and licenses permitted under Section 5.02(b) of the Club Trust Credit Agreement (the items set forth in clauses (i), (ii) and (iii) being, collectively, the "Permitted Liens") and (iv) the Liens, if any, referred to in Schedule 3.02(b)(v) of the related Transfer Agreement. The Indians Club Trust at the direction of the MLB Trust will warrant and defend the Club Trust Collateral against any claims and demands (other than the Permitted Liens) of all persons at any time claiming the same or any interest in the Club Trust Collateral adverse to the MLB Trust, the Administrative Agent, any Lender or any Liquidity Bank. (d) PAYMENT OF TAXES AND CHARGES. The Indians Club Trust will pay promptly when due all taxes, assessments and governmental charges and levies upon or against the Club Trust Collateral, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent the same are being contested in good faith by appropriate proceedings. (e) PRESERVATION OF THE COLLATERAL. The Indians Club Trust will not waste or destroy the Collateral or any part thereof and will not be negligent in the care or use of any Collateral. 5 8 (f) DISPOSITION. The Indians Club Trust will not sell or otherwise dispose of any portion of, or rights or interests in, the Club Trust Collateral, except with the prior written consent of the MLB Trust, except for (i) distributions to its beneficial owners and (ii) payments to the Club Trustee pursuant to Article V and Article VIII of the Club Trust Agreement, respectively. (g) INSPECTION. The Indians Club Trust will allow, at all times the MLB Trust, the Administrative Agent, any Lender, any Liquidity Bank or their respective representatives free access to and right of inspection of the Club Trust Collateral; PROVIDEd, HOWEVER, that, prior to any Club Trust Event of Default or event which, with notice, the lapse of time or both, would result in a Club Trust Event of Default hereunder, any such access or inspection shall only be allowed during each party's normal business hours, as appropriate. (h) OTHER FILING; PERFECTION OF SECURITY INTEREST. The Indians Club Trust represents and warrants that (except as may be set forth on Schedule 3.04(b)(v) of the related Transfer Agreement) no filings which may be required to be recorded or filed in order to perfect a security interest (other than any which may be recorded in connection with or as contemplated by the Transaction Documents) covering any of the Club Trust Collateral are on file in any public office. The Indians Club Trust represents that this Agreement creates a valid security interest in the Club Trust Collateral securing payment and performance of the Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), the Secured Obligations attributable to the Indians Club Trust and that all filings and other actions necessary to perfect such security interest have been taken; PROVIDED, HOWEVER, that with respect to perfection, no representation or warranty is made with respect to Club Trust Collateral requiring possession thereof to perfect a security interest therein. The Indians Club Trust agrees to execute and deliver to each of the MLB Trust and the Administrative Agent such further agreements and assignments or other instruments and to do all such other things as either of them may reasonably deem necessary or appropriate to assure to either of them the security interest hereunder or under the MLB Pledge and Security Agreement, respectively, including such financing statement or statements or amendments thereof or supplements thereto or other instruments as either of them may from time to time reasonably require in order to comply with the UCC. The Indians Club Trust hereby agrees that a carbon, photographic or other reproduction of this Agreement or any such financing statement is sufficient for filing as a financing statement by the MLB Trust or the Administrative Agent without notice thereof to it or any Participating Club wherever the MLB Trust or the Administrative Agent in its sole discretion desires to file the same. In the event that for any reason the law of any jurisdiction other than New York and/or Delaware becomes or is applicable to the Club Trust Collateral or any part thereof, or to any of the Club Trust Secured Obligations or, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), the Secured Obligations attributable to the Indians Club Trust agrees to execute and deliver to each of the MLB Trust and the Administrative Agent such instruments and to do all such other things as either of them in its sole discretion reasonably deems necessary or 6 9 appropriate to preserve, protect and enforce the ownership interest of the Indians Club Trust in the Club Trust Collateral and the security interest of the MLB Trust and the Administrative Agent therein under the law of such other jurisdiction. If any Club Trust Collateral is in the possession or control of (x) any of the Indians Club Trust's agents or (y) its related Participating Club and either the MLB Trust or the Administrative Agent so requests, the Indians Club Trust agrees to, and agrees to cause its related Participating Club to, notify such agents in writing of the MLB Trust's and the Administrative Agent's security interest therein and, upon the request of either of them, instruct them to hold all such Club Trust Collateral for their account and subject to instructions. The Indians Club Trust agrees to mark its books and records to reflect its ownership interest in the Club Trust Collateral (other than the Club Trust Note), as the same is encumbered by the security interest of the MLB Trust and the Administrative Agent. (i) ADVANCES BY SECURED PARTIES. On failure of the Indians Club Trust or the Commissioner or MLB Properties or MLB Properties Canada on behalf of the Indians Club Trust to perform any of the covenants and agreements contained in the Transaction Documents, the MLB Trust may, at its option, perform the same and in so doing may expend such sums as the MLB Trust may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any taxes, liens and encumbrances, expenditures made in defending against any adverse claim and all other expenditures which the MLB Trust may be compelled to make by operation of law or which the MLB Trust may make by agreement or otherwise for the protection of the security hereof. All such sums and amounts so expended shall be repayable by the Indians Club Trust immediately without notice or demand, shall constitute additional Club Trust Secured Obligations and shall bear interest from the date said amounts are expended at the rate per annum provided in Section 2.06(c) of the Club Trust Credit Agreement (such rate per annum as so determined being hereinafter referred to as the "Default Rate"). No such performance of any covenant or agreement by the MLB Trust on behalf of the Indians Club Trust, the Commissioner or MLB Properties, and no such advance or expenditure therefor, shall relieve the Indians Club Trust of any default under the terms of this Agreement. The MLB Trust, in making any payment hereby authorized, may do so according to any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim. The MLB Trust, in performing any act hereunder, shall be the judge in its reasonable discretion of whether the Indians Club Trust, Commissioner or MLB Properties is required to perform the same under the terms of this Agreement or any Transaction Document. Subject to Section 2.12 of the Club Trust Credit Agreement, the Club Trust Credit Agreement Administrative Agent is authorized to charge the Collection Account and the Debt Service Account allocable to the defaulting Club Trust for amounts paid or expended as described above pursuant to Section 7 of the MLB Pledge and Security Agreement. 4. SPECIAL PROVISIONS REGARDING RIGHTS AND REVENUES. (a) CHIEF EXECUTIVE OFFICE AND LOCATION OF COLLATERAL. The Indians Club Trust will not (i) maintain a place of business at which any material portion of its assets or operations is located or conducted or an executive office at a location other than that specified on Schedule A without first providing to 7 10 each of the MLB trust and the Administrative Agent, 30 days' prior written notice of its intent to do so; (ii) establish or maintain an executive office or place of business at which any material portion of the Club Trust Collateral is located outside of the United States of America or otherwise permit any material portion of the Club Trust Collateral to be located outside of the United States of America (except as the Administrative Agent shall prior to any such time expressly agree in writing); or (iii) keep, maintain or permit any material portion of the Club Trust Collateral to be kept at locations other than as shown on Schedule A hereto without first providing to each of the MLB Trust and the Administrative Agent 30 days' prior written notice. (b) CHIEF EXECUTIVE OFFICE. The Indians Club Trust will keep all its books and records relating to the Collateral (including the Rights and Revenues) only at its chief executive office, as specified on Schedule A. Further, the Indians Club Trust will promptly inform the MLB Trust and the Administrative Agent of any change in the identity or location of any Rights and/or Revenues which might require new filings or other action to assure continued perfection of the interests granted hereby. 5. SPECIAL PROVISIONS REGARDING CERTAIN CLUB TRUST COLLATERAL, PLEDGED COLLATERAL. (a) DELIVERY. The Indians Club Trust from time to time shall deliver to the MLB Trust (who will deliver the same to the Administrative Agent pursuant to the MLB Pledge and Security Agreement) any Club Trust Collateral requested to be delivered by the MLB Trust or the Administrative Agent and, as appropriate, such collateral shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the MLB Trust and the Administrative Agent. (b) PLEDGED COLLATERAL OBLIGATIONS. Each of the MLB Trust and the Administrative Agent shall have no duty as to the collection or protection of the Pledged Collateral attributable to the Indians Club Trust or any income therefrom or as to the preservation of any rights pertaining thereto, beyond the safe custody of any thereof actually in its possession. To the extent permitted by law, the Indians Club Trust releases the MLB Trust and the Administrative Agent from any claims, causes of action and demands at any time arising out of or with respect to this Agreement, the Pledged Collateral attributable to the Indians Club Trust and/or any actions taken or omitted to be taken by either of them with respect thereto, and each of the Indians Club Trust and its related Participating Club through the MLB Trust hereby agree to hold each of the MLB Trust and the Administrative Agent harmless from and with respect to any and all such claims, causes of action and demands other than those resulting from the gross negligence, willful misconduct or unlawful conduct of the MLB Trust and the Administrative Agent. 6. SPECIAL PROVISIONS REGARDING CLUB TRUST ASSIGNED DOCUMENTS. (a) INDIANS CLUB TRUST REMAINS OBLIGATED. The assignment and security interest Granted to the MLB Trust in the Assigned Documents attributable to the Indians Club Trust (including the Transfer Agreement, the Club Trust Note and the Club Trust Credit Agreement) pursuant to Section 2 hereof shall not relieve the Indians Club Trust from the performance of any term, covenant, condition or agreement on the Indians Club Trust's part to be performed or observed 8 11 under or in respect of the Assigned Documents attributable to the Indians Club Trust or from any liability to any Person under or in respect of the Assigned Documents or impose any obligation on either of the MLB Trust or the Administrative Agent to perform or observe any such term, covenant, condition or agreement on the Indians Club Trust's part to be so performed or observed or impose any liability on either of the MLB Trust or the Administrative Agent for any act or omission on the part of the Indians Club Trust relative thereto or for any breach of any representation or warranty on the part of the Indians Club Trust contained in this Agreement or the Assigned Documents attributable to the Indians Club Trust or made in connection herewith or therewith; and the Indians Club Trust hereby agrees to indemnify and hold harmless each of the MLB Trust and the Administrative Agent from and against any and all losses, liabilities (including liabilities for penalties), claims, demands, actions, suits, judgments, costs and expenses arising out of or resulting from the assignment and security interest Granted pursuant to this Agreement by virtue of any act or omission on the part of the Indians Club Trust, including the costs, expenses and disbursements (including reasonable attorneys' fees and expenses) incurred by either of the MLB Trust or the Administrative Agent in enforcing this Agreement and the obligations of any Person under or in respect of the Assigned Documents attributable to the Indians Club Trust. (b) AMENDMENT OF ASSIGNED DOCUMENTS; WAIVERS. Without intending in any manner to derogate from the absolute nature of the assignment Granted to the MLB Trust by Section 2 hereof or the rights of the MLB Trust hereunder, the Indians Club Trust agrees that it will not, without the prior written consent of the Administrative Agent, amend, modify, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination or surrender of, the Assigned Documents attributable to it or waive timely performance or observance by any Person of such Person's obligations, or any default on the part of such Person, under or in respect of the Assigned Documents. If any such amendment, modification, supplement or waiver shall be so consented to by the Administrative Agent, the Indians Club Trust agrees, promptly following a request by the Administrative Agent to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as the Administrative Agent may deem necessary or appropriate in the circumstances. (c) NOTICE OF DEFAULT UNDER ASSIGNED DOCUMENTS. The Indians Club Trust agrees, at its own expense, to give each of the MLB Trust and the Administrative Agent prompt written notice of each default on the part of any Person in performing such Person's obligations under or in respect of the Assigned Documents attributable to the Indians Club Trust coming to the Indians Club Trust's attention. (d) CUSTODY OF DOCUMENTS. Simultaneously with the execution and delivery of this Agreement, the Indians Club Trust is delivering to the MLB Trust a counterpart of each Assigned Document attributable to it (which documents the MLB Trust will in turn deliver to the Administrative Agent pursuant to the MLB Pledge and Security Agreement), which at all times shall be retained in the custody and possession of the MLB Trust or Administrative Agent until the termination of this Agreement. In addition, the MLB Trustee 9 12 shall receive and retain (or deliver to the Administrative Agent pursuant to the MLB Pledge and Security Agreement) a counterpart of any amendment, modification, supplement or waiver made of or to any of such Assigned Documents and each other related instrument, each of which counterparts shall be serially numbered. 7. SPECIAL PROVISIONS REGARDING COLLECTION ACCOUNT AND DEBT SERVICE ACCOUNT. In addition to any other consent or agreement set forth herein, the Indians Club Trust hereby consents to each of the provisions of Section 7 of the MLB Pledge and Security Agreement with respect to each of the Collection Account and the Debt Service Account, including the provisions with respect to (i) the establishment of such accounts, (ii) the investment of amounts on deposit in such accounts in Eligible Investments, (iii) the appointment of the Administrative Agent as the attorney for the Indians Club Trust for the purpose of making any withdrawal or ordering the transfer of funds on deposit in such accounts pursuant to the terms of the MLB Pledge and Security Agreement and (iv) the payment from amounts on deposit in such accounts of Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement, Secured Obligations attributable to such Indians Club Trust). 8. POWER OF ATTORNEY. In addition to any other powers of attorney contained herein or in any other Transaction Documents, the Indians Club Trust appoints the MLB Trust, its nominee or any other person whom the MLB Trust may designate as its attorney-in-fact, with full power to endorse its name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into the MLB Trust's possession, to sign its name on claims, notices of assignment and on public records and to do all things necessary to carry out this Agreement (including to effect the valid assignment of the Assigned Documents attributable to the Indians Club Trust to the MLB Trust in accordance with the provisions hereof). To the extent permitted by applicable law, the Indians Club Trust hereby ratifies and approves all acts of any such attorney and agrees that neither the MLB Trust nor any such attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law other than such party's gross negligence, willful misconduct or unlawful misconduct. The foregoing power of attorney, being coupled with an interest, is irrevocable until such time as this Agreement shall terminate. The MLB Trust may file one or more financing statements disclosing its security interest in any or all of the Club Trust Collateral without any or all of the Club Trust Collateral with any of the Indians Club Trust's or the Participating Clubs' signatures appearing thereon. In addition, the Indians Club Trust hereby grants the Administrative Agent, its nominee or any other person whom it may designate as attorney-in-fact a power of attorney (a) to execute any financing statement, or amendments and supplements to financing statements, on behalf of the Indians Club Trust without notice thereof to the Indians Club Trust, which power of attorney is coupled with an interest and is irrevocable until such time as this Agreement shall terminate and (b) to take any of the above-mentioned actions that otherwise may be performed by the MLB Trust. To the extent permitted by applicable law, the Indians Club Trust hereby ratifies and approves all acts of the Administrative Agent and any such attorney and agrees that neither the Administrative Agent nor any such attorney will be liable for any acts or 10 13 omissions nor for any error of judgment or mistake of fact or law other than such party's gross negligence, willful misconduct or unlawful misconduct. 9. REMEDIES UPON CLUB TRUST EVENT OF DEFAULT. (a) GENERAL REMEDIES. Subject to Section 9(c), upon the occurrence and during the continuation of any Club Trust Event of Default the MLB Trust shall have, in addition to all other rights provided herein or by law, the rights and remedies of a secured party under the UCC (regardless of whether the UCC is the law of the jurisdiction where the rights or remedies are asserted and regardless of whether the UCC applies to the affected Club Trust Collateral or portion thereof), and further the MLB Trust may with the prior consent of and shall at the direction of the Administrative Agent (itself acting with the consent or at the direction of all the Lenders), without demand and without advertisement, notice, hearing or process of law, all of which the Indians Club Trust (on its own behalf and on behalf of its Participating Club) hereby waives, to the extent permitted by law, at any time or times, sell and deliver Club Trust Collateral held by or for it at public or private sale, for cash, upon credit or otherwise, at such prices and upon such terms as the MLB Trust deems advisable, in its sole discretion; provided that said disposition complies with any and all mandatory legal requirements. In addition to all other sums due the MLB Trust, the Indians Club Trust shall pay the MLB Trust all reasonable costs and expenses incurred by the MLB Trust, including reasonable attorneys' fees and court costs, in obtaining or liquidating the Club Trust Collateral, in enforcing payment of the Club Trust Secured Obligations and, without duplication and subject to the restriction on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), the Secured Obligations attributable to such Club Trust or in the prosecution or defense of any action or proceeding by or against the MLB Trust, the Administrative Agent, any Lender, any Liquidity Bank, the Club Trusts or the Participating Clubs concerning any matter arising out of or connected with this Agreement, the Club Trust Collateral or the Club Trust Secured Obligations, including, without limitation, any of the foregoing arising in, arising under or related to a case under the United States Bankruptcy Code. To the extent the rights of notice cannot be legally waived hereunder, the Indians Club Trust agrees that any requirement of reasonable notice shall be met if such notice is personally served on or mailed, postage prepaid, to the Indians Club Trust in accordance with Section 12(b) hereof at least 10 days before the time of sale or other event giving rise to the requirement of such notice. The MLB Trust shall not be obligated to make any sale or other disposition of the Club Trust Collateral regardless of notice having been given. To the extent permitted by law, the MLB Trust, the Administrative Agent, any Lender or any Liquidity Bank may be the purchaser at any such sale. To the extent permitted by applicable law, the Indians Club Trust hereby waives all its rights of redemption from any such sale. Subject to the provisions of applicable law, the MLB Trust may postpone or cause the postponement of the sale of all or any portion of the Club Trust Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which the sale was postponed or the MLB Trust may further postpone such sale by announcement made at such time and place. (b) NONEXCLUSIVE NATURE OF REMEDIES. Subject to Section 9(c), failure by the MLB Trust to exercise any right, remedy or option under this Agreement or any other 11 14 Transaction Document or provided by law, or delay by the MLB Trust in exercising the same, shall not operate as a waiver; no waiver hereunder shall be effective unless it is in writing, signed by the party against whom such waiver is sought to be enforced and then only to the extent specifically stated, which in the case of the MLB Trust shall only be granted as provided in Section 12(a) hereof. To the extent permitted by law, neither the MLB Trust nor any party acting as attorney for the MLB Trust, shall be liable hereunder for any acts or omissions or for any error of judgment or mistake of fact or law other than such party's gross negligence, willful misconduct or unlawful conduct hereunder. The rights and remedies of the MLB Trust under this Agreement shall be cumulative and not exclusive of any other right or remedy which the MLB Trust may have. (c) SALE OF RIGHTS AND REMEDIES. Notwithstanding any other provision of this Section 9 or any provision of the UCC which conflicts with this Section 9(c), that portion of the Club Trust Collateral consisting of the Indians Club Trust's Rights and Revenues shall be permitted to be sold following a Club Trust Event of Default ONLY subject to the provisions of this Section 9(c). The Rights and Revenues of the Indians Club Trust may be sold only for a period of time sufficient for the purchaser thereof to recover an amount equal to the sum of (i) such Club Trust's Secured Obligations and, without duplication and subject to the restrictions on cross- collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), the Secured obligations attributable to such Club Trust and (ii) a per annum rate of return on the sum set forth in clause (i) equal to the Default Rate. At the point in time in which the purchaser of such Rights and Revenues shall have received the amount to be paid to it pursuant to the immediately preceding sentence, such Rights and Revenues shall automatically revert to the Indians Club Trust. In connection with any sale of such Rights and Revenues, the MLB Trust shall sell such Rights and Revenues pursuant to an agreement, which among other things, shall (A) include a provision consistent with this Section 9(c) and (B) contain a provision pursuant to which the purchaser of such Rights and Revenues acknowledges and agrees that its rights to receive payments from collections with respect to the Rights and Revenues is subject to the provisions of Section 7(d) of the MLB Pledge and Security Agreement (I.E., the Commissioner shall be entitled to receive payments with respect to a pro rata portion of Pension Contributions and Commissioner Expenses (subject to the limitations set forth in Section 7(d) of the MLB Pledge and Security Agreement) from such collections prior to any payments therefrom to the purchaser of such Rights and Revenues). (d) ADMINISTRATIVE AGENT ENFORCEMENT. In furtherance of the provisions of Section 2(b), the Indians Club Trust acknowledges and agrees that, pursuant to the provisions of the MLB Pledge and Security Agreement, the Administrative Agent shall have the right to enforce and otherwise enjoy the benefits of this Section 9 and each of provisions releasing the MLB Trust from liability shall apply to the Administrative Agent, the Lenders and the Liquidity Banks to the extent that the same would exculpate the MLB Trust from liability; PROVIDED, HOWEVER, that it is understood and agreed that the Administrative Agent shall not sell the Club Trust Collateral or any portion thereof, unless it shall have obtained the prior written consent of all the Lenders to such sale or any such sale shall be at the written direction of all the Lenders. 12 15 10. APPLICATION OF PROCEEDS. The proceeds of the Club Trust Collateral or a portion at any time received by the MLB Trust upon the occurrence and during the continuation of any Club Trust Event of Default hereunder shall, when received by the MLB Trust (or the Administrative Agent) in cash or its equivalent, be deposited in the Collection Account and applied by the Administrative Agent, subject to Section 2.12 of each of the Club Trust Credit Agreement and the MLB Credit Agreement, in reduction of the Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), the Secured Obligations attributable to such Club Trust as provided for in the Club Trust Credit Agreement and the MLB Credit Agreement, respectively, and Section 7(c) of the MLB Pledge and Security Agreement. The Indians Club Trust shall remain liable to the MLB Trust for any deficiency. However, none of the related Participating Club or the MLB Trust, as beneficial owners of the Indians Club Trust, shall have any liability with respect to any deficiency; PROVIDED, HOWEVER, that the foregoing provisions shall not relieve the Indians Club Trust's related Participating Club of any of its obligations to it under the Transfer Agreement. 11. CONTINUING AGREEMENT. This Agreement shall be a continuing agreement in every respect and shall remain in full force and effect until all of the Club Trust Secured Obligations and, without duplication and subject to the restrictions on cross-collateralization contained in the Transaction Documents (including Section 2.12(d) of the Club Trust Credit Agreement), all Secured Obligations attributable to such Club Trust arising prior to the time of the satisfaction of such Club Trust Secured Obligations have been fully paid and satisfied and the Indians Club Trust shall have caused the related Participating Club to deliver a letter, in form and substance satisfactory to the Administrative Agent, on behalf of the Lenders and the Liquidity Banks, that provides for the continuation for so long as there are any outstanding Secured Obligations payable to the Lenders or the Liquidity Banks (other than any Secured Obligations which arise subsequent to the Final Payment Date) of (i) such Participating Club's obligations (x) pursuant to Section 5.02, 5.03 and 5.04 of the Transfer Agreement and (y) to play baseball, except for business interruptions during a labor dispute or where prevented by force majeure and (ii) such Participating Club related Club Trust's obligations pursuant to Section 2.12(d)(iii) of each of the MLB Credit Agreement and the Club Trust Credit Agreement; PROVIDED, HOWEVER, that if any Participating Club's Club Trust shall have terminated in accordance with the provisions of such Club Trust's Club Trust Agreement, then such Participating Club shall also deliver to the Administrative Agent, on behalf of the Lenders and the Commissioner, a transfer authorization, in form and substance satisfactory to the Administrative Agent, authorizing the Commissioner, for as long as there are any outstanding Secured Obligations payable to the Lenders or the Liquidity Banks (other than any Secured Obligations which arise subsequent to the Final Payment Date as in effect as of the date hereof) to transfer from the Central Fund Custody Account to the Collection Account when and if such Participating Club has any obligation to make any payment to the Lenders or the Liquidity Banks pursuant to Section 2.12(d)(iii) of the MLB Credit Agreement and the Club Trust Credit Agreement amounts sufficient to satisfy such obligations; PROVIDED, FURTHER, that if any Participating Club with a related Club Trust which has fully paid and satisfied its Club Trust Secured Obligations and which has complied with the provisions of this Section 11 sells all or 13 16 substantially all of its assets, stock or partnership interests while there are any outstanding Secured Obligations payable to the Lenders or the Liquidity Banks (other than any Secured Obligations which arise subsequent to the Final Payment Date as in effect as of the date hereof), then if (i) at least eight other Club Trusts and/or their related Participating Clubs remain obligated to make payments to the Lenders or the Liquidity Banks pursuant to Section 2.12(d)(iii) of the MLB Credit Agreement and the Club Trust Credit Agreement, such Participating Club and its related Club Trust shall be released from the provisions of this Section 11 or (II) such Participating Club posts a letter of credit for the benefit of the Administrative Agent on behalf of the Lenders and the Liquidity Banks in the amount of the product of (a) the highest Maximum Available Amount as of such date, multiplied by (b) a fraction, the numerator of which is the Maximum Available Amount that such Participating Club's related Club Trust would have had as of such date and the denominator of which is the aggregate of all Club Trust's Maximum Available Amounts as of such date, including such Participating Club's related Club Trust's Maximum Available Amount, and with a financial institution and in such form reasonably acceptable to the Administrative Agent, the Lenders and the Liquidity Banks agree to proceed solely against such Letter of Credit to satisfy any obligations of such Participating Club and its related Club Trust under Section 2.12(d)(iii) of the MLB Credit Agreement and Club Trust Credit Agreement. Upon such termination of this Agreement, the MLB Trust shall, upon the request and at the expense of the Indians Club Trust, forthwith release all its Liens and security interests hereunder. Notwithstanding the foregoing, all releases and indemnities provided hereunder shall survive termination of this Agreement. 12. MISCELLANEOUS. (a) This Agreement and the provisions hereof may be waived, amended, modified, changed, discharged or terminated only by an instrument in writing signed by the MLB Trust and the Indians Club Trust, which in the case of the MLB Trust shall only he provided at the direction of the Administrative Agent. This Agreement shall create a continuing security interest in the Club Trust Collateral and shall be binding upon the MLB Trust and Indians Club Trusts and their successors and assigns; PROVIDED, HOWEVER, that none of the Indians Club Trust or the MLB Trust may assign its rights or delegate its duties hereunder without the Administrative Agent's prior written consent. To the extent permitted by law, the Indians Club Trust (on its own behalf and its Participating Club through the MLB Trust) hereby releases each of the MLB Trust and the Administrative Agent from any liability for any act or omission relating to the Club Trust Collateral or this Agreement (including actions by the Administrative Agent as attorney in connection with purchasing Eligible Investments pursuant to Sections 7(b) of the MLB Pledge and Security Agreement), except for any liability arising from such party's gross negligence, willful misconduct or unlawful conduct. (b) All communications provided for herein shall be in writing, except as otherwise specifically provided for hereinabove, and shall be given in accordance with Section 8.02 of the Club Trust Credit Agreement, if to the MLB Trust, at Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration (facsimile number (302) 651-8882); with copies to (a) Administrative Agent, at Fleet National Bank, One Federal Street, Boston, Massachusetts 02211, Attention: Patrick F. McAuliffe; (facsimile number (617) 346-0590); (b) Choate, Hall & Stewart, Exchange Place, 53 14 17 State Street, Boston, Massachusetts 02109, Attention: Lyman G. Bullard, Jr., Esq. (facsimile number (617) 248-4000); (c) the Commissioner, at The Baseball Office of the Commissioner, 350 Park Avenue, New York, N.Y. 10022, Attention: Jeffrey White (facsimile number (212) 888- 8632); (d) Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, N.Y. 10019, Attention: Matthew Nimetz, Esq. (facsimile number (212) 373-2042); and if to the Indians Club Trust, at Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration (facsimile number (302 651-1576); with copies to (a) Administrative Agent, at Fleet National Bank, One Federal Street, Boston, Massachusetts 02211, Attention: Patrick F. McAuliffe, (facsimile number (617) 346-0590); (b) Choate, Hall & Stewart, Exchange Place, 53 State Street, Boston, Massachusetts 02109, Attention: Lyman G. Bullard, Jr., Esq. (facsimile number (617) 248-4000); (c) the Commissioner, at the Baseball Office of the Commissioner, 350 Park Avenue, New York, N.Y. 10022, Attention: Jeffrey White (facsimile number (212) 888-8632); and (d) Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, N.Y. 10019, Attention: Matthew Nimetz, Esq. (facsimile number (212) 373-2042). (c) Notwithstanding any right that the Administrative Agent may have to enforce this Agreement pursuant to the terms hereof or the MLB Pledge and Security Agreement, no Lender or Liquidity Bank shall have the right to institute any suit, action or proceeding in equity or at law for the foreclosure of this Agreement, for the execution of any trust or power hereof, for the appointment of a receiver or for the enforcement of any other remedy under or upon this Agreement; it being understood and intended that no one or more of the Lenders or Liquidity Banks shall have any right in any manner whatsoever to affect, disturb or prejudice any lien, security interest, assignment, pledge or other encumbrance created pursuant to this Agreement by its or their action or to enforce any right hereunder and that all proceedings at law or in equity shall be instituted and maintained by the Administrative Agent in the manner provided for herein and in the MLB Pledge and Security Agreement and for the ratable benefit of the Lenders and the ratable benefit of the Liquidity Banks. (d) In the event that any provision hereof shall be deemed to be invalid by reason of the operation of any law or by reason of the interpretation placed thereon by any court, this Agreement shall be construed as not containing such provision with respect to any jurisdiction where such law or interpretation is operative, and the invalidity of such provision shall not affect the validity of any remaining provisions hereof, and any and all other provisions hereof which are otherwise lawful and valid shall remain in full force and effect. (e) THIS AGREEMENT AND ALL MATTERS RELATING HERETO SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY APPLICABLE LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. THE INDIANS CLUB TRUST HEREBY SUBMITS TO THE EXTENT EFFECTIVE UNDER APPLICABLE LAW TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF NEW YORK AND AGREES THAT THE MLB TRUST MAY, AT ITS OPTION, ENFORCE ITS RIGHTS HEREUNDER IN SUCH COURTS. 15 18 TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE INDIANS CLUB TRUST HEREBY IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO MAINTENANCE OF ANY ACTION OR PROCEEDING BY THE MLB TRUST IN SUCH COURTS. THE INDIANS CLUB TRUST HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. (f) The headings in this instrument are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision hereof. (g) This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each constituting an original, but all constituting together one and the same instrument. (h) Except as to the Commissioner and Administrative Agent, on behalf of the Lenders and the Liquidity Banks, no third-party beneficiary rights are intended or conferred hereunder. (i) All rights and remedies of the MLB Trust or the Administrative Agent hereunder are subject to such limitations as may be imposed by applicable law. 13. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as trustee of the MLB Trust under the MLB Trust Agreement and solely as trustee of the Indians Club Trust under its Club Trust Agreement, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the MLB Trust or Indians Club Trust, as the case may be, is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose for binding only the MLB Trust or the Indians Club Trust, as the case may be, (c) except as Wilmington Trust Company shall otherwise expressly agree, nothing herein contained shall be construed as creating any liability on Wilmington Trust Company, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the Facilitating Agent, the Administrative Agent, the Lenders and the Liquidity Banks and by any Person claiming by, through or under any of them and (d) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expense of the MLB Trust or Indians Club Trust, as the case may be, or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the MLB Trust, as the case may be, under this Agreement or the other Transaction Documents. 16 19 SIGNATURE PAGE FOR CLUB TRUST PLEDGE AND SECURITY AGREEMENT INDIANS CLUB TRUST IN WITNESS WHEREOF, each of the MLB Trust and the Indians Club Trust and the Administrative Agent has caused this Agreement to be duly executed as of the date first above written. INDIANS CLUB TRUST, By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Club Trustee, By: /s/ David A. Vanaskey ---------------------------------- Name David A. Vanaskey Title Assistant Vice President MAJOR LEAGUE BASEBALL CLUB TRUST, By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as MLB Trustee, By: /s/ David A. Vanaskey ---------------------------------- Name David A. Vanaskey Title Assistant Vice President FLEET NATIONAL BANK as Administrative Agent for the Banks, By: /s/ Patrick F. McAuliffe ---------------------------------- Patrick F. McAuliffe Executive Vice President EX-10.13 8 EXHIBIT 10.13 1 Exhibit 10.13 CLEVELAND INDIANS BASEBALL COMPANY, INC. LONG-TERM INCENTIVE PLAN SECTION 1. PURPOSE; DEFINITIONS. The purpose of the Cleveland Indians Baseball Company, Inc. Long-Term Incentive Plan (the "Plan") is to enable Cleveland Indians Baseball Company, Inc. (the "Company") to attract, retain and reward key employees of the Company and of its Affiliates and members of the Board of Directors of the Company and to strengthen the mutuality of interests between such key employees and the Company's shareholders by offering such key employees equity or equity-based incentives. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means Cleveland Indians Baseball Company Limited Partnership and any entity (other than the Company and its Subsidiaries) that is designated by the Board as a participating employer under the Plan. (b) "Award" means any award of Stock Options, Restricted Shares, Share Appreciation Rights under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Change in Control" has the meaning set forth in Section 8(b). (e) "Change in Control Price" has the meaning set-forth in Section 8(c). (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (g) "Committee" means the Committee referred to in Section 2 of the Plan. (h) "Company" means Cleveland Indians Baseball Company, Inc., an Ohio corporation, or any successor corporation. (i) "Disability" means disability as determined under procedures established by the Committee for purposes of the Plan. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means, as of any date, the mean between the highest and lowest quoted selling price, regular way, of the Shares on such date on the Nasdaq National Market (or any successor thereto), if no such sale of the Shares occurs on the Nasdaq National Market (or any successor thereto) on such date, then such mean price on the next preceding day on which the Shares were traded. If the Shares are no longer traded on the Nasdaq National Market (or any 2 successor thereto), then the Fair Market Value of the Shares shall be determined by the Committee in good faith. (l) "Incentive Stock Option" means any Stock Option intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code or any successor section thereto. (m) "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. (n) "Other Share-Based Award" means an award granted pursuant to Section 8 that is valued, in whole or in part, by reference to, or is otherwise based on, Shares. (o) "Plan" means the Cleveland Indians Baseball Company, Inc. Long-Term Incentive Plan, as amended from time to time. (p) "Restricted Shares" means an award of shares that is granted pursuant to Section 6 and is subject to restrictions. (q) "Section 16 Participant" means a participant under the Plan who is then subject to Section 16 of the Exchange Act. (r) "Shares" mean, the Class A Common Shares, without par value, of the Company. (s) "Share Appreciation Right" means an award of a right to receive an amount from the Company that is granted pursuant to Section 7. (t) "Stock Option" or "Option" means any option to purchase Shares (including Restricted Shares, if the Committee so determines) that is granted pursuant to Section 5. (u) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. SECTION 2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee of the Board (the "Committee"). The Committee shall consist of three or more directors of the Company, as designated by the Board from time to time. Such directors shall be appointed by the Board and shall serve as the Committee at the pleasure of the Board. The functions of the Committee specified in the Plan shall be exercised by the Board if and to the extent that no Committee exists which has the authority to so administer the Plan. Page 2 3 The Committee shall have full power to interpret and administer the Plan and full authority to select the individuals to whom Awards will be granted and to determine the type and amount of Awards to be granted to each participant, the consideration, if any, to be paid for such Awards, the timing of such Awards, the terms and conditions of Awards granted under the Plan, the terms and conditions of the related agreements which will be entered into with participants and to certify that any performance goals are satisfied. As to the selection of and grant of Awards to participants who are not Section 16 Participants, the Committee may delegate its responsibilities to members of the Company's management consistent with applicable law. The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); to direct employees of the Company or other advisors to prepare such materials or perform such analyses as the Committee deems necessary or appropriate; and otherwise to supervise the administration of the Plan. Any interpretation and administration of the Plan by the Committee, and all actions and determinations of the Committee, shall be final, binding and conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all participants in the Plan, their respective legal representatives, successors and assigns, and all persons claiming under or through any of them. No member of the Board or of the Committee shall incur any liability for any action taken or omitted, or any determination made, in good faith in connection with the Plan. SECTION 3. SHARES SUBJECT TO THE PLAN. (a) Aggregate Shares Subject to the Plan. Subject to adjustment as provided below in Section 3(c), the total number of Shares reserved and available for Awards under the Plan is 700,000. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares. (b) Forfeiture or Termination of Awards of Shares. If any Shares subject to any Award granted hereunder are forfeited or an Award otherwise terminates or expires without the issuance of Shares, the Shares subject to such Award shall again be available for distribution in connection with future Awards under the Plan as set forth in Section 3(a), unless the participant who had been awarded such forfeited Shares or the expired or terminated Award has theretofore received dividends or other benefits of ownership with respect to such Shares. For purposes hereof, a participant shall not be deemed to have received a benefit of ownership with respect to such Shares by the exercise of voting rights or the accumulation of dividends which are not realized because of the forfeiture of such Shares or the expiration or termination of the related Award without issuance of such Shares. (c) Adjustment. In the event of any merger, reorganization, consolidation, recapitalization, share dividend, share split, combination of shares or other change in corporate structure of the Company affecting the Shares, the Committee, in its discretion, shall make an appropriate adjustment in the number of shares reserved Page 3 4 for issuance under the Plan, in the number and kind and option price of shares subject to outstanding options granted under the Plan (both in the aggregate and as to each participant), in the number and kind of shares (both in the aggregate and as to each participant) subject to Restricted Share Awards and any other outstanding Awards granted under the Plan. (d) Annual Award Limit. No participant may be granted Stock Options or Awards under the Plan with respect to an aggregate of more than 100,000 Shares (subject to adjustment as provided in Section 3(c) hereof) during any calendar year. SECTION 4. ELIGIBILITY. Officers, directors and other key employees of the Company and its Subsidiaries and Affiliates (including Cleveland Indians Baseball Company Limited Partnership), if any, who, in the discretion of the Committee, are responsible for or contribute to the management, growth or profitability of the business of the Company or its Subsidiaries or Affiliates, if any, are eligible to be granted Awards under the Plan. SECTION 5. STOCK OPTIONS. (a) Grant. Stock Options may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Stock Options will be made, the number of Shares purchasable under each Stock Option and the other terms and conditions of the Stock Option in addition to those set forth in Sections 5(b) and 5(c). Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be of two types which shall be indicated in the Option Agreement evidencing such options: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Subject to Section 5(c) hereof, the Committee shall have the authority to grant to any participant Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options. (b) Terms and Conditions. Options granted under the Plan shall be evidenced by Option Agreements, shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (1) Option Price. The option price per share of Shares purchasable under a Non-Qualified Stock Option or an Incentive Stock Option shall be determined by the Committee at the time of grant and in the case of an Incentive Stock Option shall be not less than 100% of the Fair Market Value of the Shares at the date of grant (110% of the Fair Market Value of the Shares at the date of grant in the case of a participant who at the date of grant owns Shares possessing more than ten percent of the total combined voting power of all classes of stock of Page 4 5 the Company or its parent or Subsidiary corporations, as determined under Section 424(d), (e) and (f) of the Code). (2) Option Term. The term of each Stock Option shall be fixed by the Committee and may not exceed ten years from the date the Option is granted (or, with respect to an Incentive Stock Option, five years in the case of a participant who at the date of grant owns Shares possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations (as determined under Section 424(d), (e) and (f) of the Code)). (3) Exercise. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant. If any Stock Option is exercisable only in installments or only after specified exercise dates, the Committee may waive, in whole on in part, such installment exercise provisions, and may accelerate any exercise date or dates, at any time at or after grant based on such factors as the Committee shall determine, in its sole discretion. (4) Method of Exercise. Subject to any installment exercise provisions that apply with respect to such Stock Option, Stock Options may be exercised in whole or in part, at any time during the option period, by giving to the Company written notice of exercise specifying the number of Shares to be purchased. Such notice shall be accompanied by payment in full of the option price of the Shares for which the Option is exercised in cash or by the delivery of Shares having a Fair Market Value on the date of exercise equal to the exercise price. Stock Options may also be exercised in any other matter approved by the Committee (either with respect to (i) the exercise of a particular Stock Option or (ii) the exercise of Stock Options generally), including, but not limited to, so-called net or cash-less exercises. No Shares shall be issued pursuant to an exercise of an Option until full payment has been made. A participant will not have rights to dividends or any other rights of a shareholder with respect to any Shares subject to an Option unless and until the participant has given written notice of exercise, has paid in full for such Shares, has given, if requested, the representation described in Section 11 and such Shares have been issued to him. (5) Non-Transferability of Options. No Stock Option is transferable by the participant other than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the participant's lifetime, only by the participant or, subject to Sections 5(b)(3) and 5(c), by the participant's authorized legal representative if the participant is unable to exercise an option as a result of the participant's Disability; provided, however, that if so provided in the instrument evidencing the Option, the Committee may permit any optionee to transfer the Option during his lifetime to one or more members of his family, to Page 5 6 one or more trusts for the benefit of one or more members of his family or to one or more entities owned solely by family members, provided that no consideration is paid for the transfer and that such transfer would not result in the loss of any exemption under Rule 16b-3 for any Option that the Committee does not permit to be so transferred. The transferee of an Option shall be subject to all restrictions, terms, and conditions applicable to the Option prior to its transfer, except that the Option shall not be further transferable inter vivos by the transferee. The Committee may impose on any transferable Option and on the Common Shares to be issued upon the exercise of the Option such limitations and conditions as the Committee deems appropriate. (6) Termination by Death. Subject to Sections 5(b)(3) and 5(c), if any participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Stock Option held by such participant may thereafter be exercised, to the extent such Option was exercisable at the time of death or would have become exercisable within one year from the time of death had the participant continued to fulfill all conditions of the Option during such period (or on such accelerated basis as the Committee may determine at or after grant), by the estate of the participant (acting through its fiduciary), for a period of one year (or such other period as the Committee may specify at or grant) from the date of such death. The balance of the Stock Option shall be forfeited. (7) Termination by Reason of Disability. Subject to Sections 5(b)(3) and 5(c), if a participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Stock Option held by such participant may thereafter be exercised, to the extent such Option was exercisable at the time of termination or would have become exercisable within one year from the time of termination had the participant continued to fulfill all conditions of the Option during such period (or on such accelerated basis as the Committee may determine at or after grant), by the participant or by the participant's duly authorized legal representative if the participant is unable to exercise the Option as a result of the participant's Disability, for a period of one year (or such other period as the Committee may specify at or after grant), from the date of such termination of employment; provided, however, that in no event may any such Option be exercised prior to six months and one day from the date of grant; and provided, further, that if the participant dies within such one-year period (or such other period as the Committee shall specify at or after grant), any unexercised Stock Option held by such participant shall thereafter be exercisable by the estate of the participant (acting though its fiduciary) to the same extent to which it was exercisable at the time of death for a period of one year from the date of such termination of employment. The balance of the Stock Option shall be forfeited. (8) Other Termination. Unless otherwise determined by the Committee at or after the time of granting any Stock Option, if a participant's employment by the Company or any Subsidiary or Affiliate is terminated for any reason other than death or Disability, all Stock Options held by such participant that were previously exercisable shall continue to be exercisable until, and Page 6 7 shall terminate, 90 days after the date of such termination. All Stock Options that were not previously exercisable prior to the date employment terminates shall terminate on the date employment terminates. (c) Incentive Stock Options. Notwithstanding Sections 5(b)(6) and (7), an Incentive Stock Option shall be exercisable by (i) a participant's authorized legal representative (if the participant is unable to exercise the Incentive Stock Option as a result of the participant's Disability) only if, and to the extent, permitted by Section 422 of the Code and (ii) by the participant's estate, in the case of death, or authorized legal representative, in the case of Disability, no later than 10 years from the date the Incentive Stock Option was granted (in addition to any other restrictions or limitations which may apply). Anything in the Plan to the contrary notwithstanding, no term or provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the participants affected, to disqualify any Incentive Stock Option under such Section 422 or any successor section thereto. (d) Buyout Provisions. The Committee may at any time buy out for a payment in cash, Shares or Restricted Shares an option previously granted, based on such terms and conditions as the Committee shall establish and agree upon with the participant, provided that no such transaction involving a Section 16 Participant shall be structured or effected in a manner that would violate, or result in any liability on the part of the participant under, Section 16 of the Exchange Act or the rules and regulations promulgated thereunder. SECTION 6. RESTRICTED SHARES. (a) Grant. Restricted Shares may be issued alone, in addition to or in tandem with other Awards under the Plan or cash awards made outside of the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Restricted Shares will be made, the number of Restricted Shares to be awarded to each participant, the price (if any) to be paid by the participant (subject to Section 6(b)), the date or dates upon which Restricted Share Awards will vest and the period or periods within which such Restricted Share Awards may be subject to forfeiture, and the other terms and conditions of such Awards in addition to those set forth in Section 6(b). The Committee may condition the grant of Restricted Shares upon the attainment of specified performance goals or such other factors as the Committee may determine in its sole discretion. (b) Terms and Conditions. Restricted Shares awarded under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable. A participant who receives a Restricted Share Award shall not have any rights with respect to such Award, unless and until such participant has executed an agreement evidencing the Award in the form Page 7 8 approved from time to time by the Committee and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. (1) The purchase price (if any) for Restricted Shares shall be determined by the Committee at the time of grant. (2) Awards of Restricted Shares must be accepted by executing a Restricted Share Award agreement and paying any price required under Section 6(b)(1). (3) Each participant receiving a Restricted Share Award shall be issued a stock certificate in respect of such Restricted Shares. Such certificate shall be registered in the name of such participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award. (4) The Committee may require that the stock certificates evidencing such Restricted Shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Shares Award the participant shall have delivered to the Company a stock power, endorsed in blank, relating to the Shares covered by such Award. (5) Subject to the provisions of this Plan and the Restricted Share Award agreement, during a period set by the committee commencing with the date of such Award (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber the Restricted Shares awarded under the Plan. Subject to these limitations, the Committee, in its sole discretion, may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service, performance or such other factors and criteria as the Committee may determine, in its sole discretion. (6) Except as provided in this Section 6(b)(6), Section 6(b)(5) and Section 6(b)(7), the participant shall have, with respect to the Restricted Shares awarded, all of the rights of a shareholder of the Company, including the right to vote the Shares, and the right to receive any dividends. The Committee, in its sole discretion, as determined at the time of award, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested, subject to Section 11, in additional Restricted Shares to the extent Shares are available under Section 3, or otherwise reinvested. Unless the Committee or Board determines otherwise, share dividends issued with respect to Restricted Shares shall be treated as additional Restricted Shares that are subject to the same restrictions and other terms and conditions that apply to the Shares with respect to which such dividends are issued. Page 8 9 (7) No Restricted Shares shall be transferable by a participant other than by will or by the laws of descent and distribution. (8) Unless otherwise determined by the Committee at or after the time of granting any Restricted Shares, if a participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Restricted Shares held by such participant shall thereupon vest and all restrictions thereon shall lapse, to the extent such Restricted Shares would have become vested or no longer subject to restriction within one year from the time of death had the participant continued to fulfill all of the conditions of the Restricted Share Award during such period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Restricted Shares shall be forfeited. (9) Unless otherwise determined by the Committee at or after the time of granting any Restricted Shares, if a participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Restricted Shares held by such participant shall thereupon vest and all restrictions thereon shall lapse, to the extent such Restricted Shares would have become vested or no longer subject to restriction within one year from the time of termination had the participant continued to fulfill all of the conditions of the Restricted Share Award during such period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Restricted Shares shall be forfeited. (10) Unless otherwise determined by the Committee at or after the time of granting any Restricted Shares, if a participant's employment by the Company or any Subsidiary or Affiliate terminates for any reason other than death or Disability, the Restricted Shares held by such participant which are unvested or subject to restriction at the time of termination shall thereupon be forfeited. (c) Minimum Value Provisions. In order to better ensure that award payments actually reflect the performance of the Company and service of the participant, the Committee may provide in its sole discretion for a tandem performance-based or other award designed to guarantee a minimum value, payable in cash or Shares to the recipient of a Restricted Share Award, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee. SECTION 7. SHARE APPRECIATION RIGHTS. (a) Grant. Share Appreciation Rights may be granted in connection with all or any part of an Option, either concurrently with the grant of the Option or, if the Option is a Non-Qualified Stock Option, by an amendment to the Option at any time thereafter during the term of the Option. Share Appreciation Rights may be exercised in whole or in part at such times under such conditions as may be specified by the Committee in the participant's Option Agreement. Page 9 10 (b) Terms and Conditions. The following terms and conditions will apply to all Share Appreciation Rights: (1) Share Appreciation Rights shall entitle the participant, upon exercise of all or any part of the Share Appreciation Rights, to surrender to the Company unexercised that portion of the underlying Option relating to the same number of Shares as is covered by the Share Appreciation Rights (or the portion of the Share Appreciation Rights so exercised) and to receive in exchange from the Company an amount (paid as provided in Section 7(b)(5)) equal to the excess of (x) the Fair Market Value, on the date of exercise, of the Shares covered by the surrendered portion of the underlying Option over (y) the exercise price of the Shares covered by the surrendered portion of the underlying Option. The Committee may limit the amount that the participant will be entitled to receive upon surrender of a Share Appreciation Right. (2) Upon the exercise of the Share Appreciation Right and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, will not thereafter be exercisable. The underlying Option may provide that such Share Appreciation Rights will be payable solely in cash. The terms of the underlying Option shall provide a method by which an alternative fair market value of the Shares on the date of exercise shall be calculated based on one of the following: (x) the closing price of the Shares on the quotation system or national exchange on which they are then traded on the business day immediately preceding the day of exercise; (y) the highest closing price of the Shares on the quotation system or national exchange on which they have been traded, during the 90 days immediately preceding the Change in Control; or (z) the greater of (x) and (y). (3) In addition to any further conditions upon exercise that may be imposed by the Committee, the Share Appreciation Rights shall be exercisable only to the extent that the related Option is exercisable, and each Share Appreciation Right will expire no later than the date on which the related Option expires. A Share Appreciation Right may only be exercised at a time when the Fair Market Value of the Shares covered by the Share Appreciation Right exceeds the exercise price of the Shares covered by the underlying Option. (4) Share Appreciation Rights may be exercised by the participant's giving written notice of the exercise to the Company, stating the number of Share Appreciation Rights he has elected to exercise and surrendering the portion of the underlying Option relating to the same number of Shares as the number of Share Appreciation Rights elected to be exercised. (5) The manner in which the Company's obligation arising upon the exercise of the Share Appreciation Right will be paid will be determined by the Committee and shall be set forth in the participant's Option Agreement. The Committee may provide for payment in Shares or cash, or a fixed combination of Shares or cash, or the Committee may reserve the right to determine the manner Page 10 11 of payment at the time the Share Appreciation Right is exercised. Shares issued upon the exercise of a Share Appreciation Right will be valued at their Fair Market Value on the date of exercise. SECTION 8. CHANGE IN CONTROL PROVISION. (a) Impact of Event. At any time during the 365 days commencing with the date of a "Change in Control" as defined in Section 8(b), a majority of the "Continuing Directors" as defined in Section 8(d) (or one of the two Continuing Directors if only two Continuing Directors are then serving on the Board of Directors or the sole Continuing Director if only one Continuing Director is then serving on the Board of Directors) may cause one or more of the following provisions to take effect as stated and as of the date set forth in a Written Action (the "Written Action") adopted to that effect (that date, the "Accelerated Vesting Date") and if there are no Continuing Directors, the following provisions will automatically take effect: (1) Any Stock Options awarded under the Plan not previously exercisable shall become fully exercisable; (2) Any Share Appreciation Rights shall become immediately exercisable; (3) The restrictions applicable to any Restricted Shares shall lapse and such shares and awards shall be deemed fully vested; and (4) The value of all outstanding Awards, in each case to the extent vested or exercisable, shall, unless otherwise determined by the Committee in its sole discretion at or after grant but prior to any Change in Control or Potential Change in Control, be paid to the participant in cash in exchange for the surrender of those Awards on the basis of the "Change in Control Price" as defined in Section 8(c) as of the Accelerated Vesting Date; but the provisions of Sections 8(a)(1) through (3) shall not apply with respect to Awards granted to any Section 16 Participant which have been held by such participant for less than six months and one day as of the Accelerated Vesting Date. (b) Definition of Change in Control. For purposes of Section 9(a), a "Change in Control" means the occurrence of any of the following: (i) the Board or shareholders of the Company approve a consolidation or merger that results in the shareholders of the Company immediately prior to the transaction giving rise to the consolidation or merger owning less than 50% of the total combined voting power of all classes of stock entitled to vote of the surviving entity immediately after the consummation of the transaction giving rise to the merger or consolidation; (ii) the Board or shareholders of the Company approve the sale of substantially all of the assets of the Company or the liquidation or dissolution of the Company; (iii) any person or other entity (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) purchases any Shares (or securities Page 11 12 convertible into Shares) pursuant to a tender or exchange offer without the prior consent of the Board of Directors, or becomes the beneficial owner of securities of the Company representing 25% or more of the voting power of the Company's outstanding securities; or (iv) during any two-year period, individuals who at the beginning of such period constitute the entire Board of Directors cease to constitute a majority of the Board of Directors, unless the election or the nomination for election of each new director is approved by at least two-thirds of the directors then still in office who were directors at the beginning of that period. (c) Change in Control Price. For purposes of this Section 8, "Change in Control Price" means the greater of: (a) the highest price per share paid in any transaction reported on the Nasdaq National Market (or, if the Shares are not then traded on the Nasdaq National Market, the highest price paid as reported for any national exchange on which the Shares are then traded) or paid or offered in any bona fide transaction related to a Change in Control, at any time during the 60-day period immediately preceding the occurrence of the Change in Control, and (b) the highest price per share paid in any transaction reported on the Nasdaq National Market (or, if the Shares are not then traded on the Nasdaq National Market, the highest price paid as reported for any national exchange on which the Shares are then traded), at any time during the 60-day period immediately preceding the date on which the Continuing Directors execute a Written Action relating to that Change in Control as determined by the Committee. (d) Definition of Continuing Director. For purposes of this Section 8, a "Continuing Director" means an individual who was a member of the Board of Directors immediately prior to the date of a Change in Control and is a member of the Board of Directors at the time a Written Action relating to that Change in Control is taken. SECTION 9. AMENDMENTS AND TERMINATION. The Board may at any time, in its sole discretion, amend, alter or discontinue the Plan, but no such amendment, alteration or discontinuation shall be made which would impair the rights of a participant under an Award theretofore granted, without the participant's consent. The Company shall submit to the shareholders of the Company for their approval any amendments to the Plan which are required by Section 16 of the Exchange Act or the rules and regulations thereunder, or Section 162(m) of the Code, to be approved by the shareholders. The Committee may at any time, in its sole discretion, amend the terms of any Award, but no such amendment shall be made which would impair the rights of a participant under an Award theretofore granted, without the participant's consent; nor shall any such amendment be made which would make the applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any Section 16 Participant holding the Award without the participant's consent. Page 12 13 Subject to the above provisions, the Board shall have all necessary authority to amend the Plan to make into account changes in applicable securities and tax laws and accounting rules, as well as other developments. SECTION 10. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant by the Company, nothing contained herein shall give any such participant any rights that are greater than those of a general creditor of the Company. SECTION 11. GENERAL PROVISIONS. (a) The Committee may require each participant acquiring Shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that the participant is acquiring the Shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All Shares or other securities delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares is then listed, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any certificates for such shares to make appropriate reference to such restrictions. (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. (c) Neither the adoption of the Plan, nor its operation, nor any document describing, implementing or referring to the Plan, or any part thereof, shall confer upon any participant under the Plan any right to continue in the employ, or as a director, of the Company or any Subsidiary or Affiliate, or shall in any way affect the right and power of the Company or any Subsidiary or Affiliate to terminate the employment, or service as a director, of any participant under the Plan at any time with or without assigning a reason therefor, to the same extent as the Company or any Subsidiary or Affiliate might have done if the Plan had not been adopted. (d) For purposes of this Plan, a transfer of a participant between the Company and its Subsidiaries and Affiliates shall not be deemed a termination of employment. (e) No later than the date as of which an amount first becomes includable in the gross income of the participant for federal income tax purposes with respect to Page 13 14 any award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment, of, any federal, state or local taxes or other items of any kind required by law to be withheld with respect to such amount. Subject to the following sentence, unless otherwise determined by the Committee, withholding obligations may be settled with Shares, including unrestricted Shares previously owned by the participant or Shares that are part of the Award that gives rise to the withholding requirement. Notwithstanding the foregoing, any election by a Section 16 Participant to settle such tax withholding obligation with Shares that is part of such Award shall be subject to approval by the Committee, in its sole discretion, if such approval is required to exempt such election from Section 16(b) of the Exchange Act. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company and its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. (f) The actual or deemed reinvestment of dividends or dividend equivalents in additional Restricted Shares (at the time of any dividend payment shall only be permissible if sufficient Shares are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options). (g) The Plan, all Awards made and actions taken thereunder and any agreements relating thereto shall be governed by and construed in accordance with the laws of the State of Ohio. (h) All agreements entered into with participants pursuant to the Plan shall be subject to the Plan. (i) The provisions of Awards need not be the same with respect to each participant. SECTION 139. TERM OF PLAN. No Award shall be granted pursuant to the Plan on or after 10 MAY 13, 2008, but Awards granted prior to such date may extend beyond that date. Page 14 EX-10.16 9 EXHIBIT 10.16 1 Exhibit 10.16 SECOND AMENDMENT AND CONFIRMATION OF TRANSFER AGREEMENT ------------------------------------------------------- This SECOND AMENDMENT AND CONFIRMATION OF TRANSFER AGREEMENT is dated as of April 17, 1998, by and between Cleveland Indians Baseball Company, Limited Partnership, an Ohio limited partnership (the "Transferor"), and Indians Club Trust, a Delaware business trust (the "Transferee"), and amends and confirms that certain Transfer Agreement dated as of May 22, 1992 between the Transferor and the Transferee (as amended by Amendment No. 1 thereto dated as of December 20, 1993, as further amended on June 28, 1996, and as further amended from time to time, the "Transfer Agreement"). Capitalized terms used herein and not otherwise defined shall have the same meanings herein as in Annex A referred to below. W I T N E S S E T H: -------------------- WHEREAS, by execution of the Transfer Agreement and the Assignment dated the date thereof (the "Original Assignment"), the Transferor has bargained, sold, transferred, assigned, set over and otherwise conveyed to the Transferee the Rights and Revenues; and WHEREAS, concurrently with the execution of the Transfer Agreement and the Original Assignment, the Transferee incurred certain indebtedness for borrowed money (the "Existing Indebtedness") and, in connection therewith, granted certain liens on the Rights and Revenues as collateral security for such Existing Indebtedness; and WHEREAS, as of the date hereof, the Transferee and certain other parties thereto are entering into the Club Trust Credit Agreement and the MLB Credit Agreement pursuant to which the Lenders will make certain loans for the benefit of the Transferee (collectively, the "MLB Credit Agreement Loans"), certain proceeds of which MLB Credit Agreement Loans will be used by the Transferee to refinance the Existing Indebtedness; and WHEREAS, the Transferee and the MLB Trust have entered into the MLB Pledge and Security Agreement dated the date hereof pursuant to which, among other things, the Transferee has granted to the Administrative Agent for the benefit of the Lenders and the Liquidity Banks a lien on the Rights and Revenues, as such terms are defined in Annex A attached to the MLB Credit Agreement (such Annex A attached to the MLB Credit Agreement being referred to herein as the "Annex A"), as collateral security for the MLB Credit Agreement Loans; and WHEREAS, it is a condition precedent to the obligations of the Lenders to enter into the Club Trust Credit Agreement and the MLB Credit Agreement, and to make the MLB Credit Agreement Loans for the benefit of the Transferee pursuant thereto, that the Transferor execute this Second Amendment and Confirmation of Transfer Agreement and the form of Confirmatory Assignment attached hereto as Exhibit A, and deliver certain other documents in the forms attached hereto; 2 NOW THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. ACKNOWLEDGMENT OF MLB CREDIT AGREEMENT AND MLB PLEDGE AND SECURITY AGREEMENT; ASSIGNMENT. The Transferor acknowledges that, as of the date hereof, the Transferee, the Lenders and the other parties thereto have entered into the MLB Credit Agreement and MLB Pledge and Security Agreement. The Transferor acknowledges that the Lenders have been induced to enter into said Agreements by, among other things, (i) the representations, warranties and covenants of the Transferor set forth in the Transfer Agreement and in this Second Amendment and Confirmation thereof and (ii) the liens on the Rights and Revenues (as such terms are defined in Annex A) granted to the Administrative Agent for the benefit of the Lenders and the Liquidity Banks by the Transferee pursuant to the MLB Pledge and Security Agreement. The Transferor has reviewed Annex A to the MLB Credit Agreement, and is familiar with the definitional provisions contained therein. It is the intention of the Transferor and the Transferee that all Rights and Revenues (as such terms are defined in Annex A) were bargained, sold, transferred, assigned, set over and otherwise conveyed from the Transferor to the Transferee pursuant to the Transfer Agreement. Accordingly, by way of confirming such transfer and transferring any assets constituting Rights and Revenues (as defined in Annex A) which were not transferred pursuant to the Transfer Agreement and the Original Assignment, the Transferor and the Transferee will execute, at or before the Closing, a Confirmatory Assignment in the form of Exhibit A hereto. 2. CONFIRMATION OF REPRESENTATIONS AND WARRANTIES OF TRANSFEREE AND TRANSFEROR. The Transferee confirms that the representations and warranties set forth in Section 3.01 of the Transfer Agreement are true and correct in all material respects as of the date hereof. The Transferor confirms that the representations and warranties set forth in Section 3.02 of the Transfer Agreement and the information contained in Schedule 3.02(a)(x) as amended on the date hereof is true and correct in all material respects as of the date hereof except for the representations and warranties in Sections 3.02(b)(iv), (v), (vi) and (vii) which were true and correct in all material respects as of May 20, 1992. 3. VOTING. The Transferor acknowledges and agrees that the MLB Trust, the Administrative Agent and the Lenders are entering into the MLB Credit Agreement and the MLB Pledge and Security Agreement in reliance upon, among other things, the covenants of the Transferor set forth herein and in the Transfer Agreement including, without limitation, the provisions of Section 5.05 of the Transfer Agreement. 4. EFFECTIVENESS. This Second Amendment and Confirmation of Transfer Agreement shall become effective upon satisfaction of the following conditions: 2 3 (a) The Transferee and the Administrative Agent shall have received the following documents (each in form and substance satisfactory to the Administrative Agent in it its sole discretion): (i) An executed copy of this Second Amendment and Confirmation of Transfer Agreement; (ii) Executed Uniform Commercial Code financing statements filed or to be filed in each jurisdiction determined by the Administrative Agent, executed by (x) any party holding a lien on the Rights and/or Revenues and (y) by the Transferor (or, as necessary, the Commissioner), as seller and debtor, and naming the Transferee, as purchaser and secured party, meeting the requirements of the laws of each such jurisdiction, and as is necessary to maintain the Transferee's perfected ownership status of the Rights and Revenues; and (iii) Such other documents as Transferee or the Administrative Agent may reasonably request. 5. TRANSACTION DOCUMENT. This Second Amendment and Confirmation and any other document and certificate delivered in connection herewith shall be a Transaction Document for all purposes. 6. NOTICES. All notice hereunder shall be given in accordance with the provisions of Section 6.05 of the Transfer Agreement as amended hereby. 7. APPLICABLE LAW. THIS SECOND AMENDMENT AND CONFIRMATION OF TRANSFER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CHOICE OF LAW PROVISIONS. 8. CONFIRMATION; NO NOVATION. Except as expressly set forth herein, this Second Amendment and Confirmation of Transfer Agreement shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of either party under the Transfer Agreement, nor alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Transfer Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. This Second Amendment and Confirmation of Transfer Agreement shall apply and be effective only with respect to the provisions of the Transfer Agreement specifically referred to herein. 9. COUNTERPARTS. This Second Amendment and Confirmation of Transfer Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. 3 4 10. HEADINGS. Section headings used herein are for convenience of reference only, are not part of this Second Amendment and Confirmation of Transfer Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Second Amendment and Confirmation of Transfer Agreement. [Remainder of This Page Intentionally Left Blank and Signature Pages Follow] 4 5 SIGNATURE PAGE FOR SECOND AMENDMENT AND CONFIRMATION OF TRANSFER AGREEMENT CLEVELAND INDIANS EXECUTED as a sealed instrument as of the date first above written. TRANSFEROR: CLEVELAND INDIANS BASEBALL COMPANY, LIMITED PARTNERSHIP By: Cleveland Indians Baseball Corporation, its general partner By: /s/ Richard E. Jacobs ------------------------------- Richard E. Jacobs Chairman, Chief Executive Officer and President Acknowledged and Agreed: TRANSFEREE: INDIANS CLUB TRUST By: WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Club Trustee By: /s/ David A. Vanaskey ------------------------------- David A. Vanaskey Assistant Vice President FLEET NATIONAL BANK, as Administrative Agent By: /s/ Patrick F. McAuliffe ------------------------------- Patrick F. McAuliffe Executive Vice President OFFICE OF THE COMMISSIONER OF BASEBALL, on its own behalf and as Agent for the Transferor under the Central Fund Agreement By: /s/ Jeffrey White ------------------------------- Jeffrey White Chief Financial Officer EX-10.17 10 EXHIBIT 10.17 1 Exhibit 10.17 FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP Dated as of _______________, 1998 2 TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS, ETC.....................................................1 1.1 DEFINITIONS............................................................1 1.2 EXHIBITS..............................................................15 ARTICLE 11 ORGANIZATION ......................................................15 2.1 CONTINUATION .........................................................15 2.2 NAME .................................................................16 2.3 CHARACTER OF THE BUSINESS ............................................16 2.4 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS ..........................16 2.5 REGISTERED AGENT AND REGISTERED OFFICE ...............................17 ARTICLE III TERM..............................................................17 ARTICLE IV CONTRIBUTIONS TO CAPITAL...........................................18 4.1 CAPITAL CONTRIBUTIONS.................................................18 4.2 ADDITIONAL CAPITAL CONTRIBUTIONS......................................18 4.4 PARTNER GUARANTEES....................................................20 4.5 NO THIRD PARTY BENEFICIARY............................................21 4.6 NO INTEREST; NO RETURN; NO ADDITIONAL REQUIRED CAPITAL CONTRIBUTION ..21 ARTICLE V CONDITIONS .........................................................22 5.1 GENERAL PARTNER CONDITIONS ...........................................22 ARTICLE VI ALLOCATIONS OF NET INCOME OR NET LOSS AND OTHER TAX AND ACCOUNTING MATTERS...................................23 6.1 ALLOCATIONS...........................................................23 6.2 DISTRIBUTIONS.........................................................23 6.3 BOOKS OF ACCOUNT......................................................24 6.4 REPORTS...............................................................24 6.5 AUDITS................................................................25 6.6 TAX ELECTIONS AND RETURNS.............................................25 6.7 TAX MATTERS PARTNER...................................................25 6.8 RESTRICTED DISTRIBUTIONS..............................................26 6.9 WITHHOLDING...........................................................27 ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER ...........27 7.1 EXPENDITURES BY PARTNERSHIP...........................................27 7.2 POWERS AND DUTIES OF GENERAL PARTNER..................................28 7.3 MAJOR DECISIONS.......................................................31 7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS.............................31 7.5 TITLE HOLDER..........................................................31 7.6 COMPENSATION OF THE GENERAL PARTNER...................................32 7.7 WAIVER AND INDEMNIFICATION............................................32 Page i 3 ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION ........................33 8.1 ACCOUNTING ..........................................................33 8.2 DISTRIBUTION ON DISSOLUTION .........................................33 8.3 TIMING REQUIREMENTS .................................................34 8.4 SALE OF PARTNERSHIP ASSETS ..........................................34 8.5 DISTRIBUTIONS IN KIND ...............................................35 8.6 DOCUMENTATION OF LIQUIDATION ........................................35 8.7 LIABILITY OF THE LIQUIDATING TRUSTEE ................................35 8.8 CREDITING OF GAIN (LOSS) ON LIQUIDATION .............................36 ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS..................................37 9.1 GENERAL PARTNER TRANSFER.............................................37 9.2 TRANSFERS By LIMITED PARTNERS........................................37 9.3 RESTRICTIONS ON TRANSFER.............................................38 9.4 REGISTRATION RIGHTS..................................................39 ARTICLE X RIGHTS AND OBLIGATIONS OF BE LIMITED PARTNERS.......................40 10.1 NO PARTICIPATION IN MANAGEMENT.......................................40 ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNER.................................41 11.1 GRANT OF RIGHTS......................................................41 11.2 TERMS OF RIGHTS......................................................42 11.3 REISSUANCE OR REALLOCATION OF PARTNERSHIP UNITS......................42 ARTICLE XII LIMITED PARTNER REPRESENTATIVES AND WARRANTIES....................42 12.1 REPRESENTATIONS AND WARRANTIES OF THE LIMITED PARTNER................42 ARTICLE XIII GENERAL PARTNER REPRESENTATIONS AND WARRANTIES...................43 13.1 REPRESENTATIONS AND WARRANTIES OF THE LIMITED PARTNER................43 ARTICLE XIV GENERAL PROVISIONS................................................43 14.1 NOTICES..............................................................43 14.2 SUCCESSORS...........................................................44 14.3 EFFECT AND INTERPRETATION............................................44 14.4 COUNTER..............................................................44 14.5 PARTNERS NOT AGENTS..................................................44 14.6 ENTIRE UNDERSTANDING.................................................44 14.7 AMENDMENTS...........................................................44 14.8 SEVERABILITY.........................................................45 14.9 TRUST PROVISION......................................................45 14.10 PRONOUNS AND HEADINGS................................................45 14.11 ASSURANCES...........................................................46 14.12 POWER OF ATTORNEY....................................................46 14.13 DURATION OF POWER....................................................47 Exhibit A - Allocations and Other Tax Matters Exhibit B - Partnership Interests Exhibit C - Terms of Limited Partners Registration Rights Page ii 4 Exhibit D - Rights Terms Page iii 5 FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and entered into as of the ______ day of ____________, 1998, by and among the undersigned parties. WITNESSETH: ----------- WHEREAS, Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Partnership"), was formed by the filing for record of a Certificate of Limited Partnership, dated as of November 10, 1986, with the Cuyahoga County Recorder pursuant to and in accordance with Chapter 1782 of the Ohio Revised Code (the "Original Certificate"); WHEREAS, the undersigned desire to continue the Partnership as a limited partnership and to amend and restate in its entirety the Limited Partnership Agreement of the Partnership, dated as of November 10, 1986 (the "Original Agreement"). NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows: ARTICLE I DEFINITIONS, ETC. ----------------- 1.1 DEFINITIONS. Except as otherwise herein expressly provided or unless the context otherwise requires, the following terms and phrases shall have the meanings set forth below whenever used in this Agreement and the Exhibits hereto: Page 1 6 "ACCOUNTANTS" shall mean Deloitte & Touche LLP or such other firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership to audit the books and records of the Partnership and to prepare statements and reports in connection therewith. "ACT" shall mean Chapter 1782 of the Ohio Revised Code, as the same may hereafter be amended from time to time. "ADDITIONAL CAPITAL CONTRIBUTIONS" shall have the meaning set forth in Section "ADDITIONAL UNITS" shall have the meaning set forth in Section 4.3 hereof. "ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of any relevant taxable year and after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Partner is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-l(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentence of each of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (b) debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the requirements of the alternate test for economic effect contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. "ADMINISTRATIVE EXPENSES" shall mean all administrative and operating costs and expenses incurred by the Partnership and all General Partner Expenses. "AFFILIATE" shall mean, with respect to any Partner (or to any other Person, the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) such Partner's spouse, parents, descendants, brothers and sisters; (ii) any trust for the benefit of any Page 2 7 Person referred to in the preceding clause (i); or (iii) any Entity which, directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with, any Person referred to in the preceding clauses (i) and (ii). "AGREEMENT" shall mean this First Amended and Restated Agreement of Limited Partnership, as originally executed and as amended, modified, supplemented or restated from time to time, as the context requires. "ARTICLES" shall mean the Amended and Restated Articles of Incorporation of the General Partner, as amended, modified, supplemented or restated from time to time. "AUDITED FINANCIAL STATEMENTS" shall mean financial statements (balance sheets, statements of income, statements of partners' equity and statements of cash flows) prepared in accordance with GAAP and accompanied by an independent auditor's opinion. "BALLPARK MANAGEMENT ASSETS" shall mean the assets, business, contract rights and liabilities of Ballpark Management Company, an Ohio corporation, immediately prior to the merger of Ballpark Management Company into the General Partner pursuant to the Reorganization Agreement. "BANKRUPTCY" shall mean, with respect to any Partner, (i) the commencement by such Partner of any proceeding seeking relief as to such Partner as debtor or bankrupt under any provision or chapter of the Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or similar reorganization; (ii) an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code with respect to such Partner; (iv) the filing of any such petition or the commencement of any such case or proceeding against such Partner, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing; (v) the filing of an answer by such Partner admitting the allegations of any such petition; (vi) the appointment of a Page 3 8 trustee, receiver or custodian for all or substantially all of the assets of such Partner, unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Partner; (vii) the insolvency of such Partner or the execution by such Partner of a general assignment for the benefit of creditors; (viii) the convening by such Partner of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts; (ix) the failure of such Partner to pay its debts as they mature; (x) the levy, attachment, execution or other seizure of substantially all of the assets of such Partner where such seizure is not discharged within thirty (30) days thereafter; or (xi) the admission by such Partner in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due. The term "bankruptcy," as defined in this Agreement and as used herein, is intended and shall be deemed to supersede and replace the events of withdrawal described in Sections 1782.23(D) and (E) of the Act. "BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended, 11 U.S.C. Sections 101 ET SEQ., and as hereafter amended from time to time. "CBC" shall mean Cleveland Baseball Corporation, an Ohio corporation. "CAPITAL ACCOUNT" shall mean, with respect to any Partner, the separate account as determined for Federal income tax purposes that the Partnership shall establish and maintain for such Partner. The Capital Account of any Partner shall be maintained in accordance with Exhibit A hereto. "CAPITAL CALL" shall have the meaning set forth in Section 4.2. "CAPITAL CONTRIBUTION" shall mean, with respect to any Partner, the amount of money and the Gross Asset Value of any asset other than money contributed to the capital of the Partnership with respect to the Partnership Interest held by such Partner (net of all liabilities Page 4 9 secured by such asset or that the Partnership is considered to assume or take subject to under Section 752 of the Code). "CERTIFICATE" shall mean the First Amended and Restated Certificate of Limited Partnership for the Partnership of even date herewith, as filed with the office of the Secretary of State of the State of Ohio, as it may be amended from time to time in accordance with the terms of this Agreement and the Act. "CLASS A COMMON SHARES" shall mean the Class A Common Shares, without par value, of the General Partner. "CLASS B COMMON SHARES" shall mean the Class B Common Shares, without par value, of the General Partner. "CLOSING PRICE" on any date shall mean, with respect to the Class A Common Shares, the last sale price, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the Nasdaq National Market or, if the applicable Equity Shares are not quoted on the Nasdaq National Market, on the principal national securities exchange on which such Equity Shares are listed or admitted to trading of, if the Equity Shares are not quoted on the NASDAQ National Market or listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the General Partner for the purpose or, if such prices are not available, the fair market value set by, or in a manner established by, the Board of Directors of the General Partner in good faith. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMON SHARES" shall mean the Class A Common Shares and the Class B Common Shares. Page 5 10 "COMPLETION OF THE OFFERING" shall mean the closing of the first sale of Class A Common Shares in the Offering. "CONSENT OF THE LIMITED PARTNERS" means the written consent of the Limited Partner or, if there is more than one Limited Partner, the written consent of a Majority-In-Interest of the Limited Partners, which shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by the Limited Partner or a Majority-In-Interest of the Limited Partners, as the case may be, in their sole and absolute discretion. "CONTRIBUTION DATE" shall have the meaning set forth in Section 4.2(b) hereof. "CONTROL" shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity. In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust. "CORPORATE HEADQUARTERS" shall mean the General Partner's offices located at 2401 Ontario Street, Cleveland, Ohio. "CURRENT PER SHARE MARKET PRICE" on any date shall mean the average of the Closing Price for the five (5) consecutive Trading Days ending on such date. "DEMAND NOTICE" shall have the meaning set forth in Section 14.2 hereof. "DEPRECIATION" shall mean, with respect to any asset of the Partnership for any taxable year or other period, the depreciation, depletion or amortization, as the case may be, Page 6 11 allowed or allowable for Federal income tax purposes in respect of such asset for such taxable year or other period. "ENTITY" shall mean any general partnership, limited partnership, joint venture, corporation, limited liability company, trust, business trust, cooperative or association. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended (or any corresponding provisions of succeeding laws). "EXCHANGE RIGHTS" shall have the meaning set forth in Section 9.2 hereof. "FORMATION TRANSACTIONS" shall mean the transactions contemplated by the Reorganization Agreement and described in the Registration Statement under the heading "Formation Transactions." "FUNDING LOAN" shall mean any borrowing or refinancing of debt by or on behalf of the General Partner from any lender (including the Limited Partner) for the purpose of advancing the Funding Loan Proceeds to the Partnership as a loan pursuant to Section 4.3(b) hereof. "FUNDING NOTICE" shall have the meaning set forth in Section 4.3(b) hereof "FUNDING LOAN PROCEEDS" shall mean the net cash proceeds received by the General Partner in connection with any Funding Loan, after deduction of all costs and expenses incurred by the General Partner in connection with such Funding Loan. "GAAP" shall mean generally accepted accounting principles consistently applied. "GAIN FROM SALE" shall mean the gain recognized for Federal income tax purposes upon the sale or other taxable disposition of any asset of the Partnership. Page 7 12 "GENERAL PARTNER" shall mean Cleveland Indians Baseball Company, Inc., an Ohio corporation, its duly admitted successors and assigns and any other Person who is a general partner of the Partnership at the time of reference thereto. "GENERAL PARTNER EXPENSES" shall mean (i) costs and expenses relating to the formation and continuity of existence of the General Partner, including all taxes (excluding taxes based on income and state and local franchise taxes), fees and assessments associated therewith, any and all accounting, administration and legal expenses of the General Partner, and any and all costs, expenses or fees payable to any director, officer or employee of the General Partner or such subsidiaries, including, without limitation, costs of indemnification, (ii) costs and expenses relating to any offer or registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including, without limitation, underwriting discounts and selling commissions applicable to any such offer of securities and any costs and expenses associated with any claims made by any holder of such securities or any underwriters or placement agents thereof, (iii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under Federal, state or local laws or regulations, including filings with the SEC, (iv) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (v) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of the Partnership. "GENERAL PARTNER LOAN" shall have the meaning set forth in Section 4.3(b) hereof. "GROSS ASSET VALUE" shall mean, with respect to any asset of the Partnership, such asset's adjusted basis for Federal income tax purposes, except as follows: Page 8 13 (a) the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the fair market value thereof as initially agreed to by the General Partner and the contributing Partner; (b) if the General Partner reasonably determines that an adjustment is necessary or appropriate to reflect the relative economic interests of the Partners, such as in the case of a sale, distribution or liquidation of the Partnership, the Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, as of the following times: (i) a Capital Contribution (other than a DE MINIMIS Capital Contribution) to the Partnership by a new or existing Limited Partner as consideration for a Partnership Interest; (ii) the distribution by the Partnership to a Partner of more than a DE MINIMIS amount of Partnership property as consideration for the redemption of a Partnership Interest as provided in Section 1.704-l(b)(2)(iv)(e) of the Regulations; and (iii) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; (c) the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets (taking Section 7701(g) of the Code into account) as reasonably determined by the General Partner as of the date of distribution; and (d) the Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Sections 734(b) or 743 (b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see Exhibit B hereto); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the General Partner reasonably determines that an adjustment pursuant to paragraph (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). "LIEN" shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever. Page 9 14 "LIMITED PARTNER" shall mean CBC in its capacity as a limited partner of the Partnership, its duly admitted successors and assigns as a limited partner hereof, or any Person who is a limited partner of the Partnership at the time of reference thereto. "LIQUIDATING TRUSTEE" shall mean such individual or Entity as is selected as the Liquidating Trustee hereunder by the General Partner or by a court or other judicial proceeding, which individual or Entity may include an Affiliate of the General Partner and who agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Partnership and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership. "LOSS FROM SALE" shall mean the loss recognized for Federal income tax purposes upon the sale or other taxable disposition of an asset of the Partnership. "MAJOR DECISIONS" shall have the meaning set forth in Section 7.3 hereof. "MAJORITY-IN-INTEREST OF THE LIMITED PARTNERS" shall mean, if there is more than one Limited Partner, Limited Partners who hold in the aggregate more than fifty percent (50%) of the Percentage Interests then allocable to and held by the Limited Partners and shall mean the Limited Partner if there is only one Limited Partner. "MINIMUM GAIN ATTRIBUTABLE TO PARTNER NONRECOURSE DEBT" shall mean partner nonrecourse debt minimum gain" as determined in accordance with Regulation section 1.704-2(i)(2). "MJC" shall mean MJC Baseball, Inc., an Ohio corporation. "MLB RULES" shall mean all rules, regulations, guidelines, bulletins, directives, policies and agreements by virtue of the membership of the Cleveland Indians in the American Page 10 15 League of Professional Baseball Clubs and Major League Baseball, including the American League Constitution, the Major League Agreement, and the Collective Bargaining Agreement among Major League Baseball clubs and the Major League Baseball Players Association. "NET FINANCING PROCEEDS" shall mean the cash proceeds received by the Partnership in connection with any borrowing or refinancing of borrowing by or on behalf of the Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Partnership in connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Partnership, or any interest or prepayment premium thereon. "NET INCOME OR NET LOSS" shall mean, for each taxable year or other applicable period, an amount equal to the Partnership's net income or net loss for such year or period as determined for Federal income tax purposes in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(i) of the Code shall be included in such net income or net loss). "NET OPERATING CASH FLOW" shall mean, with respect to any fiscal period of the Partnership, Net Income or Net Loss before depreciation, amortization of financing and other costs, other non-cash items, gains or losses on sales of assets and investments in marketable securities. "NET SALE PROCEEDS" means the cash proceeds received by the Partnership in connection with a sale of any asset by or on behalf of the Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the General Partner elects to repay out of the proceeds of such sale, together with accrued interest and premium, if any, thereon and any Page 11 16 sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Partner or its Affiliates). "NONCONTRIBUTING Partner" shall have the meaning set forth in Section 4.2(b). "NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations. "NONRECOURSE Liabilities" shall have the meaning set forth in Section 1.7042(b)(3) of the Regulations. "OFFERING" shall mean the initial public offering of Class A Common Shares as contemplated by the Registration Statement. "ORIGINAL AGREEMENT" shall have the meaning ascribed in the recitals of this Agreement. "ORIGINAL CERTIFICATE" shall have the meaning ascribed in the recitals of this Agreement. "OWNERSHIP RESTRICTIONS" shall mean the restrictions on ownership set forth in Article Fourth, Division C, Section 3 of the Articles. "PARTNER Nonrecourse DEBT" shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations. "PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section 1.704-2(i)(2) of the Regulations. "PARTNERS" shall mean the General Partner and the Limited Partner, their duly admitted successors or assigns and any other Person who in a partner of the Partnership at the time of reference thereto. "PARTNERSHIP" shall mean the limited partnership hereby constituted, as such limited partnership may from time to time be re-constituted. Page 12 17 "PARTNERSHIP INTEREST" shall mean the ownership interest of a Partner in the Partnership from time to time, including such Partner's Partnership Units and such Partner's Capital Account. "PARTNERSHIP MINIMUM Gain" shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations. "PARTNERSHIP UNIT" shall mean an interest in the Partnership as a Partner, measured in units. As of the date of this Agreement, there are 12,333,333 Partnership Units outstanding. The initial allocation of Partnership Units to the Partners is as set forth on the attached Exhibit B. "PERCENTAGE INTEREST" shall mean, with respect to any Partner, the percentage ownership interest of such Partner in the Partnership which shall be calculated by dividing the number of Units held by a Partner by the total number of outstanding Partnership Units. The initial Percentage Interest of each Partner is as set forth opposite its name on attached Exhibit B. "PERSON" shall mean any individual or Entity. "REORGANIZATION AGREEMENT" shall mean the Agreement and Plan of Reorganization dated as of April 2, 1998 among the General Partner, CBC, MJC, Ballpark Management, the Partnership, Richard E. Jacobs, Trustee under Declaration of Trust dated April 23, 1987, and Richard E. Jacobs, Trustee of the David H. Jacobs Marital Trust, pursuant to which the Formation Transactions were effected. "REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-1, Registration No. 333-49357 (including the prospectuses contained therein), heretofore filed by the General Partner with the SEC, and any amendments at any time made thereto (including post-effective amendments), pursuant to which the General Partner proposes to offer and sell certain of its Class A Common Shares. Page 13 18 "REGULATIONS" shall mean the final or temporary Federal income tax regulations promulgated under the Code, as such regulations may be amended or adopted from time to time (including corresponding provisions of succeeding regulations). "REGISTRABLE SECURITIES" shall have the meaning set forth in Section 9.5(a) hereof. "REQUIRED FUNDS" shall have the meaning set forth in Section 4.2(b) hereof. "RIGHTS" shall have the meaning set forth in Section 11.1 hereof. "SEC" shall mean the United States Securities and Exchange Commission. "SUBSTITUTED LIMITED PARTNER" means any Person who (i) is permitted to become a Limited Partner pursuant to Section 9.2 and 9.3 and (ii) agrees in writing to be bound by the terms of this Agreement by execution of a copy of this Agreement or by another written undertaking acceptable to the General Partner. "THIRD PARTY" or "THIRD PARTIES" shall mean a Person or Persons who is or are neither a Partner or Partners nor an Affiliate or Affiliates of a Partner or Partners. "THIRD PARTY FINANCING" shall mean financing or refinancing obtained from a Third Party by the Partnership. "TRADING DAY" shall mean a day on which the principal national securities exchange or quotation system on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Class A Common Shares are not listed or admitted to trading on any national securities exchange or quotation, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. Page 14 19 "TRANSFER" as a noun, shall mean any direct or indirect sale, assignment, conveyance, pledge, hypothecation, gift, encumbrance or other transfer, and as a verb, shall mean to sell, assign, convey, pledge, hypothecate, give, encumber or otherwise transfer. 1.2 EXHIBITS. References to an "Exhibit" are, unless otherwise specified, to one of the Exhibits attached to this Agreement, and references to an "Article" or a "Section" are, unless otherwise specified, to one of the Articles or Sections of this Agreement. Exhibits A, (Partnership Interests), B (Allocations), C (Registration Rights), D (Exchange Rights), attached hereto and referred to herein, are hereby incorporated herein by reference. ARTICLE II ORGANIZATION ------------ 2.1 CONTINUATION. The parties hereto, each of whom represents to the others that it is a Partner, do hereby agree that the Partnership is a limited partnership continued pursuant to the provisions of the Act, and all other pertinent laws of the State of Ohio, for the purposes and upon the terms and conditions hereinafter set forth. The Partners agree (i) that the rights and liabilities of the Partners shall be as provided in the Act except as otherwise herein expressly provided and (ii) that the Original Agreement is superseded in its entirety by this Agreement and that the business of the Partnership shall be continued pursuant to the Act and the provisions hereof. Promptly upon the execution and delivery hereof, the General Partner shall cause the Certificate and such other notice, instrument, document, or certificate as may be required by applicable law, and which may be necessary to enable the Partnership to conduct its business, and to own its properties, under the Partnership name, to be filed or recorded in all appropriate public offices. Page 15 20 2.2 NAME. The name of the Partnership shall be "Cleveland Indians Baseball Company Limited Partnership." 2.3 CHARACTER OF THE BUSINESS. The purpose of the Partnership shall be to hold, own, operate, manage, and sell the membership of the Cleveland Indians Baseball Club in the American League of Professional Baseball Clubs and all assets, business and rights related or incidental thereto; to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, Transfer, encumber, convey, exchange, and otherwise dispose of or deal with real and personal property of all kinds; to enter into mortgage loans and notes and lines of credit with lenders, in such principal amounts and under such terms and conditions as shall be acceptable to the General Partner; to execute purchase money notes; to issue securities; to borrow money and to make and issue notes, debentures, obligations and evidences of indebtedness of all kinds, whether secured by mortgage, pledge or otherwise, and to secure the same by mortgage, pledge or otherwise; to make, enter into, perform and carry out any arrangements, contracts, franchises, concessions and/or agreements of every kind for any lawful purpose, without limit as to amount or otherwise, with any corporation, association, partnership, firm, trustee, syndicate, individual and/or any political or governmental division or subdivision, domestic or foreign; to acquire, hold title to, own, operate, sell or transfer the assets of the Partnership or any part thereof and generally to make and perform agreements and contracts of every kind and description and to do any and all things necessary or incidental to the foregoing. 2.4 LOCATION OF THE PRINCIPAL PLACE OF BUSINESS. The location of the principal place of business of the Partnership shall be at 2401 Ontario Street, Cleveland, Ohio 44115, or such other location as shall be selected from time to time by the General Partner in its sole discretion. Page 16 21 2.5 REGISTERED AGENT AND REGISTERED Office. The agent for service of process of the Partnership pursuant to the requirements of Section 1782.04 shall be the General Partner, 2401 Ontario Street, Cleveland, Ohio 44115, or such other Person as the General Partner may select in its sole discretion. ARTICLE III TERM ---- 3.1 COMMENCEMENT. The Partnership commenced business as a limited partnership upon the filing of the Original Certificate with the Cuyahoga County Recorder. The Partnership has filed a Certificate of Limited Partnership with the Ohio Secretary of State as required by Section 1782.63(A)(1) of the Ohio Revised Code. 3.2 DISSOLUTION. The Partnership shall be dissolved upon the occurrence of the earliest of the following events: (a) The withdrawal, removal or Bankruptcy of the General Partner or assignment by the General Partner of its entire interest in the Partnership or the occurrence of any other event that results in the General Partner ceasing to be a general partner of the Partnership under the Act; provided, however, that the Partnership shall not be dissolved and required to be wound up in connection with any of the events specified in this clause (a) if (i) at the time of the occurrence of such event there is at least one remaining general partner of the Partnership who is hereby authorized to and does carry on the business of the Partnership, or (ii) within ninety (90) days after the occurrence of such event, all remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of such event, if required, of one or more successor general partners of the Partnership; (b) The election to dissolve the Partnership made in writing by the General Partner with the Consent of the Limited Partners; (c) The sale or other disposition of all or substantially all the assets of the Partnership unless the General Partner, with the Consent of the Limited Partners, elects to continue the Partnership business for the purposes of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Partnership; (d) The entry of a decree of judicial dissolution under the Act; or Page 17 22 (e) ,2048 -------- --- ARTICLE IV CONTRIBUTIONS TO CAPITAL ------------------------ 4.1 CAPITAL CONTRIBUTIONS. In connection with the formation of the Partnership, CBC, as the original general partner of the Partnership, and MJC, as the original limited partner of the Partnership, contributed to the capital of the Partnership as reflected on the books and records of the Partnership. In connection with the Formation Transactions contemplated by the Reorganization Agreement, the Company has contributed to the Partnership the Ballpark Management Assets in exchange for 2,281,667 Units representing an 18.5% Percentage Interest in the Partnership. The Partners agree that the fair market value of the Ballpark Management Assets is an amount equal to the number of Partnership Units issued to the General Partner in exchange for the Ballpark Management Assets Multiplied by the initial public offering price per share of the Class A Common Shares in the Offering. 4.2 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) In the event additional funds (over and above the Capital Contributions made by the Partners pursuant to Section 4.1) are required or desired to carry on the business and purposes of the Partnership, and to the extent the General Partner determines that the Partnership should not borrow such additional funds pursuant to Section 4.3, the General Partner, in its sole discretion, may call for capital contributions (a "Capital Call") from the Partners. In such event, the General Partner shall make an Additional Capital Contribution in an amount equal to the total amount of the Capital Call multiplied by the General Partner's Percentage Interest. The Limited Partner may, but shall not be required to, make an Additional Capital Contribution as hereinafter provided. (b) A written request for an Additional Capital Contribution shall be issued to the Limited Partner in proportion to its Percentage Interest in the Partnership, which request shall Page 18 23 specify the date, which shall not be less than twenty (20) days from the date of such request, upon which such Additional Capital Contribution is to be made (the "Contribution Date"). In the event of the failure of the Limited Partner to make its Additional Capital Contribution ("Noncontributing Partner"), the General Partner may, but shall not be obligated to, contribute to the Partnership all or any portion of the Additional Capital Contribution of the Noncontributing Partner. Additional Partnership Units shall be issued to each Partner making an Additional Capital Contribution. The number of Partnership Units issued to each Partner shall equal the amount of the Additional Capital Contribution divided by the Current Per Share Market Price of the Class A Common Shares. Exhibit B to this Agreement may be amended by the General Partner to reflect the issuance of additional Partnership Units pursuant to this Section 4.2. 4.3 ADDITIONAL Funds. (a) In addition to funds obtained by the Partnership pursuant to Section 4.2, the Partnership may obtain funds ("Required Funds") which it considers necessary to meet the needs and obligations and requirements of the Partnership, or to maintain adequate working capital or to repay Partnership indebtedness, and to carry out the Partnership's purposes, from the proceeds of Third Party Financing, in each case pursuant to such terms, provisions, and conditions and in such manner (including the engagement of brokers and/or investment bankers to assist in providing such financing) and amounts as the General Partner shall determine in its sole discretion. (b) To the extent the General Partner borrows all or any portion of the Required Funds by entering into a Funding Loan, the General Partner shall, on the Funding Date, lend (the "General Partner Loan") to the Partnership the Funding Loan Proceeds on the same terms and conditions, to the extent permitted by applicable law, including interest rate, repayment schedule, costs and expenses, as shall be applicable with respect to or incurred in connection with the Funding Loan. Page 19 24 (c) Notwithstanding the foregoing, Limited Partners shall have the right, but not the obligation to make a loan of all or any portion of the Required Funds to the Partnership upon such terms as are approved by the General Partner in its sole and absolute discretion. 4.4 PARTNER GUARANTEES. Notwithstanding anything else to the contrary in this Agreement, the General Partner shall no less than ninety (90) days prior to the end of each calendar year, beginning in 1998, cause the Accountants to prepare and provide to the Limited Partner, a study analyzing each refinancing, reduction (other than scheduled periodic amortization of principal) of debt or other event that occurred during that year that reduced the amount of any nonrecourse liabilities of the Partnership that a Limited Partner or any of its Affiliates may include in the tax basis of their Partnership Interests. Upon receipt of such study, the Limited Partner shall inform the General Partner of any action it desires to take in order to increase the "economic risk of loss" (within the meaning of Section 1.752-2 of the Regulations) that it has with respect to liabilities of the Partnership, including the guaranty of debt of the Partnership. The General Partner shall permit the Limited Partner to take the requested action unless and until the General Partner shall in good faith determine that any such action is reasonably likely to reduce the portion of the Partnership's distributions to the General Partner that represent a return of capital for Federal income tax purposes for such year or would otherwise have an adverse effect on the tax position of the General Partner. 4.5 No THIRD PARTY BENEFICIARY. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right (there being no obligation) of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns. None of the rights of the Partners herein set forth Page 20 25 (there being no obligation) to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, Transferred, or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners. 4.6 NO INTEREST; NO RETURN; NO ADDITIONAL REQUIRED CAPITAL CONTRIBUTION. No Partner shall be entitled to interest on its Capital Contribution or on that Partner's Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership. No Partner shall be obligated to make any additional Capital Contribution to the Partnership. ARTICLE V CONDITIONS ---------- 5.1 GENERAL PARTNER CONDITIONS. The obligation of the General Partner to consummate the transactions contemplated herein is subject to fulfillment of all of the following conditions on or prior to the date hereof: (a) All consents, waivers, approvals and authorizations required for the consummation of the transactions contemplated hereby shall have been obtained; (b) All of the representations and warranties of the Limited Partner shall be true and correct as of the date hereof; and (c) The Registration Statement shall have become effective under the provisions of the Securities Act of 1933, as amended, and no stop order or other administrative proceeding shall have been entered or instituted with respect thereto as of the date hereof. 5.2 LIMITED PARTNER CONDITIONS. The obligation of the Limited Partner to consummate the transactions contemplated herein is subject to the fulfillment of all of the following conditions on or prior to the date hereof: Page 21 26 (a) All consents, waivers, approvals and authorizations required for the consummation of the transactions contemplated hereby shall have been obtained; (b) All of the representations and warranties of the General Partner shall be true and correct as of the date hereof; and (c) The Registration Statement shall have become effective under the provisions of the Securities Act of 1933, as amended, and no stop order or other administrative proceeding shall have been entered or instituted with respect thereto as of the date hereof. ARTICLE VI ALLOCATIONS OF NET INCOME OR NET LOSS ------------------------------------- AND OTHER TAX AND ACCOUNTING MATTERS ------------------------------------ 6.1 ALLOCATIONS. The Net Income or Net Loss and/or other Partnership items shall be allocated among the Partners pursuant to the provisions of Exhibit A hereto. 6.2 DISTRIBUTIONS. The General Partner shall only permit the Partnership to distribute to the Partners any portion of Net Operating Cash Flow or any portion of Net Sales Proceeds as follows: (i) the General Partner shall cause the Partnership to distribute in cash to the Partners, at such times during each year as may be determined by the General Partner, an amount equal to the aggregate estimated Federal, state and local income tax liability of the Partners as a result of the Net Income for such year allocated to the Partners, calculated as if (A) all of the Partners were natural persons resident in the City of Cleveland in the State of Ohio; (B) all of the Partners were taxed at the maximum rates provided under applicable Federal and State of Ohio income tax laws; (C) allocations from the Partnership were the sole source of income and loss for the Partners for such year; and (D) all allocations of losses from the Partnership for all periods commencing after the date hereof had been carried forward and applied to reduce the Partners' tax liability with respect to Partnership income allocated in each successive year (to the extent not previously offset against allocations of Partnership income), to the extent permitted under applicable tax law; it being understood that all such distributions shall Page 22 27 be determined and made without regard to any available or applied tax credits and otherwise without regard to the tax status, profile or other tax liability of the Partners; and (ii) the General Partner may cause the Partnership to make distributions to the Partners in addition to those required by clause (i) if, prior to the making of such distributions, the Board of Directors of the General Partner shall have (X) by resolution adopted by a majority of the directors who are not Affiliates of the Limited Partner, approved a cash dividend on its Common Shares in an amount equal to the General Partner's share of such distribution or (Y) by resolution unanimously adopted by all of the directors who are not Affiliates of the Limited Partner, made a determination that it is in the best interests of the General Partner's shareholders that the funds that would be the subject of such distribution be used to meet existing obligations of the General Partner or obligations anticipated to be incurred by the General Partner within six months of the date of such distribution. All such distributions shall be made in accordance with the Partners' Percentage Interests. 6.3 BOOKS OF ACCOUNT. At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with GAAP wherein shall be entered particulars of all monies, goods, or effects belonging to or owing to or by the Partnership, or paid, received, sold or purchased in the course of the Partnership's business, and all of such other transactions, matters and things relating to the business of the Partnership as are usually entered in books of account kept by persons engaged in a business of a like kind and character. In addition, the Partnership shall keep all records as required to be kept pursuant to the Act. The books and records of account shall be kept at the principal office of the Partnership, and the Limited Partner shall at all reasonable times have access to such books and records, and have the right to inspect the same for any purpose reasonably related to the Limited Partner's interest as a limited partner of the Partnership. 6.4 REPORTS. The General Partner shall cause to be submitted to the Limited Partner promptly upon receipt of the same from the Accountants and in no event later than April 1 of each year, copies of Audited Financial Statements for the Partnership for the Page 23 28 immediately preceding taxable year, together with the reports thereon, and all supplementary schedules and information prepared by the Accountants. 6.5 AUDITS. Not less frequently than annually, the books and records of the Partnership shall be audited by the Accountants. 6.6 TAX ELECTIONS AND RETURNS. All elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole discretion; provided, however, the General Partner shall, if requested by a transferee, file an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of a Transfer of a Partnership Interest, including Transfers made in connection with the exercise of Rights made in accordance with the provisions of the Agreement. The Partnership's taxable year shall be a calendar year. The basis on which the Partnership's books of account are kept for Federal income tax purposes shall be determined by the General Partner. The General Partner shall be responsible for preparing and filing all Federal and state tax returns for the Partnership on a timely basis and furnishing copies thereof to the Partners, together with required Partnership schedules showing allocations of tax items, all within the period of time prescribed by law. 6.7 TAX MATTERS PARTNER. The General Partner is hereby designated as the Tax Matters Partner within the meaning of Section 6231(a)(7) of the Code for the Partnership; provided, however, (i) in exercising its authority as Tax Matters Partner it shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; (ii) the General Partner shall consult in good faith with the Limited Partner regarding the filing of a Code Section 6227(b) administrative adjustment request with respect to the Partnership before filing such request, it being understood, however, that the provisions hereof shall not be construed to limit the ability of any Partner, including the General Partner, to file an administrative Page 24 29 adjustment request on its own behalf pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult in good faith with the Limited Partner regarding the filing of a petition for judicial review of an administrative adjustment request under Section 6228 of the Code, or a petition for judicial review of a final partnership administrative judgment under Section 6226 of the Code relating to the Partnership before filing such petition; (iv) the General Partner shall give prompt notice to the Limited Partner of the receipt of any written notice that the Internal Revenue Service or any state or local taxing authority intends to examine Partnership income tax returns for any year, and the General Partner shall consult in good faith with the Limited Partner regarding the handling of any such examination, (v) the General Partner shall consult in good faith with the Limited Partner concerning the appeal of any adjustments proposed as a result of any examination referred to in clause (iv), (vi) the General Partner shall give prompt notice to the Limited Partner of the receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership; and (vii) the General Partner shall promptly notify the Limited Partner if the General Partner does not intend to file for judicial review with respect to the Partnership. 6.8 RESTRICTED DISTRIBUTIONS. Notwithstanding any provision to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not make a distribution to any Partner on account of its interest in the Partnership if such distribution would violate Section 1782.87 of the Act or other applicable law. 6.9 WITHHOLDING. Each Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Partner any amount of Federal, state, local, or Page 25 30 foreign taxes that the General Partner determines the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a Partner shall constitute a loan by the Partnership to such Partner, which loan shall be due within fifteen (15) days after repayment is demanded of the Partner in question, and may be repaid through withholding of subsequent distributions to such Partner. Any amounts payable by a Limited Partner hereunder shall bear interest at the lesser of (i) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in THE WALL STREET JOURNAL, or (ii) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. To the extent the payment or accrual of withholding tax results in a Federal, state or local tax credit to the Partnership, such credit shall be allocated to the Partner to whose distribution the tax is attributable. ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER ------------------------------------------------------ 7.1 EXPENDITURES BY PARTNERSHIP. The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. All of the aforesaid expenditures shall be made on behalf of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditures incurred by it on behalf of the Partnership which shall be made other than out of the funds of the Partnership. The Partnership shall also assume, and pay when due, all Administrative Expenses, including General Partner Expenses. Page 26 31 7.2 POWERS AND DUTIES OF GENERAL PARTNER. The General Partner shall be responsible for the management of the Partnership's business and affairs. Except as otherwise herein expressly provided, and subject to the limitations contained in Section 7.3 hereof with respect to Major Decisions, the General Partner shall have, and is hereby granted, full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Partnership was organized. Except as otherwise expressly provided herein, and subject to Section 7.3 hereof, the General Partner shall have the right, power and authority: (a) To manage, control, invest, reinvest, acquire by purchase, lease or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, Transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property, real and personal, of whatsoever kind and nature, and wheresoever situated, in furtherance of the business or purposes of the Partnership; (b) To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the General Partner for the operation and management of the Partnership business and to elect or appoint Persons to, and remove Persons from, such offices and positions as the General Partner may determine; (c) To enter into, make, amend, perform and carry out or cancel and rescind, contracts and other obligations, including, without limitation, guarantees and indemnity agreements for any purpose pertaining to the business of the Partnership; and to loan money to, borrow money from and engage in transactions with Affiliates of the Partnership or any other Person; (d) To borrow money, procure loans and advances from any Person for Partnership purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise, or liquidate any such loan, advance, credit, obligation or liability; (e) To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback or lease and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Partnership assets, tangible or intangible, including, but not limited to, real Page 27 32 estate and beneficial interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which the General Partner may deem necessary, proper or advisable to effect or accomplish any of the foregoing or to carry out the business and purposes of the Partnership; (f) To acquire and enter into any contract of insurance which the General Partner deems necessary or appropriate for the protection of the Partnership, for the conservation of the Partnership's assets or for any purpose convenient or beneficial to the Partnership; (g) To conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings, and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into, or from any account in the Partnership's name; to execute, procure, consent to and authorize extensions and renewals of any of the foregoing; to make deposits into and withdrawals from the Partnership's bank accounts and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts; (h) To demand, sue for, receive, and otherwise take steps to collect or recover all debts, rents, proceeds, interests, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person, to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security; (i) To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the General Partner to cause any approved loans to be closed; (j) To take all reasonable measures necessary to insure compliance by the Partnership with applicable arrangements, and other contractual obligations and arrangements entered into by the Partnership from time to time in accordance Page 28 33 with the provisions of this Agreement, including periodic reports as required to be submitted to lenders and using all due diligence to insure that the Partnership is in compliance with its contractual obligations; (k) To maintain the Partnership's books and records; (1) To prepare and deliver, or cause to be prepared and delivered by the Partnership's Accountants, all financial and other reports with respect to the operations of the Partnership and all Federal and state tax returns and reports; (m) To act in any state or nation in which the Partnership may lawfully act, for itself or as principal, agent or representative for any person with respect to any business of the Partnership; (n) To become a partner or member in, and perform the obligations of a partner or member of, any general or limited partnership or limited liability company; (o) To apply for, register, obtain, purchase or otherwise acquire trademarks, trade names, labels and designs relating to or useful in connection with any business of the Partnership, and to use, exercise, develop and license the use of the same; (p) To pay or reimburse any and all actual fees, costs and expenses incurred in the formation and organization of the Partnership; (q) To do all acts which are necessary, customary or appropriate for the protection and preservation of the Partnership's assets, including the establishment of reserves; (r) To cause the Partnership to merge with, or consolidate into, another business entity (as defined in Section 1782.01(C) of the Act); and in accordance with Section 1782.431 of the Act, notwithstanding anything to the contrary contained in this Agreement, an agreement of merger or consolidation approved by the General Partner may (i) effect any amendment to this Agreement, or (ii) effect the adoption of a new partnership agreement for the Partnership if it is the surviving or resulting limited partnership in the merger or consolidation; any amendment to this Agreement or adoption of a new partnership agreement made pursuant to the foregoing sentence shall be effective at the effective time or date of the merger or consolidation. The provisions of this Subsection 7.2(r) shall not be construed to limit the accomplishment of a merger or of any of the matters referred to herein by any other means otherwise permitted by law; and (s) In general, to exercise all of the general rights, privileges and powers permitted to be had and exercised by a general partner of an Ohio limited partnership under the Act. Page 29 34 7.3 MAJOR DECISIONS. The General Partner shall not, without the Consent of the Limited Partners, undertake any of the following actions on behalf of the Partnership (the "Major Decisions"): (a) Amend, modify or terminate this Agreement other than pursuant to Section 14.7 hereof. (b) Make a general assignments for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Partnership. (c) Take title to any personal or real property, other than in the name of the Partnership. (d) Institute any proceeding for Bankruptcy on behalf of the Partnership. 7.4 ACTIONS WITH RESPECT TO CERTAIN DOCUMENTS. Notwithstanding the provisions of Section 7.3 hereof to the contrary, whenever the consent, agreement, authorization or approval of the Partnership is required under any agreement to which a Limited Partner or its Affiliate is a party in interest other than in such Limited Partner's capacity as a Limited Partner of the Partnership, the Consent of such Limited Partner shall not be required. 7.5 TITLE HOLDER. To the extent allowable under applicable law, title to all or any part of the assets of the Partnership may be held in the name of the Partnership or in the name of any other Person, the beneficial interest in which shall at all times be vested in the Partnership. Any such title holder shall perform any and all of its respective functions to the extent and upon such terms and conditions an may be determined from time to time by the General Partner, consistent with the business purposes of the Partnership. 7.6 COMPENSATION OF THE GENERAL PARTNER. The General Partner shall not be entitled to any compensation for services rendered to the Partnership solely in its capacity as General Partner, except with respect to reimbursement for those costs and expenses constituting Administrative Expenses. Page 30 35 7.7 WAIVER AND INDEMNIFICATION. (a) Neither the General Partner nor any Person acting on its behalf, pursuant hereto, shall be liable, responsible or accountable in damages or otherwise to the Partnership or to any Partner for any acts or omissions performed or omitted to be performed by them within the scope of the authority conferred upon the General Partner by this Agreement and the Act; provided that the General Partner's or such other Person's conduct or omission to act was taken in good faith and in the belief that such conduct or omission was in the best interests of the Partnership and, provided further, that the General Partner or such other Person shall not be guilty of fraud, misconduct or negligence. The Partnership shall, and hereby does, to the fullest extent permitted by applicable law, indemnify and hold harmless the General Partner and its Affiliates and any individual acting on their behalf, including their respective officers and directors, from any loss, damage, claim or liability, including, but not limited to, reasonable attorneys' fees and expenses, incurred by them by reason of any act performed by them in accordance with the standards set forth above or in enforcing the provisions of this indemnity; provided, however, that no Partner shall have any personal liability with respect to the foregoing indemnification, any such indemnification to be satisfied solely out of the assets of the Partnership. (b) Any Person entitled to indemnification under this Agreement shall be entitled to receive, upon application therefor, advances to cover the costs of defending any proceeding against such Person; provided, however, that such advances shall be repaid to the Partnership, without interest, if such Person is found by a court of competent jurisdiction upon entry of a final judgment not to be entitled to such indemnification. All rights of the indemnitee hereunder shall survive the dissolution of the Partnership; provided, however, that a claim for indemnification under this Agreement must be made by or on behalf of the Person seeking indemnification prior to the time the Partnership is terminated hereunder. The indemnification Page 31 36 rights contained in this Agreement shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which the Person seeking indemnification shall be entitled, whether at law or at equity. Indemnification pursuant to this Agreement shall be made solely and entirely from the assets of the Partnership and no Partner shall be liable therefor. ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION ---------------------------------------- 8.1 ACCOUNTING. In the event of the dissolution, liquidation and termination of the Partnership, a proper accounting (which shall be certified) shall be made of the Capital Account of each Partner and of the Net Profits or Net Losses of the Partnership from the date of the last previous accounting to the date of dissolution. Financial statements presenting such accounting shall include a report of a certified public accountant selected by the Liquidating Trustee. 8.2 DISTRIBUTION ON DISSOLUTION. In the event of the dissolution of the Partnership for any reason, the assets of the Partnership shall be liquidated for distribution in the following rank and order; (a) To creditors of the Partnership, other than Partners who are creditors, to the extent otherwise permitted by law, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof); (b) To Partners who are creditors of the Partnership, to the extent otherwise permitted by law, in satisfaction of the liabilities of the Partnership (whether by payment or the making of reasonable provision for payment thereof); (c) To establish a reserve, as provided by the Liquidating Trustee, to provide for contingent liabilities, if any; and (d) Except as otherwise required by the terms of any outstanding Partnership Interests, to the Partners in accordance with the positive balances in their Capital Accounts after giving effect to all contributions, distributions and allocations for all periods, including the period in which such distribution occurs (other than those adjustments made pursuant to this Section 8.2(d) and Section 8.3 hereof). Page 32 37 8.3 TIMING REQUIREMENTS. In the event that the Partnership is "liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, any and all distributions to the Partners pursuant to Section 8.2(d) hereof shall be made no later than the later to occur of (i) the last day of the taxable year of the Partnership in which such liquidation occurs or (ii) ninety (90) days after the date of such liquidation. 8.4 SALE OF PARTNERSHIP ASSETS. In the event of the liquidation of the Partnership's assets in accordance with the terms of this Agreement, the Liquidating Trustee may sell Partnership assets on the best terms and conditions as the Liquidating Trustee in good faith believes are reasonably available at the time and under the circumstances and on a nonrecourse basis to the Limited Partner. The liquidation of the Partnership shall not be deemed finally completed until the Partnership shall have received cash payments in full with respect to obligations such as notes, installment sale contracts or other similar receivables received by the Partnership in connection with the sale of Partnership assets and all obligations of the Partnership have been satisfied. The Liquidating Trustee shall continue to act to enforce all of the rights of the Partnership pursuant to any such obligations until such obligations are paid in full or otherwise satisfied. 8.5 DISTRIBUTIONS IN KIND. In the event that it becomes necessary to make a distribution of property of the Partnership in kind, the Liquidating Trustee may, with the Consent of the Limited Partners, to the extent permitted by applicable law and MLB Rules, Transfer and convey such property to the distributees as tenants in common, subject to any liabilities attached thereto, so as to vest in the distributees undivided interests in the whole of such property in proportion to their respective rights to share in the proceeds of the sale of such property (other than as a creditor) in accordance with the provisions of Section 8.2 hereof. Page 33 38 8.6 DOCUMENTATION OF LIQUIDATION. Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Partnership. 8.7 LIABILITY OF THE LIQUIDATING TRUSTEE. The Liquidating Trustee shall be indemnified and held harmless by the Partnership from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever arising out of or whatsoever arising out of or incidental to the Liquidating Trustee in taking any action authorized under or within the scope of this Agreement; provided, however, that the Liquidating Trustee shall not be entitled to indemnification, and shall not be held harmless, where the claim, demand, liability, cost, damage or cause of action at issue arose out of: (a) A matter entirely unrelated to the Liquidating Trustee's action or conduct pursuant to the provisions of this Agreement; or (b) The proven misconduct or gross negligence of the Liquidating Trustee. 8.8 CREDITING OF GAIN (LOSS) ON LIQUIDATION. (a) GAIN FROM SALE. Any Gain from Sale realized by the Partnership upon the sale or other disposition of the assets of the Partnership pursuant to the termination and liquidation of the Partnership shall be credited to the Capital Accounts of the Partners (after crediting or charging, thereto, as the case may be, the appropriate portion of all Net Profit and Net Loss of the Partnership for the then current year in accordance with Section 1 of Exhibit A and all amounts to be distributed for such year under Sections 6.2 and 8.2 of the Agreement) as follows and in the following order of priority: (i) If the Capital Account of any Partner shall have a negative balance, Gain From Sale first shall be credited to such Partner until the balance thereof equals zero. If the Capital Accounts of more than one Partner shall have a negative balance, Gain From Sale shall be credited to all such Partners with negative balances in the proportion which the negative balance of such Partner bears to the negative balances of all such Page 34 39 Partners, until the balances of the Capital Accounts of all such Partners shall equal zero; and (ii) In the event the Capital Account of any Partner shall have a positive balance, Gain From Sale next shall be credited to the Partners to the extent necessary to make the positive balance of each Partner's Capital Account proportionate (in accordance with the Percentage Interests in the Partnership) to the positive balance, if any, of the Partner with the highest positive balance in his Capital Account at such time; and (iii) The remaining balance of Gain From Sale, if any, shall be credited to the Partners in accordance with the Percentage Interests of the Partners in the Partnership. (b) LOSS FROM Sale. Any Loss From Sale incurred by the Partnership upon the sale or other disposition of the assets of the Partnership pursuant to the termination and liquidation of the Partnership shall be charged to the Capital Accounts of the Partners (after crediting or charging thereto, as the case may be, the appropriate portion of all Net Profit and Net Loss of the Partnership for the then current taxable year in accordance with Section 1 of Exhibit A and all amounts to be distributed for such year in accordance with Sections 6.2 and 8.2 of this Agreement) as follows and in the following order of priority: (i) If the Capital Account of any Partner shall have a positive balance, Loss From Sale first shall be charged to such Partner until the balance thereof equals zero. If the Capital Accounts of more than one Partner shall have a positive balance, Loss From Sale shall be charged to all such Partners with positive balances in the proportion which the positive balance of such Partner bears to the positive balances of all such Partners, until the Capital Accounts of all such Partners shall equal zero; (ii) In the event the Capital Account of any Partner shall have a negative balance, Loss From Sale next shall be charged to the Capital Accounts of the Partners to the extent necessary to make the negative balance of each Partner's Capital Account proportionate (in accordance with the Percentage Interests in the Partnership) to the negative balance of the Capital Account of the Partner with the greatest negative balance in his capital Account at such time; and (iii) The remaining balance of Loss From Sale, if any, shall be charged to the Capital Accounts of the Partners in accordance with the Percentage Interests in the Partnership. Page 35 40 ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS --------------------------------- 9.1 GENERAL PARTNER TRANSFER. The General Partner shall not withdraw from the Partnership and shall not sell, assign, pledge, encumber or otherwise Transfer all or any portion of its Partnership Interest except pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor corporation or other Entity by operation of law. 9.2 TRANSFERS BY LIMITED PARTNERS. Each Limited Partner shall, subject to the provisions of this Section 9.2 and Section 9.3 hereof, have the right, without the consent of the General Partner, to Transfer all or a portion of its Partnership Interest to any Person, whether or not in connection with the exercise of a Limited Partner's Rights. It is a condition to any Transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Partnership Interest, other than the obligation of the transferor Limited Partner to return amounts wrongfully distributed to him, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferee Partner are assumed by a successor corporation by operation of law) shall relieve the transferee Partner of its obligations arising prior to the date of such Transfer under this Agreement without the approval of the General Partner, in its reasonable discretion. Upon such Transfer, the transferee shall be admitted as a Substituted Limited Partner and shall succeed to all of the rights, including rights with respect to the Rights, of the transferor Limited Partner under this Agreement in the place and stead of such transferee Limited Partner; provided, however, that notwithstanding the foregoing, any transferee of any transferred Partnership Interest shall be subject to any and all ownership limitations contained in the Articles from time to time Page 36 41 applicable to Persons and/or their Affiliates which may limit or restrict such transferee's ability to exercise the Rights (as defined in Exhibit D hereto). Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have rights hereunder, other than to receive such portion of the distributions made by the Partnership as are allocable to the Partnership Interest transferred, such other rights being retained by the transferee Partner until such Transferee is admitted as a substituted Limited Partner. 9.3 RESTRICTIONS ON TRANSFER. In addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of a Partnership Interest by any Partner be made (i) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of any provision of any mortgage or trust deed (or the note or bond secured thereby) constituting a Lien against any assets of the Partnership or any part thereof, or other instrument, document or agreement to which the Partnership is a party or otherwise bound; (iii) in violation of applicable law; (iv) of any component portion of a Partnership Interest, such as the Capital Account, or rights to Net Operating Cash Flow or Net Sales Proceeds, separate and part from all other components of a Partnership Interest; (v) in the event such Transfer would violate MLB Rules; (vi) if such Transfer would cause a termination of the Partnership for Federal income tax purposes within the meaning of Section 708(b) of the Code; (vii) if such Transfer would, in the opinion of counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for Federal income tax purposes; (viii) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title 1 of ERISA, a "party-in-interest" (as defined in section 3(14) of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the Code); (ix) if such Transfer would, in the opinion of counsel to the Partnership, cause any portion of the assets of the Partnership to Page 37 42 constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; or (x) to a lender to the Partnership or any person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a "nonrecourse liability" (within the meaning of Section 1.752-1(a)(2) of the Regulations) without the consent of the General Partner, in its sole and absolute discretion, unless the Partners' basis for tax purposes would not be reduced as a result of such Transfer. 9.4 REGISTRATION RIGHTS. The Limited Partner shall have the registration rights set forth in Exhibit C. ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS ---------------------------------------------- 10.1 NO PARTICIPATION IN MANAGEMENT. The Limited Partner shall not take part in the management of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership; provided, however, that the foregoing shall not be deemed to limit the ability of a Limited Partner who is an officer, director or employee of the Partnership or any Affiliate thereof to act in such capacity. 10.2 BANKRUPTCY OF A LIMITED PARTNER. The Bankruptcy of any Limited Partner shall not cause a dissolution of the Partnership, but the rights of such Limited Partner to share in the Net Income or Net Loss of the Partnership and to receive distributions of Partnership funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. However, in no event shall such assignee(s) become a Substituted Limited Partner, except in accordance with Article IX hereof. Page 38 43 10.3 NO WITHDRAWAL. No Limited Partner may withdraw from the Partnership without the prior written consent of the General Partner, other than as expressly provided in this Agreement. 10.4 DUTIES AND Conflicts. The General Partner recognizes that the Limited Partner and its Affiliates have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such Persons are entitled to carry on such other business interests, activities and investments. The Limited Partner and its Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such Persons may engage in any activities, whether or not competitive with the Partnership, without any obligation to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. 10.5 LIMITATION ON LIABILITY. No Limited Partner shall, solely in its capacity as a Limited Partner, except as otherwise provided in the Act, be personally liable for any of the debts, obligations or undertakings of the Partnership beyond its obligation to make its initial capital contribution. ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNER ---------------------------------- 11.1 GRANT OF RIGHTS. The General Partner, in its capacity as a Partner and not on behalf of the Partnership, does hereby grant to the Limited Partner and the Limited Partner does hereby accept the right, but not the obligation (hereinafter such right sometimes referred to Page 39 44 as the "Rights"), to exchange all or a portion of its Partnership Units for Class A Common Shares on the terms and subject to the conditions and restrictions contained in Exhibit D hereto. The Rights granted hereunder may be exercised by the Limited Partner and any successor or assign of the Limited Partner which becomes a Substituted Limited Partner pursuant to Section 9.2, on the terms and subject to the conditions and restrictions contained in Exhibit D hereto, upon delivery to the General Partner of an Exchange Exercise Notice in the form of Schedule 2 attached to Exhibit D, which notice shall specify the Partnership Units to be exchanged or sold by the Limited Partner. Once delivered, the Exercise Notice shall be irrevocable, subject to payment by the General Partner of the Purchase Price in respect of such Partnership Units in accordance with the terms hereof 11.2 TERMS OF RIGHTS. The terms and provisions applicable to the Rights shall be as set forth in attached Exhibit D. 11.3 REISSUANCE OR REALLOCATION OF PARTNERSHIP UNITS. Any Partnership Units acquired by the General Partner pursuant to an exercise by any Limited Partner of the Rights shall be deemed to be acquired by the General Partner. The General Partner shall amend Exhibit A hereto to reflect each such exchange of Partnership Units and each corresponding recalculation of the Partnership Units of the Partners. ARTICLE XII LIMITED PARTNER REPRESENTATIONS AND WARRANTIES ---------------------------------------------- 12.1 REPRESENTATIONS AND WARRANTIES OF THE LIMITED Partner. The Limited Partner represents and warrants to the Partnership and the General Partner as follows: (a) ORGANIZATION. The Limited Partner is duly incorporated, validly existing and in good standing under the laws of the State of Ohio. (b) DUE AUTHORIZATION: BINDING AGREEMENT, The execution, delivery and performance of this Agreement by the Limited Partner has been duly and Page 40 45 validly authorized by all necessary action of the Limited Partner. This Agreement has been duly executed and delivered by the Limited Partner, or an authorized representative of the Limited Partner, and constitutes a valid and legally binding obligation of the Limited Partner, enforceable against the Limited Partner in accordance with the terms hereof. (c) CONSENTS AND APPROVALS. No consent, waiver, approval or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by the Limited Partner in connection with the execution, delivery and performance of this Agreement other than consents, waivers, approvals or authorizations which have been obtained prior to the date hereof ARTICLE XIII GENERAL PARTNER REPRESENTATIONS AND WARRANTIES ---------------------------------------------- 13.1 REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER. The General Partner represents and warrants to the Partnership and the Limited Partner as follows: (a) ORGANIZATION. The General Partner is duly incorporated, validly existing and in good standing under the laws of the State of Ohio. (b) DUE AUTHORIZATION: BINDING AGREEMENT. The execution, delivery and performance of this Agreement by the General Partner has been duly and validly authorized by all necessary action of the General Partner. This Agreement has been duly executed and delivered by the General Partner, or an authorized representative of the General Partner, and constitutes a valid and legally binding obligation of the General Partner, enforceable against the General Partner in accordance with the terms hereof. (c) CONSENTS AND APPROVALS. No consent, waiver, approval or authorization of, or filing, registration or qualification with, or notice to, any governmental unit or any other person is required to be made, obtained or given by the General Partner in connection with the execution, delivery and performance of this Agreement other than consents, waivers, approvals or authorizations which have been obtained prior to the date hereof. ARTICLE XIV GENERAL PROVISIONS ------------------ 14.1 NOTICES. All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, telecopied or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or three (3) business days after deposit in United Page 41 46 States; mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party. For purposes of this Section 14.1, the addresses of the parties hereto shall be as set forth on a signature page hereof. The address of any party hereto may be changed by a notice in writing given in accordance with the provisions hereof. 14.2 SUCCESSORS. This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of all Partners, and their legal representatives, heirs, successors and permitted assigns, except as expressly herein otherwise provided. 14.3 EFFECT AND INTERPRETATION. This Agreement shall be governed by and construed in conformity with the laws of the State of Ohio. 14.4 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 14.5 PARTNERS NOT AGENTS. Nothing contained herein shall be construed to constitute any Partner the agent of another Partner, except as specifically provided herein, or in any manner to limit the Partners in the carrying on of their own respective businesses or activities, except as specifically provided herein. 14.6 ENTIRE UNDERSTANDING. This Agreement constitutes the entire agreement and understanding among the Partners and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter within. 14.7 AMENDMENTS. This Agreement may not be amended, and no provision benefiting the General Partner may be waived, except by a written instrument signed by the General Partner and a Majority-In-Interest of the Limited Partners. Notwithstanding the preceding sentence, the General Partner may amend this Agreement without the approval of the Limited Partner (i) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein, or to make any other provisions with Page 42 47 respect to matters or questions arising under this Agreement which will not be inconsistent with the provisions of this Agreement, or (ii) to reflect a change in the number, of Partnership Units owned by a Partner (including to reflect the issuance of additional Partnership Units pursuant to Section 4.2) and each Partner's Percentage Interest in accordance with the provisions of this Agreement. 14.8 SEVERABILITY. If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid by such court, shall not be affected thereby. 14.9 TRUST PROVISION. This Agreement, if executed by the trustee of a trust, is executed solely as such trustee and not in an individual capacity. Nothing herein contained shall create any liability on, or require the performance of any covenant by, any such trustee individually, nor shall anything contained herein subject the individual real or personal property of any trustee to any liability. 14.10 PRONOUNS AND HEADINGS. As used herein, all pronouns shall include the masculine, feminine and neuter, and all defined terms shall include the singular and plural thereof wherever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. Any references in this Agreement to "including" shall be deemed to mean "including without limitation." 14.11 ASSURANCES. Each of the Partners shall hereafter execute and deliver such further instruments and do such further acts and things as may be required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. Page 43 48 14.12 POWER OF ATTORNEY. (a) The Limited Partner and each assignee of such Limited Partner hereby constitutes and appoints the General Partner, any Liquidating Trustee, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and attorney in its name, place and stead to: (i) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidating Trustee deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Ohio and in all other jurisdiction in which the Partnership may or plans to conduct business or own property; (b) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement as permitted in and in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles IV or IX hereof or the Capital Contribution of any Partner; and (e) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests; and (ii) execute, swear to, seal, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner, to effectuate the terms or intent of this Agreement. (b) Nothing contained herein shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Section 14.7 hereof, or as may be otherwise expressly provided for in this Agreement. 14.13 DURATION OF POWER. The power of attorney granted in Section 14.12 is hereby declared to be irrevocable and coupled with an interest in recognition of the fact that each Page 44 49 of the Partners will be relying upon the power of the General Partner to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall: (i) survive the transfer of all or any portion of the Limited Partner's or Assignee's Partnership Interests; (ii) survive the death, incapacity, bankruptcy or insolvency of the Limited Partner; and (iii) extend to the Limited Partner's or Assignee's heirs, successor, assigns and personal representatives. The Limited Partner and each such Assignee hereby agrees to be bound by any action taken by the General Partner, acting in good faith pursuant to such power of attorney; and the Limited Partner and each such Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner, taken in good faith under such power of attorney. The Limited Partner and each such Assignee shall execute and deliver to the General Partner or the Liquidating Trustee, within fifteen (15) days after receipt of the General Partner's or Liquidating Trustee's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidating Trustee, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the date and year first above written. GENERAL PARTNER: ---------------- CLEVELAND INDIANS BASEBALL COMPANY, INC., an Ohio corporation By: ------------------------------- Richard E. Jacobs, President Address: 2401 Ontario Street Cleveland, Ohio 44115 Attention: President Page 45 50 LIMITED PARTNER: ---------------- CLEVELAND BASEBALL CORPORATION, an Ohio corporation By: ------------------------------- Richard E. Jacobs, President Address: 2401 Ontario Street Cleveland, Ohio 44115 Attention: President Page 46 51 EXHIBIT A ALLOCATIONS AND OTHER TAX MATTERS --------------------------------- 1. CAPITAL ACCOUNTS. (a) There shall be established for each Partner on the books of the Partnership a capital account (a "Capital Account"), which shall be maintained and adjusted as provided in this Exhibit A. The Capital Account of a Partner shall be credited with the amount of all cash Capital Contributions by such Partner to the Partnership and the fair market value of any property contributed by such Partner to the Partnership (net of any liabilities secured by such property that the Partnership is considered to assume or take subject to under Section 752 of the Code). The Capital Account of a Partner shall be increased by the amount of any Net Income (or items of gross income) allocated to such Partner pursuant to this Exhibit A, and decreased by (i) the amount of any Net Loss (or items of loss or deduction) allocated to such Partner pursuant to this Exhibit A and (ii) the amount of any cash distributed to such Partner pursuant to Article VI of this Agreement, and (iii) the fair market value of any asset distributed in kind to such Partner (net of all liabilities secured by such asset or that the Partnership is considered to assume or take subject to under Section 752 of the Code). The Capital Account of the Partner also shall be adjusted appropriately to reflect any other adjustment required pursuant to Regulation Section 1.704-1 or 1.704-2. (b) Upon the occurrence of any event specified in Regulation Section 1.704-1(b)(2)(iv)(f), the General Partner may cause the Capital Accounts of the Partners to be adjusted to reflect the fair market value of the Partnership's assets at such time (as determined by the General Partner in its sole discretion) in accordance with such Regulation; provided, however, that the General Partner shall cause the Capital Account of the Partners to be so adjusted in connection with any admission of additional Limited Partners pursuant to Section 4.6 subsequent to the admission of Limited Partners pursuant to Section 4.2. In the event that the Capital Accounts of the Partners are adjusted pursuant to this Section l(b) of Exhibit A in connection with any such subsequent admission of Limited Partners, then, notwithstanding Section 2(a) of this Exhibit A, the Net Income or Net Loss inherent in the Partnership's assets at that time shall be specially allocated among the Partners as required to cause the Capital Accounts of the Partners to be proportionate to their adjusted Percentage Interests. (c) In the event that any interest in the Partnership is Transferred, the transferee of such interest shall succeed to the portion of the transferor's Capital Account attributable to such interest and the portion of the transferor's Minimum Gain attributable thereto. 2. ALLOCATIONS. (a) NET INCOME AND LOSSES. The Net Income or Net Loss of the Partnership for each Fiscal Year (or other period) shall be allocated to the Partners pro rata in proportion to their respective Percentage Interests. Page 1 52 (b) CODE SECTION 704(b) ALLOCATIONS. Notwithstanding Section 2(a) of this Exhibit A, special allocations of Net Income, Net Loss or specific items of income, gain, loss or deduction may be required for any Fiscal Year (or other period) as follows: (1) MINIMUM GAIN CHARGEBACK. The Partnership shall allocate items of Partnership income and gain among the Partners at such times and in such amounts as necessary to satisfy the minimum gain chargeback requirements of Regulation Sections 1.704-2(f) and 1.704-2(i)(4). (2) ALLOCATION OF DEDUCTIONS ATTRIBUTABLE TO PARTNER NONRECOURSE LIABILITIES. Any nonrecourse deductions attributable to a Partner Nonrecourse Liability shall be allocated among the Partners that bear the economic risk of loss for such Partner Nonrecourse Liability based upon the ratios in which such Partners share such economic risk of loss in accordance with Regulation Sections 1.704-2(c), 1.704-2(i)(2) and 1.704-2(j)(1). (3) QUALIFIED INCOME OFFSET. The Partnership shall specially allocate Net Loss and items of income and gain when and to the extent required to satisfy the "qualified income offset" provisions of Regulation Section 1.704-1(b)(2)(ii)(d). 3. ALLOCATIONS OF NET INCOME AND NET LOSSES FOR FEDERAL INCOME TAX PURPOSES. The Partnership's ordinary income and losses and capital gains and losses as determined for Federal income tax purposes (and each item of income, gain, loss and deduction entering into the computation thereof) for each Fiscal Year (or portion thereof) shall be allocated to the Partners in the same manner as the corresponding "book" items are allocated pursuant to Section 2 of this Exhibit A for such Fiscal Year (or portion thereof). Notwithstanding the foregoing sentence, Federal income tax items relating to any Section 704(c) Property shall be allocated among the Partners in accordance with Section 704(c) of the Code or Regulation Section 1.704-1(b)(2)(iv)(g) to take into account the difference between the fair market value and the tax basis of such Section 704(c) Property or such other property as of the date of its contribution or revaluation pursuant to Section l(b) of this Exhibit A, as applicable, using the "traditional method" as described in Regulation Section 1.704-3(b). Items described in this Section 3 shall neither be credited nor charged to the Partners' Capital Accounts. 4. DISTRIBUTION IN KIND. If any assets of the Partnership are distributed in kind pursuant to this Agreement, the amount of Net Income or Net Loss that would have been realized had such assets been sold at their fair market value shall be allocated to the Capital Accounts of the Partners pursuant to Section 2(a) of this Exhibit A immediately prior to such distribution. Page 2 53 EXHIBIT B --------- PARTNERSHIP INTERESTS ---------------------
Number of Partner Percentage Interest Partnership Units ------- ------------------- ----------------- Cleveland Indians Baseball Company, Inc., as ___% __ general partner Cleveland Baseball Corporation, as limited ___% __ partner --- ----------- Total 100% 12,333,333
Page 3 54 EXHIBIT C --------- TERMS OF LIMITED PARTNER REGISTRATION RIGHTS -------------------------------------------- The General Partner and the Limited Partner agree as follows with respect to the Registration Rights granted by the General Partner to the Limited Partner: ARTICLE I --------- CERTAIN DEFINITIONS ------------------- The following terms and phrases shall, for purposes of this Exhibit C have the meanings set forth below. Additional terms used herein are defined in Section 1.1 of the Agreement: Section 1.1. "ELIGIBLE SECURITIES" shall mean all or any portion of the Class A Common Shares issued to the Limited Partner upon exercise of Rights as defined in the Agreement. As to any proposed offer or sale of Eligible Securities, such securities shall cease to be Eligible Securities with respect to such proposed offer or sale when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement; (ii) such securities are permitted to be distributed pursuant to Rule 144(k) (or any successor provision to such Rule) under the Securities Act or are otherwise freely transferable to the public without registration pursuant to Section 4(l) of the Securities Act, as confirmed by a written opinion reasonably satisfactory to counsel to the General Partner addressed to the Limited Partner; or (111) such securities shall have been otherwise transferred pursuant to an applicable exemption under the Securities Act, new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the General Partner, and such securities shall be freely transferable to the public without registration under the Securities Act. Section 1.2 "OTHER SECURITIES" shall have the meaning set forth in Section 3.1 of this Exhibit C. Section 1.3. "REGISTRATION EXPENSES" shall mean all expenses incident to the General Partner's performance of or compliance with the registration requirements set forth in this Exhibit C, including, without limitation, the following: (i) the fees, disbursements, and expenses of the General Partner's counsel(s) (United States and foreign) and accountants and experts in connection with the registration of Eligible Securities to be disposed of under the Securities Act; (ii) all expenses in connection with the preparation, printing, and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to the underwriters and dealers; (iii) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda, any selling agreements, and any other documents in connection with the offering, sale, or delivery of Eligible Securities to be disposed of; (iv) all expenses in connection with the qualification of Page 1 55 Eligible Securities to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Eligible Securities to be disposed of; and (vi) fees and expenses incurred in connection with the listing of Eligible Securities on each securities exchange or quotation system on which securities of the same class are then listed, PROVIDED, HOWEVER, that Registration Expenses with respect to any registration pursuant to this Agreement shall not include underwriting discounts or commissions attributable to Eligible Securities, SEC, or blue sky registration fees attributable to Eligible Securities, or transfer taxes applicable to Eligible Securities. Section 1.4. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the relevant time. ARTICLE II EFFECTIVENESS OF REGISTRATION RIGHTS ------------------------------------ Section 2.1. EFFECTIVENESS OF REGISTRATION RIGHTS. Any registration rights granted pursuant to this Exhibit C may not be exercised prior to the first anniversary of the closing of the Offering. ARTICLE III INCIDENTAL REGISTRATION RIGHTS ------------------------------ Section 3.1. Notice AND REGISTRATION. If the General Partner proposes to file a registration statement with the SEC to register any Class A Common Shares for public sale for cash under the Securities Act (whether proposed to be offered for sale by the General Partner or by any other Person) by the filing of a registration statement with the SEC on a form and in a manner that would permit registration of Eligible Securities for sale to the public under the Securities Act ("Other Securities"), it will give prompt written notice to the Limited Partner of its intention to do so, and upon the written request of the Limited Partner delivered to the General Partner within fifteen (15) Business Days after the giving of any such notice (which request shall specify the number of Eligible Securities intended to be disposed of by the Limited Partner and the intended method of disposition thereof), the General Partner will use all reasonable efforts to effect, in connection with the registration of the Other Securities, the registration under the Securities Act of all Eligible Securities which the General Partner has been so requested to register by the Limited Partner, to the extent required to permit the disposition (in accordance with the intended method or methods thereof as aforesaid) of Eligible Securities so to be registered, PROVIDED that: (a) if, at any time after giving such written notice of its intention to file a registration statement pursuant to Section 3.1 and prior to the effective date of such registration statement filed in connection with such registration, the General Partner shall determine for any reason not to register the Other Securities it had proposed to register, Page 2 56 the General Partner may, at its election, give written notice of such determination to the Limited Partner and thereupon the General Partner shall be relieved of its obligation to register such Eligible Securities pursuant to this Section 3.1 (but not from its obligation to pay Registration Expenses to the extent incurred in connection therewith as provided IN Section 3.2); (b) The General Partner will not be required to effect any registration pursuant to this Article III if the General Partner shall have been advised in writing (with a copy to the Limited Partner requesting registration) by a nationally recognized independent investment banking firm selected by the General Partner to act as lead underwriter in connection with the public offering of Other Securities that, in such firm's opinion, inclusion of the Limited Partner's Class A Common Shares would materially and adversely affect the offering of the Other Securities; PROVIDED, HOWEVER, that if an offering of some but not all of the shares requested to be registered by the Limited Partner would not adversely affect the offering of the Other Securities, the number of shares requested to be included in such offering by the Limited Partner shall be reduced to the maximum number that would not adversely affect the offering of the Other Securities; and (c) The General Partner shall not be required to effect any registration of Eligible Securities under this Article III incidental to the registration of any of its securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans, or stock options or other employee benefit plans. Section 3.2. REGISTRATION EXPENSES. The General Partner (as between the General Partner and the Limited Partner requesting registration) shall be responsible for the payment of all Registration Expenses in connection with any registration pursuant to this Article III, except that such expenses shall not include any underwriting discounts or commissions, SEC or blue sky registration fees, or transfer taxes relating to such Eligible Securities, which expenses shall be the responsibility of the Limited Partner. ARTICLE IV REGISTRATION PROCEDURES ----------------------- Section 4.l. REGISTRATION AND QUALIFICATION. If and whenever the General Partner is required to use all reasonable efforts to effect the registration of any Eligible Securities under the Securities Act as provided in Section 3.1, the General Partner will as promptly as is practicable: (a) prepare, file, and use all reasonable efforts to cause to become effective a registration statement under the Securities Act regarding the Eligible Securities to be offered; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to Page 3 57 comply with the provisions of the Securities Act with respect to the disposition of all Eligible Securities until the earlier of such time as all of such Eligible Securities have been disposed of in accordance with the intended methods of disposition by the Limited Partner requesting registration set forth in such registration statement or the expiration of sixty (60) days after such registration statement becomes effective; (c) furnish to the Limited Partner and to any underwriter of such Eligible Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents as the Limited Partner or such underwriter may reasonably request; (d) use all reasonable efforts to register or qualify all Eligible Securities covered by such registration statement under such other securities or blue sky laws of such jurisdiction as the Limited Partner or any underwriter of such Eligible Securities shall reasonably request, and do any and all other acts and things which may be reasonably requested by the Limited Partner or any underwriter to consummate the disposition in such jurisdictions of the Eligible Securities covered by such registration statement, except that the General Partner shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not SO qualified, or to subject itself to taxation in any jurisdiction where it is not then subject to taxation, or to consent to general service of process in any jurisdiction where it is not then subject to service of process; (e) use all reasonable efforts to list the Eligible Securities covered by such registration statement on any quotation system, securities market or securities exchange on which the Class A Common Shares of the General Partner are then listed, if the listing of such securities is then permitted under the rules of such exchange; and (f) immediately notify the Limited Partner requesting or participating in a registration of securities at any time when a prospectus relating to a registration pursuant to Articles III hereof is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, at the request of the Limited Partner prepare and furnish to the Limited Partner as many copies of a supplement to or an amendment of such prospectus as the Limited Partner reasonably requests Page 4 58 so that, as thereafter delivered to the purchasers of such Eligible Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The General Partner may require the Limited Partner requesting or participating in a registration of securities to furnish the General Partner such information regarding the Limited Partner and the distribution of such securities as the General Partner may from time to time reasonably request in writing and as shall be required by law or by the SEC in connection with any registration. 4.2. UNDERWRITING. (a) If requested by the underwriters for any underwritten offering of Eligible Securities pursuant to a registration requested hereunder, the Limited Partner will enter into and perform its obligations under an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by the Limited Partner and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contributions to the effect and to the extent provided in Article VI hereof. The representations and warranties by, and the other agreements on the part of, the General Partner to and for the benefit of such underwriters shall also be made to and for the benefit of the Limited Partner. Notwithstanding the foregoing, the Limited Partner requesting or participating in a registration of securities may elect, in writing at any time prior to the effective date of the registration statement filed in connection with such registration, not to include such Eligible Securities in such registration but such election shall not relieve the Limited Partner of its responsibility for expenses as provided in Section 4.3. Section 4.3. QUALIFICATION FOR RULE 144 SALES. The General Partner will take all actions reasonably necessary to comply with the filing requirements described in Rule 144 (c) (1) under the Securities Act so as to enable the Limited Partner to sell Eligible Securities without registration under the Securities Act, and, upon the written request of the Limited Partner requesting or participating in a registration of securities, the General Partner will deliver to the Limited Partner a written statement as to whether it has complied with such filing requirements. ARTICLE V PREPARATION; REASONABLE INVESTIGATION ------------------------------------- Section 5. 1. PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement registering Eligible Securities under the Securities Act, the General Partner will give the Limited Partner requesting or participating in a registration of securities and the underwriters, if any, and their respective counsel and accountants, drafts of such registration statement for their review and comment prior to filing and such reasonable and customary access to its books and records and such opportunities to discuss the business of the General Partner with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of the Page 5 59 Limited Partner and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. ARTICLE VI INDEMNIFICATION AND CONTRIBUTION -------------------------------- Section 6. 1. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of any registration of Eligible Securities hereunder, the General Partner will enter into customary indemnification arrangements to indemnify and hold harmless the Limited Partner (including, if applicable its directors, officers, partners, and trustees), each Person who participates as an underwriter in the offering or sale of such securities, and each Person, if any, who controls such underwriter within the meaning of the Securities Act against any losses, claims, damages, liabilities, and expenses, joint or several, to which such Person may be subject under the Securities Act or otherwise insofar as such losses, claims, damages, liabilities, or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus included therein, any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the General Partner will promptly reimburse each such Person for any legal or any other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability, expense, action, or proceeding; PROVIDED that the General Partner shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof), or expenses arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus or final prospectus, amendment, or supplement thereto in reliance upon and in conformity with written information furnished to the General Partner by the Limited Partner or such underwriter expressly for use in the registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Limited Partner or any such Person and shall survive the transfer of such securities by the Limited Partner. The General Partner also shall agree to provide provision for contribution as shall be reasonably requested by the Limited Partner or any underwriter in circumstances where such indemnity is held unenforceable. (b) The Limited Partner, by virtue of exercising its registration rights hereunder, agrees and undertakes to enter into customary indemnification arrangements to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 6.1 (a)) the General Partner, each director of the General Partner, each officer of the General Partner who shall sign such registration statement, each Person who participates as an underwriter in the offering or sale of such securities and each person, if any, who controls the General Partner or any such underwriter within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any preliminary prospectus, or final prospectus included therein, or any amendment or supplement thereto, but only to the extent that such statement or omission was made in reliance upon and in conformity with written information furnished by the Limited Partner to the General Partner expressly for use in Page 6 60 the registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the General Partner or any such director, officer, or controlling Person and shall survive the transfer of the registered securities by the Limited Partner and the expiration of this Exhibit C. The Limited Partner also shall agree to provide provision for contribution as shall be reasonably requested by the General Partner or any underwriter in circumstances where such indemnity is held unenforceable. (c) Indemnification and contribution similar to that specified in this Section 6.1 (with appropriate modifications) shall be given by the General Partner and the Limited Partner with respect to any required registration or other qualification of such Eligible Securities under any federal or state law or regulation of any governmental authority other than under the Securities Act. ARTICLE VII TRANSFER OF REGISTRATION RIGHTS ------------------------------- 7.1. TRANSFER OF REGISTRATION RIGHTS. The Class A Limited Partners may not transfer the registration rights granted hereunder to any other Person, except by operation of law; provided, however, that the Limited Partner may transfer the registration rights in connection with the transfer of the Class A Common Shares or the Partnership Units to which they relate to the extent permitted in the Agreement and subject to the Ownership Restrictions. Page 7 61 EXHIBIT D --------- RIGHTS TERMS ------------ The Rights granted by the General Partner to the Limited Partners pursuant to Section 11.1 of the Agreement shall be subject to the following terms and conditions: Section 1. DEFINITIONS. The following terms and phrases shall, for purposes of this Exhibit D and the Agreement, have the meanings set forth below. Additional terms used herein are defined in Section 1.1 of the Agreement. "CASH PURCHASE PRICE" shall have the meaning set forth in Section 4 hereof. "COMPUTATION DATE" shall mean the date on which an Exchange Exercise Notice is delivered to the General Partner. "ELECTION NOTICE" shall mean the written notice to be given by the General Partner to the Exercising Partner(s) in response to the receipt by the General Partner of an Exchange Exercise Notice from such Exercising Partner(s), the form of which Election Notice is attached hereto as Schedule 2. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor statute. "EXCHANGE EXERCISE NOTICE" shall have the meaning set forth in Section 2 hereof. "EXCHANGE FACTOR" shall initially mean 100%, and shall hereafter be adjusted in accordance with the Antidilution Provisions of Section 11 hereof. "EXCHANGE RIGHTS" shall have the meaning set forth in Section 2 hereof. "HRS ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "OFFERED PARTNERSHIP UNITS" shall mean the Partnership Units of the Exercising Partner(s) identified in an Exchange Exercise Notice which, pursuant to the exercise of Exchange Rights, can be acquired by the General Partner under the terms hereof. "PURCHASE PRICE" shall mean the Cash Purchase Price or the Share Purchase Price, or a combination thereof. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor statute. "SHARE PURCHASE PRICE" shall have the meaning set forth in Section 4 hereof. Page 1 62 Section 2. DELIVERY OF EXCHANGE EXERCISE NOTICES. The Limited Partner may, subject to the limitations set forth herein, deliver to the General Partner written notice (the "Exchange Exercise Notice") pursuant to which the Limited Partner elects to exercise its rights to exchange (the "Exchange Rights") all or any portion of its Partnership Units for Class A Common Shares, subject to the limitations contained in Section 3 below. Section 3. LIMITATION ON EXERCISE OF EXCHANGE RIGHTS. Exchange Rights may be exercised at any time prior to the dissolution of the Partnership, subject to the Ownership Restrictions. The Exchange Rights shall expire with respect to any Partnership Units for which an Exchange Exercise Notice has not been delivered to the General Partner on or prior to the date that the Partnership is dissolved. For purposes of computing the Ownership Restriction as of any date, the Limited Partner and its Affiliates shall be deemed to own all Class A Common Shares issuable to the Limited Partner and its Affiliates upon the exercise of stock options granted on or before such date under any equity compensation plan of the General Partner. If an Exchange Exercise Notice is delivered to the General Partner but, as a result of the Ownership Restriction, the Exchange Rights cannot be exercised in full, the Exchange Exercise Notice shall be deemed to be modified such that the Exchange Rights shall be exercised only to the extent permitted under the Ownership Restriction, with the remainder of such Exchange Rights being deemed to be an offer to sell such Offered Partnership Units to the General Partner for the Cash Purchase Price. Section 4. COMPUTATION OF PURCHASE PRICE/FORM OF PAYMENT. The Purchase Price payable by the General Partner to the Limited Partner for the Offered Partnership Units shall be payable, at the election of the General Partner, by (a) the issuance by the General Partner of the number of its Class A Common Shares equal to the product, expressed as a whole number, of (i) the number of Partnership Units being exchanged, multiplied by (ii) the Exchange Factor (the "Share Purchase Price") or (b) in cash; provided, however, that to the extent the Share Purchase Price would violate the Ownership Restrictions, the Purchase Price to be paid for the Offered Partnership Units shall be paid in cash rather than in Class A Common Shares (the "Cash Purchase Price"). The Cash Purchase Price shall mean, with respect to the applicable number of Offered Partnership Units upon the exercise of any Exchange Right, an amount of cash (in immediately available funds) equal to (i) the number of Class A Common Shares that would be issued to the Exercising Partner if the Share Purchase Price were paid for such Offered Partnership Units (taking into account the adjustments required pursuant to the definition of "Exchange Factor") multiplied by (ii) the Current Per Share Market Price computed as of the Computation Date. The Cash Purchase Price shall be paid in the form of cash, or cashier's check, or by wire transfer of immediately available funds to the Limited Partner's designated account. Section 5. CLOSING; DELIVERY OF ELECTION NOTICE. The closing of the acquisition of Offered Partnership Units shall, unless otherwise mutually agreed, be held at the principal office of the General Partner, on the following dates: (a) With respect to the exercise of Exchange Rights for which the Share Purchase Price is payable, the closing shall occur on the date agreed to by the General Partner and the Limited Partner, which date shall in no event be prior to the date which is the later of (i) ten (10) days after the delivery of the Election Notice and (ii) the Page 2 63 expiration or termination of the waiting period applicable to each Exercising Partner, if any, under the HSR Act; and (b) With respect to the exercise of Exchange Rights for which the General Partner pays the Cash Purchase Price, the General Partner shall, within thirty (30) days after receipt by the General Partner of the Exchange Exercise Notice delivered in accordance with the requirements of Paragraph 3 hereof, deliver to the Limited Partner an Election Notice, which Election Notice shall (i) specify the General Partner's election to pay the Cash Purchase Price for some or all of the Offered Partnership Units and (ii) set forth the computation of the Cash Purchase Price to be paid by the General Partner to Limited Partner and the date, time and location for completion of the purchase and sale of the Offered Partnership Units, which date shall, to the extent required, in no event be more than sixty (60) days after the Computation Date for such Exchange Exercise Notice; PROVIDED, HOWEVER, that such sixty (60) day period may be extended for an additional period to the extent required for the General Partner to cause additional Class A Common Shares to be issued to provide financing to be used to acquire the Offered Partnership Units. Notwithstanding the foregoing, the General Partner agrees to use its best efforts to cause the closing of the acquisition of Offered Partnership Units hereunder to occur as quickly as possible. Section 6. ADJUSTMENT TO CASH PURCHASE PRICE. If the General Partner elects to raise funds to pay the Cash Purchase Price through a public offering of its securities, borrowings or otherwise, the aggregate Cash Purchase Price computed under Section 5 above shall be reduced by an amount ("Transaction Expenses") equal to the expenses incurred by the General Partner in connection with such raising of funds allocable to the amounts required to pay the Cash Purchase Price hereunder; provided, however, notwithstanding the foregoing, the Cash Purchase Price shall not be reduced hereunder by an amount exceeding 5% of the Cash Purchase Price computed without regard to the adjustment for Transaction Expenses. Section 7. CLOSING DELIVERIES. At the closing, payment of the Purchase Price shall be accompanied by proper instruments of transfer and assignment and by the delivery of (i) representations and warranties of (A) the Limited Partner with respect to its due authority to sell all of the right, title and interest in and to such Offered Partnership Units to the General Partner and with respect to the status of such Offered Partnership Units being free and clear of all Liens, and (B) the General Partner with respect to due authority for the purchase of such Offered Partnership Units, and (ii) to the extent that Class A Common Shares are issued in payment of the Share Purchase Price, (A) an opinion of counsel for the General Partner reasonably satisfactory to the Limited Partner, to the effect that such Class A Common Shares have been duly authorized, are validly issued, fully paid and non-assessable, and (B) a stock certificate or certificates evidencing the Class A Common Shares to be issued and registered in the name of the Limited Partner or its designee. Section 8. TERM OF RIGHTS. Unless sooner terminated, the rights of the parties with respect to the Rights shall commence as of the date hereof and lapse for all purposes and in all respects on the date that the Partnership is dissolved; PROVIDED, HOWEVER, that the parties hereto shall continue to be bound by an Exchange Exercise Notice delivered to the General Partner prior to such date. Page 3 64 Section 9. COVENANTS OF THE GENERAL PARTNER. To facilitate the General Partner's ability to fully perform its obligations hereunder, the General Partner covenants and agrees as follows: (a) At all times during the pendency of the Exchange Rights, the General Partner shall reserve for issuance and keep available, free from preemptive rights, out of its authorized but unissued Class A Common Shares, such number of Class A Common Shares as may be necessary to enable the General Partner to issue Class A Common Shares in full satisfaction of all Exchange Rights which are from time to time outstanding (assuming no Ownership Restrictions applied and that the General Partner paid the Share Purchase Price with respect to all such Exchange Rights). (b) As long as the General Partner shall be obligated to file periodic reports under the Exchange Act, the General Partner will timely file such reports in such manner as shall enable any recipient of Class A Common Shares issued to the Limited Partner hereunder in reliance upon an exemption from registration under the Securities Act to continue to be eligible to rely on Rule 144 promulgated by the SEC pursuant to the Securities Act, or any successor rule or regulation or statute thereunder, for the resale thereof. (c) During the pendency of the Rights, the Limited Partner shall receive in a timely manner all reports filed by the General Partner with the SEC and all other communications transmitted from time to time by the General Partner to its shareholders generally. (d) All Class A Common Shares which may be issued upon exchange of Offered Partnership Units will upon issue be validly issued, fully paid and nonassessable. Section 10. Limited PARTNERS' COVENANTS. Each Limited Partner covenants and agrees with the General Partner that all Offered Partnership Units tendered to the General Partner in accordance with the exercise of Rights herein provided shall be delivered to the General Partner free and clear of all Liens and should any Liens exist or arise with respect to such Offered Partnership Units, the General Partner shall be under no obligation to acquire the same unless, in connection with such acquisition, the General Partner has elected to pay a portion of the purchase price in the form of the Cash Purchase Price in circumstances where such Cash Purchase Price will be sufficient to cause any existing Liens to be discharged in full upon application of all or a part of the Cash Purchase Price and the General Partner is expressly authorized to apply such portion of the Cash Purchase Price as may be necessary to satisfy any indebtedness in full and to discharge any Liens in full. The Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Offered Partnership Units to the General Partner (or its designee), the Limited Partner shall assume and pay such transfer tax. Page 4 65 Section 11. ANTIDILUTION PROVISIONS. (a) The Exchange Factor shall be subject to adjustment from time to time effective upon the occurrence of the following events and shall be expressed as a percentage, calculated to the nearest one-thousandth of one percent (.001%): (i) In case the General Partner shall pay or make a dividend or other distribution on any class of shares of the General Partner in Class A Common Shares, the Exchange Factor in effect at the opening of business on the day following the date FIXED for the determination of stockholders entitled to receive such dividend or other distribution shall be increased in proportion to the increase in outstanding Class A Common Shares resulting from such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the record date fixed for such dividend or other distribution. (ii) In case outstanding Class A Common Shares shall be subdivided into a greater number of shares, the Exchange Factor in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case the outstanding Class A Common Shares shall be combined into a smaller number of shares, the Exchange Factor in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (b) In case the General Partner shall issue rights, options or warrants to all holders of Class A Common Shares entitling them to subscribe for or purchase Class A Common Shares at a price per share less than the current market price per share (as determined in the next sentence), each holder of a Partnership Unit shall be entitled to receive such number of rights or warrants, as the case may be, as such holder would have been entitled to receive had such holder exchanged his Partnership Units immediately prior to the record date for such issuance by the General Partner. For the purpose of any computation pursuant to the next sentence, the current market price per share of Class A Common Shares on any date shall be deemed to be the average of the daily Closing Prices for the five consecutive Trading Days selected by the General Partner commencing not more than twenty (20) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this Exhibit D, the term "' ex' date," when used in respect of any issuance or distribution, shall mean the first date on which the shares trade regular way on such exchange or in such market without the right to receive such issuance or distribution. (c) In case the Class A Common Shares shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than subdivision or combination of shares or a stock dividend described in subparagraph (a) (ii) of this Section) then and in Page 5 66 each such event the Exchange Rights shall thereafter consist of the right to exchange Partnership Units for the kind and amount of shares and other securities and property which would have been received upon such reorganization, reclassification or other change by holders of the number of shares into which the Partnership Units might have been exchanged immediately prior to such reorganization, reclassification or change. (d) The General Partner may, but shall not be required to, make such adjustments to the number of Class A Common Shares issuable upon exchange of a Partnership Unit, in addition to those required by this Section 11, as the General Partner's board of directors considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. The General Partner's board of directors shall have the power to resolve any ambiguity or correct any error in the adjustments made pursuant to this Section 11(d) and its actions in so doing shall be final and conclusive. Section 12. FRACTIONS OF SHARES. No fractional Class A Common Shares shall be issued upon exchange of Partnership Units. If more than one Partnership Unit shall be surrendered for exchange at one time by the Limited Partner, the number of full Class A Common Shares which shall be issuable upon exchange thereof (or the cash equivalent amount thereof if the Cash Purchase Price is paid) shall be computed on the basis of the aggregate amount of Partnership Units so surrendered. Instead of any fractional Class A Common Share which would otherwise be issuable upon exchange of any Partnership Unit or Partnership Units, the General Partner shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Current Per Share Market Price at the close of business on the day of closing specified in Section 5 of this EXHIBIT D (or, if such day is not a Trading Day, on the Trading Day immediately preceding such day). Section 13. Notice OF ADJUSTMENTS OF EXCHANGE FACTOR. Whenever the Exchange Factor is adjusted as herein provided: (a) the General Partner shall compute the adjusted Exchange Factor in accordance with Section 11 hereof and shall prepare a certificate signed by the chief financial officer or the treasurer of the General Partner setting forth the adjusted Exchange Factor and showing in reasonable detail the facts upon which such adjustment is based; and (b) a notice stating that the Exchange Factor has been adjusted and setting forth the adjusted Exchange Factor shall forthwith be mailed by the General Partner to all holders of Exchange Rights at their last addresses on record under this Agreement. Section 14. NOTICE OF CERTAIN CORPORATE ACTIONS. In case: (a) the General Partner shall declare a dividend (or any other distribution) on its Class A Common Shares payable otherwise than in cash; or Page 6 67 (b) the General Partner shall authorize the granting to all holders of its Class A Common Shares of rights, options or warrants to subscribe for or purchase any shares of stock of any class or of any other rights; or (c) of any reclassification of the Class A Common Shares (other than a subdivision or combination of its outstanding Class A Common Shares, or of any consolidation, merger or share exchange to which the General Partner is a party and for which approval of any shareholders of the General Partner is required), or of the sale or transfer of all or substantially all of the assets of the General Partner; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the General Partner; then the General Partner shall cause to be mailed to all holders of Exchange Rights at their last addresses on record under this Agreement, at least twenty (20) days (or twelve (12) days in any case specified in clause (a) or (b) above) prior to the applicable record date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Class A Common Shares of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Section 15. PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR SALE OF ASSETS. In case of any consolidation of the General Partner with, or merger of the General Partner into, any other Person or Persons, any merger or consolidation of another Person into the General Partner (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding Class A Common Shares of the General Partner), or any sale or transfer of all or substantially all of the assets of the General Partner, the Person formed by such consolidation or resulting from such merger or which acquires such assets of the General Partner, as the case may be, shall execute and deliver to each holder of Exchange Rights an agreement providing that such holder shall have the right thereafter, during the period such Exchange Rights shall be exercisable as specified herein, to require the exchange of Partnership Units for the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of Class A Common Shares, for which such Partnership Unit might have been exchanged immediately prior to such consolidation, merger, sale or transfer, assuming such holder of Class A Common Shares is not a Person with which the General Partner consolidated or into which the General Partner merged or which merged into the General Partner, or to which such sale or transfer, was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person, and failed to exercise his right of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each Class A Common Share in respect of which such rights of election shall not have been exercised ("non-electing Share"), then for the purpose of this Section 15 the kind and amount of Page 7 68 securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing Shares). Such agreement shall provide for adjustments which, for events subsequent to the effective date of such agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Exhibit D. The above provisions of this Section 15 shall similarly apply to successive consolidations, mergers, sales or transfers. Page 8 69 SCHEDULE 1 ---------- EXCHANGE EXERCISE NOTICE ------------------------ To: CLEVELAND INDIANS BASEBALL COMPANY, INC. Reference is made to that certain First Amended and Restated Agreement of Limited Partnership of Cleveland Indians Baseball Company Limited Partnership (the "Partnership"), dated as of ___________ ,1998 (the "Partnership Agreement"), between Cleveland Indians Baseball Company, Inc. and Cleveland Baseball Corporation. Capitalized terms used but not defined herein shall have the meanings set forth in the Partnership Agreement. Pursuant to ARTICLE XI and Section 2 of EXHIBIT D to the Partnership Agreement, the undersigned, being a limited partner of the Partnership, hereby elects to exercise its Exchange Rights as to Offered _______ Partnership Units. Dated: ---------------------- [Name of Limited Partner] ------------------------------------- By: Page 9 70 SCHEDULE 2 ---------- ELECTION NOTICE --------------- To: Exercising Partner(s) Reference is made to that certain First Amended and Restated Agreement of Limited Partnership of Cleveland Indians Baseball Company Limited Partnership (the "Partnership"), dated as of _____________ ,1998 (the "Partnership Agreement"). All capitalized terms used but not defined herein shall have the meanings set forth in the Partnership Agreement. Pursuant to Section 5(b) of Exhibit D to the Partnership Agreement, the undersigned, being the General Partner of the Partnership, hereby notifies the Exercising Partner(s) that [(a) the Share Purchase Price is payable by issuance of the number of Class A Common Shares to the Exercising Partner(s), as set forth below, [(b) it has elected to pay the Cash Purchase Price by payment of cash to the Exercising Partner(s) for the number of Offered Partnership Units, as set forth below,] (c) the computation of the [Share Purchase Price and Cash Purchase Price] as set forth on an attachment hereto, (d) the closing of the purchase and sale of the Offered Partnership Units by payment of the [Share Purchase Price] shall take place at the offices of __________________________ on [date], and [(e) the closing of the payment of the Cash Purchase Price shall take place at the offices of ______________________________ on [date]. NUMBER OF OFFERED SHARE CASH EXERCISING PARTNERSHIP PURCHASE PURCHASE PARTNER(S) UNITS PRICE PRICE - ---------- ----- ----- ----- CLEVELAND INDIANS BASEBALL COMPANY, INC., an Ohio corporation By: -------------------------- Its: ----------------------- Dated: ----------------------- Page 10 EX-10.19 11 EXHIBIT 10.19 1 Exhibit 10.19 CLEVELAND INDIANS BASEBALL COMPANY, INC. DIRECTORS' DEFERRED COMPENSATION PLAN CLEVELAND INDIANS BASEBALL COMPANY, INC. (the "Company") desires to establish a Directors' Deferred Compensation Plan (the "Plan") to assist it in attracting and retaining persons of competence and stature to serve as directors of the Company and more closely aligning the interests of its directors with those of the Company's shareholders by giving each director the option of deferring receipt of the fees payable to that director. Therefore, the Company hereby adopts the Plan as hereinafter set forth: 1. EFFECTIVE DATE. The Plan will become effective upon the closing of the Company's initial public offering of Class A Common Shares (the "IPO"). 2. PARTICIPATION. Each director of the Company who (a) is duly elected to the Company's Board of Directors and (b) receives fees for services as a director may elect to defer receipt of fees otherwise payable to such director pursuant to the terms of the Plan. Each director who elects to defer fees is a Participant in the Plan. 3. ADMINISTRATION. The Company's Board of Directors will appoint directors and/or officers of the Company who are not eligible to become Participants, to act as the Administrators of the Plan ("Administrators"). The Administrators will serve at the pleasure of the Board of Directors and will administer, construe and interpret the Plan. The Administrators will not be liable for any act done or determination made in good faith. The Board of Directors has the power to designate additional or replacement Administrators at its discretion. 4. DEFERRALS. (a) DEFERRAL ELECTION. A Participant may elect to defer fees by filing an election form with the Company and/or the Administrators of the Plan prior to the 2 beginning of a Plan Year (which begins on January 1 and ends on December 31). Unless the election form indicates that the election relates to a specific Plan Year, elections will be deemed continuing and therefore applicable to subsequent Plan Years until the election is modified or revoked. An election form must state the portion of fees to be deferred, a distribution commencement date and method of distribution (cash or Class A Common Shares and lump sum or four equal annual installments). An election may be modified or revoked with respect to any Plan Year prior to the commencement of that Plan Year. Each director who first becomes eligible to participate in the Plan after the date of the adoption of this Plan may make an election for the portion of the year in which such director first became eligible with respect to fees for services to be rendered after the date of such election. (b) ACCOUNTING. Appropriate records, which will list and reflect each Participant's credits and valuations, will be maintained by the Company ("Deferral Accounts"). The Company will provide each Participant an annual statement of the balance in such Participant's Deferral Account. The Company shall credit to each Participant's Deferral Account an amount equivalent to the fees that would have been paid to the Participant if the Participant had not elected to participate in the Plan. The credit shall be made on the date on which the fee would have been paid absent a deferral election. No funds are required to be segregated into actual Accounts for the Participants; the Deferral Accounts shall represent general unsecured obligations of the Company. (c) VALUATION. Until distributed to a Participant, amounts credited to a Deferral Account of such Participant will be increased or decreased as measured by the 3 market value of the Company's Class A Common Shares plus the value of dividends or other distributions on the Class A Company's Common Shares. Each amount credited to a Deferral Account will be assigned a number of Share Units (including fractions of a Share) determined by dividing the amount credited to the Deferral Account, whether in lieu of payment of fees for service as a director or as a dividend or other distribution attributable to such Share Units, by the fair market value of a share of the Company's Class A Common Shares on the date of credit. "Fair Market Value" means, as of any date, the mean between the highest and lowest quoted selling price, regular way, of the Shares on such date on the Nasdaq National Market (or any successor thereto), if no such sale of the Shares occurs on the Nasdaq National Market (or any successor thereto) on such date, then such mean price on the next preceding day on which the Shares were traded. If the Shares are no longer quoted on the Nasdaq National Market (or any successor thereto), then the Fair Market Value of the Shares will be determined by the Administrators in good faith. Each Share Unit will have the value of one Class A Common Share of the Company. The number of Share Units will be adjusted to reflect stock splits, stock dividends or other capital adjustments effected without receipt of consideration by the Company. 5. DISTRIBUTION. A Participant must elect in writing, at the time he makes a deferral election under subparagraph 4(a), the date on which the distribution of amount credited to the Participant's Deferral Account to which the deferral election relates will commence and the method of distribution, as permitted hereunder. Payment will be made on the earlier of (i) the date specified in the deferral election or (ii) ninety (90) days after termination of the Participant's status as a director of the Company. Payment will be made in the form of Class A 4 Common Shares or cash as elected at the time of payment by the Participant. The Company will use its best efforts to register the issuance of the Class A Common Shares distributed to Participants under the Securities Act of 1933, as amended. The time of distribution of benefits may vary with each separate election, but each election will be irrevocable. Distributions (whether in Class A Common Shares or cash) may be made in one lump sum or four equal annual installments (each, a "Payment Date") as specified in a Participant's elections. The amount of an installment will be paid based on the then current value of the Participant's Deferral Account as follows: (a) 25% on the first Payment Date; (b) 33% on the second Payment Date; (c) 50% on the third Payment Date; and (d) 100% on the fourth Payment Date. The value of the Participant's Deferral Account will be determined based on the number of Share Units attributable to the applicable deferral election and the Fair Market Value of such Share Units as of the business day immediately preceding the Payment Date. 6. DEATH OR DISABILITY. (a) If a Participant's service is terminated by reason of death or disability prior to the distribution of any portion of his benefits, the Company will, within ninety (90) days of the date of service termination, commence distribution of benefits to the Participant (or to the beneficiary or beneficiaries in the event of death). Distribution will be made in accordance with the method of distribution elected by the Participant pursuant to paragraph 5 hereof. In the event a Participant's death or disability occurs after distribution of benefits hereunder has begun, the Company will continue to make distributions to the Participant (or to the beneficiary or beneficiaries in the event of death) in accordance with the methods of distribution elected by the Participant pursuant to paragraph 5 hereof. 5 (b) Each Participant will have the right to designate one or more beneficiaries to receive distributions in the event of Participant's death by filing with the Company a beneficiary designation. A Participant may change the designated beneficiary or beneficiaries at any time prior to his death by the delivery to the Company of a new beneficiary designation. If no beneficiary has been designated, or if no designated beneficiary survives the Participant, distributions pursuant to this provision will be made to the Participant's estate. 7. ASSIGNMENT AND ALIENATION OF BENEFITS. The right of each Participant to any account, benefit or payment hereunder will not, to the extent permitted by law, be subject in any manner to attachment or other legal process for the debts of such Participant; and no account, benefit or payment will be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 8. HARDSHIP. Other provisions notwithstanding, at the written request of a Participant or his or her legal representative, the Administrators, in their sole discretion, upon a finding that continued deferral will result in financial hardship to the Participant, may authorize (i) the distribution of all or a part of a Participant's Deferral Account in a single installment or (ii) the acceleration of payment of any multiple installments thereof. 9. AMENDMENT OR TERMINATION. The Board of Directors of the Company may amend or terminate this Plan at any time and from time to time. Any amendment or termination of this Plan will not affect the rights of a Participant accrued prior thereto without his written consent. 10. TAXES. The Company will not be responsible for the tax consequences under federal, state or local law of any election made by any Participant under the Plan. All payments 6 under the Plan will be subject to withholding and reporting requirements to the extent permitted by applicable law. 11. APPLICABLE LAW. This Plan will be interpreted under the laws of the State of Ohio. EX-10.20 12 EXHIBIT 10.20 1 Exhibit 10.20 January 30, 1998 Mr. John Hart 4395 Valley Forge Fairview Park, Ohio 44126 Dear John: The following shall constitute the Employment Agreement by and between Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Club"), and you and shall, upon acceptance by you, replace your existing contract dated October 20, 1994. 1. TERM. (a) Subject to the terms and conditions set forth below, the Club agrees to employ you as Executive Vice President, General Manager of the General Partner of the Club, for the period commencing on January 1, 1998 and ending December 31, 2003, subject to subsections (b), (c), (d) and (e) below. (b) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2004, at a salary of $775,000.00 for 2004. Such option may be exercised by written notice personally delivered or mailed to you at the Club's offices on or before December 1, 2002. (c) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2005 at a salary of $800,000.00 for 2005. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2003. (d) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2006 at a salary of $825,000.00 for 2006. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2004. (e) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2006 at a salary of $850,000.00 for 2007. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2005. 2 Mr. John Hart January 30, 1998 Page 2 (f) Your salary shall be payable each calendar year in twenty-four equal semi-monthly installments. 2. SALARY. (a) SALARY. Your salary as Executive Vice President, General Manager during the period of your employment under this Agreement shall be as follows, less the amounts deferred pursuant to paragraph (b) of this Section 2: January 1, 1998 to December 31, 1998 at the rate of $600,000.00 per year. January 1, 1999 to December 31, 1999 - $625,000 January 1, 2000 to December 31, 2000 - $650,000 January 1, 2001 to December 31, 2001 - $675,000 January 1, 2002 to December 31, 2002 - $700,000 January 1, 2003 to December 31, 2003 - $750,000 Option Years: January 1, 2004 to December 31, 2004 - $775,000 January 1, 2005 to December 31, 2005 - $800,000 January 1, 2006 to December 31, 2006 - $825,000 January 1, 2007 to December 31, 2007 - $850,000 (b) DEFERRED COMPENSATION PLAN. On or before December 1 of the year immediately preceding any calendar year, you may elect to defer the payment of not more than 50% of the salary otherwise payable under subsection (a) of this Section 2 and 100% of any bonus payments for such calendar year, and on June 15 of such calendar year (or, if later, the date that any bonus payment would otherwise have been payable), the Club shall deposit such deferred compensation in a trust, the earnings on which are not currently taxable for federal income tax purposes, which shall be established by the Club to provide deferred compensation to you in accordance with this subsection (b) (the "Deferred Compensation Account"); a copy of such trust is attached hereto as Exhibit I. Notwithstanding the 3 Mr. John Hart January 30, 1998 Page 3 foregoing, if you terminate employment, die or become "permanently disabled" (as defined under Section 10) during a calendar year, the amount to be credited to the Deferred Compensation Account for that year shall be equal to the portion of the deferred amount that you actually earned through the date of your termination of employment, death or permanent disability. The fair market value of the Deferred Compensation Account, as determined under clause (i) of this subsection (b), shall be paid by the Club to you, or in the case of your death, to your beneficiary, in ten installments commencing on the first business day of January of the calendar year following the earlier of the date of your death, permanent disability or termination of your employment with the Club. The payments will be computed in accordance with the following schedule:
Percentage of Fair Market Value Payment of Deferred Number Compensation Account ------ -------------------- 1 10% 2 11.11% 3 12.5% 4 14.28% 5 16.67% 6 20% 7 25% 8 33.33% 9 50% 10 100%
The Club will reimburse you for the annual premium cost of an insurance policy that you may purchase to insure that the amount of the deferred compensation benefits will be paid to you in the event that the Club fails to pay such benefits due to a bankruptcy or other financial difficulties of the Club. The obligation to reimburse you for such premiums will remain in full force and effect until the entire amount of deferred compensation benefits have been paid to you or your beneficiaries. (i) INVESTMENT POLICY. Any deferred compensation credited to your Deferred Compensation Account pursuant to this Section 2 shall be deposited in a segregated investment account maintained under the trust known as the "Trust Agreement under the Cleveland Indians Baseball Company Limited Partnership Deferred Compensation Plans (the 4 Mr. John Hart January 30, 1998 Page 4 "Trust") for the Cleveland Indians Baseball Company Limited Partnership Deferred Compensation Plan for John Hart (the "Segregated Investment Account"). Deferred compensation credited to the Segregated Investment Account pursuant to this Section 2 and all income attributable to such amounts (net of expenses) shall be invested and reinvested in accordance with the Trust until such time as the Deferred Compensation Account is paid to you, or your beneficiary, as applicable. The fair market value of your Deferred Compensation Account hereunder shall be based upon the fair market value of the Segregated Investment Account under the Trust. The trust known as the Trust Under Cleveland Indians Baseball Company Limited Partnership Deferred Compensation Plan for John Hart, under which Independence Bank is the trustee, shall be revoked by the Club within an administratively reasonable period of time following the Club's receipt of your acceptance of this amendment to the Agreement and the assets held under such trust (net of expenses) shall be transferred in kind to the Trust for deposit in the Segregated Investment Account. (ii) DEATH BENEFITS. You shall be entitled to designate a beneficiary (or beneficiaries) who shall be entitled to receive that portion of your undistributed Deferred Compensation Account, as determined under the first paragraph of this subsection (b) if you die before receiving the total value of the Deferred Compensation Account. The designation of a beneficiary (or beneficiaries) must be made in writing on a form substantially similar to the form attached as Exhibit II to this Agreement and delivered to the Club. You may change or revoke a beneficiary designation by filing a new designation or notice of revocation with the Club. If you fail to designate a beneficiary or if no designated beneficiary survives you, the Club will pay any amounts payable pursuant to this subsection (b) to your surviving spouse, and to your personal representative if there is no surviving spouse. (iii) HARDSHIP. Regardless of the date on which payment of the deferred compensation under this subsection (b) otherwise is to be paid, in the event of your hardship, payment of all or a portion of the fair market value of the Deferred Compensation Account can be accelerated by the Club's determination of hardship. The Club shall have sole discretion as to whether a hardship has occurred and if so, also shall have sole discretion to determine the amount of 5 Mr. John Hart January 30, 1998 Page 5 deferred compensation that may be distributable to you in order to alleviate that hardship. For this purpose, hardship shall mean any emergency or necessity affecting your personal or family affairs having a significant adverse financial effect. (iv) NO FORFEITURE OF DEFERRED COMPENSATION. All deferred compensation credited to the Deferred Compensation Account shall be nonforfeitable. (v) DEBITING OF DEFERRED COMPENSATION ACCOUNT. Once an amount of deferred compensation has been paid, such amount shall be debited from the Deferred Compensation Account and shall cease to exist. (vi) PARTICIPANT'S RIGHTS ARE UNFUNDED AND UNSECURED. Notwithstanding the creation of the trust described herein, all deferred compensation benefits under this subsection (b) are unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended. Your (or your beneficiary's) right to receive a distribution hereunder shall be an unsecured claim against the general assets of the Club, and neither you nor your beneficiary shall have any rights in or against any amounts credited hereunder or any other specific assets of the Club or the trust referred to herein. Any deferred compensation benefits payable hereunder to you or your beneficiary may be payable out of the trust established by the Club, or may be payable from the general assets of the Club. (vii) ANTI-ASSIGNMENT. No right or deferred compensation payment under this subsection (b) shall be subject to alienation, sale or assignment. 3. SALE BONUS. In the event of (1) a sale or exchange of substantially all of the assets of the Club to any person or entity not controlled by Richard E. Jacobs, his estate or any inter vivos or testamentary trust of which Richard E. Jacobs is the grantor, (2) a sale of ownership interests in the Club or the General Partner possessing more than 50% of the voting power of such entity to any person other than Richard E. Jacobs, his estate or any inter vivos or testamentary trust of which Richard E. Jacobs is the grantor, or (3) a public offering of securities possessing more than 50% of the aggregate value of the Club, you shall be paid a bonus equal to $100,000. 4. LIFE INSURANCE. The Club understands that you may acquire life insurance policy to insure receipt of proceeds based 6 Mr. John Hart January 30, 1998 Page 6 upon the unpaid portion of the salary amounts set forth in paragraph 2. Each year during the term of this Contract, including any option years if the applicable option has been exercised, The Club will reimburse you for the cost of such policy in an amount not to exceed the annual premium based upon preferred issued rates for a term insurance policy with a death benefits equal to $2,000,000. Reimbursement will be made with respect to the option years only if the option for such year has been exercised. 5. POST SEASON BONUS. In the event that the Club wins the Central Division Championship, American League Championship Pennant or the World Series during any championship season during the term of this Agreement, including any option year if the applicable option has been exercised, you shall be paid bonus payments as follows: American League Central Division Championship or Wild Card $ 50,000 American League Championship $100,000 World Series Championship $100,000
6. GROUP PLAN. In addition to all of the other rights and benefits under this Agreement, you shall be eligible to participate in any current or future plan which may be provided by the Club for the benefit of its executives or employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the Club to the fullest extent possible in accordance with the terms and provisions thereof. 7. EXPENSES. You shall be entitled to incur on behalf of the Club reasonable and necessary expenses in connection with your duties, in accordance with the Club's customary practice, including expenses incurred in connection with your use of an automobile which will be provided by the Club for your exclusive use; or, in lieu of accepting the use of an automobile provided by the Club, the Club will pay you a monthly automobile allowance of Three Hundred Dollars ($300.00). 8. JOB DESCRIPTION. During the term of your employment, you shall faithfully perform the duties and have the responsibilities of Executive Vice President, General Manager of the Club, subject to the control and direction of the President and Chief Executive Officer, if any, the Chairman of the Board, 7 Mr. John Hart January 30, 1998 Page 7 the Board of Directors of the Club and its General Partner. You agree to devote your full time, energies, talent, and best efforts exclusively to your duties as Executive Vice President, General Manager and to such other duties as may be assigned to you as provided above. You agree that the Club will not grant permission to any other Major League Baseball Club to discuss other employment opportunities with you during the term of this Contract. 9. PUBLIC CONTACT. You agree to conduct yourself with propriety and with due regard to public convention and morals, and agree not to engage in conduct which is detrimental to or contrary to the rules of the Club, the League and/or professional baseball, and you further agree to abide by and be subject to the discipline of the Commissioner of Baseball and to his decisions rendered in accordance with the Professional Baseball Agreement. 10. DEATH OR DISABILITY. Your death or permanent disability during the term of this Agreement shall immediately terminate this Agreement. For the purposes of this Section 7, permanent disability is defined as any condition caused by an accident, sickness or otherwise, which, in the reasonable judgment of the President and Chief Executive Officer of the Club, if any, the Chairman of the Board or the Board of Directors of the Club or its General Partner, disables, or may in the future disable, you from substantially performing the duties and services required under this Agreement for a period of 120 days, whether consecutive or non-consecutive, in any 12-month period. Upon termination of this Agreement pursuant to this Section 7, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such termination or otherwise required by law. 11. TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that you fail to observe and comply with the provisions of this Agreement in any material respect or in the event of your fraud or dishonesty in the performance of your duties, the Club may discharge you prior to the expiration of the term of this Agreement by giving you written notice, which notice shall state the specific facts upon which the discharge is based. In the event of such discharge, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such discharge or termination, except as otherwise required by law. Both parties agree, however, that you shall have no right to terminate this Agreement voluntarily. 8 Mr. John Hart January 30, 1998 Page 8 12. TERMINATION WITHOUT CAUSE. You agree that, should you be discharged from your duties without cause, you are obligated to seek and, if offered, accept other comparable employment, either from another Major League Club or from some other baseball or non-baseball employer. In the event that you are so discharged without cause, you will receive not less than five days written notice of such discharge. The compensation due by the Club under this Agreement will be reduced by any compensation which you receive from such other employment following such termination. The amount to be deducted includes, but is not limited to, compensation of any kind for services, including salary, bonuses, fees, commissions, payments in kind, and similar items, and the reasonable value of services rendered by you should you become self-employed following termination. 13. REPRESENTATIONS AND ADDITIONAL COVENANTS. (a) You hereby represent that you are free to accept employment with the Club as contemplated hereunder, and that such employment will not violate the terms of any other agreement or instrument to which terms you are subject. (b) You hereby represent that you do not directly or indirectly, own stock or any other financial interest in the ownership or earnings of any Major League Club, and you agree that you will not hereafter acquire or hold any such interest except in accordance with Major League Rule 20(e). 14. CONFIDENTIALITY. The parties agree that the terms of this Agreement and all of the conversations and negotiations regarding your employment with the Club are in strictest confidence and shall be and will remain confidential and not subject to public disclosure of any kind without our mutual consent or as may be required by law. In addition, you agree to maintain the confidentiality of all business information of the Club which you acquire during your employment hereunder, and to preserve such information for the exclusive benefit of the Club. 15. INJUNCTIVE AND EQUITABLE RELIEF. Because during the course of your employment under this Agreement you will gain an intimate knowledge of the business, activities and affairs of the Club, and because of the special, unique and extraordinary services you are capable of performing for the Club or one of its competitors, you recognize that the services to be rendered by you hereunder are of a character giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated for by damages. You therefore agree that if you fail to comply 9 Mr. John Hart January 30, 1998 Page 9 with any of the provisions of this Agreement, in addition to the remedies and procedures provided elsewhere in this Agreement, the Club shall be entitled to obtain immediate injunctive or other equitable relief to restrain you from failing to fulfill your obligations hereunder or from becoming affiliated, directly or indirectly, with any of the Major League Clubs or their respective minor league affiliates, without prejudice to any other remedies to which the Club may be entitled under law. 16. BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, both you and the Club. This Agreement may not be assigned or transferred without the consent of both parties. 17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes in its entirety any prior agreements, arrangements and understandings between the parties with respect to the subject matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 18. GOVERNANCE. This Agreement is subject to and is governed by, all applicable rules and regulations of Major League Baseball and the American League of Professional Baseball Clubs, and any rules or regulations which the Club may announce from time to time. 19. EXECUTION BONUS. As additional consideration for entering into this Contract, the Club shall pay you the sum of $100,000 (the "Execution Bonus"). The Execution Bonus shall be payable, subject to any federal, state, and local payroll taxes that are required by law to be withheld, upon the execution of this Contract by you and the Club. 20. CONSULTING AGREEMENT. Upon termination of your employment pursuant to the terms of this Contract, if you and Club mutually agree, you will be retained by the Club as a consultant for a period of five (5) years. The annual consulting fee shall be $200,000. In addition, you shall be eligible to participate in any medical and life insurance benefit plan which may be provided by the Club for the benefit of its executives or employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the 10 Mr. John Hart January 30, 1998 Page 10 Club to the fullest extent possible in accordance with the terms and provisions thereof. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP By: Its General Partner, Cleveland Baseball Corporation By: /s/ Richard E. Jacobs -------------------------------------- Richard E. Jacobs ACCEPTED: /s/ John Hart - ------------------------ Date: February 5, 1998 ------------------- EX-10.21 13 EXHIBIT 10.21 1 Exhibit 10.21 April 10, 1998 Mr. Dennis Lehman 399 North Main Street Chagrin Falls, Ohio 44022 Dear Dennis: The following shall constitute the Employment Agreement by and between Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Club"), and you and shall, upon acceptance by you, replace your existing contract dated January 9, 1995. 1. TERM. (a) Subject to the terms and conditions set forth below, the Club agrees to employ you as Executive Vice President/Business of the Club, for the period commencing on January 1, 1998 and ending December 31, 2002, subject to subsections (b), (c), (d) and (e) below. (b) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2003, at a salary of $425,000 for 2003. Such option may be exercised by written notice personally delivered or mailed to you at the Club's offices on or before December 31, 2001. (c) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2004 at a salary of $450,000 for 2004. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 31, 2002. (d) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2005 at a salary of $475,000 for 2005. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 31, 2003. 2 Mr. Dennis Lehman April 10, 1998 Page 2 (e) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2006 at a salary of $500,000 for 2006. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 31, 2004. (f) Your salary shall be payable each calendar year in twenty-four equal semi-monthly installments. 2. SALARY. (a) SALARY. Subject to the adjustment described in paragraph 2(c), your salary as Executive Vice President/Business during the period of your employment under this Agreement shall be as follows, less the amounts deferred pursuant to paragraph (b) of this Section 2: January 1, 1998 to December 31, 1998 at the rate of $300,000 per year. January 1, 1999 to December 31, 1999 - $325,000 January 1, 2000 to December 31, 2000 - $350,000 January 1, 2001 to December 31, 2001 - $375,000 January 1, 2002 to December 31, 2002 - $400,000 Option Years: January 1, 2003 to December 31, 2003 - $425,000 January 1, 2004 to December 31, 2004 - $450,000 January 1, 2005 to December 31, 2005 - $475,000 January 1, 2006 to December 31, 2006 - $500,000 (b) DEFERRED COMPENSATION PLAN. On or before December 1 of the year immediately preceding any calendar year, you may elect to defer the payment of not more than 50% of the salary otherwise payable under subsection (a) of this Section 2 and 100% of any bonus payments for such calendar year, and 3 Mr. Dennis Lehman April 10, 1998 Page 3 on June 15 of such calendar year (or, if later, the date that any bonus payment would otherwise have been payable), the Club shall deposit such deferred compensation in a trust, the earnings on which are not currently taxable for federal income tax purposes, which shall be established by the Club to provide deferred compensation to you in accordance with this subsection (b) (the "Deferred Compensation Account"); a copy of such trust is attached hereto as Exhibit I. Notwithstanding the foregoing, if you terminate employment, die or become "permanently disabled" (as defined under Section 8) during a calendar year, the amount to be credited to the Deferred Compensation Account for that year shall be equal to the portion of the deferred amount that you actually earned through the date of your termination of employment, death or permanent disability. The fair market value of the Deferred Compensation Account, as determined under clause (i) of this subsection (b), shall be paid by the Club to you, or in the case of your death, to your beneficiary within 60 days following the earlier of (a) the date of your death or permanent disability or (b) termination of your employment with the Club. (i) INVESTMENT POLICY. Any deferred compensation amounts credited to the Deferred Compensation Account pursuant to this subsection (b) and all income attributable to such amounts (net of expenses) shall be held in a segregated investment account within the Trust and shall be invested and reinvested accordance with the Trust agreement until such time as the entire fair market value of Deferred Compensation Account is paid by the Club to you, or your beneficiary, as applicable in accordance with Subsection (b)(i) above. (ii) DEATH BENEFITS. You shall be entitled to designate a beneficiary (or beneficiaries) who shall be entitled to receive that portion of your undistributed Deferred Compensation Account, as determined under the first paragraph of this subsection (b) if you die before receiving the total value of the Deferred Compensation Account. The designation of a beneficiary (or beneficiaries) must be made in writing on a form substantially similar to the form attached as Exhibit II to this Agreement and delivered to the Club. You may change or revoke a beneficiary designation by filing a new designation or notice of revocation with the Club. If you fail to designate a beneficiary or if no designated beneficiary survives you, the Club will pay any amounts payable pursuant to this subsection (b) to your surviving spouse, and to your personal representative if there is no surviving spouse. 4 Mr. Dennis Lehman April 10, 1998 Page 4 (iii) HARDSHIP. Regardless of the date on which payment of the deferred compensation under this subsection (b) otherwise is to be paid, in the event of your hardship, payment of all or a portion of the fair market value of the Deferred Compensation Account can be accelerated by the Club's determination of hardship. The Club shall have sole discretion as to whether a hardship has occurred and, if so, also shall have sole discretion to determine the amount of deferred compensation that may be distributable to you in order to alleviate that hardship. For this purpose, hardship shall mean any emergency or necessity affecting your personal or family affairs having a significant adverse financial effect. (iv) NO FORFEITURE OF DEFERRED COMPENSATION. All deferred compensation credited to the Deferred Compensation Account shall be nonforfeitable. (v) DEBITING OF DEFERRED COMPENSATION ACCOUNT. Once an amount of deferred compensation has been paid, such amount shall be debited from the Deferred Compensation Account and shall cease to exist. (vi) PARTICIPANT'S RIGHTS ARE UNFUNDED AND UNSECURED. Notwithstanding the creation of the trust described herein, all deferred compensation benefits under this subsection (b) are unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended. Your (or your beneficiary's) right to receive a distribution hereunder shall be an unsecured claim against the general assets of the Club, and neither you nor your beneficiary shall have any rights in or against any amounts credited hereunder or any other specific assets of the Club or the trust referred to herein. Any deferred compensation benefits payable hereunder to you or your beneficiary may be payable out of the trust established by the Club, or may be payable from the general assets of the Club. (vii) ANTI-ASSIGNMENT. No right or deferred compensation payment under this subsection (b) shall be subject to alienation, sale or assignment. (c) INFLATION ADJUSTMENT. If the salary amount for any year during the term of this Agreement, including any option year if the applicable option has 5 Mr. Dennis Lehman April 10, 1998 Page 5 been exercised is less than an amount equal to (i) $300,000, multiplied by (ii) one (1) plus the percentage increase in the CPI for the period commencing on January 1, 1998 and ending on the day before the beginning of the year for which the salary amount is applicable, then the salary shall be adjusted to equal the amount computed pursuant to this paragraph 2(c). Any adjustment made pursuant to this paragraph shall not be taken into account to compute the salary amount for any other year. CPI shall mean the Consumer Price Index for Urban Wage Earners and Clerical Workers, All Items, as published by the U.S. Department of Labor, Bureau of Statistics. If the manner in which the CPI is determined by the Bureau of Labor Statistics shall be substantially revised, including, without limitation, a change in the base index year, an adjustment shall be made in such revised index that would produce results reasonably equivalent to those that would have been obtained if such CPI had not been so revised. If the CPI shall become unavailable to the public because its publication is discontinued or otherwise, or if equivalent data is not readily available to make the adjustment referred to in the preceding sentence, then a comparable index published by an agency of the United States government that reflects changes in the cost of living or purchasing power of the consumer dollar shall be substituted or, if no such index is available, then a comparable index published by a major United States bank or other financial institution shall be used. 3. POST SEASON BONUS. In the event that the Club participates in a division playoff series, league championship series or the World Series during any championship season during the term of this Agreement, including either option year if the applicable option has been exercised, you shall be entitled to receive a bonus equal to a full player's share payable to the Club's players as determined pursuant to Major League Rule 45(b)(2) as the same shall be amended from time to time. 4. GROUP PLAN. In addition to all of the other rights and benefits under this Agreement, you shall be eligible to participate in any current or future plan which may be provided by the Club for the benefit of its executives or employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the Club to the fullest extent possible in accordance with the terms and provisions thereof. 5. EXPENSES. You shall be entitled to incur on behalf of the Club reasonable and necessary expenses in connection with your duties, in accordance with the Club's customary practice, including the following: Expenses incurred in 6 Mr. Dennis Lehman April 10, 1998 Page 6 connection with your business use of an automobile which will be provided by the Club for your exclusive use; travel expenses, consistent with the Club's customary policy, incurred by you on Club business trips. 6. JOB DESCRIPTION. During the term of your employment, you shall faithfully perform the duties and have the responsibilities of Executive Vice President/Business of the Club, subject to the control and direction of the President, Chief Executive Officer, the Chairman of the Board and the Board of Directors of the Club and its General Partner. You agree to devote your full time, energies, talent, and best efforts exclusively to your duties as Executive Vice President/Business and to such other duties as may be assigned to you as provided above. You agree that the Club will not grant permission to any other Major League Baseball Club to discuss other employment opportunities with you during the term of this Contract. This paragraph shall not be construed in a manner that would prohibit you from participation in charitable and civic activities or organizations; provided that such participation is disclosed to Club and the Club does not object to such participation. 7. PUBLIC CONTACT. You agree to conduct yourself with propriety and with due regard to public convention and morals, and agree not to engage in conduct which is detrimental to or contrary to the rules of the Club, the League and/or professional baseball, and you further agree to abide by and be subject to the discipline of the Commissioner of Baseball and to his decisions rendered in accordance with the Professional Baseball Agreement. 8. DEATH OR DISABILITY. Your death or permanent disability during the term of this Agreement shall immediately terminate this Agreement. For the purposes of this Section 8, permanent disability is defined as any condition caused by an accident, sickness or otherwise, which, in the reasonable judgment of the President and Chief Executive Officer of the Club, if any, the Chairman of the Board or the Board of Directors, disables, or may in the future disable, you from substantially performing the duties and services required under this Agreement for a period of 120 days, whether consecutive or non-consecutive, in any 12-month period. Upon termination of this Agreement pursuant to this Section 8, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such termination or otherwise required by law. 9. TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that you fail to observe and comply with the provisions of this Agreement in any material respect or in the event of your fraud or dishonesty in the performance of your duties, the Club may discharge you prior to the expiration of the term of this 7 Mr. Dennis Lehman April 10, 1998 Page 7 Agreement by giving you written notice, which notice shall state the specific facts upon which the discharge is based. In the event of such discharge, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such discharge or termination, except as otherwise required by law. Both parties agree, however, that you shall have no right to terminate this Agreement voluntarily. 10. TERMINATION WITHOUT CAUSE. You agree that, should you be discharged from your duties without cause, you are obligated to seek and, if offered, accept other comparable employment, either from another Major League Club or from some other baseball or non-baseball employer. In the event that you are so discharged without cause, you will receive not less than five days written notice of such discharge. The compensation due by the Club under this Agreement will be reduced by any compensation which you receive from such other employment following such termination. The amount to be deducted includes, but is not limited to, compensation of any kind for services, including salary, bonuses, fees, commissions, payments in kind, and similar items, and the reasonable value of services rendered by you should you become self-employed following termination. 11. REPRESENTATIONS AND ADDITIONAL COVENANTS. (a) You hereby represent that you are free to accept employment with the Club as contemplated hereunder, and that such employment will not violate the terms of any other agreement or instrument to which terms you are subject. (b) You hereby represent that you do not directly or indirectly, own stock or any other financial interest in the ownership or earnings of any Major League Club, and you agree that you will not hereafter acquire or hold any such interest except in accordance with Major League Rule 20(e). 12. CONFIDENTIALITY. The parties agree that the terms of this Agreement and all of the conversations and negotiations regarding your employment with the Club are in strictest confidence and shall be and will remain confidential and not subject to public disclosure of any kind without our mutual consent or as may be required by law. In addition, you agree to maintain the confidentiality of all business information of the Club which you acquire during your employment hereunder, and to preserve such information for the exclusive benefit of the Club. 13. INJUNCTIVE AND EQUITABLE RELIEF. Because during the course of 8 Mr. Dennis Lehman April 10, 1998 Page 8 your employment under this Agreement you will gain an intimate knowledge of the business, activities and affairs of the Club, and because of the special, unique and extraordinary services you are capable of performing for the Club or one of its competitors, you recognize that the services to be rendered by you hereunder are of a character giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated for by damages. You therefore agree that if you fail to comply with any of the provisions of this Agreement, in addition to the remedies and procedures provided elsewhere in this Agreement, the Club shall be entitled to obtain immediate injunctive or other equitable relief to restrain you from failing to fulfill your obligations hereunder or from becoming affiliated, directly or indirectly, with any of the Major League Clubs or their respective minor league affiliates, without prejudice to any other remedies to which the Club may be entitled under law. 14. BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, both you and the Club. This Agreement may not be assigned or transferred without the consent of both parties. 15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes in its entirety any prior agreements, arrangements and understandings between the parties with respect to the subject matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 16. GOVERNANCE. This Agreement is subject to and is governed by, all applicable rules and regulations of Major League Baseball and the American League of Professional Baseball Clubs, and any rules or regulations which the Club may announce from time to time. 17. LIFE INSURANCE. The Club understands that you may acquire life 9 Mr. Dennis Lehman April 10, 1998 Page 9 insurance policy to insure receipt of proceeds based upon the unpaid portion of the salary amounts set forth in paragraph 2. Each year during the term of this Contract, including any option years if the applicable option has been exercised, The Club will reimburse you for the cost of such policy in an amount not to exceed the annual premium based upon preferred issued rates for a term insurance policy with a death benefits equal to $1,250,000. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP By: Its General Partner, Cleveland Baseball Corporation By: /s/ Richard E. Jacobs ----------------------------------- Richard E. Jacobs ACCEPTED: /s/ Dennis Lehman - ---------------------------- Date: May 11, 1998 _______________________ EX-10.22 14 EXHIBIT 10.22 1 Exhibit 10.22 February 5, 1998 Mr. Daniel J. O'Dowd 425 Britannia Parkway Avon Lake, Ohio 44012 Dear Dan: The following shall constitute the Employment Agreement by and between Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Club"), and you and shall, upon acceptance by you, replace your existing contract dated October 25, 1994. 1. TERM. (a) Subject to the terms and conditions set forth below, the Club agrees to employ you as Vice President for Baseball Operations and Assistant General Manager of the General Partner of the Club, for the period commencing on January 1, 1998 and ending December 31, 2002, subject to subsections (b), (c), (d) and (e) below. (b) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2003, at a salary of $450,000.00 for 2003. Such option may be exercised by written notice personally delivered or mailed to you at the Club's offices on or before December 1, 2001. If the Club exercises this option, the Club will notify you on or before September 30, 2002 whether or not you will be promoted to Executive Vice President/General Manager as of January 1, 2003. If you are to be promoted to the position of Executive Vice President/General Manager as of January 1, 2003, your employment with the Club shall continue in accordance with the terms and conditions of this Contract. If the Club declines to promote you to the position of Executive Vice President/General Manager at that time, you may (1) during the period commencing on October 1, 2002 and ending on December 1, 2002, seek other employment opportunities and (2) terminate this Contract as of December 31, 2002 by providing written notice to the Club no later than December 1, 2002. If you do not elect to terminate this Contract, your 2 Mr. Daniel O'Dowd February 5, 1998 Page 2 employment will continue in accordance with the terms and conditions of this contract. (c) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2004 at a salary of $500,000.00 for 2004. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2002. If the Club exercises this option and you have not been previously promoted to the position of Executive Vice President/General Manager, the Club will notify you on or before September 30, 2003 whether or not you will be promoted to Executive Vice President/General Manager as of January 1, 2004. If you are to be promoted to the position of Executive Vice President/General Manager as of January 1 2004, your employment with the Club shall continue in accordance with the terms and conditions of this Contract. If the Club declines to promote you to the position of Executive Vice President/General Manager at that time, you may (1) during the period commencing on October 1, 2003 and ending on December 1, 2003, seek other employment opportunities and (2) terminate this Contract as of December 31, 2003 by providing written notice to the Club no later than December 1, 2003. If you do not elect to terminate this Contract, your employment will continue in accordance with the terms and conditions of this contract. (d) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2005 at a salary of $525,000.00 for 2005. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2003. If the Club exercises this option and you have not been previously promoted to the position of General Manager, the Club will notify you on or before September 30, 2004 whether or not you will be promoted to Executive Vice President/General Manager as of January 1, 2005. If you are to be promoted to the position of Executive Vice President/General Manager as of January 1 2005, your employment with the Club shall continue in accordance with the terms and conditions of this Contract. If the Club declines to promote you to the position of Executive Vice President/General Manager at that time, you may (1) during the period commencing on October 1, 2004 and ending on December 1, 2004, seek other employment opportunities and (2) terminate this Contract as of December 31, 2004 by providing written notice to the Club no later than December 1, 2004. If you do not elect to terminate this Contract, your employment will continue in accordance with the terms and conditions of this contract. (e) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2006 at a salary of $550,000.00 for 2006. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2004. If the Club 3 Mr. Daniel O'Dowd February 5, 1998 Page 3 exercises this option and you have not been previously promoted to the position of Executive Vice President/General Manager, the Club will notify you on or before September 30, 2005 whether or not you will be promoted to Executive Vice President/General Manager as of January 1, 2006. If you are to be promoted to the position of Executive Vice President/General Manager as of January 1 2006, your employment with the Club shall continue in accordance with the terms and conditions of this Contract. If the Club declines to promote you to the position of Executive Vice President/General Manager at that time, you may (1) during the period commencing on October 1, 2005 and ending on December 1, 2005, seek other employment opportunities and (2) terminate this Contract as of December 31, 2005 by providing written notice to the Club no later than December 1, 2005. If you do not elect to terminate this Contract, your employment will continue in accordance with the terms and conditions of this contract. (f) Your salary shall be payable each calendar year in twenty-four equal semi-monthly installments. 2. SALARY. (a) SALARY. Your salary as Vice President for Baseball Operation and General Manager during the period of your employment under this Agreement shall be as follows, less the amounts deferred pursuant to paragraph (b) of this Section 2: January 1, 1998 to December 31, 1998 at the rate of $300,000.00 per year. January 1, 1999 to December 31, 1999 - $325,000 January 1, 2000 to December 31, 2000 - $350,000 January 1, 2001 to December 31, 2001 - $375,000 January 1, 2002 to December 31, 2002 - $400,000 Option Years: January 1, 2003 to December 31, 2003 - $450,000 January 1, 2004 to December 31, 2004 - $500,000 January 1, 2005 to December 31, 2005 - $525,000 January 1, 2006 to December 31, 2006 - $550,000 4 Mr. Daniel O'Dowd February 5, 1998 Page 4 (b) DEFERRED COMPENSATION PLAN. On or before December 1 of the year immediately preceding any calendar year, you may elect to defer the payment of not more than 50% of the salary otherwise payable under subsection (a) of this Section 2 and 100% of any bonus payments for such calendar year, and on June 15 of such calendar year (or, if later, the date that any bonus payment would otherwise have been payable), the Club shall deposit such deferred compensation in a trust, the earnings on which are not currently taxable for federal income tax purposes, which shall be established by the Club to provide deferred compensation to you in accordance with this subsection (b) (the "Deferred Compensation Account"); a copy of such trust is attached hereto as Exhibit I. Notwithstanding the foregoing, if you terminate employment, die or become "permanently disabled" (as defined under Section 10) during a calendar year, the amount to be credited to the Deferred Compensation Account for that year shall be equal to the portion of the deferred amount that you actually earned through the date of your termination of employment, death or permanent disability. The fair market value of the Deferred Compensation Account, as determined under clause (i) of this subsection (b), shall be paid by the Club to you, or in the case of your death, to your beneficiary, in ten installments commencing on the first business day of January of the calendar year following the earlier of (a) the date of your death or permanent disability or (b) the later of (i) termination of your employment with the Club or (ii) your fifty-fifth (55) birthday. The payments will be computed in accordance with the following schedule:
Percentage of Fair Market Value Payment of Deferred NUMBER COMPENSATION ACCOUNT 1 10% 2 11.11% 3 12.5% 4 14.28% 5 16.67% 6 20% 7 25% 8 33.33% 9 50% 10 100%
(i) INVESTMENT POLICY. Any deferred compensation amounts credited to the Deferred Compensation Account pursuant to this subsection (b) and all income attributable to such amounts (net of expenses) shall be held in a segregated investment account within the Trust and shall be invested and 5 Mr. Daniel O'Dowd February 5, 1998 Page 5 reinvested accordance with the Trust agreement until such time as the entire fair market value of Deferred Compensation Account is paid by the Club to you, or your beneficiary, as applicable in accordance with Subsection (b)(i) above. (ii) DEATH BENEFITS. You shall be entitled to designate a beneficiary (or beneficiaries) who shall be entitled to receive that portion of your undistributed Deferred Compensation Account, as determined under the first paragraph of this subsection (b) if you die before receiving the total value of the Deferred Compensation Account. The designation of a beneficiary (or beneficiaries) must be made in writing on a form substantially similar to the form attached as Exhibit II to this Agreement and delivered to the Club. You may change or revoke a beneficiary designation by filing a new designation or notice of revocation with the Club. If you fail to designate a beneficiary or if no designated beneficiary survives you, the Club will pay any amounts payable pursuant to this subsection (b) to your surviving spouse, and to your personal representative if there is no surviving spouse. (iii) HARDSHIP. Regardless of the date on which payment of the deferred compensation under this subsection (b) otherwise is to be paid, in the event of your hardship, payment of all or a portion of the fair market value of the Deferred Compensation Account can be accelerated by the Club's determination of hardship. The Club shall have sole discretion as to whether a hardship has occurred and if so, also shall have sole discretion to determine the amount of deferred compensation that may be distributable to you in order to alleviate that hardship. For this purpose, hardship shall mean any emergency or necessity affecting your personal or family affairs having a significant adverse financial effect. (iv) NO FORFEITURE OF DEFERRED COMPENSATION. All deferred compensation credited to the Deferred Compensation Account shall be nonforfeitable. (v) DEBITING OF DEFERRED COMPENSATION ACCOUNT. Once an amount of deferred compensation has been paid, such amount shall be debited from the Deferred Compensation Account and shall cease to exist. (vi) PARTICIPANT'S RIGHTS ARE UNFUNDED AND UNSECURED. Notwithstanding the creation of the trust described herein, all deferred compensation benefits under this subsection (b) are unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended. Your (or your beneficiary's) right to receive a distribution hereunder shall be an unsecured claim against the general assets of the Club, and neither you nor your beneficiary shall have any rights in or against any amounts credited 6 Mr. Daniel O'Dowd February 5, 1998 Page 6 hereunder or any other specific assets of the Club or the trust referred to herein. Any deferred compensation benefits payable hereunder to you or your beneficiary may be payable out of the trust established by the Club, or may be payable from the general assets of the Club. (vii) ANTI-ASSIGNMENT. No right or deferred compensation payment under this subsection (b) shall be subject to alienation, sale or assignment. 3. LIFE INSURANCE. The Club understands that you may acquire life insurance policy to insure receipt of proceeds based upon the unpaid portion of the salary amounts set forth in paragraph 2. Each year during the term of this Contract, including any option years if the applicable option has been exercised, The Club will reimburse you for the cost of such policy in an amount not to exceed the annual premium based upon preferred issued rates for a term insurance policy with a death benefits equal to $1,250,000. Reimbursement will be made with respect to the option years only if the option for such year has been exercised. 4. POST SEASON BONUS. In the event that the Club participates in a division playoff series, league championship series or the World Series during any championship season during the term of this Agreement, including either option year if the applicable option has been exercised, you shall be entitled to receive a bonus equal to one-half (50%) of a player's share payable to the Club's players as determined pursuant to Major League Rule 45(b)(2) as the same shall be amended from time to time. The amount of the bonus will be increased to 100% of a full player's share for any Championship Season in which you are the Executive Vice President/General Manager of the Club. 5. GROUP PLAN. In addition to all of the other rights and benefits under this Agreement, you shall be eligible to participate in any current or future plan which may be provided by the Club for the benefit of its executives or employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the Club to the fullest extent possible in accordance with the terms and provisions thereof. 6. EXPENSES. You shall be entitled to incur on behalf of the Club reasonable and necessary expenses in connection with your duties, in accordance with the Club's customary practice, including expenses incurred in connection with your use of an automobile which will be provided by the Club for your exclusive use. 7. JOB DESCRIPTION. During the term of your employment, you shall faithfully perform the duties and have the responsibilities of Assistant General 7 Mr. Daniel O'Dowd February 5, 1998 Page 7 Manager and Vice-President for Baseball Operations of the Club, subject to the control and direction of the President and Chief Executive Officer, if any, the Chairman of the Board, the Board of Directors, the Executive Vice President and General Manager of the Club and its General Partner. You agree to devote your full time, energies, talent, and best efforts exclusively to your duties as Assistant General Manager and Director of Baseball Operations and to such other duties as may be assigned to you as provided above. You agree that the Club will not grant permission to any other Major League Baseball Club to discuss other employment opportunities with you during the term of this Contract; provided however, if the Club does not exercise an option to extend the term of the Contract as described in Paragraph 1, you shall be entitled to discuss, during the remaining term of this Contract, such other employment opportunities that may be available to you following the end of the term of this Contract. 8. PUBLIC CONTACT. You agree to conduct yourself with propriety and with due regard to public convention and morals, and agree not to engage in conduct which is detrimental to or contrary to the rules of the Club, the League and/or professional baseball, and you further agree to abide by and be subject to the discipline of the Commissioner of Baseball and to his decisions rendered in accordance with the Professional Baseball Agreement. 9. DEATH OR DISABILITY. Your death or permanent disability during the term of this Agreement shall immediately terminate this Agreement. For the purposes of this Section 9, permanent disability is defined as any condition caused by an accident, sickness or otherwise, which, in the reasonable judgment of the President and Chief Executive Officer of the Club, if any, the Chairman of the Board or the Board of Directors of the General Partner of the Club, disables, or may in the future disable, you from substantially performing the duties and services required under this Agreement for a period of 120 days, whether consecutive or non-consecutive, in any 12-month period. Upon termination of this Agreement pursuant to this Section 9, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such termination or otherwise required by law. 10. TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that you fail to observe and comply with the provisions of this Agreement in any material respect or in the event of your fraud or dishonesty in the performance of your duties, the Club may discharge you prior to the expiration of the term of this Agreement by giving you written notice, which notice shall state the specific facts upon which the discharge is based. In the event of such discharge, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such discharge or termination, except as otherwise required by law. Both parties agree, however, that you shall have no right to terminate this Agreement voluntarily. 8 Mr. Daniel O'Dowd February 5, 1998 Page 8 11. TERMINATION WITHOUT CAUSE. You agree that, should you be discharged from your duties without cause, you are obligated to seek and, if offered, accept other comparable employment, either from another Major League Club or from some other baseball or non-baseball employer. In the event that you are so discharged without cause, you will receive not less than five days written notice of such discharge. The compensation due by the Club under this Agreement will be reduced by any compensation which you receive from such other employment following such termination. The amount to be deducted includes, but is not limited to, compensation of any kind for services, including salary, bonuses, fees, commissions, payments in kind, and similar items, and the reasonable value of services rendered by you should you become self-employed following termination. 12. REPRESENTATIONS AND ADDITIONAL COVENANTS. (a) You hereby represent that you are free to accept employment with the Club as contemplated hereunder, and that such employment will not violate the terms of any other agreement or instrument to which terms you are subject. (b) You hereby represent that you do not directly or indirectly, own stock or any other financial interest in the ownership or earnings of any Major League Club, and you agree that you will not hereafter acquire or hold any such interest except in accordance with Major League Rule 20(e). 13. CONFIDENTIALITY. The parties agree that the terms of this Agreement and all of the conversations and negotiations regarding your employment with the Club are in strictest confidence and shall be and will remain confidential and not subject to public disclosure of any kind without our mutual consent or as may be required by law. In addition, you agree to maintain the confidentiality of all business information of the Club which you acquire during your employment hereunder, and to preserve such information for the exclusive benefit of the Club. 14. INJUNCTIVE AND EQUITABLE RELIEF. Because during the course of your employment under this Agreement you will gain an intimate knowledge of the business, activities and affairs of the Club, and because of the special, unique and extraordinary services you are capable of performing for the Club or one of its competitors, you recognize that the services to be rendered by you hereunder are of a character giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated for by damages. You therefore agree that if you fail to comply with any of the provisions of this Agreement, in addition to the remedies and procedures provided elsewhere in this Agreement, the Club shall be entitled to obtain immediate injunctive or other equitable relief to restrain you from failing to fulfill your obligations hereunder or from becoming affiliated, directly or indirectly, with any of the Major League Clubs or their respective minor league affiliates, without prejudice to any other remedies to which the Club may be entitled under law. 9 Mr. Daniel O'Dowd February 5, 1998 Page 9 15. BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, both you and the Club. This Agreement may not be assigned or transferred without the consent of both parties. 16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes in its entirety any prior agreements, arrangements and understandings between the parties with respect to the subject matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 17. GOVERNANCE. This Agreement is subject to and is governed by, all applicable rules and regulations of Major League Baseball and the American League of Professional Baseball Clubs, and any rules or regulations which the Club may announce from time to time. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP By: Its General Partner, Cleveland Baseball Corporation By: /s/ Richard E. Jacobs ------------------------------------ Richard E. Jacobs ACCEPTED: /s/ Daniel J. O'Dowd - ----------------------- Date: February 5, 1998 _________________ EX-10.23 15 EXHIBIT 10.23 1 Exhibit 10.23 [Cleveland Indians Letterhead] April 10, 1998 Mr. Jeff Overton 2255 Silveridge Trail Westlake, OH 44145 Dear Jeff: The following shall constitute the Employment Agreement by and between Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Club"), and you and shall, upon acceptance by you, replace your existing contract dated December 28, 1994. 1. TERM. (a) Subject to the terms and conditions set forth below, the Club agrees to employ you as Vice President-Marketing and Communications of the Club, for the period commencing on January 1, 1998 and ending December 31, 2002. (b) Your salary shall be payable each calendar year in twenty-four equal semi-monthly installments. 2. SALARY. (a) Salary. As Vice President-Marketing and Communications your salary during the period of your employment under this Agreement shall be as follows, less the amounts deferred pursuant to paragraph (b) of this Section 2: January 1, 1998 to December 31, 1998 at the rate of $225,000 per year. January 1, 1999 to December 31, 1999 - $250,000 January 1, 2000 to December 31, 2000 - $275,000 January 1, 2001 to December 31, 2001 - $300,000 January 1, 2002 to December 31, 2002 - $325,000 2 Mr. Jeff Overton April 10, 1998 Page 2 (b) DEFERRED COMPENSATION PLAN. On or before December 1 of the year immediately preceding any calendar year, you may elect to defer the payment of not more than 50% of the salary otherwise payable under subsection (a) of this Section 2 and 100% of any bonus payments for such calendar year, and on June 15 of such calendar year (or, if later, the date that any bonus payment would otherwise have been payable), the Club shall deposit such deferred compensation in a trust, the earnings on which are not currently taxable for federal income tax purposes, which shall be established by the Club to provide deferred compensation to you in accordance with this subsection (b) (the "Deferred Compensation Account"); a copy of such trust is attached hereto as Exhibit I. Notwithstanding the foregoing, if you terminate employment, die or become "permanently disabled" (as defined under Section 8) during a calendar year, the amount to be credited to the Deferred Compensation Account for that year shall be equal to the portion of the deferred amount that you actually earned through the date of your termination of employment, death or permanent disability. The fair market value of the Deferred Compensation Account, as determined under clause (i) of this subsection (b), shall be paid by the Club to you or, in the case of your death, to your beneficiary, in ten installments commencing on the first business day of January of the calendar year following the earlier of (a) the date of your death or permanent disability or (b) the later of (i) termination of your employment with the Club or (ii) your fifty-fifth (55) birthday. The payments will be computed in accordance with the following schedule:
Percentage of Fair Market Value Payment of Deferred Number Compensation Account ------ -------------------- 1 10% 2 11.11% 3 12.5% 4 14.28% 5 16.67% 6 20% 7 25% 8 33.33% 9 50% 10 100%
(i) Investment Policy. Any deferred compensation amounts credited to the Deferred Compensation Account pursuant to this subsection (b) and 3 Mr. Jeff Overton April 10, 1998 Page 3 all income attributable to such amounts (net of expenses) shall be held in a segregated investment account within the Trust and shall be invested and reinvested accordance with the Trust agreement until such time as the entire fair market value of Deferred Compensation Account is paid by the Club to you, or your beneficiary, as applicable in accordance with Subsection (b)(i) above. (ii) DEATH BENEFITS. You shall be entitled to designate a beneficiary (or beneficiaries) who shall be entitled to receive that portion of your undistributed Deferred Compensation Account, as determined under the first paragraph of this subsection (b) if you die before receiving the total value of the Deferred Compensation Account. The designation of a beneficiary (or beneficiaries) must be made in writing on a form substantially similar to the form attached as Exhibit II to this Agreement and delivered to the Club. You may change or revoke a beneficiary designation by filing a new designation or notice of revocation with the Club. If you fail to designate a beneficiary or if no designated beneficiary survives you, the Club will pay any amounts payable pursuant to this subsection (b) to your surviving spouse, and to your personal representative if there is no surviving spouse. (iii) HARDSHIP. Regardless of the date on which payment of the deferred compensation under this subsection (b) otherwise is to be paid, in the event of your hardship, payment of all or a portion of the fair market value of the Deferred Compensation Account can be accelerated by the Club's determination of hardship. The Club shall have sole discretion as to whether a hardship has occurred and, if so, also shall have sole discretion to determine the amount of deferred compensation that may be distributable to you in order to alleviate that hardship. For this purpose, hardship shall mean any emergency or necessity affecting your personal or family affairs having a significant adverse financial effect. (iv) NO FORFEITURE OF DEFERRED COMPENSATION. All deferred compensation credited to the Deferred Compensation Account shall be nonforfeitable. (v) DEBITING OF DEFERRED COMPENSATION ACCOUNT. Once an amount of deferred compensation has been paid, such amount shall be debited from the Deferred Compensation Account and shall cease to exist. (vi) PARTICIPANT'S RIGHTS ARE UNFUNDED AND UNSECURED. Notwithstanding the creation of the trust described herein, all deferred compensation benefits under this subsection (b) are unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended. Your (or your beneficiary's) right to receive a distribution hereunder shall be an unsecured claim against the general assets of the Club, and neither you nor your beneficiary shall have any rights in or against any amounts credited hereunder or any other specific assets of the Club or the trust referred to herein. Any deferred compensation benefits payable hereunder 4 Mr. Jeff Overton April 10, 1998 Page 4 to you or your beneficiary may be payable out of the trust established by the Club, or may be payable from the general assets of the Club. (vii) ANTI-ASSIGNMENT. No right or deferred compensation payment under this subsection (b) shall be subject to alienation, sale or assignment. 3. BONUS. (a) On or before January 1 of each year during the term of this agreement, the Club shall establish a Bonus Target based upon the amount of adjusted gross revenue from sources taken into account to compute the Bonus Target ("Adjusted Gross Revenues From Bonus Revenues") that the Club anticipates realizing from revenue sources subject to your management and oversight, including annual ticket sales and ticketing services revenue, ballpark signage and scoreboard promotions revenue, luxury suite & club seat license fee revenue, revenue from the rental of ballpark areas to groups, net revenue from the sale of radio and local television advertising as controlled by the Club) and local promotional revenue, all as set forth in the annual budget prepared by the Club in the ordinary course of the Club's business. Adjusted Gross Income From Bonus Revenues shall be computed by deducting from gross income from such sources, expenses incurred directly to produce such income. (b) In the event that the Club earns Adjusted Gross Income From Bonus Revenues equal to or greater than the Bonus Target, you shall be paid a bonus equal to $25,000. The amount of this bonus will be increased to $37,500 if the Club earns Adjusted Gross Income From Bonus Revenues equal to or greater than 102.5% of the Bonus Target. The amount of this bonus will be increased to $50,000 if the Club earns Adjusted Gross Income From Bonus Revenues equal to or greater than 105% of the Bonus Target. (c) The Club shall determine the amount of the Adjusted Gross Income From Bonus Revenues earned by the Club as soon as practicable after the end of each fiscal year, but in no event later than March 31. In the event of a dispute between you and the Club regarding this computation, the matter will be referred to the firm of independent accountants engaged by the Club to provide an annual certified audit of the Club's financial records. This firm shall compute the Adjusted Gross Revenues From Bonus Revenues of the Club based upon generally accepted accounting principles employing the same bases, definition and methods used to establish the Bonus Target. The determination made by the firm shall be final and binding on all parties. The General Partner retains the right to modify the list of items of gross income and expenses to be included in the computation of 5 Mr. Jeff Overton April 10, 1998 Page 5 the Bonus Target from year to year; provided however, the method of computing the Bonus Target shall not be modified after it has been established with respect to any particular year without your consent, which shall not be unreasonably withheld. 4. GROUP PLAN. In addition to all of the other rights and benefits under this Agreement, you shall be eligible to participate in any current or future plan which may be provided by the Club for the benefit of its executives or employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the Club to the fullest extent possible in accordance with the terms and provisions thereof. 5. EXPENSES. You shall be entitled to incur on behalf of the Club reasonable and necessary expenses in connection with your duties, in accordance with the Club's customary practice, including the following: Expenses incurred in connection with your business use of an automobile which will be provided by the Club for your exclusive use; travel expenses, consistent with the Club's customary policy, incurred by you on Club business trips. 6. JOB DESCRIPTION. During the term of your employment, you shall faithfully perform the duties and have the responsibilities of Vice President-Marketing and Communications of the Club, subject to the control and direction of the President, Chief Executive Officer, the Chairman of the Board, the Board of Directors and the Executive Vice-President/Business of the Club and its General Partner. You agree to devote your full time, energies, talent, and best efforts exclusively to your duties as Vice President-Marketing and Communication and to such other duties as may be assigned to you as provided above. This paragraph shall not be construed in a manner that would prohibit you from participation in charitable and civic activities or organizations; provided that such participation is disclosed to Club and the Club does not object to such participation. You agree that the Club will not grant permission to any other Major League Baseball Club to discuss other employment opportunities with you during the term of this Contract; provided, however, you may seek or respond to inquiries for other employment opportunities commencing on January 1, 2002 and as set forth in Paragraph 17. The permission to seek or respond to inquiries about other employment opportunities would terminate in the event you and the Club enter into a new contract that would extend beyond 2003. 7. PUBLIC CONTACT. You agree to conduct yourself with propriety and with due regard to public convention and morals, and agree not to engage in conduct which is detrimental to or contrary to the rules of the Club, the League 6 Mr. Jeff Overton April 10, 1998 Page 6 and/or professional baseball, and you further agree to abide by and be subject to the discipline of the Commissioner of Baseball and to his decisions rendered in accordance with the Professional Baseball Agreement. 8. DEATH OR DISABILITY. Your death or permanent disability during the term of this Agreement shall immediately terminate this Agreement. For the purposes of this Section 8, permanent disability is defined as any condition caused by an accident, sickness or otherwise, which, in the reasonable judgment of the President and Chief Executive Officer of the Club, if any, the Chairman of the Board or the Board of Directors of the General Partner, disables, or may in the future disable, you from substantially performing the duties and services required under this Agreement for a period of 120 days, whether consecutive or non-consecutive, in any 12-month period. Upon termination of this Agreement pursuant to this Section 8, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such termination or otherwise required by law. 9. TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that you fail to observe and comply with the provisions of this Agreement in any material respect or in the event of your fraud or dishonesty in the performance of your duties, the Club may discharge you prior to the expiration of the term of this Agreement by giving you written notice, which notice shall state the specific facts upon which the discharge is based. In the event of such discharge, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such discharge or termination, except as otherwise required by law. Both parties agree, however, that you shall have no right to terminate this Agreement voluntarily. 10. TERMINATION WITHOUT CAUSE. You agree that, should you be discharged from your duties without cause, you are obligated to seek and, if offered, accept other comparable employment, either from another Major League Club or from some other baseball or non-baseball employer. In the event that you are so discharged without cause, you will receive not less than five days written notice of such discharge. The compensation due by the Club under this Agreement will be reduced by any compensation, which you receive from such other employment following such termination. The amount to be deducted includes, but is not limited to, compensation of any kind for services, including salary, bonuses, fees, commissions, payments in kind, and similar items, and the reasonable value of services rendered by you should you become self-employed following termination. 7 Mr. Jeff Overton April 10, 1998 Page 7 11. REPRESENTATIONS AND ADDITIONAL COVENANTS. (a) You hereby represent that you are free to accept employment with the Club as contemplated hereunder, and that such employment will not violate the terms of any other agreement or instrument to which terms you are subject. (b) You hereby represent that you do not directly or indirectly, own stock or any other financial interest in the ownership or earnings of any Major League Club, and you agree that you will not hereafter acquire or hold any such interest except in accordance with Major League Rule 20(e). 12. CONFIDENTIALITY. The parties agree that the terms of this Agreement and all of the conversations and negotiations regarding your employment with the Club are in strictest confidence and shall be and will remain confidential and not subject to public disclosure of any kind without our mutual consent or as may be required by law. In addition, you agree to maintain the confidentiality of all business information of the Club that you acquire during your employment hereunder, and to preserve such information for the exclusive benefit of the Club. 13. INJUNCTIVE AND EQUITABLE RELIEF. Because during the course of your employment under this Agreement you will gain an intimate knowledge of the business, activities and affairs of the Club, and because of the special, unique and extraordinary services you are capable of performing for the Club or one of its competitors, you recognize that the services to be rendered by you hereunder are of a character giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated for by damages. You therefore agree that if you fail to comply with any of the provisions of this Agreement, in addition to the remedies and procedures provided elsewhere in this Agreement, the Club shall be entitled to obtain immediate injunctive or other equitable relief to restrain you from failing to fulfill your obligations hereunder or from becoming affiliated, directly or indirectly, with any of the Major League Clubs or their respective minor league affiliates, without prejudice to any other remedies to which the Club may be entitled under law. 14. BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, both you and the Club. This Agreement may not be assigned or transferred without the consent of both parties. 15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes in its entirety any prior agreements, arrangements and understandings between the parties with respect to the subject 8 Mr. Jeff Overton April 10, 1998 Page 8 matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 16. GOVERNANCE. This Agreement is subject to and is governed by, all applicable rules and regulations of Major League Baseball and the American League of Professional Baseball Clubs, and any rules or regulations that the Club may announce from time to time. 17. EARLY RELEASE/NON-COMPETITION. (a) The Club agrees that you may seek other employment opportunities during the period commencing January 1, 2000 and ending April 30, 2000. You agree that during such period and for a period of two years following termination of this agreement, you will not seek or accept any employment or self-employment opportunity relating to the advertising, marketing, sale or management of professional or amateur sports within the State of Ohio. You also agree that during such period you will not seek or accept any employment opportunity with any other Major League Baseball Club other than a position as the most senior executive officer in charge of the business operations of a Major League Baseball Club. (b) If you provide written notice (either delivered personally or by certified mail) to the Chief Executive Officer of the Club no later than April 30, 2000 that you wish to be released from the terms of this agreement to accept another employment or self-employment opportunity that the Club determines does not conflict with the terms of this agreement, the Club will release you from your obligation to continue to provide services to Club pursuant to this agreement. In the event that you elect to exercise this opportunity, you and the Club will agree to determine a mutually acceptable release date; provided however, the release date will not occur before May 31, 2000, unless the Club determines that an earlier release date will not adversely impact the Club. 18. LIFE INSURANCE. The Club understands that you may acquire a life insurance policy to insure receipt of proceeds based upon the unpaid portion of the salary amounts set forth in paragraph 2. Each year during the term of this Contract, including any option years if the applicable option has been exercised, the Club will reimburse you for the cost of such policy in an amount not to exceed 9 Mr. Jeff Overton April 10, 1998 Page 9 the annual premium based upon preferred issued rates for a term insurance policy with a death benefit equal to $687,500. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP By: Its General Partner, Cleveland Baseball Corporation By: /s/ Richard E. Jacobs ------------------------------ Richard E. Jacobs ACCEPTED: /s/ Jeffry L. Overton - --------------------------- Date: 5-15-98 --------------------- EX-10.24 16 EXHIBIT 10.24 1 Exhibit 10.24 [LOGO] April 24, 1998 Mr. Ken Stefanov Vice President, Finance Cleveland Indians Jacobs Field 2401 Ontario Avenue Cleveland, Ohio 44115 Re: Terms of Employment -------------------- Dear Ken: The purpose of this letter is to amend and restate the Employment Agreement by and between Cleveland Indians Baseball Company Limited Partnership, an Ohio limited partnership (the "Club"), and you. 1. TERM. (a) Subject to the terms and conditions set forth below, the Club agrees to employ you as Vice President, Finance of the Club, for the period commencing on the date of your acceptance as set forth below and ending December 31, 1999, subject to subsections (b) and (c) below. (b) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2000, at a salary of $140,000.00 for the year 2000. Such option may be exercised by written notice personally delivered or mailed to you at the Club's offices on or before December 1, 1999. (c) The Club shall have the unilateral option to extend the term of this Agreement through December 31, 2001 at a salary of $150,000.00 for the year 2001. Such option may be exercised by written notice personally delivered or mailed to the Club's offices on or before December 1, 2000. [LOGO] 2 Mr. Ken Stefanov April 24, 1998 Page 2 (d) Your salary shall be payable each calendar year in twenty-four equal semi-monthly installments. 2. SALARY. (a) Your salary as Vice President, Finance during the period of your employment under this Agreement shall be as follows: January 1, 1997 to December 31, 1997 at the rate of $100,000.00 per year. January 1, 1998 to December 31, 1998 - $ 115,000 January 1, 1999 to December 31, 1999 - $ 125,000 Option Years: January 1, 2000 to December 31, 2000 - $ 140,000 January 1, 2001 to December 31, 2001 - $ 150,000 (b) DEFERRED COMPENSATION PLAN. On or before December 1 of the year immediately preceding any calendar year, you may elect to defer the payment of not more than 50% of the salary otherwise payable under subsection (a) of this Section 2 and 100% of any bonus payments for such calendar year, and on June 15 of such calendar year (or, if later, the date that any bonus payment would otherwise have been payable), the Club shall deposit such deferred compensation in a trust, the earnings on which are not currently taxable for federal income tax purposes, which shall be established by the Club to provide deferred compensation to you in accordance with this subsection (b) (the "Deferred Compensation Account"); a copy of such trust is attached hereto as Exhibit 1. Notwithstanding the foregoing, if you terminate employment, die or become "permanently disabled" (as defined under Section 10) during a calendar year, the amount to be credited to the Deferred Compensation Account for that year shall be equal to the portion of the deferred amount that you actually earned through the date of your termination of employment, death or permanent disability. The fair market value of the Deferred Compensation Account, as determined under clause (i) of this subsection (b), shall be paid by the Club to you, or in the case of your death, to your beneficiary, in ten installments commencing on the first business day of January of the calendar year following the earlier of (a) the date of your death or permanent disability 3 Mr. Ken Stefanov April 24, 1998 Page 3 or (b) the later of (i) termination of your employment with the Club or (ii) your fifty-fifth (55) birthday. The payments will be computed in accordance with the following schedule:
Percentage of Fair Market Value Payment of Deferred Number Compensation Account - ------ -------------------- 1 10% 2 11.11% 3 12.5% 4 14.28% 5 16.67% 6 20% 7 25% 8 33.33% 9 50% 10 100%
(i) INVESTMENT POLICY. Any deferred compensation payments credited to the Deferred Compensation Account pursuant to this subsection (b) and all income attributable to such amounts (net of expenses) shall be invested and reinvested in accordance with the trust agreement described herein until such time as the Deferred Compensation Account is paid by the Club to you, or your beneficiary, as applicable. (ii) DEATH BENEFITS. You shall be entitled to designate a beneficiary (or beneficiaries) who shall be entitled to receive that portion of your undistributed Deferred Compensation Account, as determined under the first paragraph of this subsection (b) if you die before receiving the total value of the Deferred Compensation Account. The designation of a beneficiary (or beneficiaries) must be made in writing on a form substantially similar to the form attached as Exhibit 11 to this Agreement and delivered to the Club. You may change or revoke a beneficiary designation by filing a new designation or notice of revocation with the Club. If you fail to designate a beneficiary or if no designated beneficiary survives you, the Club will pay any amounts payable pursuant to this subsection (b) to your surviving spouse, and to your personal representative if there is no surviving spouse. 4 Mr. Ken Stefanov April 24, 1998 Page 4 (iii) HARDSHIP. Regardless of the date on which payment of the deferred compensation under this subsection (b) otherwise is to be paid, in the event of your hardship, payment of all or a portion of the fair market value of the Deferred Compensation Account can be accelerated by the Club's determination of hardship. The Club shall have sole discretion as to whether a hardship has occurred and if so, also shall have sole discretion to determine the amount of deferred compensation that may be distributable to you in order to alleviate that hardship. For this purpose, hardship shall mean any emergency or necessity affecting your personal or family affairs having a significant adverse financial effect. (iv) NO FORFEITURE OF DEFERRED COMPENSATION. All deferred compensation credited to the Deferred Compensation Account shall be nonforfeitable. (v) DEBITING OF DEFERRED COMPENSATION ACCOUNT. Once an amount of deferred compensation has been paid, such amount shall be debited from the Deferred Compensation Account and shall cease to exist. (vi) PARTICIPANT'S RIGHTS ARE UNFUNDED AND UNSECURED. Notwithstanding the creation of the trust described herein, all deferred compensation benefits under this subsection (b) are unfunded for purposes of the Employee Retirement Income Security Act of 1974, as amended. Your (or your beneficiary's) right to receive a distribution hereunder shall be an unsecured claim against the general assets of the Club, and neither you nor your beneficiary shall have any rights in or against any amounts credited hereunder or any other specific assets of the Club or the trust referred to herein. Any deferred compensation benefits payable hereunder to you or your beneficiary may be payable out of the trust established by the Club, or may be payable from the general assets of the Club. (vii) ANTI-ASSIGNMENT. No right or deferred compensation payment under this subsection (b) shall be subject to alienation, sale or assignment. (c) POST SEASON BONUS. In the event that the Club participates in a division playoff series, league championship series or the World Series during any championship season during the term of this Agreement, including either option year if the applicable option has been exercised, you shall be entitled to receive a bonus equal to one-quarter (25%) of a player's share 5 Mr. Ken Stefanov April 24, 1998 Page 5 payable to the Club's players as determined pursuant to Major League Rule 45(b)(2) as the same shall be amended from time to time. 3. GROUP PLAN. In addition to all of the other rights and benefits under this Agreement, you shall be eligible to participate in any current or future plan which may be provided by the Club for the benefit of its employees, provided you qualify, and subject to such plan's or program's terms and conditions. You may participate in, among other things, any and all group life insurance policies, plans, and medical and health benefits maintained by or on behalf of the Club to the fullest extent possible in accordance with the terms and provisions thereof. 4. EXPENSES. You shall be entitled to incur on behalf of the Club reasonable and necessary expenses in connection with your duties, in accordance with the Club's customary practice, excluding expenses incurred in connection with your use of an automobile. 5. JOB DESCRIPTION. During the term of your employment, you shall faithfully perform the duties and have the responsibilities of Vice President, Finance of the Club, subject to the control and direction of the Executive Vice President of Business Operations, the President and Chief Executive Officer, the Chairman of the Board and the Board of Directors of the Club or its General Partner. You agree to devote your full time, energies, talent, and best efforts exclusively to your duties as Vice President, Finance, and to such other duties as may be assigned to you as provided above. 6. PUBLIC CONTACT. You agree to conduct yourself with propriety and with due regard to public convention and morals, and agree not to engage in conduct which is detrimental to or contrary to the rules of the Club, the League and/or professional baseball, and you further agree to abide by and be subject to the discipline of the Commissioner of Baseball and to his decisions rendered in accordance with the Professional Baseball Agreement. 7. DEATH OR DISABILITY. Your death or permanent disability during the term of this Agreement shall immediately terminate this Agreement. For the purposes of this Section 7, permanent disability is defined as any condition caused by an accident, sickness or otherwise, which, in the reasonable judgment of the Executive Vice President of Business Operations, the President and Chief Executive Officer, the Chairman of the Board or the Board of Directors of the Club or its General Partner, disables, or may in the future disable, you from substantially performing the duties and services required under this Agreement for a period of 120 days, whether consecutive or non-consecutive, in any 12-month period. Upon termination of this 6 Mr. Ken Stefanov April 24, 1998 Page 6 Agreement pursuant to this Section 7, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such termination or otherwise required by law. 8. TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the event that you fail to observe and comply with the provisions of this Agreement in any material respect or in the event of your fraud or dishonesty in the performance of your duties, the Club may discharge you prior to the expiration of the term of this Agreement by giving you written notice, which notice shall state the specific facts upon which the discharge is based. In the event of such discharge, you shall be entitled to no compensation or any of the other rights or benefits provided in this Agreement not already earned as of the date of such discharge or termination, except as otherwise required by law. You hereby acknowledge and agree that you shall have no right to terminate this Agreement voluntarily. 9. TERMINATION WITHOUT CAUSE. You agree that, should you be discharged from your duties without cause, you are obligated to seek and, if offered, accept other comparable employment, either from another Major League Club or from some other baseball or non-baseball employer. In the event that you are so discharged without cause, you will receive not less than five days written notice of such discharge. The compensation due by the Club under this Agreement will be reduced by any compensation which you receive from such other employment following such termination. The amount to be deducted includes, but is not limited to, compensation of any kind for services, including salary, bonuses, fees, commissions, payments in kind, and similar items, and the reasonable value of services rendered by you should you become self-employed following termination. 10. REPRESENTATIONS AND ADDITIONAL COVENANTS. (a) You hereby represent that you are free to accept employment with the Club as contemplated hereunder, and that such employment will not violate the terms of any other agreement or instrument to which terms you are subject. (b) You hereby represent that you do not directly or indirectly, own stock or any other financial interest in the ownership or earnings of any Major League Club, and you agree that you will not hereafter acquire or hold any such interest except in accordance with Major League Rule 20(e). (c) You hereby agree that, during the term of your employment with the Club, you will not seek, encourage or enter into any negotiations or discus- 7 Mr. Ken Stefanov April 24, 1998 Page 7 sions concerning your employment with any other Major League Club. You hereby agree to notify the Club promptly in writing if any other Major League Club requests that you consider an offer of employment with such Major League Club or otherwise commences discussions concerning an offer of employment. 11. CONFIDENTIALITY. The parties agree that the terms of this Agreement and all of the conversations and negotiations regarding your employment with the Club are in strictest confidence and shall be and will remain confidential and not subject to public disclosure of any kind without our mutual consent or to the extent required by law. In addition, you agree to maintain the confidentiality of all business information of the Club which you acquire during your employment hereunder, and to preserve such information for the exclusive benefit of the Club. 12. INJUNCTIVE AND EQUITABLE RELIEF. Because during the course of your employment under this Agreement you will gain an intimate knowledge of the business, activities and affairs of the Club, and because of the special, unique and extraordinary services you are capable of performing for the Club or one of its competitors, you recognize that the services to be rendered by you hereunder are of a character giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated for by damages. You therefore agree that if you fail to comply with any of the provisions of this Agreement, in addition to the remedies and procedures provided elsewhere in this Agreement, the Club shall be entitled to obtain immediate injunctive or other equitable relief to restrain you from failing to fulfill your obligations hereunder or from becoming affiliated, directly or indirectly, with any of the Major League Clubs or their respective minor league affiliates, without prejudice to any other remedies to which the Club may be entitled under law. 13. BINDING EFFECT. This Agreement shall be binding upon, and shall inure to the benefit of, both you and the Club. This Agreement may not be assigned or transferred without the consent of both parties. 14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, and supersedes in its entirety any prior agreements, arrangements and understandings between the parties with respect to the subject matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 15. GOVERNANCE. This Agreement is subject to and is governed by, all applicable rules and regulations of Major League Baseball and the American League 8 Mr. Ken Stefanov April 24, 1998 Page 8 of Professional Baseball Clubs, and any rules or regulations which the Club may announce from time to time. Very truly yours, CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP By: /s/ Richard E. Jacobs -------------------------------- Richard E. Jacobs President and Chief Executive Officer ACCEPTED: /s/ Ken Stefanov - ------------------------------ Ken Stefanov Date: 5/11/98 ------------------- EX-23.2 17 EXHIBIT 23.2 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-49357 of Cleveland Indians Baseball Company, Inc. of our report dated February 14, 1998 (March 31, 1998 as to Note 17) on the combined financial statements of Cleveland Indians Baseball Company Limited Partnership and Ballpark Management Company and of our report dated April 1, 1998 on Cleveland Indians Baseball Company, Inc., appearing in the Prospectus, which is a part of such Registration Statement and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Cleveland, Ohio May 11, 1998 EX-27.1 18 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST QUARTER INFORMATION AS OF MARCH 31, 1998 FOR THE CLEVELAND INDIANS BASEBALL COMPANY LIMITED PARTNERSHIP AND BALLPARK MANAGEMENT COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1998 MAR-31-1998 2,055 63,881 8,078 0 2,196 91,412 8,054 2,962 125,037 100,655 35,500 0 0 0 (26,326) 125,037 1,093 3,035 1,582 12,794 1,604 0 661 (10,076) 0 (10,076) 0 0 0 (10,076) 0 0
EX-99.2 19 EXHIBIT 99.2 1 Exhibit 99.2 CONSENT OF PROPOSED DIRECTOR I hereby consent to being named in this Registration Statement on Form S-1 as a proposed director of Cleveland Indians Baseball Company, Inc. (the "Company") and have agreed to serve as a director of the Company if elected. May 8, 1998 /s/ Robert W. Brown MD ------------------------------ Dr. Robert W. Brown EX-99.3 20 EXHIBIT 99.3 1 Exhibit 99.3 CONSENT OF PROPOSED DIRECTOR I hereby consent to being named in this Registration Statement on Form S-1 as a proposed director of Cleveland Indians Baseball Company, Inc. (the "Company") and have agreed to serve as a director of the Company if elected. May 8, 1998 /s/ William B. Summers, Jr. --------------------------------- William B. Summers, Jr. -----END PRIVACY-ENHANCED MESSAGE-----