<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM____________________TO____________________________
COMMISSION FILE NUMBER 0-24377
CLEVELAND INDIANS BASEBALL COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1861303
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2401 ONTARIO STREET, CLEVELAND, OHIO 44115
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 216-420-4200
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of
common stock, as of August 13, 1999 was as follows:
CLASS A COMMON SHARES 4,139,476 SHARES
CLASS B COMMON SHARES 2,283,957 SHARES
<PAGE> 2
INDEX*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS:
a) Unaudited Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 3
b) Unaudited Consolidated Statements of Operations of Cleveland
Indians Baseball Company, Inc. for the Three Months Ended
June 30, 1999 and for the period from June 9, 1998 to June 30, 1998
and the Combined Statement of Operations of Cleveland Indians
Baseball Company Predecessor Group for the period from April 1,
1998 to June 8, 1998 4
c) Unaudited Consolidated Statements of Operations of Cleveland
Indians Baseball Company, Inc. for the Six Months Ended June 30,
1999 and for the period from June 9, 1998 to June 30, 1998 and the
Combined Statement of Operations of Cleveland Indians Baseball
Company Predecessor Group for the period from January 1, 1998 to
June 8, 1998 5
d) Unaudited Condensed Consolidated Statements of Cash Flows of
Cleveland Indians Baseball Company, Inc. for the Six Months
Ended June 30, 1999 and for the period from June 9, 1998 to June
30, 1998 and the Combined Statement of Operations of Cleveland
Indians Baseball Company Predecessor Group for the period from
January 1, 1998 to June 8, 1998 6
e) Notes to Unaudited Condensed Consolidated and Combined
Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
</TABLE>
* Items not listed are inapplicable
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. - CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
CLEVELAND INDIANS BASEBALL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,375 $ 39,283
Marketable securities 34,695 13,287
Investments -- 3,783
Receivables and accrued income 14,468 9,421
Merchandise inventories 1,771 1,207
Prepaid expenses and other current assets 2,082 2,969
Deferred taxes 1,425 --
Deposit for grievance settlement 9,814 9,589
--------- ---------
Total current assets 78,630 79,539
--------- ---------
FIXED ASSETS:
Leasehold improvements, furniture and fixtures
and other equipment, at cost 10,839 8,969
Less accumulated depreciation and amortization 3,973 3,387
--------- ---------
Total fixed assets, net 6,866 5,582
PREPAID SIGNING BONUSES AND PLAYER
CONTRACTS (Net of accumulated amortization) 12,170 10,590
INTANGIBLE ASSETS (Net of accumulated amortization) 9,984 10,383
DEFERRED TAXES 1,824 3,960
OTHER ASSETS 15,525 11,969
--------- ---------
TOTAL $ 124,999 $ 122,023
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 17,675 $ 10,961
Deferred revenue 42,485 48,829
Current portion of long-term debt 516 448
Reserve for players' grievance damages 9,814 9,589
Income taxes payable 75 750
--------- ---------
Total current liabilities 70,565 70,577
LONG-TERM LIABILITIES 61,674 57,951
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
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; 4,139,376 shares issued and outstanding 55,800 55,800
Class B Common Shares, without par value; 3,000,000 shares
authorized; 2,283,957 shares issued and outstanding 5,125 5,125
Additional paid in capital 4,700 4,700
Retained earnings (deficit) (72,865) (72,130)
--------- ---------
Total shareholders' equity (deficit) (7,240) (6,505)
--------- ---------
TOTAL $ 124,999 $ 122,023
========= =========
</TABLE>
See notes to condensed consolidated and combined financial statements.
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<PAGE> 4
CLEVELAND INDIANS BASEBALL COMPANY, INC. AND
CLEVELAND INDIANS BASEBALL COMPANY PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE
PREDECESSOR
THE COMPANY GROUP
----------- -----
THREE MONTHS PERIOD PERIOD
ENDED JUNE 9, APRIL 1,
JUNE 30, TO JUNE 30, TO JUNE 8,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net ticket sales $ 30,089 $ 9,413 $ 18,155
Local radio and television 10,586 1,820 7,279
Concession and catering 7,861 2,721 5,230
Private suite and club seat rentals 5,697 1,638 3,160
Advertising and promotion 7,090 1,703 3,284
Merchandise 6,211 1,740 4,108
Major Leagues Central Fund 4,667 703 2,206
Other (primarily Major League Baseball Properties) 940 217 682
Provision for revenue sharing (5,414) (1,461) (2,818)
----------- ----------- -----------
Total revenues 67,727 18,494 41,286
----------- ----------- -----------
OPERATING EXPENSES:
Major league team 36,507 7,675 26,435
Player development 4,108 912 2,861
Ballpark operations 4,838 1,585 3,107
Cost of merchandise sold 3,951 1,050 2,451
Administrative and general 3,020 693 2,117
Major Leagues Central Fund 2,026 403 1,266
Advertising and promotion 1,363 265 833
Amortization of signing bonuses and player contracts 2,408 496 1,554
Depreciation and amortization 486 121 381
----------- ----------- -----------
Total operating expenses 58,707 13,200 41,005
----------- ----------- -----------
OPERATING INCOME 9,020 5,294 281
OTHER INCOME (EXPENSE):
Interest income 1,303 211 667
Interest expense (527) (169) (530)
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 9,796 5,336 418
MINORITY INTEREST (4,800) (2,615) --
PROVISION FOR INCOME TAXES (2,064) (915) --
----------- ----------- -----------
NET INCOME $ 2,932 $ 1,806 $ 418
=========== =========== ===========
BASIC AND DILUTED NET INCOME PER SHARE $ 0.46 $ 0.28
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 6,423,333 6,423,333
=========== ===========
Diluted 6,427,725 6,423,333
=========== ===========
</TABLE>
See notes to condensed consolidated and combined financial statements.
- 4 -
<PAGE> 5
CLEVELAND INDIANS BASEBALL COMPANY, INC. AND
CLEVELAND INDIANS BASEBALL COMPANY PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE
PREDECESSOR
THE COMPANY GROUP
----------- -----
SIX MONTHS PERIOD PERIOD
ENDED JUNE 9, JANUARY 1,
JUNE 30, TO JUNE 30, TO JUNE 8,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net ticket sales $ 31,029 $ 9,413 $ 19,248
Local radio and television 10,586 1,820 7,317
Concession and catering 7,887 2,721 5,250
Private suite and club seat rentals 5,715 1,638 3,160
Advertising and promotion 7,090 1,703 3,284
Merchandise 7,823 1,740 5,540
Major Leagues Central Fund 4,667 703 2,206
Other (primarily Major League Baseball Properties) 1,689 217 1,357
Provision for revenue sharing (5,625) (1,461) (3,041)
----------- ----------- -----------
Total revenues 70,861 18,494 44,321
----------- ----------- -----------
OPERATING EXPENSES:
Major league team 39,594 7,675 28,943
Player development 6,838 912 5,422
Ballpark operations 6,396 1,585 5,218
Cost of merchandise sold 5,656 1,050 4,072
Administrative and general 5,420 693 4,234
Major Leagues Central Fund 2,643 403 1,569
Advertising and promotion 2,473 265 1,784
Amortization of signing bonuses and player contracts 2,781 496 1,779
Depreciation and amortization 970 121 778
----------- ----------- -----------
Total operating expenses 72,771 13,200 53,799
----------- ----------- -----------
OPERATING INCOME (LOSS) (1,910) 5,294 (9,478)
OTHER INCOME (EXPENSE):
Interest income:
Affiliate -- -- 595
Other 3,113 211 2,020
Interest expense (1,127) (169) (1,191)
Loss on player transactions -- -- (1,604)
----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES 76 5,336 (9,658)
MINORITY INTEREST (37) (2,615) --
PROVISION FOR INCOME TAXES (811) (915) --
----------- ----------- -----------
NET INCOME (LOSS) $ (772) $ 1,806 $ (9,658)
=========== =========== ===========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.12) $ 0.28
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 6,423,333 6,423,333
=========== ===========
Diluted 6,427,725 6,423,333
=========== ===========
</TABLE>
See notes to condensed consolidated and combined financial statements.
- 5 -
<PAGE> 6
CLEVELAND INDIANS BASEBALL COMPANY, INC. AND
CLEVELAND INDIANS BASEBALL COMPANY PREDECESSOR GROUP
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
THE
PREDECESSOR
THE COMPANY GROUP
----------- -----
SIX MONTHS PERIOD PERIOD
ENDED JUNE 9, JANUARY 1,
JUNE 30, TO JUNE 30, TO JUNE 8,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES $ (899) $ (6,999) 3,607
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in short-term investments 3,783 6,827 14,300
Purchases of marketable securities (61,092) -- --
Maturities of marketable securities 39,684 -- --
Purchase of long-term investments (508) (425) (1,156)
Proceeds from sale of player contracts 241 248 413
Capital expenditures (1,892) (209) (1,062)
Expenditures for the purchase of
player contracts and signing bonuses (4,225) (342) (4,007)
Decrease in loan to general partner -- -- 35,500
Acquisition of partnership interest -- (55,800) --
-------- -------- --------
Net cash provided by (used in) investing activities (24,009) (49,701) 43,988
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt issuance costs -- -- (192)
Net proceeds from sale of common stock -- 55,800 --
Distributions to general partner -- -- (49,200)
-------- -------- --------
Net cash provided by (used in) financing activities -- 55,800 (49,392)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24,908) (900) (1,797)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,283 1,935 3,732
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,375 $ 1,035 $ 1,935
======== ======== ========
</TABLE>
See notes to condensed consolidated and combined financial statements.
- 6 -
<PAGE> 7
CLEVELAND INDIANS BASEBALL COMPANY, INC.
AND CLEVELAND INDIANS BASEBALL COMPANY PREDECESSOR GROUP
NOTES TO CONDENSED CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
Cleveland Indians Baseball Company, Inc., an Ohio corporation (the
"Company"), was formed to acquire the 51% sole general partnership
interest of, and controlling interest in, Cleveland Indians Baseball
Company Limited Partnership, an Ohio limited partnership (the
"Operating Partnership"). The Operating Partnership was formed 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") and to operate and
manage a baseball facility ("Jacobs Field") under a long-term
management agreement with Gateway Economic Development Corporation of
Greater Cleveland ("Gateway"). The historical financial information
prior to June 9, 1998 includes the combined operations of Cleveland
Indians Baseball Company Limited Partnership and Ballpark Management
Company (collectively, the "Cleveland Indians Baseball Company
Predecessor Group" or the "Predecessor Group").
On June 9, 1998, the Company commenced operations after completing
an initial public offering of 4,000,000 Class A Common Shares (the
"Offering"). The 4,000,000 common shares were issued at a price per
share of $15.00, generating gross proceeds of $60,000. The aggregate
proceeds to the Company, net of underwriters' discount, were
approximately $55,800. The Company utilized these net proceeds to
purchase its 51% general partnership interest in the Operating
Partnership and to engage in the other transactions described below.
The following transactions occurred simultaneously with the
completion of the Offering (collectively, the "Formation
Transactions"):
o The Company issued and sold 133,233 Class A Common Shares to
the original shareholders and Martin J. Cleary at a purchase
price of $15.00 per share. The proceeds were used to pay the
expenses of the Offering.
o The original shareholders and Martin J. Cleary contributed
their interests in Ballpark Management Company ("Ballpark
Management") and MJC Baseball, Inc. ("MJC") to the Company in
exchange for 6,043 Class A Common Shares and 2,283,957 Class B
Common Shares valued at $5,125.
o The Company contributed to the Operating 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 Operating
Partnership.
o Upon completion of the contribution described above, the
Company purchased additional general partnership interests
from Cleveland Baseball Company ("CBC") with the net proceeds
of the Offering. Upon completion of the purchase, the Company
became the sole general partner of the Operating Partnership
with a 51% interest in the Operating Partnership. Upon
completion of the sale of partnership interests, CBC converted
its remaining general partnership interest into a 49% limited
partnership interest in the Operating Partnership.
- 7 -
<PAGE> 8
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.
The consolidated financial statements of the Company include all
the accounts of the Company and its majority-owned Operating
Partnership. The financial statements reflect the acquisition of the
partnership interest at its historical basis of accounting as the
acquired interest was from the Predecessor Group's owners who continue
as investors. The accompanying combined financial statements for the
Predecessor Group have been presented on a combined basis due to common
ownership and management; therefore, its combined financial statements
are presented for comparative purposes. All significant intercompany
balances and transactions have been eliminated.
2. INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements are unaudited;
however, the financial statements have been presented as permitted by
Form 10-Q and do not include all of the disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation
of the financial statements for these interim periods have been
included. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained for the full
fiscal year. These financial statements should be read in conjunction
with the Company's annual report on Form 10-K for its fiscal year ended
December 31, 1998 and the consolidated financial statements and notes
of the Company and the combined financial statements and notes of the
Predecessor Group.
The Company's operations are seasonal, commencing with spring
training camp that opens in mid-February and ending with the conclusion
of the Major League Baseball ("MLB") regular season in late September
or early October. If the Indians qualify for post-season playoffs, the
team can play until the end of October. For financial reporting
purposes, the Company generally recognizes revenues and expenses on a
per game basis. Because the regular season begins in late March or
early April, the first fiscal quarter, which ends on March 31,
generally includes limited revenues and reflects a loss attributable to
fixed costs of operations during the quarter. Based on a typical MLB
regular season, approximately one-half of the revenues are recognized
in the second quarter and the remainder in the third quarter, excluding
Major League Central Fund revenues. The number of home events
scheduled, and ultimately played, in a given quarter will significantly
influence quarterly financial results from year to year. Because of the
scheduling of post-season playoffs in any given year, revenues and
expenses associated with the post-season will be generally recognized
in the third and fourth quarters, depending upon when actual games are
played.
- 8 -
<PAGE> 9
3. 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.
Marketable Securities - Marketable securities classified as
current assets are comprised of bankers' acceptances and various debt
securities. The Company has classified these marketable securities as
available-for-sale. Available-for-sale securities are carried at fair
value with unrealized gains and losses reported as a separate component
of equity. Realized gains and losses are computed on the basis of
specific identification and are included in interest income. The
estimated fair value of marketable securities approximated cost at June
30, 1999. Marketable securities classified as other non-current assets
acquired to assist in the funding of certain deferred compensation
liabilities are classified as trading securities and, accordingly, are
carried at fair value with unrealized gains and losses reported as
current period income and expense.
Minority Interest Allocation - Minority interest relates to the
interest in the Operating Partnership that is not owned by the Company,
which, at June 30, 1999, amounted to 49%. The deficit recorded by the
Company as of the date of the Offering and related transactions
includes the deficit attributable to the minority interest. Earnings
allocable to the minority interest, net of distributions and losses
allocable to the minority interest, will be credited to retained
earnings until the deficit is restored.
Income Taxes - Income taxes are provided using the liability
method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Deferred income taxes reflect
the tax consequences in future periods of differences between the tax
bases of assets and liabilities and their financial reporting amounts.
A valuation allowance reduces deferred tax assets when management has
determined it is "more likely than not" that some portion or all of the
deferred tax assets will not be realized. The current deferred tax
asset at June 30, 1999 in the amount of $1,425 has been recognized
since management believes realization in future interim periods is
"more likely than not."
Earnings Per Share - Earnings per share is calculated based on the
weighted average number of common shares outstanding. The assumed
exercise of outstanding stock options, using the treasury stock method,
is not dilutive. The dilutive shares represent stock grants to
directors of the Company who have elected deferred payment in the form
of Class A Common Shares related to the Directors' Deferred
Compensation Plan.
Comprehensive Income - For the three-month period ended June 30,
1999 and six-month period ended and as of June 30, 1999, there were no
material differences between net income and comprehensive income.
- 9 -
<PAGE> 10
Reclassifications - Certain reclassifications have been made to
the 1998 financial statements to conform with classifications used in
1999.
4. MAJOR LEAGUE BASEBALL REVOLVING CREDIT AGREEMENT
In April 1998, the Company entered into a revolving credit
facility ("facility") which replaced the previous agreement arranged by
MLB and funded by a bank group. The terms of the facility require
interest only payments through April 2001. Outstanding balances can be
repaid in whole or in part in accordance with the facility. On April
10, 2001, the facility may convert to a four-year term loan with
principal repayments of 15%, 20%, 25% and 40% of the outstanding
principal amount of all borrowings as of the termination date payable
on January 10 of the first, second, third and fourth calendar years
following the termination date, respectively. Accordingly, the
outstanding balance of $35,500 at June 30, 1999 is reflected in
long-term liabilities. Outstanding borrowings bear interest under the
facility, based upon LIBOR plus .35%, at 5.38% and 5.51% at June 30,
1999 and December 31, 1998, respectively.
5. LONG-TERM INCENTIVE PLAN
The Company has established a long-term incentive plan (stock
option plan) for the purpose of attracting, retaining and rewarding key
employees of the Company and its affiliates and members of the Board of
Directors and to strengthen the mutuality of interest between such key
employees and the Company's shareholders. In conjunction with the
Offering, the Company granted options to purchase 294,350 Class A
Common Shares to directors, officers and employees. All options were
issued at an exercise price of $15.00, the initial public offering
price per share. The options vest in three equal annual increments
beginning one year after the date of grant and will expire ten years
after the date of grant. On June 4, 1999, options to purchase 87,083
common shares vested.
Since the Offering, options to purchase 33,100 common shares were
forfeited. As of June 30, 1999, options to purchase 261,250 common
shares were outstanding. An additional 438,750 common shares were
reserved for issuance under the Company's long-term incentive plan.
6. SIGNIFICANT EVENT
On May 13, 1999, the Company announced that its Board of Directors
had engaged the Goldman Sachs Group, Inc. and McDonald Investments,
Inc. to identify potential buyers for the franchise. Management makes
no representation as to the outcome of the potential sale of the
Company.
- 10 -
<PAGE> 11
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the financial
statements and related notes appearing elsewhere in this report.
OVERVIEW
Portions of Management's Discussion and Analysis of Results of
Operations and Financial Condition include "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The words
"believe," "expect," "anticipate," "project," and similar expressions, among
others, identify "forward-looking statements," which speak only as of the date
the statement was made. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to materially
differ from those made, projected or implied in such statements. The most
significant such risks, uncertainties and other factors are:
o The control of the Company by Richard E. Jacobs
o The limited potential for further revenue growth
o The Company's dependence on the competitive success of the baseball
club
o The uncertainties relating to increases in players' salaries
o Risks of labor difficulties
o A decline in the popularity of baseball
o The concentration of the Company's operations in one business
These and other risks, uncertainties and other factors are more fully
described in the "Risk Factors" section of the final Prospectus dated June 4,
1998 relating to the Company's initial public offering. The Company undertakes
no obligation to publicly update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Cleveland Indians Baseball Company, Inc. ("CIBC" or the "Company") was
formed to acquire the sole general partnership interest of, and controlling
interest in, the Partnership. The historical financial information prior to June
9, 1998 includes the combined operations of Cleveland Indians Baseball Company
Limited Partnership and Ballpark Management Company (collectively, the
"Cleveland Indians Baseball Company Predecessor Group" or "Predecessor Group").
CIBC commenced operations on June 9, 1998 after completing an initial public
offering of 4,000,000 Class A Common Shares.
The Company recognizes a majority of its revenues as home games are
played (i.e., net ticket sales, concessions and catering, private suite and club
rentals and merchandise), and the most significant expense, major league team
salaries, is recognized over the entire regular season.
The Company derives substantially all of its revenues from:
o Sales of tickets to home games
o Contracts with local broadcast organizations
o Food and beverage concession sales
o Premium seating rents
o Advertising and promotional sales
o Merchandise sales and royalties
o Participation in the Major Leagues Central Fund ("MLCF")
o Parking and ancillary baseball related revenues
- 11 -
<PAGE> 12
If the Indians qualify for post-season play, incremental revenues are
earned from similar sources.
The Company's operations are seasonal, commencing with spring training
camp that opens in mid-February and ending with the conclusion of the MLB
regular season in late September or early October. If the Indians qualify for
the post-season playoffs, the team can play until the end of October, the
duration of participation being 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 per game basis. Because the regular season begins in late March or
early April, the first fiscal quarter, which ends on March 31, generally
includes limited revenues and reflects a loss attributable to fixed costs of
operations during the quarter. Based on a typical MLB regular season schedule,
approximately one-half of the revenues are recognized in the second quarter and
the remainder in the third quarter, excluding MLCF revenues. The number of home
events scheduled, and ultimately played, in a given quarter will significantly
influence quarterly financial results from year to year. Because of scheduling
of post-season playoffs in any given year, revenue and expenses associated with
post-season will generally be recognized in the third and fourth quarters,
depending upon when actual games are played.
The Company currently receives a substantial portion of its receipts
from the advance sale of regular season tickets and premium seating rents during
the months of December and January, prior to the commencement of the MLB regular
season. Season tickets and public single-game tickets are sold during this time
period. In recent years, Jacobs Field attendance during the regular season has
approximated 3.5 million fans, of which approximately 2.2 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. During the first quarter of 1999, there were no regular
season games played as compared to the first quarter of 1998 when the first game
of the regular season was played on March 31 on the road. During the three-month
period ended June 30, 1999, there were 40 regular season home games played
versus 41 in the three-month period ended June 30, 1998.
The following table outlines the spring training home games and
exhibition games played during 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
Spring Spring
Training Exhibition Total Training Exhibition Total
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 15 -- 15 13 2 15
Second Quarter 1 2 3 -- -- --
------------ ------------ ------------ ------------ ------------ -------------
Total 16 2 18 13 2 15
============ ============ ============ ============ ============ =============
</TABLE>
- 12 -
<PAGE> 13
The following table outlines the regular season games played and/or
scheduled during 1999 and played during 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- --------------------------------------------
Home Away Total Home Away Total
------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter -- -- -- -- 1 1
Second Quarter 40 36 76 41 38 79
Third Quarter 38 45 83 40 42 82
Fourth Quarter 3 -- 3 -- -- --
------------ ------------ ------------ ------------ ------------ -------------
Total 81 81 162 81 81 162
============ ============ ============ ============ ============ =============
</TABLE>
RESULTS OF OPERATIONS
The following discussion compares the results from continuing
operations of the Company for the three-month period and six-month period ended
June 30, 1999 with the results from continuing operations of the Company and the
Partnership on a consolidated basis (including the operations of the Predecessor
Group) for the three-month period and six-month period ended June 30, 1998.
REVENUES
Net ticket sales revenue is comprised of gross ticket revenues from
regular season home games, less City of Cleveland admissions tax and an American
League assessment, plus net revenues derived from spring training and exhibition
games. Net ticket sales revenue increased $2,521,000, or 9%, in the three-month
period ended June 30, 1999 and $2,368,000, or 8%, in the six-month period ended
June 30, 1999 as compared to the same periods in 1998 primarily due to a 10%
increase in the average ticket price offset by a 2% decrease in paid attendance.
Paid attendance decreased as a result of one fewer regular season home event
played in the three-month period and the six-month period ended June 30, 1999
compared to the same periods in 1998. There was one rain-out in the second
quarter of both periods which was rescheduled in the third quarter of each
respective year. Exhibition receipts increased $250,000 for the three-month
period ended June 30, 1999 as compared to the same period in 1998 as a result of
the two exhibition games being played in the second quarter of 1999 which were
played in the first quarter of 1998.
Local radio and television revenue is recognized as the regular season
games are played. Local radio and television revenue increased $1,487,000, or
16%, in the three-month period ended June 30, 1999 and $1,449,000, or 16%, in
the six-month period ended June 30, 1999 as compared to the same periods in
1998. Even though three fewer games were broadcast in the three-month period
ended June 30, 1999 and four fewer games were broadcast in the six-month period
ended June 30, 1999 compared to the same periods in 1998, local radio
advertising revenue increased $450,000 and $412,000, respectively, due to
increased radio advertising rates and advertising volume. Television revenues
increased $1,037,000 due to a 43% increase in rights fees even though there were
four less telecasts in the three-month period and six-month period ended June
30, 1999 compared to the same periods in 1998.
Concession and catering revenue is primarily derived from general food
and beverage concessions throughout Jacobs Field, including private suite and
club seat catering. Concession and catering revenue decreased approximately
$90,000, or 1%, in the three-month period and six-month period ended June 30,
1999 as compared to the same periods in 1998. The decreases were primarily
attributable to one fewer home event played in 1999 offset by increased
- 13 -
<PAGE> 14
consumer spending in the three-month period and six-month period ended June
30, 1999 as compared to the same periods in 1998.
Revenue from private suite and club seat rentals includes lease income
from the suites and club seats that are leased on four year terms as well as
single game rentals of suites and Terrace Club memberships. Private suite and
club seat rental revenue is recognized as the home games are played and
increased $899,000, or 19%, in the three-month period ended June 30, 1999 and
$917,000, or 19%, in the six-month period ended June 30, 1999 as compared to the
same periods in 1998. The increases were primarily attributable to a $696,000
increase in rental revenues associated with the renewal of 62 suites and 461
club seats and a $153,000 increase in rental income from suites rented on a
single game basis.
Advertising and promotions revenue consists primarily of the sale of
advertising space throughout Jacobs Field, marketing and promotional activities
and licensing of the Club's name and logo. Advertising and promotions revenue
increased $2,103,000, or 42%, in the three-month period and six-month period
ended June 30, 1999, compared to the same periods in 1998. The increases were
primarily due to a $1,465,000 increase in ballpark advertising signage,
primarily related to new homeplate signage in 1999, and a $638,000 increase in
marketing and promotional revenue.
Merchandise sales include all sales at the Indians team shops and
Jacobs Field. The $363,000, or 6%, increase in merchandise sales in the
three-month period ended June 30, 1999 and $543,000, or 7%, increase for the
six-month period ended June 30, 1999 compared to the same periods in 1998 were
primarily due to increased game day sales and to sales at the Winter Haven team
shop during 1999 spring training. Beginning in 1999, the control of retail
operations and, therefore, the related revenues and expenses at the Winter Haven
site was transferred to the Company from the city of Winter Haven.
The Major Leagues Central Fund was established by the Commissioner of
Major League Baseball to collect certain revenues and to pay certain expenses
that relate to the operations of Major League Baseball. These revenues
and expenses are generally shared by the 30 major league baseball teams.
The principal component of MLCF revenues is the Cleveland Indians share
of national television and radio broadcasting fees. Major Leagues Central Fund
revenues increased $1,758,000, or 60%, in the three-month period and the
six-month period ended June 30, 1999 compared to the same periods in 1998. The
increase is primarily attributable to an increase in Central Fund revenue
associated with copyright arbitration royalties and broadcasting contractual
fees.
Major League Baseball member clubs participate in a revenue sharing
system. Under the system, each club must contribute a percentage of its net
local revenue to a revenue sharing pool. Once the pool is accumulated, it is
redistributed to the clubs on a basis that disproportionately benefits clubs
with below average revenue. The Cleveland Indians have been a net payor under
the revenue sharing system since inception. Provision for revenue sharing
increased $1,135,000, or 27%, for the three-month period ended June 30, 1999 and
$1,123,000 or 25%, for the six-month period ended June 30, 1999 compared to the
same periods in 1998. These increases were primarily attributable to the
increase in the revenue sharing tax rate from 16% in 1998 to 17% in 1999 and an
increase in net local revenue as defined in the Collective Bargaining Agreement.
- 14 -
<PAGE> 15
OPERATING EXPENSES
Major league team costs include salaries of players and coaches, the
payroll luxury tax, travel costs, spring training, equipment and medical costs.
These costs increased $2,397,000, or 7%, in the three-month period ended June
30, 1999 and $2,976,000, or 8%, in the six-month period ended June 30, 1999
compared to the same periods in 1998. The increase for the three-month period is
primarily attributable to a $3,911,000 increase in major league roster salaries
offset by a $1,717,000 reduction in the luxury tax assessment. Due to an
approximate 15% increase in 1999 in the player salary threshold over which the
luxury tax is assessed, it is estimated that the Cleveland Indians will not be
assessed for the 1999 season. The increase for the six-month period is primarily
attributable to a $4,433,000 increase in major league roster salaries offset by
a $1,717,000 reduction in the luxury tax assessment. Included in major league
roster salaries were $438,000 and $1,257,000 of deferred compensation expense
for the three-month period and six-month period ended June 30, 1999. The
deferred compensation expense resulted from the appreciation on securities held
as prescribed by certain deferred compensation contracts. Prior to the adoption
of EITF 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts
Earned are Held in a Rabbi Trust and Invested," in December 1998, the increases
in value directly offset the related earnings on the securities purchased to
assist in the funding of these liabilities.
Player development costs, which include scouting programs, minor league
and Latin America operations and other specialized development programs,
increased $335,000, or 9%, in the three-month period ended June 30, 1999 and
increased $504,000, or 8%, in the six-month period ended June 30, 1999 compared
to the same periods in 1998. The increase in both periods is primarily due to
increased costs related to minor league workers' compensation, increased costs
for a new program in Venezuela started during the second quarter and increased
equipment costs.
The cost of merchandise sold increased $450,000, or 13%, in the
three-month period ended June 30, 1999 and increased $534,000, or 10%, in the
six-month period ended June 30, 1999 compared to the same periods in 1998. The
increase in cost of merchandise sold is consistent with the increase in
merchandise sales. Cost of merchandise sold as a percentage of merchandise sales
averaged 64% and 60% for the three-month period ended June 30, 1999, and 1998,
respectively, and 72% and 70% for the six-month period ended June 30, 1999 and
1998, respectively. The reduction in profit margins from 1998 to 1999 is due to
a higher volume of sales per store in 1998 following the Club's success in the
1997 post-season versus 1998.
Administrative and general expenses increased $210,000, or 7%, in the
three-month period ended June 30, 1999 and increased $493,000, or 10%, in the
six-month period ended June 30, 1999 compared to the same periods in 1998. The
increases are primarily due to contractual increases in front office salaries
and an increase in pension expense. In addition, the six-month period ended June
30, 1999 included an increase attributable to operating as a public company
beginning in the second quarter of 1998.
Major Leagues Central Fund expenses allocated to the Cleveland Indians
increased $357,000, or 21%, in the three-month period ended June 30, 1999 and
increased $671,000, or 34%, in the six-month period ended June 30, 1999 compared
to the same periods in 1998. These increases were due to an increase in the
expenses associated with the administration of the Office of the Commissioner of
Major League Baseball.
Advertising and promotion expenses increased $265,000, or 24%, in the
three-month period ended June 30, 1999 and increased $424,000, or 21%, in the
six-month period ended June 30, 1999 compared to the same periods in 1998. The
increase in both periods was primarily due to costs related to a 1999
advertising campaign.
- 15 -
<PAGE> 16
The amortization of signing bonuses and player contracts results from
the recognition of these expenses over the lives of the related player contracts
and 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.
These costs increased $358,000, or 17%, in the three-month period ended June 30,
1999 and increased $506,000, or 22%, in the six-month period ended June 30, 1999
compared to the same periods in 1998 primarily due to the amortization of
increased costs associated with the acquisition and signing of players.
OTHER INCOME AND EXPENSE
Interest income includes earnings on cash equivalents, marketable
securities, securities purchased to assist in the funding of certain deferred
compensation liabilities and the loan to the general partner. Interest income
increased $425,000, or 48%, for the three-month period ended June 30, 1999 and
$287,000, or 10%, for the six-month period ended June 30, 1999 compared to the
same periods in 1998. These increases were due to $456,000 and $1,297,000
appreciation for the three-month period and six-month ended June 30, 1999,
respectively, on securities purchased to assist in the funding of certain
deferred compensation liabilities that were previously offset against the
increase in the deferred compensation liability. These increases were offset by
a reduction in interest on cash equivalents and marketable securities and a
reduction in interest from the loan to the general partner that was paid off in
March 1998.
Interest expense is primarily interest incurred on the Major League
Baseball Revolving Credit Agreement. Interest expense decreased $172,000, or
25%, for the three-month period ended June 30, 1999 and $233,000, or 17%, for
the six-month period ended June 30, 1999 compared to the same periods in 1998.
These decreases were primarily due to a decrease in the interest rate related to
the revolving credit facility.
There were no gains or losses on player transactions for the
three-month period and six-month period ended June 30, 1999. The loss of
$1,604,000 in the first quarter of 1998 is comprised of approximately a
$2,000,000 loss attributable to a February 1998 trade of one player partially
offset by the sale of one player's contract to a Japanese team resulting in a
gain of $300,000.
Minority interest represents the interest in the earnings of the
Partnership that was not purchased and is not owned by the Company. The minority
interest of $4,800,000 and $37,000 represents a 49% interest in the earnings of
the Company for the three-month period and for the six-month period ended June
30, 1999, respectively.
Provision for income taxes represents the estimated tax on the
Company's earnings for the three-month period and for the six-month period ended
June 30, 1999 at the applicable corporate income tax rates.
- 16 -
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash historically has been cash
provided from operating activities. Operating activities utilized $899,000 for
the six-month period ended June 30, 1999 compared to $3,392,000 for the
six-month period ended June 30, 1998. The decrease of $2,493,000 in the use of
cash by operating activities was primarily due to increased earnings before
minority interest, depreciation and amortization and loss on player
transactions. Cash and cash equivalents decreased $24,908,000 for the six-month
period ended June 30, 1999 compared to $2,697,000 for the six-month period ended
June 30, 1998 primarily due to the reinvestment of cash equivalents into longer
term instruments that qualify as marketable securities in 1999.
The Company's cash management strategy is to achieve favorable returns
commensurate with the short-term nature of the investments while maintaining
sufficient cash flows to meet its short-term and long-term requirements for
capital and acquisition of player contracts. All marketable securities
classified as current assets are available to support current operations or to
take advantage of other investment opportunities.
Under the terms of the Major League Credit Facility, certain MLB clubs,
including the Cleveland 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 Partnership, and the obligations to repay advances for
the benefit of the Partnership are secured by the rights of the Partnership 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 Indians have assigned their rights to
receive their share of revenues and royalties to the Indians Club Trust, a
bankruptcy remote entity. The terms of the facility require interest only
payments through April 2001. Outstanding balances can be repaid in whole or in
part in accordance with the facility. On April 10, 2001, the facility may
convert to a four-year term loan with principal repayments of 15%, 20%, 25% and
40% of the outstanding principal amount of all borrowings as of the termination
date payable on January 10 of the first, second, third and fourth calendar years
following the termination date, respectively. Accordingly, the outstanding
balance of $35,500,000 at June 30, 1999 is reflected in long-term liabilities.
As of June 30, 1999, the interest rate on the amounts borrowed on the facility,
which is based on LIBOR plus a program fee of 0.35%, was 5.38%. During the term
of the facility, the Company pays interest only on the outstanding borrowings,
in addition to commitment and other fees. The facility also provides that upon
the expiration of the current Collective Bargaining Agreement, and until a new
agreement is entered into, the Indians will be required to maintain an interest
contingency reserve equal to nine months' interest expense at 2% above the
then-applicable borrowing rate.
Until the first quarter of 1998, the Predecessor Group had historically
borrowed the full amount available to it under the Major League Credit Facility
and in-turn loaned the proceeds to CBC, the Partnership's general partner. In
March 1998, the Partnership distributed $49,200,000 to its partners and CBC
repaid its $35,500,000 debt due 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 Major League Credit Facility currently provides the
Company with an aggregate availability of $45,000,000 of which $9,500,000 was
available as of June 30, 1999.
- 17 -
<PAGE> 18
The Company's ability to incur additional indebtedness is limited by
applicable provisions of the agreements that govern all MLB clubs, 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 the 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 approximately $196 million as of June
30, 1999, including approximately $100 million scheduled for payment in the
remainder of 1999 and 2000. The Company's commitments under all multi-year
contracts and some single-year contracts are guaranteed, even if the player's
contract is terminated or if the player is physically unable to perform due to
death, injury or illness. The Company's obligations under non-guaranteed
single-year contracts are payable if the player's contract is terminated for
performance reasons or due to disability resulting directly from injury
sustained in the course and within the scope of his employment, but are
otherwise not guaranteed. The Company carries life insurance to fully insure its
obligations under the contracts for the 25-man major league roster. As of June
30, 1999, the Company also carried disability insurance in the aggregate amount
of approximately $128 million for players under multi-year contracts. The
disability benefits are generally payable after 90 days of a player's disability
and are subject to specified pre-existing conditions.
FINANCIAL CONDITION
Cash and cash equivalents, marketable securities and investments at
June 30, 1999 were approximately $49,070,000 compared to approximately
$56,353,000 at December 31, 1998. The decrease was primarily attributable to the
seasonal operations of the Company and the substantial cash and investment
position at December 31, 1998 related to advance ticket sales in the fourth
quarter of 1998 and corresponds to the decrease in the deferred revenue balance.
The majority of the Company's expenditures occur during the regular season.
Receivables and accrued income at June 30, 1999 were $14,468,000
compared to $9,421,000 at December 31, 1998. The increase was primarily
attributable to billings for sponsorship contracts and concessionaire and
catering revenue that occur during the season and are paid throughout the year
based upon predetermined payment schedules.
Prepaid signing bonuses and player contracts at June 30, 1999 were
$12,170,000 compared to $10,590,000 at December 31, 1998. The increase was
attributable to $4,389,000 of prepaid signing bonuses and acquisition costs
associated with the acquisition and signing of players offset by $2,809,000 of
amortization and write-offs during the six-month period ended June 30, 1999.
Other assets at June 30, 1999 were $15,525,000 compared to $11,969,000
at December 31, 1998. The increase was primarily attributable to the purchase of
certain investments and appreciation in existing investments held in trust to
assist in the funding of the Company's deferred compensation obligations.
The majority of the Company's current liabilities are deferred revenues
which decreased to $42,485,000 at June 30, 1999 compared to $48,829,000 at
December 31, 1998. Deferred revenues consist primarily of advanced ticket sales
and the Company satisfies this liability by playing its regular season games.
- 18 -
<PAGE> 19
Accounts payable and accrued liabilities at June 30, 1999 were
$17,675,000 compared to $10,961,000 at December 31, 1998. The increase was
primarily attributable to a $3,598,000 increase in accounts payable, a
$1,912,000 increase in the provision for revenue sharing and a $1,107,000
increase in accrued expenses. The increase in payables and accrued expenses are
due to the normal operations during the regular season and the increase in the
provision for revenue sharing is due to the increase in the revenue sharing tax
rate from 16% in 1998 to 17% in 1999 and an increase in net local revenue as
defined in the Collective Bargaining Agreement.
Long-term liabilities at June 30, 1999 were $61,674,000 compared to
$57,951,000 at December 31, 1998. The increase was primarily attributable to
increases in existing and additional deferred compensation obligations.
SIGNIFICANT EVENT
On May 13, 1999, the Company announced that its Board of Directors had
engaged the Goldman Sachs Group, Inc. and McDonald Investments, Inc. to identify
potential buyers for the franchise. Management makes no representation as to the
outcome of the potential sale of the Company.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of many computer programs being
written using two digits rather than four digits to define a year. Such programs
may recognize a year containing "00" as the year 1900 rather than the year 2000.
This could result in equipment or system failures or miscalculations causing
disruptions of daily operations for some organizations.
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 September 30, 1999. The estimated cost to address the
Year 2000 issue is $200,000, of which approximately $150,000 has been incurred
as of June 30, 1999, and which is being funded through operating cash flows, and
in the opinion of management will not have a material impact on the Company's
business, operations or financial condition. The cost of the project and the
date on which the Company believes it will substantially complete the Year 2000
modifications are based on management's best estimates, which are derived from
numerous assumptions of future events, including the continued availability of
computer programming expertise and other factors. Because none of these
estimates can be guaranteed, actual results could differ materially from those
anticipated. Specific factors that might cause material differences include, but
are not limited to, the availability and cost of trained personnel, the ability
to locate and correct all relevant computer codes, and similar uncertainties.
- 19 -
<PAGE> 20
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 failure
of third parties to convert systems on which the Company's systems rely, or
that a conversion that is incompatible with the Company's systems, would not
have a material adverse effect on the Company's systems.
Based on the Company's assessment of the readiness of its own systems
and those of significant third parties, it has and will continue to develop
contingency plans that address critical functions such as ticketing and
merchandising. In the event additional information comes to the Company's
attention which would change its current assessment, it will consider the need
for additional contingency plans at that time. In addition, as the primary
operations of the Company will not begin until late March or early April of
2000, with the commencement of the MLB regular season, the Company believes
adequate time will be available, if necessary, to ensure alternative plans can
be developed, assessed and implemented prior to the Year 2000 issue having any
unforeseen significant negative impact on most of its principal operations.
- 20 -
<PAGE> 21
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company measures its market risk, related to its holdings of
financial instruments based on changes in interest rates utilizing a sensitivity
analysis. The sensitivity analysis measures the potential loss in fair values,
cash flows and earnings based on a hypothetical 10% change (increase and
decrease) in interest rates. The Company used current market rates on its debt
to perform sensitivity analysis.
The Company's primary interest rate exposures relate to its cash,
marketable securities, short-term investments and variable rate debt. The
potential loss in fair values is based on an immediate change in the net present
values of the Company's interest rate sensitive exposures resulting from a 10%
change in interest rates. The potential loss in cash flows and earnings is based
on the change in the net interest income/expense over a one-year period due to
an immediate 10% change in rates. A hypothetical 10% change in interest rates
does not have a material impact on the fair values, cash flows or earnings of
the Company.
- 21 -
<PAGE> 22
PART II. OTHER INFORMATION
Except to the extent noted below, the items required in Part II are
inapplicable, or if applicable, would be answered in the negative and have
been omitted.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 2, 1999, the Company held its Annual Meeting of Shareholders.
The matters presented to the shareholders for a vote and the number of shares
voted for, against or, if applicable, withheld on such matters were as follows:
(a) Election of Directors to serve until the next Annual Meeting of
Shareholders:
<TABLE>
<CAPTION>
Class A Class B*
-------------------------- --------------------------
For Withheld For Withheld
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Richard E. Jacobs 3,513,623 122,912 2,283,957 --
Martin J. Cleary 3,513,711 122,824 2,283,957 --
Robert W. Brown, M.D. 3,513,604 124,931 2,283,957 --
Edward G. Ptaszek, Jr. 3,512,159 124,376 2,283,957 --
William B. Summers, Jr. 3,512,293 124,242 2,283,957 --
Raymond P. Park 3,512,287 124,248 2,283,957 --
</TABLE>
(b) Proposal to amend the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") by deleting, in its
entirety, subsection (h) of Article Fourth, Division C, Section 2 of
the Articles of Incorporation:
<TABLE>
<CAPTION>
Class A Class B*
-------------------------------------------- -------------------------------------------
For Against Withheld For Against Withheld
--------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
2,126,699 20,611 20,877 2,283,957 -- --
</TABLE>
No other matters were submitted to the shareholders for a vote.
* Each Class B Common Share is entitled to 10,000 votes.
- 22 -
<PAGE> 23
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Articles of Incorporation of Cleveland
Indians Baseball Company, Inc., as amended
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
- 23 -
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: August 16, 1999 By: /s/ KENNETH E. STEFANOV
---------------------------------
Kenneth E. Stefanov
Vice President, Finance
(principal financial officer and
principal accounting officer)
- 24 -
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CLEVELAND INDIANS BASEBALL COMPANY, INC.
Kenneth E. Stefanov, Vice President, Finance, and David W. Pancoast,
Secretary, of Cleveland Indians Baseball Company, Inc., an Ohio corporation (the
"Corporation"), do hereby certify that a meeting of the shareholders of the
Corporation was duly called and held on June 2, 1999, at which meeting a quorum
of the shareholders was present in person or by proxy, and by the affirmative
vote of the holders of shares entitling them to exercise a majority of the
voting power of the Corporation on a proposal to amend the Corporation's
Articles of Incorporation, as amended and restated, the following resolution was
duly adopted; and that said resolution is valid and binding, has not been
amended, modified or rescinded, and is in full force and effect on the date
hereof.:
RESOLVED, that the Amended and Restated Articles of Incorporation of
the Corporation be and they hereby are amended by deleting, in its entirety,
subsection (h) of Article Fourth, Division C, Section 2.
IN WITNESS WHEREOF, Kenneth E. Stefanov, Vice President, Finance, and
David W. Pancoast, Secretary, of Cleveland Indians Baseball Company, Inc. acting
for and on its behalf, do hereunto subscribe their names this 2nd day of June,
1999.
/s/ KENNETH E. STEFANOV
--------------------------------------------
Kenneth E. Stefanov, Vice President, Finance
/s/ DAVID W. PANCOAST
--------------------------------------------
David W. Pancoast, Secretary
<PAGE> 2
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);
(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;
<PAGE> 3
(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 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.
<PAGE> 4
(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 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.
<PAGE> 5
(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.
(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
<PAGE> 6
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
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
<PAGE> 7
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 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.
<PAGE> 8
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 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.
<PAGE> 9
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 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.
<PAGE> 10
"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.
"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 or any
<PAGE> 11
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 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.
<PAGE> 12
(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 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.
<PAGE> 13
(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 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."
<PAGE> 14
(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 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
<PAGE> 15
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> 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 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
<PAGE> 17
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.
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