As filed with the Securities and Exchange Commission on July 15, 1996
Registration No. 333- ____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
DOVER DOWNS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 7900
State or other jurisdiction (Primary Standard Industrial
of incorporation or organization) Classification Code Number)
51-0357525
(I.R.S. Employer
Identification No.)
1131 North DuPont Highway
Dover, Delaware 19901
(302) 674-4600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
Klaus M. Belohoubek, Esq.
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, DE 19803
(302) 426-2806
(Name, address, including zip code and telephone number, including area code,
of agent for service)
Copies to:
Kathleen M. Shay, Esq. Stephen A. Greene, Esq.
Duane, Morris & Heckscher Cahill Gordon & Reindel
One Liberty Place 80 Pine Street
Philadelphia, PA 19103-7396 New York, NY 10005
-------------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. |_|
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to be Offering Price Aggregate Offering Registration
to be Registered (1) Registered (2) Per Share (3) Price (3) Fee
------------------- -------------- ------------- --------- ---
<S> <C> <C> <C> <C>
Common Stock, $.10 par value 2,875,000 $21.00 $60,375,000 $20,819
(including Common Stock
Purchase Rights) (1)
================================================================================================================================
</TABLE>
(1) Prior to the occurrence of certain events, the Common Stock Purchase Rights
will not be evidenced separately from the Common Stock.
(2) Includes 375,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933, as amended.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1996
PROSPECTUS
- ----------
2,500,000 Shares
DOVER DOWNS ENTERTAINMENT, INC.
Common Stock
----------------
Of the 2,500,000 shares of Common Stock offered hereby, 1,000,000
shares are being offered by Dover Downs Entertainment, Inc. ("Dover Downs" or
the "Company") and 1,500,000 shares are being offered by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.
Prior to this offering (the "Offering"), there has been no public
market for the Common Stock. It is currently anticipated that the initial public
offering price will be between $18.00 and $21.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "DVD," subject to official notice of issuance.
See "Risk Factors" beginning on page 9 for a discussion of certain
factors that should be considered by prospective purchasers of the Common Stock
offered hereby.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(l) Company(2) Stockholders
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total (3).............. $ $ $ $
==============================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $435,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters
an option, exercisable within 30 days of the date hereof, to purchase up to
an additional 75,000 and 300,000 shares of Common Stock, respectively,
solely to cover over-allotments, if any. If such options are exercised in
full, the total Price to Public, Underwriting Discount, Proceeds to Company
and Proceeds to Selling Stockholders will be $ , $ , $ , and $
respectively. See "Underwriting."
----------------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued and accepted by them, and subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of shares of Common Stock will be made in New York, New York on or
about , 1996.
----------------
Merrill Lynch & Co.
----------------
The date of this Prospectus is , 1996.
<PAGE>
[ GRAPHIC ]
Map of the East Coast
of the United States
showing the location of Dover Downs
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and to announce publicly its quarterly results for the first three quarters of
each fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the Consolidated Financial Statements (including the
notes thereto), Glossary of Certain Terms and more detailed information
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained herein assumes no exercise of the Underwriters'
over-allotment option or of options granted pursuant to the Company's 1991 Stock
Option Plan. See "Underwriting" and "Management - Stock Option Plans."
The Company
Dover Downs owns and operates the Dover Downs International Speedway,
the Dover Downs Raceway and a video lottery casino at a multi-purpose gaming and
entertainment complex. The facility is located in close proximity to the major
metropolitan areas of Philadelphia, Baltimore and Washington, D.C. on
approximately 775 acres of land owned by the Company in Dover, Delaware.
Dover Downs International Speedway offers a modern, state-of-the-art,
concrete superspeedway for top-rated NASCAR-sanctioned auto racing events with
one of the largest and most comfortable seating capacities in its market. Dover
Downs Raceway offers traditional harness horse racing and year-round
satellite-linked pari-mutuel wagering on simulcast harness and thoroughbred
horse races from regional and national tracks. The Company has recently expanded
into video lottery (slot) machine gaming. The video lottery operations are
managed by Caesars World Gaming Development Corporation, a wholly owned
subsidiary of Caesars World, Inc., the casino gaming arm of ITT Corporation.
Using Caesars expertise and marketing skills in the gaming industry, the Company
has created a stylish gaming facility with attractive decor, dining and nightly
entertainment.
Dover Downs offers a unique gaming and entertainment experience.
Management believes it to be the only facility in the country that combines in
one location NASCAR Winston Cup/Busch Series stock car racing, harness horse
racing, pari-mutuel wagering on both live and simulcast horse races, and video
lottery (slot) machine gaming.
Motorsports
Dover Downs has presented NASCAR-sanctioned racing events for 28
consecutive years. The Company currently conducts four major NASCAR races per
year. Two races are associated with the Winston Cup professional stock car
racing circuit and two races are associated with the Busch Series, Grand
National Division racing circuit.
For the past 11 years, NASCAR Winston Cup events at Dover Downs have
sold out well in advance of the race. Current seating capacity consists of
88,977 grandstand seats and 1,000 skybox seats. The Company has increased
seating capacity for the last 11 consecutive years, adding 64,000 seats (53,000
permanent and 11,000 temporary seats) during that period. An additional 7,500
permanent grandstand seats, 960 skybox seats, new food concessions and restroom
facilities are expected to be completed in time for the 1997 race season.
3
<PAGE>
All races are conducted on a recently resurfaced, high-banked, one mile
long, concrete superspeedway known by NASCAR race fans as the "Monster
Mile." The Dover Downs track is currently the only superspeedway made of
concrete that conducts NASCAR events. The concrete surface provides several
advantages over the traditional asphalt paving employed by other tracks. It
offers a fast racing surface yet remains cooler than asphalt. It has a longer
useful life and is considered by management to be safer for the drivers. Unlike
some speedways, substantially all grandstand seats at Dover Downs, including
indoor, air-conditioned grandstand and skybox seats, offer an unobstructed view
of the entire track.
In recent years, attendance, television coverage and corporate
sponsorship have significantly increased for NASCAR events. According to
statistics made available by The Goodyear Tire & Rubber Co., spectator
attendance at Winston Cup events nationwide has increased at a compound annual
growth rate of 12.1% between 1991 and 1995. From 1994 to 1995, attendance
increased by 8.8% for Winston Cup events and by 23.1% for Busch Series events.
In 1995, total attendance at Winston Cup events exceeded 5.3 million. The
Company's NASCAR events are currently televised live by TNN to a nationwide
audience and broadcast nationally to a network of radio stations affiliated with
the Motor Racing Network.
The increasing corporate presence in autosports has resulted in
significant demand for premier seating in skyboxes and for corporate hospitality
services. Dover Downs has one of the largest corporate hospitality programs in
NASCAR. Over 6 acres of its facility are dedicated to corporate hospitality
villages consisting of temporary pavilions erected for entertaining at race
events. All pavilions are presently filled to capacity at Winston Cup events.
Gaming
Dover Downs has presented harness horse racing events for 28
consecutive years. On December 29, 1995, the Company introduced video lottery
(slot) machines to its entertainment mix.
Under an agreement with the Company, Caesars, a leader in the gaming
industry, supervises, manages, markets and operates the
Company's video lottery operations. The newly constructed, air-conditioned
"video lottery casino" was designed and built using expertise from Caesars. The
24,000 square foot facility features a stylish video lottery casino area with a
hand-painted mural of the sky on its dome ceiling and murals of floral design
which adorn the surrounding walls. A total of 572 lottery machines are currently
in operation. The casino is open every day of the year, except Christmas and
Easter. By October 1996, management expects to complete the expansion of the
video lottery casino to approximately 41,000 square feet, almost double the size
of the existing gaming floor, add a gourmet coffee shop, and improve parking and
access to the casino. With the completion of this expansion, an additional 428
machines will be added, bringing the facility up to 1,000 machines, which is the
maximum permitted by law.
4
<PAGE>
For the harness horse racing season expected to begin November 1996 and
end April 1997, the Company anticipates that it will schedule a minimum of 70
live racing dates. Live harness horse races are held on Thursday, Friday and
Saturday evenings, and on Sunday afternoons. The five-eighths mile harness
racing track is located inside the one mile auto racing superspeedway and is
lighted for nighttime racing.
The Company has facilities for pari-mutuel wagering on both live
harness horse races and on simulcast thoroughbred and harness horse races
received from numerous tracks across North America. With the recent expansion of
its simulcasting operations, pari-mutuel wagering is now conducted on a
year-round basis. Beginning with the race season commencing November 1996, for
the first time, the Company will simulcast live races held at Dover Downs to
tracks and other off-track betting locations across the country.
In June 1994, the Delaware General Assembly passed the Horse Racing
Redevelopment Act in order to legalize the use of video lottery (slot) machines
in Delaware. The Act limits video lottery operations to the three locations in
Delaware where thoroughbred horse racing or harness horse racing was held in
1993. A portion of the proceeds from the wagering on the machines at Dover Downs
is allocated by law to increase the purse for live harness horse races held at
Dover Downs and is intended to provide increased vitality for Delaware's horse
racing industry. A portion of the Company's simulcast revenues is also allocated
to the purses.
With a percentage of video lottery (slot) machine revenues and
simulcast revenues supplementing the purses, the Company has experienced a
dramatic increase in the size of its purses and expects to attract higher
quality horses. Bettors are attracted to races with larger purses and typically
wager more on the higher quality and more predictable horses. Management
believes that larger purses and better horses should increase attendance and
wagering and also have a positive impact on the number of markets that may wish
to receive the Company's racing signal for simulcasting. Dover Downs expects to
begin its live race season commencing November 1996 with a daily purse
distribution ranking it in the top 5 of 36 North American harness tracks.
Growth Strategy
The Company's mission is to provide all of its customers a premier
gaming and entertainment experience. The Company's growth strategy is to
continue to increase revenue and profitability by focusing on the following:
o Increase the seating capacity and corporate hospitality facilities
for NASCAR-sanctioned events
o Complete the expansion of the video lottery (slot) machine
facilities, increasing the number of machines to 1,000
5
<PAGE>
o Increase the attendance and wagering on live harness horse racing
through increased purse levels and facility upgrades
o Expand the existing simulcasting operations and begin transmitting to
tracks and other locations throughout North America
o Pursue innovative marketing programs
o Seek additional gaming and entertainment opportunities
----------------
The Company's principal executive office is located at 1131 North
DuPont Highway, Route 13, in Dover, Delaware, 19901. Its mailing address is Post
Office Box 843, Dover, Delaware 19903, and its telephone number is (302)
674-4600.
6
<PAGE>
The Offering
The Company has two classes of authorized and issued common stock.
Holders of the Common Stock, par value $.10 per share, which is offered hereby,
are entitled to one vote per share. Holders of the Class A Common Stock, par
value $.10 per share (the "Class A Common Stock"), are entitled to ten votes per
share on all matters submitted to a vote of stockholders of the Company. Class A
Common Stock is convertible at any time into Common Stock on a share for share
basis at the option of the holders thereof. See "Description of Capital Stock."
Common Stock offered by:
The Company......................................1,000,000 shares (1)
The Selling Stockholders.........................1,500,000 shares (1)
Capital Stock to be outstanding after the Offering
Common Stock....................................2,500,000 shares (1)
Class A Common Stock...........................12,425,830 shares (2)
Common Stock and Class A Common Stock..........14,925,830 shares (1)(2)
Use of Proceeds...........................To improve and further expand the
Company's facilities, to repay all
borrowings under the Company's credit
facility, and for general corporate
purposes. See "Use of Proceeds."
NYSE symbol.................................................................DVD
- --------------------
(1) Excludes up to 375,000 shares of Common Stock that may be sold by the
Company or certain Selling Stockholders upon exercise of the
over-allotment option granted to the Underwriters. See "Underwriting."
(2) Excludes 585,000 shares of Class A Common Stock reserved for issuance
upon the exercise of options granted pursuant to the Company's 1991
Stock Option Plan. See "Management - Stock Option Plans."
7
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Eleven months
Year ended July 31, ended June 30,
-------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data:
Revenues:
Motorsports $ 8,612 $ 10,182 $ 11,941 $ 13,524 $ 16,099 $ 15,871 $ 17,975
Gaming 1,918 2,476 1,936 1,024 1,309 1,231 31,746
-------- --------- --------- --------- --------- --------- ---------
Total 10,530 12,658 13,877 14,548 17,408 17,102 49,721
Expenses:
Operating 5,298 6,238 6,706 6,107 7,445 7,181 30,559
Depreciation 597 678 721 775 1,088 968 1,349
General and
administrative 1,401 1,338 1,603 1,468 1,643 1,482 2,166
-------- --------- --------- --------- --------- -------- --------
7,296 8,254 9,030 8,350 10,176 9,631 34,074
-------- --------- --------- --------- --------- -------- --------
Operating earnings 3,234 4,404 4,847 6,198 7,232 7,471 15,647
Interest 465 328 175 185 142 125 154
-------- --------- --------- --------- --------- -------- --------
Earnings before taxes 2,769 4,076 4,672 6,013 7,090 7,346 15,493
Income taxes 584 1,543 1,834 2,314 2,847 2,997 6,182
-------- --------- --------- --------- --------- -------- --------
Net earnings $ 2,185 $ 2,533 $ 2,838 $ 3,699 $ 4,243 $ 4,349 $ 9,311
======== ========= ========= ========= ========= ======== ========
Earnings per
common share $ .15 $ .18 $ .20 $ .27 $ .29 $ .30 $ .64
========= ========= ========= ========= ======== ======== ========
Weighted average common
shares and common
share equivalents
outstanding 14,207 14,207 13,935 13,935 14,511 14,511 14,511
Selected Company Operating Data:
Motorsports
Winston Cup admissions(1) 104,819 113,086 128,932 143,406 161,491 161,491 173,468
Seating capacity 54,284 59,547 65,469 74,520 81,823 81,823 88,977
Gaming
Number of live horse race dates 57 47 44 36 39 39 67
Number of simulcast dates 20 147 106 36 88 79 208
Number of slot machines - - - - - - 572
June 30, 1996
--------------------------
Balance Sheet Data: Actual As Adjusted(2)
------ --------------
Working capital (deficit) $ (10,880) $ (7,363)
Total assets 43,139 56,550
Long-term debt, less current portion 771 -
Stockholders' equity 23,623 41,322
</TABLE>
(1) Includes two dates in each year.
(2) Adjusted to reflect the sale of 1,000,000 shares of Common Stock by the
Company and the application of the net proceeds therefrom at an assumed
initial public offering price of $19.50 per share (the midpoint of the
estimated public offering price range).
8
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information in this Prospectus, before purchasing shares
of Common Stock. This Prospectus contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
statements are only predictions and involve a number of risks and uncertainties.
Actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the following factors, and
other information in this Prospectus, which could cause actual results to differ
materially from those indicated by such forward-looking statements.
Dependence on Relationship with NASCAR
The Company's success in motorsports has been and will remain dependent to
a significant extent upon maintaining a good working relationship with NASCAR,
the sanctioning body for Winston Cup and Busch Series races. The Company
currently holds licenses to conduct two Winston Cup races and two Busch Series
races in 1996. For the eleven months ended June 30, 1996, the most
recent four races accounted for approximately 36% of the Company's total
revenues. Each NASCAR event license is awarded on an annual basis. The Company
has held NASCAR-sanctioned races for 28 consecutive years, and management
believes that its relationship with NASCAR remains good. However, NASCAR is
under no obligation to continue to license the Company to conduct any event.
Nonrenewal of a NASCAR event license would have a material adverse effect on the
Company's financial condition and results of operations. See "Business -
Motorsports" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Government Regulation and Taxation
General. Dover Downs is a "Licensed Agent" authorized to conduct video
lottery operations under the Delaware State Lottery Code. Dover Downs also holds
a license from the Delaware Harness Racing Commission by which it is authorized
to hold harness race meetings on its premises and to make, conduct and sell
pools by the use of pari-mutuel machines or totalizators. The Company's video
lottery and pari-mutuel wagering operations are contingent upon the continued
governmental acceptance of such operations as forms of legalized gambling. As
forms of gambling, video lottery machines and pari-mutuel wagering are subject
to extensive regulation and could be subjected at any time to additional or more
restrictive regulations, or be banned entirely.
Sunset Provisions in Video Lottery Legislation. The legislation authorizing
video lottery operations in the State of Delaware was adopted in July 1994, and
is referred to as the "Horse Racing Redevelopment Act." Unless the Act is
extended or reenacted, it will terminate on March 15, 2000, in which event the
Company will be required to discontinue its video lottery operations. There can
be no assurances that the General Assembly will extend or reenact the
legislation beyond March 15, 2000.
Under the Delaware State Lottery Code, payments made to a Licensed Agent,
such as Dover Downs, are permitted to continue on the current basis only until
December 29, 1998. No payments can be made to Dover Downs, or to any Licensed
Agent in the State, beyond December 29, 1998 unless new legislation is enacted
which, according to the Horse Racing Development Act, "will establish an
appropriate and equitable distribution of the proceeds of the video lottery so
as to ensure that the State's General Fund receives an appropriate share of the
proceeds." Unless such new legislation is enacted, the Company will be required
to discontinue its video lottery operations. Even if such new legislation is
9
<PAGE>
enacted, there can be no assurances that the Company's video lottery
operations will continue to generate an acceptable level of revenue, or any
revenues at all after December 29, 1998, and there can be no assurances that the
General Assembly will act to allow payments to Licensed Agents to continue.
Control Over Video Lottery Equipment and Technology. Dover Downs does not
own or lease the video lottery machines or computer systems used in connection
with its video lottery gaming operations. The Director of the Delaware State
Lottery Office enters into contracts directly with the providers of the video
lottery machines and computer systems (the "Technology Providers"). Equipment is
provided to the State by sale or lease and all Technology Providers must be
licensed by the Director. There are also limitations on the number of video
lottery machines that may be used at any one facility that are supplied by the
same Technology Provider. The operations of the Company could be disrupted in
the event that a licensed Technology Provider in any way breaches its agreement
with the State or ceases to be properly licensed for any reason. Such an event
would be outside of the control of the Company.
Yearly Harness Racing Licensing Requirement. The Company's license from the
Delaware Harness Racing Commission must be renewed on a yearly basis. The
Commission has broad discretion to reject any application for a license. In
order to maintain its license for video lottery (slot) machine gaming, Dover
Downs is required to maintain its license for harness horse racing with the
Delaware Harness Racing Commission and must conduct a minimum of 42 live race
days each racing season, subject to the availability of racing stock. The
Company has received an annual license from the Commission for the past 28
consecutive years and management believes that its relationship with the
Commission remains good. However, there can be no assurances that the Company
will continue to be licensed in the future.
Revocation, Suspension or Modification of Licenses. The Director of the
Delaware State Lottery Office may revoke or suspend the license of a Licensed
Agent, such as Dover Downs, for "cause." "Cause" is broadly defined and could
potentially include an unintentional violation of any federal, state or local
law. All existing or new officers, directors, key employees and owners of a
Licensed Agent are subject to extensive background investigations. Failure to
satisfy the background investigation may constitute cause for suspension or
revocation of the license. The Director also has broad discretion to modify the
terms of a license already granted. The Delaware Harness Racing Commission also
has broad discretion to suspend or revoke a license once issued.
Any modification or termination of existing legislation or any revocation,
suspension or modification of the Company's licenses could have a material
adverse effect on the Company's financial condition and results of operations.
Various operational aspects of the video lottery operations are subject to
regulation by the Director of the Delaware State Lottery Office. Various
operational aspects of harness racing are subject to regulation by the Delaware
Harness Racing Commission and the United States Trotting Association. See
"Business - Government Regulation of Gaming."
Taxation. The Company believes that the prospect of significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are typically subject to significant taxes
and fees in addition to normal federal and state income taxes, and such taxes
and fees are subject to increase at any time. The Company pays substantial taxes
and fees with respect to its operations. From time to time, federal legislators
and officials have proposed changes in tax laws, or in the administration of
such laws, affecting the gaming industry. Recent proposals have included a
federal gaming tax and limitations on the federal income tax deductibility of
the cost of furnishing complimentary promotional items to customers. It is not
possible to determine with certainty the likelihood of possible changes in tax
laws or in the administration of such laws. Such changes, if adopted, could have
a material adverse effect on the Company's financial condition and results of
operations.
10
<PAGE>
Compliance with Other Laws. The sale of alcoholic beverages at Dover Downs
is subject to licensing, control and regulation by applicable local authorities.
All licenses are revocable and are not transferable. Dover Downs' facilities are
subject to various federal, state and local regulatory requirements, such as
state and local fire and safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. The Company believes that its
facilities are currently in substantial compliance with all such regulatory
requirements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed which could have a
material adverse effect upon the Company's financial condition and results of
operations.
Dependence on Relationship with Caesars
The success of the Company's video lottery operations has been and will
remain dependent to a significant extent upon maintaining a good working
relationship with Caesars. Dover Downs and Caesars are parties to a management
agreement under which Caesars is the Company's exclusive agent to supervise,
manage and operate the Company's video lottery operations. Caesars has been
properly licensed by the Delaware State Lottery Office in order to perform these
functions. Management believes that its relationship with Caesars is good.
However, should Caesars cease to be licensed by the Delaware State Lottery
Office or should the Company be unable to continue its present relationship with
Caesars, such events could have a material adverse effect on the Company's
financial condition and results of operations. See "Business - Gaming -
Management of Video Gaming Operations by Caesars."
Dependence on Single Facility
The Company's operations are located at a single facility in Dover,
Delaware. Any prolonged disruption of operations at the facility due to
destruction of or material damage to the facility or other reasons could have a
material adverse effect on the Company's financial condition and results of
operations. The Company maintains property and business interruption insurance
to protect against such types of disruption, but there can be no assurance that
the proceeds of such insurance would be adequate to repair or rebuild its
facilities in such event or to compensate the Company for losses incurred during
the period of any such disruption. See "Business - Insurance."
Losses from Harness Racetrack Operations; Declining On-Track Betting Handle
Since the 1970s, and through the 1994-1995 racing season, the Company's
harness horse racing operations experienced regular declines in daily average
on-track attendance and in the total amount bet on live events at the track
("on-track betting handle"). For fiscal years ended July 31, 1993, 1994 and
1995, prior to the introduction of video lottery gaming, the Company incurred
losses of $833,753, $1,058,616 and $1,101,403, respectively, from its harness
horse racing operations. Management believes that this decline reflected an
industry wide decline in horse racing resulting from the adverse effects of
competition from lotteries and other forms of gambling.
Beginning with the 1995-1996 racing season, Dover Downs has had improvement
in on-track attendance and on-track betting handle and has taken steps to
increase the purse for its live races, both from simulcasting proceeds and from
a dedicated percentage of the revenues from its video lottery operations.
However, there can be no assurances that the Company will be able to keep its
purses at a competitive level or that higher purses will translate into long
term increases in on-track attendance and handle. No assurances can be given
that the Company will not incur substantial operating losses from its harness
horse track operations in the future.
11
<PAGE>
Dependence on Relationship with Cloverleaf
The success of the Company's harness horse racing operations requires that
it maintain a good working relationship with Cloverleaf Standardbred Owner's
Association, Inc. Cloverleaf represents owners, trainers, and drivers of harness
horses participating in harness race meetings at Dover Downs. Dover Downs and
Cloverleaf are parties to an agreement whereby Dover Downs is required to
distribute as purses for races conducted at Dover Downs, a percentage of the
Company's revenues from pari-mutuel wagering. Management believes that its
relationship with Cloverleaf is good. However, should the Company be unable to
continue its present relationship with Cloverleaf or find itself unable to
attract high quality horses and horsemen to its harness horse races, such events
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business - Gaming - Agreement with Cloverleaf."
Competition
Motorsports, harness horse racing, pari-mutuel wagering, simulcasting, and
video lottery (slot) machine gaming are all competitive industries. The Company
competes in local and regional markets with auto speedways, horse tracks,
off-track betting, state-run lotteries, casinos, and other gaming facilities.
Many of these competitors have resources that exceed those of the Company. The
Company also competes locally with other sports and entertainment businesses,
many of which have resources that exceed those of the Company. There can be no
assurance that the Company will maintain or improve its position in light of
such competition. The Company believes that there is a trend towards the
legalization of casino and other forms of gaming throughout the country. From
time to time, legislation has been introduced in the neighboring states of
Pennsylvania, Maryland and New Jersey, which could further expand gaming
opportunities. Approval of such legislation could increase competition for the
Company in the future and could have a material adverse effect on the Company's
financial condition and results of operations. See "Business - Competition."
Seasonality
The Company derives a substantial portion of its total revenues from
admissions and event-related revenue attributable to four NASCAR-sanctioned
races which are currently held in June and September, and from live harness
horse racing which is currently held between November and April. As a result,
the Company's business has been, and is expected to remain, highly seasonal.
This is expected to be offset to some degree by the year-round video lottery
(slot) machine gaming operations and year-round simulcasting, but quarterly
earnings may vary. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Financial Impact of Bad Weather
The Company sponsors and promotes outdoor motorsports and horse racing
events. Weather conditions affect sales of tickets, concessions and souvenirs,
among other things, at these events. Although the Company sells tickets well in
advance of its motorsports events and such tickets are non-refundable, poor
weather conditions can have an adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
12
<PAGE>
Dependence on Key Personnel
The Company's success depends upon its senior management, particularly John
W. Rollins, the Chairman of the Board of the Company, and Denis McGlynn, the
Company's President and Chief Executive Officer. Their experience and contacts
within the gaming and entertainment industry will continue to be of considerable
importance to the Company. The loss of any of the Company's key personnel or its
inability to attract and retain key employees in the future could have a
material adverse effect on the Company's operations and business plans. See
"Management."
Liability for Personal Injuries
Motorsports and harness horse racing can be dangerous to participants and
to spectators. The Company maintains insurance policies that provide coverage
within limits that are sufficient, in management's judgment, to protect the
Company from material financial loss due to liability for personal injuries
sustained by persons on the Company's premises in the ordinary course of Company
business. Nevertheless, there can be no assurance that such insurance will be
adequate at all times and in all circumstances. The Company's financial
condition and results of operations could be adversely affected to the extent
claims and associated expenses exceed insurance recoveries. See "Business -
Legal Proceedings" and "Business - Insurance."
Possible Limitations on Transferability of Shares
Dover Downs is a Licensed Agent authorized to conduct licensed video
lottery operations under the Delaware State Lottery Code. Under Delaware law, a
change of ownership of a Licensed Agent will automatically terminate its license
90 days after the change of ownership occurs, unless the Director of the
Delaware State Lottery Office determines after application to issue a new
license to the new owners. Change of ownership may occur if any new individual
or entity acquires, directly or indirectly, 10% or more of the Licensed Agent or
if more than 20% of the legal or beneficial interest in the Licensed Agent is
transferred, whether by direct or indirect means. The Commission may require
extensive background investigations of any new owner acquiring a 10% or greater
interest in a Licensed Agent, including criminal background checks. These
investigations and checks could severely limit transferability of the Company's
Common Stock and could have an adverse effect on the market for the Company's
securities.
Pursuant to the Company's Bylaws, (a) any holders of Common Stock found to
be disqualified or unsuitable or not possessing the qualifications required by
the appropriate gaming authority could be required to dispose of such stock and
(b) any holder of Common Stock intending to acquire 10% or more of the
outstanding common stock of the Corporation must first obtain prior written
approval from the Delaware State Lottery Office. All certificates issued for
shares of Common Stock of the Company are legended to reflect these
requirements. See "Business - Government Regulation of Gaming" and "Description
of Capital Stock - Possible Limitations on Transferability of Shares."
Control of the Company
Upon the completion of the Offering, John W. Rollins, Chairman of the
Board, will own approximately 42% of the outstanding shares of Common Stock and
Class A Common Stock of the Company, and the current officers and directors,
including John W. Rollins, will own approximately 77%. Due to the concentration
of voting control in Class A Common Stock, the above share ownership translates
into approximately 49% of the voting power residing with John W. Rollins and
approximately 90% of the voting power residing with the current officers and
directors, including John W. Rollins. As a result, John W. Rollins will continue
to control the outcome of substantially all issues submitted to the Company's
stockholders, including the election of all of the Company's directors.
Collectively, the current officers and directors, including John W. Rollins,
will, if acting in concert, have the same or even
13
<PAGE>
greater control. The purchasers of the shares of Common Stock, individually and
in the aggregate, will be minority stockholders. See "Management," "Principal
and Selling Stockholders" and "Description of Capital Stock - Common Stock and
Class A Common Stock."
Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and Bylaws
establish a dual class structure with super majority voting provisions in Class
A Common Stock, authorize the issuance of "blank check" preferred stock, stagger
the election of directors, establish advance notice requirements for director
nominations and actions to be taken at stockholder meetings, and require special
approvals for certain business combinations involving the Company and any person
owning 20% or more of the Company's voting stock. The Company has adopted Rights
Plans relative to the Common Stock and the Class A Common Stock which could act
to dilute the ownership and control of certain persons that seek to acquire 10%
or more of the outstanding Common Stock and Class A Common Stock of the Company
or engage in a tender offer. The Company also is subject to the provisions of
Section 203 of the General Corporation Law of the State of Delaware. These
provisions could discourage or impede a tender offer, proxy contest or other
similar transaction involving control of the Company, which transaction might be
viewed favorably by minority stockholders. See "Description of Capital Stock."
Dilution
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in net tangible book value per share of the Common
Stock from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale
Shares of Class A Common Stock are convertible at any time into shares of
Common Stock, on a share for share basis. The 12,425,830 shares of Class A
Common Stock beneficially owned by the existing stockholders of the Company upon
the completion of the Offering, and 585,000 shares of Class A Common Stock which
may be issued under options previously granted under the 1991 Stock Option
Plan, will be "restricted securities" as defined in Rule 144 under the
Securities Act of 1933, as amended. Such shares of Class A Common Stock, if
converted into Common Stock, may be resold thereafter in compliance with Rule
144.
No prediction can be made as to the effect that resale of shares of Common
Stock or the availability of shares of Common Stock for resale will have on the
market price of the Common Stock prevailing from time to time. The resale of
substantial amounts of Common Stock, or the perception that such resales may
occur, could adversely affect prevailing market prices for the Common Stock. The
Company has agreed not to issue, and all directors and officers of the Company
and the Selling Stockholders have agreed not to resell, or otherwise dispose of,
any shares of Common Stock or Class A Common Stock or other equity securities of
the Company for 180 days after the date of this Prospectus without the prior
written consent of the representative of the Underwriters. See "Shares Eligible
for Future Sale" and "Underwriting."
No Prior Public Market and Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for the Common
Stock. The Common Stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. The initial public offering
price for the Common Stock will be determined by negotiations
14
<PAGE>
between the Company, the Selling Stockholders and the representative of the
Underwriters. See "Underwriting." There can be no assurance that the market
price of the Common Stock prevailing at any time after the Offering will equal
or exceed the initial public offering price. In addition, the stock market has,
from time to time, experienced extreme price and volume fluctuations, which
could adversely affect the market price of the Common Stock without regard to
the financial performance of the Company. The market price of the Common Stock
may fluctuate substantially in response to quarterly variations in the Company's
results of operations, announcements by the Company or other developments
affecting the Company, as well as by general economic and other external
factors.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock offered hereby by the Company, assuming a price to the public of $19.50
per share (the midpoint of the estimated public offering price range) and after
deducting estimated offering expenses and underwriting discounts, are expected
to be approximately $17.7 million ($19.1 million if the Underwriters'
over-allotment option is exercised in full). Of such proceeds, management
expects to apply approximately $6.2 million to complete the expansion of the
Company's video lottery operations and related parking facilities, approximately
$3.5 million to repay all borrowings under the Company's revolving credit
facility with PNC Bank, approximately $3.5 million to construct new grandstand
seating and skyboxes, and $0.8 million to repay certain mortgage indebtedness.
The remainder of such proceeds, if any, will be used for other facility
improvements or general corporate purposes. Pending such uses, the Company
intends to invest such proceeds in investment grade, interest-bearing
instruments or in investment companies that invest principally in such
instruments. The revolving credit facility to be paid down by the Company with
proceeds of the Offering bore interest, during the eleven months ended June 30,
1996, at 7 1/4% on the first million dollars and 7 3/4% on the balance, and
otherwise would mature on June 30, 2000. Repayment of such bank debt will
provide the Company with enhanced borrowing capacity to be used for general
corporate purposes. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Capital
Expenditures."
DIVIDEND POLICY
The Company has not paid or declared any cash dividends on its capital
stock in the past. No assurance can be given that the Company will decide to or
be able to pay dividends at any time in the future. Any declaration and payment
of dividends will be (i) dependent upon the Company's results of operations,
financial condition, capital requirements, and other relevant factors, (ii)
subject to the discretion of the Board of Directors of the Company, and (iii)
payable only out of the Company's surplus or current net profits in accordance
with the General Corporation Law of the State of Delaware. Dividends on Class A
Common Stock, if any, cannot exceed dividends on Common Stock. Dividends on
Common Stock, if any, may, at the discretion of the Board of Directors, be paid
at a higher rate than dividends, if any, on Class A Common Stock. The ability of
the Company to pay dividends will depend on dividends and other payments from
its subsidiaries. Dover Downs, Inc. is not permitted under the terms of its
credit facility with PNC Bank to pay any dividends to the Company in excess of
the net income of Dover Downs, Inc. for the preceding fiscal year.
15
<PAGE>
DILUTION
As of June 30, 1996, the net tangible book value per share of Common Stock
and Class A Common Stock was $1.70. Net tangible book value per share of Common
Stock and Class A Common Stock represents the total tangible assets less total
liabilities, divided by the number of shares of Common Stock and Class A Common
Stock outstanding. After giving effect to the Offering at an assumed public
offering price of $19.50 per share (the midpoint of the estimated public
offering price range), and after deducting estimated offering expenses and
underwriting discounts, the pro forma net tangible book value per share of
Common Stock as of June 30, 1996 would have been approximately $2.77. This
represents an immediate dilution of $16.73 per share to new investors purchasing
shares of Common Stock in the Offering.
The following table illustrates the pro forma dilution in net tangible book
value per share to new investors as of June 30, 1996, after giving effect to the
Offering at an assumed public offering price of $19.50 per share (the midpoint
of the estimated public offering price range):
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................................. $19.50
------
Net tangible book value per share before offering ............................. $ 1.70
Increase in net tangible book value per share attributable to the offering .... 1.07
------
Pro forma net tangible book value per share after the offering ...................... 2.77
------
Dilution per share to new investors ................................................. $16.73
======
</TABLE>
If the Underwriters exercise their right to purchase from the Company an
additional 75,000 shares of Common Stock in the aggregate to cover
over-allotments, the net tangible book value per share after the offering would
be $2.84, which would result in dilution to new investors of $16.66 per share.
The following table sets forth, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors (at the initial
public offering price of $19.50 per share and before deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company) with respect to the number of shares of Common Stock and Class A Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by the existing stockholders and to be paid
by new stockholders.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ----------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing Stockholders(1)............................ 13,925,830 93.3% $ 5,959,858 23.4% $ .43
New Stockholders(1)................................. 1,000,000 6.7 19,500,000 76.6 19.50
---------- ----- ----------- -----
Total........................................ 14,925,830 100.0% $25,459,858 100.0%
========== ===== =========== =====
</TABLE>
- --------------
(1) These data exclude an aggregate of 585,000 shares of Class A Common Stock
reserved for issuance under the 1991 Stock Option Plan. See "Management -
Executive Compensation" and "Stock Option Plans." These data also
exclude up to 375,000 shares of Common Stock that may be sold by the
Company or certain Selling Stockholders upon exercise of the over-
allotment option granted to the Underwriters. See "Underwriting." Sales
by the Selling Stockholders in the Offering will reduce the number of
shares held by existing stockholders to 12,425,830, or approximately
83.3% of the total number of shares to be outstanding after the
Offering, and will increase the number of shares held by new
stockholders to 2,500,000, or approximately 16.7% of the total number
of shares to be outstanding after the Offering. If the Underwriters'
over-allotment option is exercised in full, the number of shares held
by the new stockholders will increase to 2,875,000 shares, or
approximately 18.8% of the total number of shares to be outstanding
after the Offering.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to reflect the sale by the Company of 1,000,000 shares
of Common Stock in the Offering and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------
Actual As Adjusted(1)
------ --------------
(in thousands)
<S> <C> <C>
Revolving line of credit $ 3,500 $ --
Long-term debt, including current portion 788 --
Stockholders' equity:
Preferred Stock, par value $.10 per share
1,000,000 shares authorized; no shares
issued or outstanding -- --
Common Stock, par value $.10 per share
35,000,000 shares authorized; 2,500,000
shares issued and outstanding, as adjusted -- 250
Class A Common Stock, par value $.10 per share
30,000,000 shares authorized; 13,925,830
shares issued and outstanding, actual;
12,425,830 issued and outstanding,
as adjusted 1,393 1,243
Additional paid-in capital 4,567 22,166
Retained earnings 17,663 17,663
---------- ----------
Total stockholders' equity 23,623 41,322
Total capitalization $ 27,911 $ 41,322
========== ==========
</TABLE>
- ---------------
(1) These data exclude 585,000 shares of Class A Common Stock reserved for
issuance upon the exercise of options granted to date pursuant to the
Company's 1991 Stock Option Plan and up to 75,000 shares of Common Stock
that may be sold by the Company upon exercise of the over-allotment option
granted to the Underwriters. See "Underwriting." These data assume
conversion by the Selling Stockholders of 1,500,000 shares of Class A
Common Stock prior to the sale of shares of Common Stock in the Offering.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the five fiscal
years ended July 31, 1995 has been derived from audited financial statements of
the Company. The financial statements for the three fiscal years ended July 31,
1995 were audited by Siegfried Schieffer & Seitz, independent certified public
accountants. These financial statements and the auditors' report are contained
elsewhere in this Prospectus. The financial data for the eleven months ended
June 30, 1996 and 1995 are unaudited and include, in the opinion of the Company,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the Company's financial position at that date and the
results of operations for those periods. Operating results for the eleven month
period ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the fiscal year ending July 31, 1996. All of the data set
forth below are qualified by this reference to, and should be read in
conjunction with, the Company's Consolidated Financial Statements (including the
Notes thereto), and its "Management's Discussion and Analysis of Financial
Condition and Results of Operations," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Eleven months
Year ended July 31, ended June 30,
-------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data:
Revenues:
Motorsports $ 8,612 $ 10,182 $ 11,941 $ 13,524 $ 16,099 $ 15,871 $ 17,975
Gaming 1,918 2,476 1,936 1,024 1,309 1,231 31,746
--------- ---------- ---------- --------- --------- ---------- ----------
Total 10,530 12,658 13,877 14,548 17,408 17,102 49,721
Expenses:
Operating 5,298 6,238 6,706 6,107 7,445 7,181 30,559
Depreciation 597 678 721 775 1,088 968 1,349
General and administrative 1,401 1,338 1,603 1,468 1,643 1,482 2,166
-------- ---------- ---------- --------- --------- ---------- ----------
7,296 8,254 9,030 8,350 10,176 9,631 34,074
-------- ---------- ---------- --------- --------- ---------- ----------
Operating earnings 3,234 4,404 4,847 6,198 7,232 7,471 15,647
Interest expense 465 328 175 185 142 125 154
--------- ---------- ---------- --------- --------- ---------- ----------
Earnings before taxes 2,769 4,076 4,672 6,013 7,090 7,346 15,493
Income taxes 584 1,543 1,834 2,314 2,847 2,997 6,182
--------- ---------- ---------- --------- --------- ---------- ----------
Net earnings $ 2,185 $ 2,533 $ 2,838 $ 3,699 $ 4,243 $ 4,349 $ 9,311
========= ========== ========== ========= ========= ========== ==========
Earnings per
common share $ .15 $ .18 $ .20 $ .27 $ .29 $ .30 $ .64
========== ========== ========== ========= ========= ========== ==========
Weighted average common
shares and common
share equivalents
outstanding 14,207 14,207 13,935 13,935 14,511 14,511 14,511
Balance Sheet Data:
Total assets $ 13,443 $ 15,681 $ 15,539 $ 20,244 $ 24,042 $ 23,464 $ 43,139
Long-term debt,
less current portion $ 580 $ 533 $ 829 $ 753 $ 675 $ 698 $ 771
Stockholders' equity $ 1,090 $ 3,624 $ 6,159 $ 9,859 $ 14,120 $ 14,207 $ 23,623
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's historical results
of operations and liquidity and capital resources should be read in conjunction
with the "Selected Consolidated Financial Data" and Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in this Prospectus.
The Company's future results may differ significantly from the results discussed
in these statements. Factors that may cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Prospectus.
Overview
The Company's results of operations are grouped into two segments:
motorsports and gaming. Motorsports revenues include admissions, parking,
concessions, broadcast rights and sponsorships to the Company's motorsports
events. Historically, the Company's primary motorsports events have been two
annual Winston Cup races and two annual Busch Series races sanctioned by NASCAR.
Gaming revenues include video lottery (slot) machine revenues, pari-mutuel
wagering revenues from live and simulcast horse races and other revenues
associated with the video lottery (slot) machine, horse racing and simulcasting
operations.
On December 29, 1995, the Company opened new facilities and placed in
service 500 machines for video lottery (slot) machine gaming. Therefore, the
results of operations for fiscal year 1994 and 1995, and the first five months
of fiscal year 1996 exclude revenues from video lottery (slot) machine
operations. At the same time the video lottery operations began, the Company
expanded its simulcasting operations and has since experienced an increase in
pari-mutuel wagering from year-round simulcast programs of thoroughbred and
harness horse racing.
In the Company's video lottery (slot) machine business, the difference
between the amount wagered by bettors and the amount paid out to bettors is the
Company's win, which is the amount recorded in its financial statements as
gaming revenue. The Delaware State Lottery Office sweeps the winnings from the
Company's video lottery operations, collects the State's share of the winnings
and the amount due to the providers of the video lottery machines and associated
computer systems, collects the amount allocable to purses for harness horse
racing, and remits the remainder to the Company. Pari-mutuel wagering revenues
refers to income received from betting on live on-site harness horse racing and
from wagering on simulcast races of thoroughbred and harness horse racing held
across North America. The wagering by the public on the horse races is referred
to as the handle. From the handle, a substantial portion is returned to the
wagering public and the residual is retained by the Company and recorded in its
financial statements as gaming revenues. Simulcasting is the transmission of
live horse racing by television, cable or satellite signal from one race track
to another with pari-mutuel wagering being conducted at the sending and
receiving track and a portion of the handle being shared by the sending and
receiving tracks.
The Company promotes outdoor motorsports and horse racing events. Weather
conditions affect sales of tickets, concessions, souvenirs and novelty
merchandise, among other things, at these events. Although the Company sells
tickets well in advance of its motorsports events, and such tickets are
non-refundable, poor weather conditions may have a negative impact on the
Company's results of operations.
Growth in the Company's revenues depends on continued investment in
facilities, renewal of annual NASCAR sanctions, renewal of annual harness racing
and simulcasting licenses, extension of video lottery legislation, and the
ability to preserve existing licenses and approvals and obtain any other
licenses or approvals as may be required by the State of Delaware or other
regulatory authorities.
19
<PAGE>
The Company does not believe that its financial performance has been
materially affected by inflation.
Results of Operations
The table below shows the percentage relationship of revenue and expense
items relative to total revenue for the fiscal years ended July 31, 1994 and
1995, and the eleven months ended June 30, 1996.
Fiscal year Eleven months
ended July 31, ended June 30,
----------------- ----------------
1994 1995 1996
---- ---- ----
Revenues:
Motorsports 93.0% 92.5% 36.2%
Gaming 7.0% 7.5% 63.8%
-------- -------- --------
Total revenues 100.0% 100.0% 100.0%
Expenses:
Operating 42.0% 42.8% 61.5%
Depreciation 5.3% 6.3% 2.7%
General and administrative 10.1% 9.4% 4.4%
Interest 1.3% .8% .3%
-------- -------- --------
Total 58.7% 59.3% 68.9%
-------- -------- --------
Earnings before taxes 41.3% 40.7% 31.1%
Eleven Months Ended June 30, 1996 Compared With Eleven Months Ended
June 30, 1995
Revenues increased by $32,619,000 to $49,721,000 from the $17,102,000
reported in the prior year. The significant increase in revenue was principally
due to the introduction of video lottery (slot) machine operations in late
December 1995. The eleven months of fiscal 1996 revenues include five months of
video lottery revenues of $27,675,000 compared with none in fiscal 1995.
Motorsports revenues increased by $2,104,000 or 13.3% due to larger attendance
and higher average ticket prices from the Company's NASCAR races held in
September 1995 and June 1996.
Operating expenses increased by $23,378,000 principally due to the
introduction of video lottery (slot) machine operations in late December 1995.
Payments to the State of Delaware, fees to the manager who operates the video
lottery (slot) machine operation, and payments to the vendors who provide the
video lottery machines were $12,187,000 in fiscal 1996 and none in fiscal 1995.
Amounts allocable from the video lottery operation for harness horse racing
purses were $3,550,000 in fiscal 1996 and none in fiscal 1995. Wages and
benefits of newly hired employees for the video lottery (slot) machine operation
comprised most of the remainder of the change in operating expenses in fiscal
1996. Motorsports' operating expenses increased by $676,000 in fiscal 1996
compared with the prior year.
Depreciation increased by $381,000 or 39.4% to $1,349,000 from $968,000 due
to the increased capital expenditures related to the Company's newly constructed
video lottery casino and further expansion of its motorsports facilities.
General and administrative expenses increased by $684,000 to $2,166,000
from $1,482,000. Higher wages and benefits and additional promotional expenses
for the start up of video lottery (slot) machine operations accounted for most
of the increase in these expenses.
20
<PAGE>
The Company's effective income tax rate for the 1996 period was 39.9%
compared with 40.8% in the 1995 period.
Net earnings increased by $4,962,000 due to the inclusion of video lottery
(slot) machine operations for six of the eleven months in fiscal 1996 and also
due to higher attendance and related revenues at the Company's NASCAR events in
September 1995 and June 1996.
Fiscal Year 1995 Compared With Fiscal Year 1994
Revenues in fiscal 1995 increased by $2,860,000 or 19.7% to $17,408,000
from the prior year. Motorsports revenues increased by $2,575,000 principally
due to increased admissions, revenues associated with marketing programs and
higher concession and novelty sales. Gaming revenues associated with live
harness horse racing and simulcasting operations increased by $285,000 or 27.9%
due in large part to the increase in the number of simulcast racing dates to 88
in fiscal 1995 from 36 dates in fiscal 1994. Live harness horse race dates also
increased marginally in fiscal 1995 to 39 from 36 in fiscal 1994.
Operating expenses in fiscal 1995 increased by $1,338,000 or 21.9% to
$7,445,000 from the prior year. The increase was attributed to the higher
revenue in both motorsports and gaming activities.
Depreciation in fiscal 1995 increased by $313,000 or 40.4% to $1,088,000
from the prior year. The increase related to the higher level of capital
expenditures incurred for the expansion and improvement of the Company's
motorsports facilities.
General and administrative expenses in fiscal 1995 increased by $175,000 or
11.9% to $1,643,000 from the prior year. The increase was due to the growth in
revenues in both motorsports and gaming which required more marketing and
overhead expenses.
The Company's effective income tax rates for fiscal 1995 and fiscal 1994
were 40.2% and 38.5%, respectively.
Net earnings in fiscal 1995 increased by $544,000 or 14.7% to $4,243,000
from the prior year principally due to the higher revenues associated with
motorsports events.
Fiscal Year 1994 Compared With Fiscal Year 1993
Revenues for fiscal 1994 increased by $671,000 or 4.8% to $14,548,000 from
the prior year. Revenues associated with motorsports events increased by
$1,583,000 due to increased admission revenues. Revenues from pari-mutuel
wagering declined by $912,000 due to a reduction in live racing dates from 44 in
fiscal 1993 to 36 in fiscal 1994. Additionally, simulcast racing dates declined
from 106 in fiscal 1993 to 36 in fiscal 1994.
Operating expenses in fiscal 1994 decreased by $599,000 or 8.9% to
$6,107,000 from the prior year primarily due to the decline in pari-mutuel
wagering in fiscal 1994.
Depreciation in fiscal 1994 increased by $54,000 or 7.5% to $775,000 from
the prior year. The increase reflects higher investment in motorsports
facilities and equipment.
General and administrative expenses in fiscal 1994 decreased by $135,000 or
8.4% to $1,468,000 from the prior year. The reduction in these expenses
reflected the lower level of pari-mutuel wagering revenues received in fiscal
1994.
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The Company's effective income tax rates for fiscal 1994 and 1993 were
38.5% and 39.3%, respectively. For fiscal 1994, income taxes were accounted for
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." Through July 31, 1993, income taxes were
accounted for under APB Opinion No. 11.
Net earnings in fiscal 1994 increased by $861,000 or 30.3% to $3,699,000
from the prior year. The improvement in net earnings was due mainly to the
increased revenues realized from motorsports events.
Seasonality and Quarterly Results
The Company historically has derived a substantial portion of its total
revenues from admissions and event-related revenue attributable to four
NASCAR-sanctioned races, which currently are held in June and September, and
live horse racing which is currently held between November and April each year.
These schedules cause the Company's results of operations to be highly seasonal.
The inclusion of year-round video lottery (slot) machine gaming and simulcast
operations is expected to offset to some extent seasonal fluctuations in the
future. Quarterly earnings may vary considerably due to the fact that NASCAR
races occur in only two out of four quarters. Set forth below is certain summary
information (in thousands) with respect to the Company's operations for the most
recent fiscal quarters.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1996
------------------------------------------ ------------------------------
First Second Third Fourth First Second Third
----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 7,143 $ 704 $ 607 $ 8,954 $ 8,545 $ 5,176 $ 18,076
Net earnings 2,352 (642) (440) 2,973 2,909 (40) 2,326
</TABLE>
Liquidity and Capital Resources
Cash flow from operations for the eleven months ended June 30, 1996 was
$15,244,000. For the fiscal year ended July 31, 1995, the Company generated
$6,269,000 in cash flow from operations, which represented an increase of
$1,398,000 over the prior fiscal year. The increase reflected the Company's
higher net earnings and increased non-cash charges. For the year ended July 31,
1994, cash provided by operations increased by $3,330,000 over fiscal 1993,
which reflected higher levels of net earnings and deferred revenue, which is
principally cash for NASCAR race tickets received in advance. Deferred revenue
is the largest component of current liabilities and is the principal reason for
the Company's working capital deficit.
The Company has two lines of credit aggregating $10,000,000 from PNC Bank
to provide seasonal funding needs and to finance the capital improvements and
seasonal working capital requirements. One line of credit is a decreasing,
revolving facility with an initial maximum amount of $8,000,000 and an
expiration date of June 30, 2000. The other line is for $2,000,000 and is
renewable annually. On June 30, 1996, $3,500,000 was outstanding under these
lines.
Capital expenditures for the eleven months ended June 30, 1996 were
$17,847,000. The purchases of land for $7,603,000 will provide for additional
parking and other future expansion. Construction of the existing casino for
$6,242,000 and construction of additional permanent seating for motorsports
events of approximately $2,000,000 represented the other significant capital
projects in fiscal 1996.
Capital expenditures were $7,323,000 in fiscal 1995 compared with
$3,006,000 in fiscal 1994. Included in fiscal 1995's capital expenditures were
$1,789,000 related to the construction of the Company's video lottery gaming
facility. The higher level of capital spending in fiscal 1995 also reflected
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the construction of additional grandstand seating, new skyboxes, the acquisition
and improvement of land, the resurfacing of the auto race track, and
improvements to the horse racing facilities.
In fiscal 1997, the Company expects to make substantial capital
expenditures, such as completing the expansion of the video lottery casino and
additional permanent grandstand and skybox seating. The Company's preliminary
budget for these projects in fiscal 1997 is approximately $15,500,000.
Management anticipates that the net proceeds of the Offering, together with cash
from operations and funds expected to be available under its bank credit
facility, will satisfy the Company's cash requirements in fiscal 1997.
Impact of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that the Company's long-lived assets, which
consist primarily of racing plant and other equipment be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable. The Company intends to adopt this standard
as required in fiscal 1997. The implementation of SFAS 121 is not expected to
have an impact on the results of operations or financial position of the
Company.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") which
encourages the fair value based method of accounting for stock options and
similar equity instruments granted to employees. This method requires that the
fair value of equity instruments granted to employees be recorded as
compensation expense. However, SFAS 123 allows for the continued use of the
intrinsic value based method, which in most cases, does not result in a charge
to earnings. The Company does not expect to change its method of accounting for
stock options. However, the Company will adopt the disclosure requirements of
SFAS 123 when required in fiscal 1997.
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BUSINESS
Dover Downs owns and operates the Dover Downs International Speedway, the
Dover Downs Raceway and a video lottery casino at a multi-purpose gaming and
entertainment complex. The facility is located in close proximity to the major
metropolitan areas of Philadelphia, Baltimore and Washington, D.C. on
approximately 775 acres of land owned by the Company in Dover, Delaware.
Dover Downs International Speedway offers a modern, state-of-the-art,
concrete superspeedway for top-rated NASCAR-sanctioned auto racing events with
one of the largest and most comfortable seating capacities in its market. Dover
Downs Raceway offers traditional harness horse racing and year-round
satellite-linked pari-mutuel wagering on simulcast harness and thoroughbred
horse races from regional and national tracks. The Company has recently expanded
into video lottery (slot) machine gaming. The video lottery operations are
managed by Caesars World Gaming Development Corporation, a wholly-owned
subsidiary of Caesars World, Inc., the casino gaming arm of ITT Corporation.
Using Caesars expertise and marketing skills in the gaming industry, the Company
has created a stylish gaming facility with attractive decor, dining and nightly
entertainment.
Dover Downs offers a unique gaming and entertainment experience.
Management believes it to be the only facility in the country that combines in
one location NASCAR Winston Cup/Busch Series stock car racing, harness horse
racing, pari-mutuel wagering on both live and simulcast horse races, and video
lottery (slot) machine gaming.
Growth Strategy
The Company's mission is to provide all of its customers a premier
gaming and entertainment experience. The Company's growth strategy is to
continue to increase revenue and profitability by focusing on the following:
Increase the seating capacity and corporate hospitality facilities for
NASCAR-sanctioned events
Management believes that present spectator demand for NASCAR Winston
Cup events at Dover Downs exceeds its existing seating capacity. Current seating
capacity consists of 88,977 grandstand seats and 1,000 skybox seats. The Company
has increased seating capacity for the last 11 consecutive years, adding 64,000
seats (53,000 permanent and 11,000 temporary seats) during that period. An
additional 7,500 permanent grandstand seats, 960 skybox seats, new food
concessions and restroom facilities are expected to be completed in time for the
1997 race season. Management continues to review additional expansion plans and
believes that seating expansion will generate additional admissions and
event-related revenues.
Complete the expansion of the video lottery (slot) machine facilities,
increasing the number of machines to 1,000
Expansion of the recently constructed video lottery casino and related
parking facilities is currently under way. By October 1996, management expects
to complete the expansion of the video lottery casino to approximately 41,000
square feet, almost double the size of the existing gaming floor, add a gourmet
coffee shop, and improve parking and access to the casino. The Company began
video lottery (slot) machine operations in December 1995 with 500 machines. The
number of machines was increased to 572 in May 1996. With the completion of the
current expansion plans, an additional 428 lottery machines are expected to be
added in October 1996, including a number of higher denomination machines that
are expected to yield a higher win per machine. The addition of these machines
will bring the facility up to 1,000 machines, which is the maximum number
permitted by law.
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<PAGE>
Increase the attendance and wagering on live harness horse racing
through increased purse levels and facility upgrades
With a percentage of video lottery (slot) machine revenues and
simulcast revenues supplementing the purses for the horsemen, the Company has
experienced a dramatic increase in the size of its purses and expects to attract
higher quality horses. Bettors are attracted to races with larger purses and
typically wager more on the higher quality and more predictable horses. The
Company also has various upgrades planned to enhance the harness horse racing
facilities, including renovations to the track and grounds, receiving barn and
paddock areas. Management believes that these factors should increase attendance
and wagering.
Prior to the introduction of video lottery (slot) machines at the
racetrack on December 29, 1995, the purse for harness horse racing at Dover
Downs was very low, averaging approximately $9,000 per day. Purses have been
raised on a regular basis since that time and as of the end of the 1995 to 1996
season, the daily purse distribution was up to $75,000. According to information
published by the Harness Tracks of America, Inc., an association of harness race
tracks throughout the world of which Dover Downs is a member, at this level
Dover Downs would be ranked 4th among 36 North American harness tracks in daily
purse distribution.
During the 1995 to 1996 season, which was extended from March to April
1996, the horsemen at Dover Downs raced for total purses of approximately
$3,000,000, a more than eight-fold increase over the total purses for the
previous season. With more money available for purses, the Company plans to
stage more prestigious events. For the season commencing November 1996, the
Company plans to present the inaugural "Progress Pace" with a $100,000 purse.
This event is expected to attract some of the country's top 3 year old horses.
Other events with purses in the $50,000 range are also being planned.
Expand the existing simulcasting operations and begin transmitting to
tracks and other locations throughout North America
With the recent expansion of the simulcasting facilities, Dover Downs
is now conducting simulcasting and pari-mutuel wagering 363 days of the year,
compared to 36, 88 and 208 days for fiscal years ended 1994 and 1995, and for
the eleven month period ended June 30, 1996, respectively. The Company plans to
increase the number of terminals on site for the November 1996 season, including
the addition of portable, state-of-the-art, personalized terminals affording
patrons the opportunity to wager while seated at a clubhouse dining room table.
Beginning with the 1996 season, the Company will simulcast live races at Dover
Downs to tracks and other off-track betting locations across the country for the
first time. Management believes that these factors should increase revenues from
pari-mutuel wagering.
Pursue innovative marketing programs
Database marketing is one of the principal marketing tools Dover Downs will
use to develop long-term relations with its video lottery (slot) machine
customers. The data collected will allow promotions to be targeted to specific
customer segments. To identify customers, track and reward their level of play
through awards programs, a slots club card tracking system, referred to as the
Blue Diamond Club, has been implemented. Membership in this club currently
stands at 20,000 customers.
Programs are currently being developed to provide bus transportation
for video lottery (slot) machine customers traveling to Dover Downs from
surrounding counties and states. For example, one of these programs will focus
marketing efforts on individuals that frequent Delaware's nearby ocean
25
<PAGE>
resorts.
Management believes that it is important to market the Company's
scheduled events throughout the year, both regionally and nationally. The
Company will continue to market its various events throughout the year in
traditional media such as television, cable, radio, billboards, newspapers,
trade journals and special publications, and by offering tours of its
facilities, conducting direct mail campaigns, and staging other promotional
activities.
Seek additional gaming and entertainment opportunities
Management constantly seeks revenue-producing uses for the Company's
facilities on days not committed to auto or horse racing events. For example,
the Company currently leases the superspeedway to a company that promotes the
"Monster Racing Experience," a half-day race car driving experience for
corporate outings and members of the general public. Activities which are being
considered by Dover Downs for the future include other motorsports racing
events, concerts, conventions, trade shows, banquets, car shows, vehicle testing
and use of the facility as a setting for television commercials, print
advertisements and motion pictures.
Motorsports
Dover Downs International Speedway
Dover Downs has presented NASCAR-sanctioned racing events for 28
consecutive years. The Company currently conducts four major NASCAR races
annually. Two races are associated with the Winston Cup professional stock car
racing circuit and two races are associated with the Busch Series, Grand
National Division racing circuit. The Company's 1996 NASCAR racing season is as
follows:
<TABLE>
<CAPTION>
Date Race Circuit
---- ---- -------
<S> <C> <C>
June 1 "GM Goodwrench/Delco Battery 200" Busch Series
June 2 "Miller 500" Winston Cup
September 14 "MBNA 200" Busch Series
September 15 "MBNA 500" Winston Cup
</TABLE>
Each of the Busch Series events at the Company's tracks will be
conducted on the day before a Winston Cup event. Dover Downs is one of only six
speedways in the country that presents Winston Cup events and also conducts two
Busch Series events each year. The June and September dates have historically
allowed Dover Downs to hold the first and last Winston Cup events in the
Maryland to Maine region each year.
The auto racing track is a high-banked, one mile long, concrete
superspeedway. Current seating capacity at Dover Downs consists of 88,977
grandstand seats and 1,000 skybox seats. Unlike some speedways, substantially
all grandstand seats at Dover Downs, including indoor, air-conditioned
grandstand and skybox seats, offer an unobstructed view of the entire track. The
recently completed installation of a concrete racing surface created the only
concrete superspeedway (one mile or greater in length) in NASCAR. The decision
to install concrete, as opposed to the traditional asphalt, was based on the
Company's desire to provide a fast yet safe racing surface which would be more
resistant to weather-related maintenance problems. The useful life of the
concrete surface is expected to be significantly longer than asphalt. In
addition, concrete remains much cooler than asphalt. This will add greatly to
the useful life of racing tires, thus adding a degree of safety for
26
<PAGE>
drivers and cost savings for race teams. Due to the light color of the new
surface, the superspeedway has also been nicknamed "White Lightning."
The main grandstand used for both motorsports and harness horse racing
events is an approximately 70,000 square foot, four level, steel frame,
partially glass-enclosed, fully heated and air-conditioned facility, with an
approximately 6,500 square foot dining area. The main grandstand can accommodate
a total capacity of approximately 6,000 with seating for approximately 3,800. It
has 4 concession food stands and 4 bars.
Support facilities for motorsports events are located inside the
speedway track. A Winston Cup garage area is located at the north end of the
infield area and contains a Goodyear Tire building, a covered work area for race
cars, tractor trailer car transporter parking area, gasoline pumps, first aid
facilities, observation deck and tower, competitor lounge, and shower
facilities. A Busch Series garage facility was installed for the 1996 automobile
racing season at the south end of the infield with facilities similar to the
Winston Cup garage. The east side of the infield contains a long automobile
racing pit area, a pit control building, an electronic scoreboard and a media
center and concession building.
Additional support facilities for both motorsports and harness horse
racing activities surround the tracks behind the grandstands. Restrooms, ticket
sales buildings, portable concession and souvenir units, hospitality chalets,
paved and fenced hospitality "villages," parking and handicapped parking areas,
recreational vehicle parking areas, barns and paddock facilities and
administrative offices are situated for appropriate access.
In recent years, television coverage and corporate sponsorship have
increased for NASCAR events. The Company's NASCAR events are currently televised
live by TNN to a nationwide audience and broadcast nationally to a network of
over 400 radio stations affiliated with the Motor Racing Network (over 200
stations for Busch Series events). TNN reported that its 1995 season ratings for
all TNN televised NASCAR events increased 28% from 1994.
Dover Downs' present NASCAR sponsors include Pepsi, AT&T, General
Motors and MBNA America Bank. Pepsi is currently the "official soft drink" of
the Company's events. AT&T is the "official telecommunications provider," Chevy
Truck is the "official truck," and Pontiac is the "official pace car."
The increasing corporate presence in autosports has resulted in
significant demand for premier seating in skyboxes and for corporate hospitality
services. Dover Downs has one of the largest corporate hospitality programs in
NASCAR. Over 6 acres of its facility are dedicated to corporate hospitality
villages consisting of temporary pavilions erected for entertaining at race
events. All 6 acres of pavilions are presently filled to capacity at Winston Cup
events.
Overview of NASCAR, Racing Schedules and Sponsors
The National Association for Stock Car Auto Racing, Inc. is the premier
official sanctioning body of professional stock car racing in the United States.
NASCAR officials supervise the conduct of all its races, and through its rules
and regulations, NASCAR strives to keep the events that it sanctions
competitive, interesting and well attended.
Professional stock car racing developed in the Southeastern United
States in the 1930s. The first NASCAR-sanctioned race was held on June 19, 1949
in Charlotte, North Carolina. Races became more popular in the mid-1960s, when
major North American automobile and tire manufacturers first began offering
engineering and financial support. In the late 1960s, NASCAR created a more
elite circuit
27
<PAGE>
focused on the best drivers and reduced the number of races in its premier
series from approximately 50 to approximately 30. In 1971, R. J. Reynolds
Tobacco Company began to sponsor NASCAR racing by developing the Winston Cup
series as a marketing outlet for its products.
NASCAR regulates its membership, including drivers and their crews,
team owners and track owners, the composition of race cars and the sanctioning
of races. It sanctions events by means of one-year agreements executed with
track owners, each of which specifies the race date, the sanctioning fee and the
purse payable by the track owner. The Company's NASCAR sanction agreements
requires that it pay fees to NASCAR for each sanctioned event conducted,
including sanction fees, prize money and point funds. NASCAR officials control
qualifying procedures, the line-up of the cars, the start of the race, the
compliance with rules throughout the race, the election to stop or delay a race,
"pit" activity, "flagging," the positioning of cars, the assessment of lap and
time penalties, and the completion of the race.
In most instances, team owners underwrite the financial risk of placing
their teams in competition. They contract with drivers, hire pit crews and
mechanics and syndicate sponsorship of their teams. A substantial majority of
drivers contract independently with team owners while a few drivers own their
own teams. Drivers receive income from contracts with team owners, prize money,
and through endorsements. Dover Downs does not contract with or pay the team
owners or drivers directly.
The Winston Cup
NASCAR's premier circuit is the Winston Cup, which currently begins
with the "Daytona 500" in February and concludes with the "NAPA 500" in
November. In total, 31 races awarding points towards a season championship are
sanctioned annually to 18 tracks operating in 15 states. The 1996 announced
Winston Cup schedule is as follows:
Date Track Location Race
---- -------------- ----
February 18 Daytona Beach, FL "Daytona 500(R)"
February 25 Rockingham, NC "Goodwrench 400"
March 3 Richmond, VA "Pontiac Excitement 400"
March 10 Atlanta, GA "Purolator 500"
March 24 Darlington, SC "TranSouth Financial 400"
March 31 Bristol, TN "Food City 500"
April 14 N. Wilkesboro, NC "First Union 400"
April 21 Martinsville, VA "Goody's Headache Powders 500"
April 28 Talladega, AL "Winston Select 500"
May 5 Sonoma, CA "Save Mart Supermarkets 300"
May 26 Charlotte, NC "Coca-Cola 600"
June 2 Dover, DE "Miller 500"
June 16 Pocono, PA "UAW-GM Teamwork 500"
June 23 Brooklyn, MI "Miller 400"
July 6 Daytona Beach, FL "Pepsi 400"
July 14 Loudon, NH "Jiffy Lube 300"
July 21 Pocono, PA "Miller 500"
July 28 Talladega, AL "Diehard 500"
28
<PAGE>
Date Track Location Race
---- -------------- ----
August 3 Indianapolis, IN "The Brickyard 400"
August 11 Watkins Glen, NY "The Bud at the Glen"
August 18 Brooklyn, MI "GM Goodwrench Service 400"
August 24 Bristol, TN "Goody's Headache Powder 500"
September 1 Darlington, SC "Mountain Dew Southern 500"
September 7 Richmond, VA "Miller 400"
September 15 Dover, DE "MBNA 500"
September 22 Martinsville, VA "Hanes 500"
September 29 N. Wilkesboro, NC "Tyson Holly Farms 400"
October 6 Charlotte, NC "UAW-GM Quality 500"
October 20 Rockingham, NC "AC-Delco 400"
October 27 Phoenix, AZ "Dura Lube 500"
November 10 Atlanta, GA "NAPA 500"
Dover Downs holds licenses for the events noted in bold print. As the
table indicates, no track currently sponsors more than two Winston Cup series
events.
The Busch Series
Another major NASCAR racing division is the Busch Series, which in 1996
is scheduled to include 26 races held at 20 tracks in 15 states. The 1996
announced Busch Series schedule is as follows:
Date Track Location Race
---- -------------- ----
February 17 Daytona Beach, FL "Goody's Headache Powder 300"
February 24 Rockingham, NC "Goodwrench Service 200"
March 2 Richmond, VA "Hardee's Fried Chicken Challenge 250"
March 9 Atlanta, GA "Busch Light 300"
March 17 Nashville, TN "Opryland USA 320"
March 23 Darlington, SC "Dura Lube 200"
March 30 Bristol, TN "Goody's Headache Powder 250"
April 6 Hickory, NC "Sundrop 400"
May 19 Nazareth, PA "Meridian Advantage 200"
May 25 Charlotte, NC "Red Dog 300"
June 1 Dover, DE "GM Goodwrench/Delco Battery 200"
June 8 S. Boston, VA "South Boston 300"
June 22 Myrtle Beach, SC "Carolina Price / Advance Auto 250"
June 30 Watkins Glen, NY "Lysol 200"
July 7 Milwaukee, WI "Sears Auto Center 250"
July 12 Loudon, NH "Stanley 200"
July 27 Talladega, AL "Humminbird Fishfinder 500K"
August 2 Indianapolis, IN "Kroger 200"
August 17 Brooklyn, MI "Detroit Gasket 200"
August 23 Bristol, TN "Food City 250"
August 31 Darlington, SC "South Carolina 200"
September 6 Richmond, VA "Autolite Platinum 250"
September 14 Dover, DE "MBNA 200"
October 5 Charlotte, NC "All Pro Bumper to Bumper 300"
October 19 Rockingham, NC "AC-Delco 200"
29
<PAGE>
Date Track Location Race
---- -------------- ----
November 3 Homestead, FL "Jiffy Lube Miami 300"
Dover Downs holds licenses for the events noted in bold print. Many
tracks, such as Dover Downs, which hold Winston Cup licenses also hold Busch
Series events on the day preceding a Winston Cup event. Accordingly, Winston Cup
drivers will occasionally compete in Busch Series races, which can boost overall
attendance.
Spectators and Sponsors at NASCAR Events
NASCAR events enjoy a large and growing base of spectator support. The
NASCAR Winston Cup circuit is the most widely attended racing circuit in North
America and draws the top names in the sport, such as Dale Earnhardt, Jeff
Gordon, Bill Elliott, Rusty Wallace and Dale Jarrett. Increased media coverage
has led to national recognition of several "star" NASCAR drivers. According to
statistics made available by The Goodyear Tire & Rubber Co., spectator
attendance at Winston Cup events has increased at a compound annual growth rate
of 12.1% between 1991 and 1995. From 1994 to 1995, attendance increased by 8.8%
for Winston Cup events and by 23.1% for Busch Series events. In 1995, total
attendance at Winston Cup events exceeded 5.3 million.
Surveys published recently by NASCAR indicate that 38% of Winston Cup
spectators are women; 53% work in professional, managerial or skilled labor
jobs; 58% are married; 65% own homes; and 78% use credit cards. The median
annual family income of Winston Cup spectators has been estimated in NASCAR
publications at $39,280. The result has been not only record NASCAR race
attendance, but also increasing payments to track owners for broadcast rights
and sponsorship fees. The Company believes that the demographic profile of this
growing base of spectators has considerable appeal to sponsors and advertisers.
In recent years, television coverage has increased for NASCAR events.
Each NASCAR Winston Cup and Busch Series event currently is broadcast by ABC,
CBS, ESPN, TBS or TNN. Major national corporate sponsorship of NASCAR-sanctioned
events also has increased significantly, according to NASCAR. Corporate sponsors
of NASCAR-sanctioned events now include most major North American automobile
producers and parts manufacturers, the largest and best-known food, beverage and
tobacco companies and leading firms in other manufacturing and consumer products
industries.
Corporate sponsorship of NASCAR teams is also extremely diverse. The
following is a partial list of product sponsors that entered driver teams at
Dover Downs over the race weekend held June 1 and June 2, 1996:
AC Delco Dial Purex Little Caesars Shell Oil
AquaFresh DuPont Lowe's Shoney's
Band-Aid Family Channel Lysol Skoal
Barbasol GM Goodwrench MBNA Slim Jim
Budweiser Havoline McDonald's Spam
Burger King Hayes Modems Miller Stanley Tools
Camel Healthsource New Holland Tractors STP
Caterpillar Interstate Batteries Pennzoil Sunoco
ChannelLock John Deere Primestar Texaco
Circuit City Kellogg's Prodigy Tide
Citgo Kmart QVC Network Valvoline
Coors Light Kodak RCA WCW
Detroit Gasket Lance Snacks Red Dog
DeWalt Tools Lipton Tea Remington Arms
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<PAGE>
Gaming
General
Dover Downs has presented harness horse racing events for 28
consecutive years. On December 29, 1995, the Company introduced video lottery
(slot) machines to its entertainment mix.
Under an agreement with Caesars, a leader in the gaming industry,
Caesars supervises, manages, markets and operates the Company's video lottery
operations. The newly constructed, air-conditioned "video lottery casino"
housing the gaming equipment was designed and built using expertise from
Caesars. Hours of operation are Monday through Saturday, 8:00 a.m. to 2:00 a.m.,
and Sunday, 1:00 p.m. to 2:00 a.m. The facilities are open every day of the
year, except Christmas and Easter.
Dover Downs is a "Licensed Agent" authorized to conduct video lottery
operations under the Delaware State Lottery Code. The video lottery machines are
leased by and operated under the auspices of the Delaware State Lottery Office.
A total of 572 lottery machines are currently in operation. An additional 428
lottery machines are expected to be added in October 1996, bringing the facility
up to 1,000 machines, which is the maximum number presently permitted by law.
Dover Downs is permitted by law to set its payout to customers between
87% and 95%. Prior approval from the Director of the Delaware State Lottery
Office would be required for any payout in excess of 95%. Since inception of its
operations on December 29, 1995, Dover Downs has maintained an average payout of
90.5%. Management believes that this represents a competitive payout percentage.
By law, video lottery operations in Delaware are limited to the three
locations in the State where thoroughbred horse racing or harness horse racing
was held in 1993. In addition to the Dover Downs complex in Dover, Delaware,
there are only two other locations permitted by law: Delaware Park, a northern
Delaware thoroughbred track; and Harrington Raceway, a south central Delaware
fairgrounds track. As of the date of this Prospectus, only Dover Downs and
Delaware Park have video lottery operations. Harrington Raceway has reported
that it expects to begin its operations in August 1996.
The "video lottery (slots) casino" which houses the video lottery
gaming operations is adjacent to and connected with the main grandstand. It is
an approximately 24,000 square foot steel structure featuring a stylish slots
casino area with a hand-painted mural of the sky on its dome ceiling. Murals of
floral design adorn the surrounding walls. In the middle of the betting area,
there is typically a car or truck on a raised display, which is one of the grand
prizes for playing the surrounding video lottery (slot) machines. The building
also houses the Garden Cafe dining room and a stage where nightly entertainment
is offered. The casino can accommodate a total capacity of approximately 2,300,
with seating for approximately 560. Total restaurant seating capacity is for
approximately 140 people in the casino area and approximately 440 people in the
grandstand dining room.
For the harness horse racing season expected to begin November 1996 and
end April 1997, the Company anticipates that it will schedule a minimum of 70
live racing dates. Live harness horse races are held on Thursday, Friday and
Saturday evenings, and on Sunday afternoons. For the racing season beginning
November 1995 and ending April 1996, the Company had a total of 67 live racing
dates. The prior year's season had a total of 39 live racing dates.
The harness horse racing track is a five-eighths mile track and is
lighted for nighttime harness horse racing. The track is located inside the
one-mile auto racing superspeedway. The configuration offers turns with a wider
than normal turning radius and 4 degree banking. This allows trotting and
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pacing horses to remain in full stride through the turns. The result has been
higher than normal speeds attained by horses in competition. Adjacent to the
main grandstand is a partially glass-enclosed paddock area where horse racing
patrons can observe horses being prepared to compete. Support facilities for
horse racing are located inside the horse track. The west side of the infield
contains the horse racing tote board which displays wagering information, race
results and official timing data. The Company plans to renovate the toteboard,
the barns and paddocks in time for the fall 1996 harness racing season.
The Company has facilities for pari-mutuel wagering on both live
harness horse races and on simulcast thoroughbred and harness horse races
received from numerous tracks across North America. Within the main grandstand
is the simulcast parlor where patrons can wager on harness and thoroughbred
races received by satellite into Dover Downs. Television monitors throughout the
parlor area provide views of all races simultaneously and the parlor's 13
betting windows are tied into a central computer allowing bets to be received on
all races from all tracks. The simulcasting parlor provides individual carrels
where patrons can study handicapping data in relative privacy and watch
individual races on their own special television monitors.
With the recent expansion of its simulcasting operations, pari-mutuel
wagering is now conducted on a year-round basis. For fiscal years ended July 31,
1994 and 1995, and the eleven months ended June 30, 1996, the Company had 36, 88
and 208 simulcast racing dates, respectively. For fiscal year ending July 31,
1997, the Company anticipates that it will schedule 363 simulcast racing dates.
The Company expects that, for the first time, live harness races conducted at
Dover Downs will be simulcast to tracks and other off-track betting locations
across the country with the start of the race season beginning November 1996.
Harness racing in the State of Delaware is governed by the Delaware
Harness Racing Commission. The Company holds a license from the Commission by
which it is authorized to hold harness race meetings on its premises and to
make, conduct and sell pools by the use of pari-mutuel machines or totalizators.
Harness racing refers to any racing of horses in which the horses competing or
participating are harnessed to a sulky, carriage or similar vehicle and are not
mounted by a jockey. Pari-mutuel wagering refers to pooled betting or wagering
on harness horse racing by means of a totalizator. Through pooled betting, the
wagering public, not the track, determines the odds and the payoff. The track
retains a percentage of the amount wagered. Simulcasting refers to the
transmission of live horse racing by television, cable or satellite signal from
one race track to another with pari-mutuel wagering being conducted at the
sending and receiving track and a portion of the handle being shared by the
sending and receiving tracks.
The legislation authorizing video lottery operations in the State of
Delaware was adopted in June 1994, and is referred to as the "Horse Racing
Redevelopment Act." The Delaware General Assembly's stated purpose in approving
the legislation was to (i) provide non-state supported assistance in the form of
increased economic activity and vitality for Delaware's harness and thoroughbred
horse racing industries, which activity and vitality will enable the industry to
improve its facilities and breeding stock, and cause increased employment; and
(ii) restrict the location of such lottery to locations where wagering is
already permitted and controls exist. A portion of the proceeds from the
wagering on the video lottery (slot) machines is allocated to increase the purse
for harness horse races held at Dover Downs and is intended to provide increased
vitality for Delaware's horse racing industry.
Management anticipates that revenues from the Company's harness horse
racing operations should continue to improve as a result of Delaware's Horse
Racing Redevelopment Act and as a result of increased simulcasting. Pursuant to
an agreement entered into with representatives of the horsemen, a portion of the
Company's simulcast revenues is also required to supplement the purse for live
harness horse races held at Dover Downs.
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With a percentage of video lottery (slot) machine revenues and
simulcast revenues supplementing the purses, the Company has experienced a
dramatic increase in the size of its purses and expects to attract higher
quality horses. Bettors are attracted to races with larger purses and typically
wager more on the higher quality and more predictable horses. Management
believes that larger purses and better horses should increase attendance and
wagering and also have a positive impact on the number of markets that may wish
to receive the Company's racing signal for simulcasting. Dover Downs expects to
begin its live race season commencing November 1996 with a daily purse
distribution ranking it in the top 5 of 36 North American harness tracks.
Management of Video Gaming Operations by Caesars
Dover Downs and Caesars are parties to a long-term management agreement
with an initial term that expires in May of 1999. Caesars has two additional
three-year renewal options, which Dover Downs can void if certain financial
results are not achieved. Under the agreement, Caesars is the Company's
exclusive agent to supervise, market, manage and operate the Company's video
lottery operations. The Company pays to Caesars a management fee based on
pre-tax income generated by the video lottery operations. Management believes
that the management agreement is typical of similar agreements in the industry.
Caesars has been properly licensed by the Delaware State Lottery Office to
perform these functions.
Through its gaming interests in the State of Nevada, Atlantic City, and
elsewhere, Caesars has developed considerable experience and expertise in the
design, construction, operation, management and marketing of gaming operations.
The Company expects to be able to continue deriving substantial benefit from
Caesar's experience and expertise.
The Company and Caesars have implemented extensive procedures for
financial and accounting controls, safekeeping and accounting of monies, and
security provisions. Security over the gaming operations involves the
integration of surveillance cameras, observation and oversight by employees,
security and gaming staff, and various security features built into the video
lottery (slot) machines. The above, when combined with proper internal control
procedures, are intended to maintain the security, integrity and accountability
of the video lottery operations.
Video lottery gaming procedures are monitored during all hours of
operation by television cameras. The surveillance staff detects and investigates
irregularities in gaming procedures, monitors sensitive areas such as the "count
room," and observes gaming patrons and employees for collusion or other
fraudulent activity. The "count room" is monitored and taped on a regular basis.
Agreement with Cloverleaf
Dover Downs has an Agreement with Cloverleaf Standardbred Owner's
Association, Inc., effective February 2, 1996 and continuing through June 30,
1998. Cloverleaf's membership consists of owners, trainers, and drivers of
harness horses participating in harness race meetings at Dover Downs and
elsewhere in the United States and Canada. Cloverleaf has been organized and
exists for the purpose of promoting the sport of harness racing; improving the
lot of owners, drivers, and trainers of harness racing horses participating in
race meetings; establishing health, welfare and insurance programs for owners,
drivers, and trainers of harness racing horses; negotiating with harness racing
tracks on behalf of owners, trainers, drivers, and grooms of harness racing
horses; and generally rendering assistance to them whenever and wherever
possible. Under the Cloverleaf Agreement, the Company is required to distribute
as purses for races conducted at Dover Downs, a percentage of the Company's
retained share of pari-mutuel revenues, depending on the level of the average
daily dollar handle. Over and above this amount, Dover Downs is required to
distribute in purses one-half of the dollar amount of any gross
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income it receives by reason of any new legislation which raises its authorized
revenues from pari-mutuel wagering above that which is allowed under existing
law as of January 1, 1979.
Dover Downs enjoys a good relationship with representatives of
Cloverleaf and anticipates that this relationship will continue. Management
believes that the Cloverleaf Agreement is typical of similar agreements in the
industry. Cloverleaf has committed to support any amendments to the Horse Racing
Redevelopment Act which may be beneficial to the Company's business, provided
that such amendments do not negatively impact horsemens' issues.
Totalizator System
Dover Downs and United Tote Company are parties to a service agreement
by which United Tote is the exclusive provider of totalizator services to the
racetrack on all days on which pari-mutuel wagering is being conducted. The
initial term of this agreement expires in October 2000. United Tote furnishes
and maintains at the racetrack a state-of-the-art totalizator system, consisting
of the computerized pari-mutuel central processing equipment, terminals and
certain associated equipment. United Tote remains in the possession of and in
direct control of the system, except for the operation of the teller's terminals
by Dover Downs personnel and the operation of self-service terminals by patrons.
The system automatically registers and totals the amounts wagered at races held
at the racetrack or simulcast to the racetrack from other racetracks.
The totalizator system totals the amounts wagered in the win, place and
show pools (or any combination of such pools), and in the Exacta, Quinella,
Trifecta, Daily Double, Pick, and such other pools or combination of pools
permitted to Dover Downs and approved in Delaware. The system displays the win,
pool odds, pay off and similar items.
United Tote is compensated based on a percentage of all pari-mutuel
wagers made at the track and paid certain interface fees with respect to other
host racetracks. Management believes that the service agreement is typical of
similar agreements in the industry. The number of terminals to be provided by
United Tote will vary based on the betting volume at the track. Currently there
are 40 terminals for live racing performances and 15 terminals dedicated to
simulcast performances.
Marketing
Management believes that it is important to market the Company's
scheduled events throughout the year, both regionally and nationally. The
Company markets its various events throughout the year in traditional media such
as television, cable, radio, billboards, newspapers, trade journals and special
publications, and by offering tours of its facilities, conducting direct mail
campaigns, and staging pre-race promotional activities, such as "Friday Night
Live" and "Monster Mile Movie Night" which are free evening events designed to
provide a total entertainment weekend package for auto race fans. The Company
has plans to develop its own intra-facility television show to support its
upcoming November 1996 harness racing season. The Company's marketing program
also includes the solicitation of prospective event sponsors. For example,
sponsorship provisions for a typical NASCAR-sanctioned event might include
national television and radio exposure, luxury suite rentals, block ticket
sales, Company-catered hospitality, as well as souvenir race programs and track
signage advertising.
NASCAR-sanctioned stock car racing is experiencing significant growth
in television viewership and spectator attendance. Management believes that
spectator interest in stock car racing will continue to grow, thereby increasing
broadcast media and sponsors' interest in the sport. The Company negotiates
directly with television and radio networks for live coverage of its
NASCAR-sanctioned races.
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Management also seeks to increase the visibility of its racing events and
facilities through local and regional media interaction. For example, major
events are typically supported by public relations programs consisting of press
conferences, press releases, media tours, press kits, feature article
distributions, and media interviews.
The marketing of Dover Downs' newest venture - video lottery (slot)
machines - will be assisted by Caesars personnel. Caesars has experience as a
successful operator in a highly competitive environment. The payout established
by management within the parameters of the law is intended to be extremely
competitive with Atlantic City and other regional gaming operations.
Database marketing is one of the principal marketing tools Dover Downs
will use to develop long-term relations with its video lottery (slot)
machine customers. The data collected will allow promotions to be targeted to
specific customer segments. To identify customers and track their level of play,
a slots club card tracking system, referred to as the Blue Diamond Club, has
been implemented. Membership in this club currently stands at approximately
20,000 customers.
A simple application allows customers to join the Blue Diamond Club.
Slots club members will be rewarded for their play through various
awards programs. Awards may include merchandise, restaurant and lounge
discounts, invitations to parties and special entertainment events. Other
benefits of membership may include sweepstakes and future promotions through the
mail. Direct mail promotions will be developed from the resulting database to
further build customer loyalty and to generate additional trips to the facility.
Programs are currently being developed to provide bus transportation
for video lottery (slot) machine customers travelling to Dover Downs
from surrounding counties and states. For example, one of these programs will
focus marketing efforts on individuals that frequent Delaware's nearby ocean
resorts.
The Company also has various promotions planned for its harness horse
racing events. With more money available for purses, the Company plans to stage
more prestigious events. For the season commencing November 1996, the Company
has plans to present the inaugural "Progress Pace" with a $100,000 purse.
Management believes that this event should attract some of the country's top 3
year old horses. Other events with purses in the $50,000 range are also being
planned. Beginner orientations, handicapping hints and seminars, and special
interviews with harness drivers, trainers, and officials will also be provided.
Each spectator or customer coming to Dover Downs for one form of
entertainment or gaming will be exposed to the full range of activities
available. The Company intends to market all of its facilities to individual
customers in order to maximize cross-marketing opportunities.
Location of Complex
The Dover Downs complex is located in Dover, the capital of the State
of Delaware. The Company draws spectators from several major metropolitan
areas. Philadelphia, Baltimore and Washington, D.C. are all within a 1
hour and 45 minute drive. New York City is within a 3 hour drive. According to
the 1990 United States Census, approximately 33 million people live within 150
miles and approximately 60 million people live within 300 miles of the complex.
[MAP OF THE EAST COAST WITH DOVER, DELAWARE AT
THE CENTER OF TWO CONCENTRIC CIRCLES OF
150 AND 300 MILES, RESPECTIVELY]
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Competition
Motorsports
The Company's racing events compete with other racing events sanctioned
by various racing bodies, such as CART, USAC, SCCA, IMSA, ARCA, and NHRA, and
with other sports and other recreational events scheduled on the same dates.
Racing events sanctioned by different organizations are often held on the same
dates at separate tracks, in competition with the NASCAR event dates. In
addition, motorsports facilities compete with one another for the patronage of
motor racing spectators, and with other sports and entertainment businesses,
many of which have resources that exceed those of the Company. The quality of
the competition, type of racing event, caliber of the events, sight lines,
ticket pricing, location, and customer conveniences, among other things,
distinguish the motorsports facilities.
The two closest speedways that currently sponsor Winston Cup races are
in Richmond, Virginia (approximately four hours to the South) and Pocono
International Raceway in Long Pond, Pennsylvania (approximately three and a half
hours to the North). Nazareth Speedway in Nazareth, Pennsylvania (approximately
two hours to the North) currently conducts Busch Series, NASCAR Craftsman Truck
and Indy races. Based on historical data, management does not believe that any
of these facilities significantly impact operations at Dover Downs International
Speedway. In recent years, the Company's NASCAR-sanctioned Winston Cup races
have all sold out well in advance of the race.
Gaming
The Company believes that there is a trend towards the legalization of
casino gaming in states throughout the country, including the legalization of
casino gaming on various Native American reservations. The legalization of
casino and other gaming venues in states close to Delaware, particularly
Maryland, Pennsylvania and New Jersey, may have a material adverse effect on the
Company's business. From time to time, legislation has been introduced in these
states that would further expand gambling opportunities. The Company expects
that additional lotteries, river boat casinos, and land based casinos, including
Native American casinos, will be licensed eventually throughout the region. Some
of these gaming operations may be owned by companies that are larger and have
significantly greater financial and other resources than the Company.
The Company also competes for attendance with a wide range of other
entertainment and recreational activities available in the region, including
professional and collegiate sporting events. Given these factors, it is possible
that substantial competition will arise which could adversely affect the
Company's existing and proposed operations. There can be no assurance that the
Company will be able to remain competitive.
Competition in horse racing is varied since race tracks in the
surrounding area differ in many respects. Some tracks only offer thoroughbred or
harness horse racing; others have both. Tracks have live racing seasons that may
or may not overlap with neighboring tracks. Depending on the purse structure,
tracks that are farther apart may compete with each other more for high quality
horses than for patrons.
Live harness racing also competes with simulcasts of thoroughbred and
harness racing. All race tracks in the region are involved with simulcasting. In
addition, a number of off-track betting parlors compete with the track
simulcasting activities. If the Company is successful in simulcasting its live
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harness races to tracks and other locations, its simulcast signals will be in
direct competition with live races at the receiving track and other races being
simulcast to the receiving location.
Within the State of Delaware, Dover Downs faces little direct live
competition from the State's other two tracks. Harrington Raceway, a south
central Delaware fairgrounds track, conducts harness horse racing in the fall.
There is no overlap presently with Dover Downs' live race season. Delaware Park,
a northern Delaware track, conducts thoroughbred horse racing during the day and
on Sunday afternoons. Its race season only overlaps with Dover Downs for
approximately 4 to 5 weeks each year.
The neighboring states of Pennsylvania, Maryland and New Jersey all
have harness and thoroughbred racing and simulcasting. Dover Downs competes with
Rosecroft Raceway in Maryland, Philadelphia Park in Pennsylvania, Garden State
Park and The Meadowlands in New Jersey and a number of other race tracks in the
surrounding area. The Company also receives simulcast harness and thoroughbred
races from approximately 30 race tracks, including the tracks noted above.
At present, video lottery (slot) machines are only permitted at two
other locations in Delaware: Delaware Park and Harrington Raceway. Delaware Park
presently has 1,000 machines in operation. Harrington Raceway reports that it
expects to begin its video lottery operations with 500 machines in August 1996.
The neighboring states of Pennsylvania and Maryland do not presently permit
video lottery operations. Pennsylvania, Maryland and New Jersey all have
state-run lotteries.
Atlantic City, New Jersey is located approximately 100 miles from Dover
Downs and a certain amount of market overlap should be expected. Casinos in
Atlantic City offer a full range of gaming products. Dover Downs does not expect
to compete directly with Atlantic City because of the Company's inability to
offer a full range of casino gaming products, but it does expect to capture a
small portion of the existing Atlantic City slot market in the Dover area, due
to the facility's proximity, convenience and multiple attractions.
Government Regulation of Gaming
Video Lottery Operations
General. Video lottery operations are by statute operated and
administered by the Director of the Delaware State Lottery Office. Dover Downs
is a "Licensed Agent" authorized to conduct video lottery operations under the
Delaware State Lottery Code.
A "video lottery machine" is defined by law as any machine in which
bills, coins or tokens are deposited in order to play in a game of chance in
which the results, including options available to the player, are randomly and
immediately determined by the machine. A machine may use spinning reels or video
displays or both, and may or may not dispense coins or tokens directly to
winning players. A machine shall be considered a video lottery machine
notwithstanding the use of an electronic credit system making the deposit of
bills, coins or tokens unnecessary. Various video lottery machines are in use at
Dover Downs. All accept $1, $5, $10 and $20; some accept $50 and $100 bills. The
maximum bet permitted by regulation is currently $5.00 per machine. The Company
is prohibited by regulation from extending any credit to its gaming customers.
The Director of the Delaware State Lottery Office has discretion to
adopt such rules and regulations as the Director deems necessary or desirable
for the efficient and economical operation and administration of the system,
including (i) type and number of games permitted, (ii) pricing of games, (iii)
numbers and sizes of prizes, (iv) manner of payment, (v) value of bills, coins
or tokens
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needed to play, (vi) requirements for licensing agents and service providers,
(vii) standards for advertising, marketing and promotional materials used by
Licensed Agents, (viii) procedures for accounting and reporting, (ix)
registration, kind, type, number and location of video lottery machines on a
Licensed Agent's premises, (x) security arrangements for the video lottery
system, and (xi) reporting and auditing of financial information of Licensed
Agents.
Licensing Requirements. Licensed Agents are granted a license for 5
years. Dover Downs' license was granted December 13, 1995 and terminates
December 12, 2000.
There are continuing licensure requirements for new officers,
directors, key employees and persons who own directly or indirectly 10% or more
of a Licensed Agent, which licensure requirements shall include the satisfaction
of such security, fitness and background standards as the Director may deem
necessary relating to competence, honesty and integrity, such that a person's
reputation, habits and associations do not pose a threat to the public interest
of the State or to the reputation of or effective regulation and control of the
video lottery; it being specifically understood that any person convicted of any
felony, a crime involving gambling, or a crime of moral turpitude within 10
years prior to applying for a license or at any time thereafter shall be deemed
unfit.
There are similar licensure requirements for providers of the video
lottery machines and certain companies that seek to provide services to a
Licensed Agent. Caesars has been licensed to provide management services to
Dover Downs.
Revocation, Suspension or Modification of License. The Director of the
Delaware State Lottery Office may revoke or suspend the license of a Licensed
Agent, such as Dover Downs, for "cause." "Cause" is broadly defined and could
potentially include falsifying any application for license or report required by
the rules and regulations, the failure to report any information required by the
rules and regulations, the material violation of any rules and regulations
promulgated by the Director or any conduct by the licensee which undermines the
public confidence in the video lottery system or serves the interest of
organized gambling or crime and criminals in any manner. A license may be
revoked for an unintentional violation of any federal, state or local law, rule
or regulation provided that the violation is not cured within a reasonable time
as determined by the Director. A hearing officer's decision revoking or
suspending the license shall be appealable to the Delaware Superior Court under
the provisions of the Administrative Procedures Act. All existing or new
officers, directors, key employees and owners of a Licensed Agent are subject to
background investigation. Failure to satisfy the background investigation may
constitute cause for suspension or revocation of the License.
As part of the licensing process, an applicant is required to submit to
the Director a proposed business plan relating to the video lottery operations.
The Director has the right, at any time and at its sole discretion, to amend the
business plan if the Director determines that an amendment is necessary to
increase revenues from the video lottery operations, protect the public welfare,
or ensure the security of the video lottery system.
Ownership Changes. Under Delaware law, a change of ownership of a
Licensed Agent will automatically terminate its license 90 days after the change
of ownership occurs, unless the Director of the Delaware State Lottery Office
determines after application to issue a new license to the new owners. Change of
ownership may occur if any new individual or entity acquires, directly or
indirectly, 10% or more of the Licensed Agent or if more than 20% of the legal
or beneficial interest in the Licensed Agent is transferred, whether by direct
or indirect means. The Commission may require extensive background
investigations of any new owner acquiring a 10% or greater interest in a
Licensed Agent, including criminal background checks. Accordingly, the Company
has a restrictive legend on its shares of Common Stock which require that (a)
any holders of Common Stock found to be disqualified
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or unsuitable or not possessing the qualifications required by any appropriate
gaming authority could be required to dispose of such stock and (b) any holder
of Common Stock intending to acquire 10% or more of the outstanding common stock
of the Corporation must first obtain prior written approval from the Delaware
State Lottery Office. See "Description of Capital Stock - Possible Limitations
on Transferability of Shares."
Five Year Sunset Provision in Enabling Legislation. The legislation
authorizing video lottery operations in the State of Delaware was adopted in
July 1994, and is referred to as the "Horse Racing Redevelopment Act." Unless
the Act is extended or reenacted, it will terminate on March 15, 2000, in which
event the Company will be required to discontinue its video lottery operations.
There can be no assurances that the General Assembly will extend or reenact the
legislation beyond March 15, 2000.
Three Year Sunset Provision Relative to Payments. Under the Delaware
State Lottery Code, payments made to a Licensed Agent, such as Dover Downs, are
permitted to continue on the current basis only until December 29, 1998. No
payments can be made to Dover Downs, or to any Licensed Agent in the State,
beyond December 29, 1998 unless new legislation is enacted which, according to
the Horse Racing Development Act, "will establish an appropriate and equitable
distribution of the proceeds of the video lottery so as to ensure that the
State's General Fund receives an appropriate share of the proceeds." Unless such
new legislation is enacted, the Company would be required to discontinue its
video lottery operations. There can be no assurances that the Company's video
lottery operations will continue to generate an acceptable level of revenues, or
any revenues at all after December 29, 1998, and no assurances that the General
Assembly will act to allow payments to Licensed Agents to continue.
Harness Racing Events. In order to maintain its license for video
lottery (slot) machine gaming, Dover Downs is required to maintain its license
for harness horse racing with the Delaware Harness Racing Commission and must
conduct a minimum of 42 live race days each racing season, subject to the
availability of racing stock.
Control Over Equipment and Technology. Dover Downs does not own or
lease the video lottery machines or computer systems used in connection with its
video lottery gaming operations. The Director of the Delaware State Lottery
Office enters into contracts directly with the providers of the video lottery
machines and computer systems (the "Technology Providers"). Equipment is
provided to the State by sale or lease and all Technology Providers must be
licensed by the Director. There are also limitations on the number of video
lottery machines that may be used at any one facility that are supplied by the
same Technology Provider. The operations of the Company could be disrupted in
the event that a licensed Technology Provider in any way breaches its agreement
with the State or ceases to be properly licensed for any reason. Such an event
would be outside of the control of the Company.
Harness Racing and Pari-Mutuel Wagering
Harness racing in the State of Delaware is governed by the Delaware
Harness Racing Commission. The Company holds a license from the Commission by
which it is authorized to hold harness race meetings on its premises and to
make, conduct and sell pools by the use of pari-mutuel machines or totalizators.
The specific dates for harness horse race meets are awarded each year
by the Delaware Harness Racing Commission. In order to conduct simulcasting,
each licensee is required to conduct, at a minimum, live harness races on the
same number of days as the licensee conducted live harness races for the 1991 to
1992 season. For Dover Downs, this requires a minimum of 47 race days. With the
passage
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of the Horse Racing Redevelopment Act, in order to conduct video lottery
operations, each licensee, such as Dover Downs, that is also a licensed operator
of video lottery machines must conduct live racing operations on at least 90% of
the number of days such live racing operations were conducted in the 1991 to
1992 season. For Dover Downs, this requires a minimum of 42 race days. The
Company had 67 race days for the season ending April 1996.
The license must be renewed on a yearly basis. The Commission may
reject an application for a license for any cause which it deems sufficient and
the action of the Commission is final. The Commission may also suspend or revoke
a license which it has issued and its action in that respect is final, subject
to review, upon questions of law only, by the Superior Court of the County
within which the license was granted. The action of the Commission stands unless
and until reversed by the Court. The Company has received an annual license from
the Commission for the past 28 consecutive years and management believes that
its relationship with the Commission remains good. However, there can be no
assurances that the Company will continue to be licensed by the Delaware Harness
Racing Commission in the future.
Under the law, the Commission has broad powers of supervision and
regulation. The Commission may prescribe rules, regulations and conditions under
which all harness racing and betting pools shall be conducted; may regulate the
performance of any service or the sale of any article on the premises of a
licensee; may compel the production of books and documents of a licensee and
require that books and records be kept in such manner as the Commission may
prescribe; may visit, investigate and place accountants or other persons as it
deems necessary, at the expense of a licensee, in the office, track or place of
business of a licensee; may summon witnesses and administer oaths; and may
require the removal of any employee or official employed by a licensee. All
proposed extensions, additions or improvements to the property of a licensee are
subject to the approval of the Commission.
The Commission is required to inspect a licensee's racing plant not
less than five days prior to a race meeting and may withdraw the license for the
meeting if the racing plant is found to be unsafe for animals or persons or is
not rendered safe prior to the opening of the meeting. A licensee must deposit
with the Commission, ten days before a race meeting, a policy of insurance
against personal injury liability in an amount to be approved by the Commission.
Any license granted by the Delaware Harness Racing Commission is also
subject to such reasonable rules and regulations as may be prescribed from time
to time by the United States Trotting Association. The United States Trotting
Association sets various rules relating to the conduct of harness racing.
According to its Articles of Incorporation, the purposes of the Association
shall include the improvement of the breed of trotting and pacing horses, the
establishment of rules regulating standards and the registration of such horses
thereunder, the advancement and promotion of the interest of harness racing in
the United States, the investigation, ascertainment and registration of the
pedigrees of such horses, the regulation and government of the conduct of the
sport of harness racing, the establishment of rules for the conduct thereof, not
inconsistent with the laws of the various States, and the sanctioning of the
holding of exhibitions of such horses and meetings for the racing thereof, the
issuance of licenses to qualified persons to officiate at harness race meetings
and exhibitions, the issuance of licenses to the owners of horses permitting the
exhibition and racing of such horses and the qualification thereof, the issuance
of licenses to drivers of horses participating in such races or exhibitions, and
providing for the enforcement of the rules promulgated by the Association, and
providing for the fixing of penalties, fines, and the suspension or expulsion
from membership, or privileges or for any other misconduct detrimental to the
sport.
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Employees
As of June 30, 1996, the Company had approximately 200 full-time
employees and approximately 80 part-time employees. Personnel include corporate
executive, marketing, administrative, clerical, pari-mutuel tellers, gaming,
security, admissions, maintenance and parking personnel. The Company hires
temporary employees to assist during periods of peak attendance at its auto
racing and harness horse racing events. None of the Company's employees is
represented by a labor union. Owners, drivers and trainers of horses
participating in harness race meetings are represented by Cloverleaf
Standardbred Owner's Association. See "Business - Harness Horse Racing and
Pari-Mutuel Wagering - Agreement with Cloverleaf." Management believes that the
Company enjoys a good relationship with its employees and representatives of
Cloverleaf. The Company may also engage consultants from time to time to provide
advisory services.
Insurance
The Company maintains insurance with insurance companies against such
risks and in such amounts, with such deductibles, as are customarily maintained
by similar businesses. The policies currently provide business and commercial
coverages, including workers' compensation, third party liability, property
damage, boiler and machinery, and business interruption. The Company complies
with insurance and bonding requirements mandated by relevant regulatory
authorities and required under its various agreements, such as its agreements
with NASCAR, Caesars, or various sponsors.
Patents and Trademarks
The Company has statutory and common law trademark rights in the name
and corporate logo of "Dover Downs," in the name "Monster Mile" and in a
stylized representation of a dinosaur emerging from the ground with its tail
partially covered, a mark which is used in connection with clothing and
souvenirs. Management's policy is to protect its intellectual property rights
vigorously, through litigation if need be, chiefly because of their proprietary
value in promotions and clothing and souvenir sales.
Litigation
The Company is a party to ordinary routine litigation incidental to its
business. Management does not believe that the resolution of any of these
matters is likely to have a materially adverse effect on the Company's financial
condition or results of operations.
41
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors, executive officers and other senior officers of the
Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John W. Rollins 80 Chairman of the Board of Directors
Henry B. Tippie 69 Vice Chairman of the Board of Directors
Denis McGlynn 50 Director, President and Chief Executive Officer
Eugene W. Weaver 63 Director and Senior Vice President - Administration
Melvin L. Joseph 74 Director, Vice President and Director of Auto
Racing for Dover Downs International Speedway, Inc.
Robert M. Comollo 48 Treasurer and Secretary
John W. Rollins, Jr. 54 Director
R. Randall Rollins 64 Director
Patrick J. Bagley 49 Director
Jeffrey W. Rollins 31 Director
Michael B. Kinnard 38 Vice President and General Counsel
</TABLE>
John W. Rollins has been a major stockholder in the Company since 1967.
He became Chairman of the Board of Directors in 1996. Mr. Rollins is Chairman of
the Board and Chief Executive Officer of Rollins Environmental Services, Inc.,
Chairman of the Board and Chief Executive Officer of Rollins Truck Leasing
Corp., and a Director of Rollins, Inc., Matlack Systems, Inc., RPC, Inc. and FPA
Corp. (1)(2)
Henry B. Tippie became a Director of the Company and Vice Chairman of
the Board of Directors in 1996. Mr. Tippie is Chairman of the Executive
Committee and Vice Chairman of the Board of Rollins Truck Leasing Corp.,
Chairman of the Executive Committee of Rollins Environmental Services, Inc.,
Chairman of the Executive Committee of Matlack Systems, Inc., Chairman of the
Board and Chief Executive Officer of Tippie Communications, Inc., et al., and a
Director of Rollins, Inc. and RPC, Inc. (1)
Denis McGlynn has been employed by the Company since 1972, has been a
Director since 1979, and has been President since 1979. He was elected to the
newly created position of Chief Executive Officer in 1996. (1)
Eugene W. Weaver has been employed by the Company since 1970, has been
a Director since 1971, and has held various financial positions since 1970. Mr.
Weaver also serves as Financial Vice President of John W. Rollins & Associates,
Vice Chairman and Financial Vice President of Rollins Jamaica, Ltd., Financial
Vice President and a Director of both Brandywine Sports, Inc. and Jefferic
Enterprises, Inc. and an advisor to the Board of Directors of WSFS Financial
Corp., a position he has held since 1992. (1)
Melvin L. Joseph has been a Director of the Company since 1969, and has
been Vice President and Director of Auto Racing since 1969.(1) Mr. Joseph is
president of Melvin Joseph Construction Company.
Robert M. Comollo has been employed by the Company for 16 years, of
which 15 years have been in the capacity of Treasurer and Secretary. (1)
42
<PAGE>
John W. Rollins, Jr. became a Director of the Company in 1996. Mr.
Rollins is Chairman of the Board of Matlack Systems, Inc., President, Chief
Operating Officer and a Director of Rollins Truck Leasing Corp., and Senior Vice
Chairman of the Board of Rollins Environmental Services, Inc. (1) (2)
R. Randall Rollins became a Director of the Company in 1996. Mr.
Rollins is Chairman of the Board and Chief Executive Officer of Rollins, Inc.,
Chairman of the Board and Chief Executive Officer of RPC, Inc., and a Director
of SunTrust Banks Inc. and SunTrust Banks of Georgia. (1) (2)
Patrick J. Bagley became a Director of the Company in 1996. Mr. Bagley
is Vice President - Finance and Treasurer of Rollins Truck Leasing Corp., Vice
President - Finance, Treasurer and a Director of Matlack Systems, Inc., and a
Director of Rollins Environmental Services, Inc. (1)
Jeffrey W. Rollins became a Director of the Company in 1993. Since
October, 1995, Mr. Rollins has been Vice President of the Eastern Region of
Rollins Environmental, Inc., a subsidiary of Rollins Environmental Services,
Inc. Previously, he was Vice President of Business Planning and Operations and
he has held various other offices with subsidiaries of Rollins Environmental
Services, Inc. since 1988. (1) (2)
Michael B. Kinnard has been Vice President - General Counsel to the
Company since 1995. Mr. Kinnard also serves as Vice President - General Counsel
and Secretary to Matlack Systems, Inc., Vice President - General Counsel and
Secretary to Rollins Truck Leasing Corp., and Vice President - General Counsel
and Secretary to Rollins Environmental Services, Inc. Prior to 1995, Mr. Kinnard
was a partner in the law firm of Baker, Worthington, Crossley, Stansberry &
Woolf (now known as Baker, Donelson, Bearman & Caldwell). (1)
(1) Except as otherwise indicated, the Directors and Officers listed above
have held the positions of responsibility set out above for more than 5
years. References to the Company include Dover Downs, Inc. prior to the
1996 Restructuring. Rollins Environmental Services, Inc. is engaged in
the business of industrial waste disposal. Rollins Truck Leasing Corp.
is engaged in the business of truck leasing and logistics. Matlack
Systems, Inc. provides transportation services. Rollins, Inc. is a
consumer services company engaged in residential and commercial termite
and pest control, security systems, landscaping and lawn care. RPC,
Inc. is a diversified company engaged in oil and gas field services and
boat manufacturing. Tippie Communications, Inc. et al. owns and
operates radio stations. WSFS Financial Corp., SunTrust Banks Inc., and
SunTrust Banks of Georgia are all financial institutions. John W.
Rollins & Associates provides management services. Rollins Jamaica,
Ltd., Brandywine Sports, Inc. and Jefferic Enterprises, Inc. are
involved in real estate development.
(2) John W. Rollins is the father of John W. Rollins, Jr. and Jeffrey W.
Rollins, and the uncle of R. Randall Rollins.
Directors are generally elected to serve in staggered terms of three
years and until their successors shall have been elected and qualified. The term
of the Class I Directors, Henry B. Tippie, R. Randall Rollins, and Patrick J.
Bagley, expires in 1997; the term of the Class II Directors, John W. Rollins,
Jr., Eugene W. Weaver and Melvin L. Joseph, expires in 1998: and the term of the
Class III Directors, John W. Rollins, Denis McGlynn, and Jeffrey W. Rollins,
expires in 1999. Officers are elected by the Board of Directors to hold office
until the first meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors are elected and qualified.
43
<PAGE>
Audit Committee
The Audit Committee consists of Patrick J. Bagley, Chairman, and R.
Randall Rollins. The Committee's functions include consulting with the Company's
independent public accountants concerning the scope and results of the audit,
reviewing the evaluation of internal accounting controls and inquiring into
special accounting-related matters.
Executive Committee
The Executive Committee consists of John W. Rollins, Chairman, Denis
McGlynn, and Eugene W. Weaver. The Executive Committee has the power to exercise
all of the powers and authority of the Board of Directors in the management of
the business and affairs of the Company in accordance with the provisions of the
Bylaws of the Company.
Compensation and Stock Option Committee
The Compensation and Stock Option Committee consists of Henry B.
Tippie, Chairman, and John W. Rollins. The Compensation and Stock Option
Committee performs all of the functions of a compensation committee of the Board
of Directors and administers the Company's outstanding Stock Option Plans
including the granting of options to various employees of the Company and its
subsidiaries.
The Company does not have a nominating committee of the Board of
Directors.
Director Compensation
Members of the Board of Directors who are not employees of the Company
will be compensated for their services in amounts not yet determined. The
Company will also reimburse all directors for their expenses incurred in
connection with their activities as directors of the Company. Employees who are
also Directors of the Company receive no additional compensation for serving on
the Board of Directors.
44
<PAGE>
Executive Compensation
Shown below is information concerning the annual compensation for
services in all capacities to the Company for the fiscal year ended July 31,
1995, of those persons who were, at July 31, 1995, (i) the Chief Executive
Officer and (ii) the other most highly compensated executive officers of the
Company whose total annual salary and bonus exceeded $100,000 (the "Named
Executives"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ----------------------- -------
Other Securities
Annual Restricted Underlying All Other
Name and Compen- Stock Options LTIP Compen-
Principal Salary Bonus sation(2) Awards(3) /SARs Payouts sation
Position Year (1) $ $ $ $ # $ $
- --------- -------- --------- ---------- -------------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Denis McGlynn 1995 90,000 100,000 -- -- 450,000 -- --
President and
CEO
Eugene W. Weaver 1995 52,000 34,000 -- -- -- -- --
Senior Vice President -
Administration
Robert M. Comollo 1995 81,375 34,000 -- -- -- -- --
Treasurer and
Secretary
</TABLE>
(1) Fiscal years ending July 31.
(2) The only type of Other Annual Compensation for each of the Named
Executives was in the form of perquisites and was less than the
level required for reporting.
(3) No awards have ever been made.
45
<PAGE>
Option and Stock Appreciation Rights Grants in Last Fiscal Year
The following table sets forth stock options granted in the fiscal
year ending July 31, 1995 to each of the Named Executives. Employees of the
Company and its subsidiaries are eligible for stock option grants based on
individual performance. The Company did not issue any stock appreciation rights.
The table also sets forth the hypothetical gains that would exist for the
options at the end of their seven-year terms, assuming compound rates of stock
appreciation of 5% and 10%. The actual future value of the options will depend
on the market value of the Company's securities. All outstanding options are
exercisable with respect to Class A Common Stock. All option exercise prices are
based on the market price on the grant date.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of Stock Price
Appreciation for
Individual Grants(1) Option Term (2)
----------------------------------------------------------- --------------------------------------
Number of
Securities % of Total
Underlying Options
Options Granted To Exercise
Granted Employees Price Expiration
Name (#) in Fiscal Year ($/Sh) Date 5% 10%
- ---- --------- ---------------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Denis McGlynn 450,000 80% $1.33 3/30/02 243,650 567,800
</TABLE>
(1) Options were granted on March 31, 1995 based on the estimated fair
value of the underlying securities on that date (as determined by the
Company's Board of Directors). Options have a seven year term with
vesting that phases in 20% each year beginning on the first anniversary
of the grant date. Per share data has been adjusted to reflect the
share exchange effected prior to the Offering. See "Restructuring -
1996 Restructuring."
(2) These amounts, based on the assumed appreciation rates of 5% and 10%
prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. These numbers do not take into account certain
provisions of options providing for termination of the option following
termination of employment, nontransferability or phased-in vesting. The
Company did not use an alternative formula for a grant date valuation
as it is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
Future compensation resulting from option grants is based solely on the
performance of the Company's stock price.
46
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
The following table summarizes option exercises during the fiscal year
ending July 31, 1995 by the Named Executives, and the value of the options held
by such persons as of July 31, 1995. The Company has not granted and does not
have any Stock Appreciation Rights outstanding. All outstanding options are
exercisable with respect to Class A Common Stock.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares Acquired Value FY-End (#) FY-End ($)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ------------------ --------------- ------------ -------------------------- ----------------------------
<S> <C> <C> <C> <C>
Denis McGlynn -0- -0- 67,500/495,000 $56,427/$37,618
Eugene W. Weaver -0- -0- 67,500/ 45,000 56,427/ 37,618
</TABLE>
(1) Based on the estimated fair value of the underlying securities at July
31, 1995 (as determined by the Company's Board of Directors), less the
exercise price payable for such shares. Per share data has been
adjusted to reflect the share exchange effected prior to the Offering.
See "Restructuring - 1996 Restructuring."
Long-Term Incentive Plan Awards in Last Fiscal Year
There were no Long-Term Incentive Plan Awards to the Named Executives
during fiscal year ending July 31, 1995.
Benefit Plans
Pension Plan
The Company's Pension Plan is a non-contributory qualified employee
defined benefit plan. All full time employees of the Company are eligible to
participate in the Pension Plan. Up to September 30, 1989, retirement benefits
were equal to the sum of from 1% to 1.5% of an employee's annual cash
compensation for each year of service to age 65. Commencing October 1, 1989 and
thereafter, retirement benefits are equal to the sum of 1.35% of earnings up to
covered compensation, as that term is defined in the Plan, and 1.7% of earnings
above covered compensation. Covered compensation includes regular salaries or
wages, commissions, bonuses, overtime earnings and short-term disability income
protection benefits.
Retirement benefits are not subject to any reduction for Social
Security benefits or other offset amounts. An employee's benefits may be paid in
certain alternative forms having actuarially equivalent values. Retirement
benefits are fully vested after the completion of five years of credited service
or, if earlier, upon reaching age 55. The maximum annual benefit under a
qualified pension plan is currently $120,000 beginning at the Social Security
retirement age (currently age 65).
Annual pension benefit projections for the Named Executives assume: (a)
that the participant
47
<PAGE>
remains in the service of the Company until age 65; (b) that the participant's
earnings continue at the same rate as paid in the plan fiscal year ended
September 30, 1995 during the remainder of his service until age 65; and (c)
that the Plans continue without substantial modification. The estimated annual
benefit at retirement for each of the following Named Executives of the Company
is: Denis McGlynn, $61,342; Eugene W. Weaver, $38,027; and Robert M. Comollo,
$46,866.
401(k) Retirement Plan
Since October 1994, the Company has had a deferred compensation plan
pursuant to section 401(k) of the Internal Revenue Code for all its non-union
full time employees who have completed one year of service (approximately 34).
Covered employees may contribute up to 9% of their compensation for each
calendar year. In addition, the Company contributes up to an additional 5% of
the first 3% of compensation contributed by any covered employee to the plan (an
employee's maximum contribution is $9,240 factored for inflation annually). The
Company's expense for its contributions under this plan totalled less than
$1,000 for fiscal year ending July 31, 1995. All contributions are funded
currently.
Stock Option Plans
1996 Stock Option Plan
On June 14, 1996, the Board of Directors and sole stockholder of the
Company (which was Dover Downs, Inc. immediately prior to the 1996
Restructuring) adopted the 1996 Stock Option Plan (the "Plan" or "1996 Stock
Option Plan"). The purpose of the Plan and the granting of Options thereunder to
specific employees is to further the growth, development and financial success
of the Company and its subsidiaries by providing additional incentives to
certain of its employees, who have been or will be given responsibility for the
management of its business affairs, by assisting them to become owners of shares
of the Common Stock of the Company and thus to benefit directly from its growth,
development and financial success.
The aggregate number of shares of Common Stock in respect to which
Options may be granted under the Plan is 750,000 subject, however, to increase
or decrease in the event of certain changes in the capitalization of the
Company. The Plan is administered by the Compensation and Stock Option Committee
of the Board of Directors of the Company (the "Committee"). Under the Plan, the
Committee is authorized and empowered to administer the Plan and to: (a) select
the employees to whom Options are to be granted and to fix the number of shares
to be granted to each; (b) determine whether the Option granted is to be
considered an "incentive stock option" qualified under Section 422 of the
Internal Revenue Code, or a "non-qualified stock option" (that is, any Option
which is not considered an incentive stock option); (c) determine the date on
which Options shall be granted and the terms and conditions of the granted
Options in a manner consistent with the Plan, which terms need not always be
identical; (d) interpret the Plan; (e) prescribe, amend and rescind rules
relating to the Plan; and (f) determine the rights and obligations of
participants under the Plan.
The Option price of the shares under each Option shall be determined by
the Committee, but shall not be less than 100% of the fair market value of such
shares on the date of granting of the Option as reported in The Wall Street
Journal. The employees who will be eligible to receive grants of Options under
the Plan will be those key employees of the Company, or of any subsidiaries, who
have been selected by the Committee.
The Plan shall terminate on June 13, 2006; provided, however, that the
Board of Directors of the Company within its absolute discretion may terminate
the Plan at any time. No such termination, other than as a consequence of a
merger or consolidation shall in any way affect any Option then
48
<PAGE>
outstanding. The aggregate fair market value of the stock (determined as of the
time the Option is granted) with respect to which stock options are exercisable
for the first time by the employee during any calendar year (under all the stock
option plans maintained by the Company and its subsidiary corporations) shall
not exceed $100,000 in accordance with Section 422 of the Internal Revenue Code
of 1986 as amended. No Option shall be granted under the Plan after ten (10)
years from the date the Plan is adopted.
1991 Stock Option Plan
On November 27, 1991, the Board of Directors and stockholders of Dover
Downs, Inc. adopted the 1991 Stock Option Plan. As a result of the 1996
Restructuring, whereby Dover Downs, Inc. became a wholly-owned subsidiary of the
Company, the 1991 Stock Option Plan of Dover Downs, Inc. became the 1991 Stock
Option Plan of the Company (the "1991 Stock Option Plan"). In all material
respects, except as noted herein, the 1991 Stock Option Plan is structured as is
the 1996 Stock Option Plan. Options granted under the 1991 Stock Option Plan are
exercisable for Class A Common Stock; options granted under the 1996 Stock
Option Plan are exercisable for Common Stock. Options to acquire a total of
787,500 shares of Class A Common Stock were granted under the 1991 Stock Option
Plan, and of this amount, options to acquire 585,000 shares remain unexercised.
The 1991 Stock Option Plan has been amended so that no additional options may be
granted thereunder. Options previously granted were granted based on the
estimated fair value of the shares at the time of grant.
Compensation Committee Interlocks and Insider Participation
The following directors serve on the Company's Compensation and Stock
Option Committee: John W. Rollins and Henry B. Tippie. Neither is presently an
employee of the Company or participates in any of the Company's Stock Option
Plans. John W. Rollins and Henry B. Tippie are members of the Executive
Committee of Rollins Truck Leasing Corp., Rollins Environmental Services, Inc.
and Matlack Systems, Inc. The Executive Committees of each of these three
companies perform the functions of a compensation committee. Henry B. Tippie
serves on the Compensation Committees of Rollins, Inc. and RPC, Inc.
Limitations of Directors' Liabilities
The Company is incorporated under the General Corporation Law of the
State of Delaware ("Delaware Law"). Delaware Law permits a corporation to
indemnify its directors and officers against expenses, judgments, settlement
payments and other costs incurred in connection with litigation or similar
proceedings, subject to certain limitations. The Bylaws of the Company provide
for indemnification of directors to the fullest extent legally permissible under
Delaware Law. Delaware Law also authorizes a Delaware corporation to include in
its certificate of incorporation (and the Company's Certificate of Incorporation
contains) a provision that eliminates or limits the ability of the corporation
and its stockholders to recover monetary damages from a director for breach of
fiduciary duty as a director; but Delaware Law does not permit such a provision
to eliminate or limit the liability of a director for (i) any breach of the duty
of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) paying a dividend or
approving a stock repurchase which is illegal under certain provisions of
Delaware Law, or (iv) any transaction from which the director derived an
improper personal benefit. The Company believes that these provisions of its
Certificate of Incorporation and Bylaws are necessary to attract and retain
qualified persons to serve as directors.
49
<PAGE>
RESTRUCTURING
The share numbers and per share prices disclosed in this section under
the headings "1992 Tender Offer" and "1993 Statutory Merger" have been adjusted
to reflect the share exchange disclosed under the heading "1996 Restructuring."
1996 Restructuring
The Company has three subsidiaries: Dover Downs, Inc. (gaming
operations); Dover Downs International Speedway, Inc. (motorsports operations);
and Dover Downs Properties, Inc. (real estate holdings). Dover Downs, Inc. was
incorporated in 1967 and began the motorsports and harness horse racing
operations of the Company in 1969. The Company and Dover Downs International
Speedway, Inc. were formed in 1994 but were not operational. Dover Downs
Properties, Inc. was formed by the Company in June 1996 for the initial purpose
of holding some or all of the real estate of the Company. In 1996, prior to the
Offering, the Company effected a tax-free restructuring pursuant to which all
former stockholders of Dover Downs, Inc. exchanged each share of common stock
held in Dover Downs, Inc. for 4,500 shares of Class A Common Stock of the
Company. As a result of this share exchange, Dover Downs, Inc. became a
wholly-owned subsidiary of the Company and the former stockholders of Dover
Downs, Inc. acquired an equal percentage of the equity in the Company. To
complete the restructuring, the Company acquired by dividend from Dover Downs,
Inc. all of the outstanding capital stock of Dover Downs International Speedway,
Inc., and the motorsports operations of Dover Downs, Inc. were transferred to
Dover Downs International Speedway, Inc.
1992 Tender Offer
On July 31, 1992, Dover Downs, Inc. commenced an offer to purchase, for
cash, at a price of $1.11 per share, all shares of Dover Downs held by
stockholders owning less than 45,000 shares of stock (the "Tender Offer"). In
connection with the Tender Offer, the Board of Directors concluded that the fair
value of the Company's common stock, as of July 31, 1992, was $.67 per share and
that the offer price of $1.11 per share constituted a significant premium over
this fair value. Prior to the Tender Offer, 13,982,081 shares of Dover Downs,
Inc. common stock were issued and outstanding and were owned by 113 record
holders. Seven stockholders owned 13,709,831 shares, or approximately 99% of the
outstanding common stock. John W. Rollins, the majority stockholder, owned
7,463,394 shares or approximately 54% of the common stock outstanding.
In response to the Tender Offer, Dover Downs, Inc. redeemed
approximately two-thirds of the common stock then owned by persons other than
the seven majority stockholders. Thereafter, the seven majority stockholders
determined to proceed with a statutory merger in order to effect the redemption
of the remaining shares of common stock owned by persons holding less than
45,000 shares.
1993 Statutory Merger
Effective June 17, 1993, Dover Downs, Inc. merged (the "Merger") with
Dover Downs Enterprises, Inc., a Delaware corporation ("Enterprises").
Enterprises was formed on June 14, 1993 for the sole purpose of effectuating the
Merger. Dover Downs was the surviving corporation to the Merger. As a result of
the Merger, Dover Downs became solely owned by seven stockholders of Dover
Downs, who, prior to the Merger, owned over 99% of the issued and outstanding
common stock of Dover Downs, as well as 100% of the issued and outstanding
common stock of Enterprises. As a result of the Merger, all holders of Dover
Downs common stock who did not also hold shares in the common stock of
Enterprises, being those holders of Dover Downs common stock owning less than
45,000 shares of such stock, were entitled to receive $1.11 per share in cash
without payment of interest. Pursuant to
50
<PAGE>
Section 262 of the Delaware General Corporation Law, new stockholders had the
option of accepting the $1.11 per share in cash or seeking statutory appraisal
rights of the fair value of their shares. No stockholder exercised its statutory
appraisal rights.
CERTAIN TRANSACTIONS
In June 1996, the Company acquired for cash several tracts of
undeveloped land comprising a total of 206 acres for $6,200,000 from Jefferic
Enterprises, Inc. The purchase price was determined on the basis of an
independent appraisal performed in 1996. The land was acquired for parking and
expansion purposes. Substantially all of the land is adjacent to the Dover
Downs' facility. It was owned by Jefferic Enterprises, Inc. for over twenty
years prior to the purchase by the Company. Jefferic Enterprises, Inc. is
wholly-owned by John W. Rollins. Eugene W. Weaver is Financial Vice President
and a Director of Jefferic Enterprises, Inc.
The Company provided certain management services to Brandywine Sports,
Inc., involving total payments of approximately $228,000, $189,000 and
$100,000 in fiscal years ended July 31, 1994 and 1995, and the eleven months
ended June 30, 1996, respectively. John W. Rollins is a majority stockholder of
Brandywine Sports, Inc. Eugene W. Weaver is Financial Vice President and a
Director of Brandywine Sports, Inc. The management services have been
discontinued.
The Company previously had a note payable to John W. Rollins, its
majority stockholder. The note was secured by a first mortgage on the Company's
facilities. The note has been paid off with all accrued interest. The largest
aggregate amount of indebtedness outstanding under the note was $5,498,000,
$2,498,000 and $2,000,000 for fiscal years ended July 31, 1993, 1994 and 1995,
respectively. Interest paid during each of these fiscal years was $2,116,000,
$375,111 and $1,073,829, respectively. The note bore interest at the rate of 2%
above the prime rate, with interest at the greater of 10% or the prime rate plus
2% payable at least quarterly.
The Company purchased certain paving, site work and construction
services from Melvin Joseph Construction Co. involving total payments
of $242,393, $379,000 and $565,000 in fiscal years ended July 31, 1994 and 1995,
and the eleven months ended June 30, 1996, respectively. Melvin Joseph
Construction Co. is wholly-owned by Melvin L. Joseph.
In management's opinion, the Company's transactions with related
parties as described in this section were in the Company's best interests and
were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 and as
adjusted to reflect the sale of 2,500,000 shares of Common Stock offered hereby,
and the beneficial ownership of the Class A Common Stock, by (i) each Selling
Stockholder, (ii) each person who is known to the Company to own, of record or
beneficially, more than 5% of the Common Stock or Class A Common Stock, (iii)
each of the Company's directors, (iv) each person named in the Summary
Compensation Table under "Management - Executive Compensation" and (v) all of
the Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Before Offering Shares After Offering
--------------- Being --------------
Name Owned (1) Percent Offered(1) Owned (1) Percent
- ----- ----------- ----------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Patrick J. Bagley
Common Stock -- -- -- -- --
Class A Common Stock -- -- -- -- --
Robert M. Comollo
Common Stock -- -- -- -- --
Class A Common Stock -- -- -- -- --
Thomas Hatzis
Common Stock -- -- 1,500 -- --
Class A Common Stock 13,500 0.1 -- 12,000 0.1
Melvin L. Joseph
Common Stock -- -- 25,712 -- --
Class A Common Stock 368,212 2.6 -- 342,500 2.7
Michael B. Kinnard
Common Stock -- -- -- -- --
Class A Common Stock -- -- -- -- --
Denis McGlynn
Common Stock -- -- 18,000 -- --
Class A Common Stock 202,500 1.4 -- 184,500 1.5
Gary W. Rollins
Common Stock -- -- 104,282 -- --
Class A Common Stock 1,125,000 8.0 -- 1,020,718 8.1
Jeffrey W. Rollins
Common Stock -- -- 51,250 -- --
Class A Common Stock 731,250 5.2 -- 680,000 5.4
John W. Rollins
Common Stock -- -- 950,000 -- --
Class A Common Stock 7,197,894 51.2 -- 6,247,894 49.7
52
<PAGE>
John W. Rollins, Jr
Common Stock -- -- 25,500 -- --
Class A Common Stock 265,500 1.9 -- 240,000 1.9
R. Randall Rollins
Common Stock -- -- 104,282 -- --
Class A Common Stock 1,125,000 8.0 -- 1,020,718 8.1
Henry B. Tippie
Common Stock -- -- 100,000 -- --
Class A Common Stock 1,800,000 12.8 -- 1,700,000 13.5
Eugene W. Weaver
Common Stock -- -- 119,474 -- --
Class A Common Stock 1,231,974 8.8 -- 1,112,500 8.9
All directors and executive
officers as a group
(11 persons)
Common Stock -- -- 1,394,218 -- --
Class A Common Stock 12,922,330 91.9 -- 11,528,112 91.8
</TABLE>
- ---------
(1) Selling Stockholders will convert Class A Common Stock into Common
Stock prior to selling the Common Stock in the Offering. Beneficial
owners exercise both sole voting and sole investment power unless
otherwise stated. The Class A Common Stock is convertible, at any time,
on a share-for-share basis into Common Stock at the option of the
holders thereof. As a result, pursuant to Rule 13d-3(d)(1) of the
Securities Exchange Act of 1934, a stockholder is deemed to have
beneficial ownership of the shares of Common Stock which such
stockholder may acquire upon conversion of the Class A Common Stock. In
order to avoid overstatement, the amount of Common Stock beneficially
owned does not take into account such shares of Common Stock which may
be acquired upon conversion (an amount which is equal to the number of
shares of Class A Common Stock held by a stockholder). The above
numbers exclude up to 375,000 shares of Common Stock which may be sold
by the Company and certain Selling Stockholders upon exercise of the
over-allotment option granted to the Underwriters. See "Underwriting."
The above numbers include the following shares of Class A Common Stock
subject to options granted under the Company's 1991 Stock Option Plan
which the listed beneficial owner has the right to acquire beneficial
ownership as specified in Rule 13d-3(d)(i) of the Securities Exchange
Act of 1934: Eugene W. Weaver, 112,500 shares; and Denis McGlynn,
22,500 shares. The business address for John W. Rollins, Jeffrey W.
Rollins, and Eugene W. Weaver is 2200 Concord Pike, Wilmington,
Delaware 19803, for Henry B. Tippie is P.O. Box 26557, Austin, Texas
78755, and for R. Randall Rollins and Gary W. Rollins is P.O. Box 647,
Atlanta, Georgia 30301.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 35,000,000 shares of
Common Stock, par value $.10 per share, 30,000,000 shares of Class A Common
Stock, par value $.10 per share, and 1,000,000 shares of Preferred Stock, par
value $.10 per share (the "Preferred Stock"). Upon consummation of the Offering,
there will be 2,500,000 shares of Common Stock, 12,425,830 shares of Class A
Common Stock, and no shares of Preferred Stock issued and outstanding. There are
presently 10 holders of Class A Common Stock. All of the issued and outstanding
shares of Common Stock and Class A Common
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Stock will be fully paid and nonassessable.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
Common Stock and Class A Common Stock
Voting. Each holder of Common Stock will be entitled to one vote for each
share of Common Stock held and each holder of Class A Common Stock will be
entitled to ten votes for each share of Class A Common Stock held, except to the
extent that voting by class is required by law. At a meeting of stockholders at
which a quorum is present, a majority of the votes cast decides all questions,
unless the matter is one upon which a different vote is required by express
provision of law or the Company's Certificate of Incorporation or Bylaws. Under
the General Corporation Law of the State of Delaware, holders of Common Stock
and Class A Common Stock will be entitled to vote as a class with respect to
certain matters, including mergers and amendments to the Certificate of
Incorporation of the Company which would have certain specified effects on the
Common Stock and Class A Common Stock, respectively. There is no cumulative
voting with respect to the election of directors (or any other matter). Because
the Company's Board of Directors is classified, the holders of a majority of the
shares at a meeting at which a quorum is present can elect all of the directors
of the class then to be elected if they choose to do so, and, in such event, the
holders of the remaining shares would not be able to elect any directors of that
class.
Dividends. Holders of Common Stock and Class A Common Stock will be
entitled to receive ratably all such dividends, payable in cash or otherwise, as
may be declared by the Board of Directors out of assets or funds legally
available; provided that the Board of Directors may, in its discretion, pay to
the holders of Common Stock a cash dividend greater than the dividend, if any,
paid to the holders of Class A Common Stock; and provided further that in the
event of a stock dividend or stock split, only shares of Common Stock may be
distributed with respect to Common Stock and only shares of Class A Common Stock
may be distributed with respect to Class A Common Stock. The payment by the
Company of dividends, if any, rests within the discretion of its Board of
Directors and will depend upon the Company's results of operations, financial
condition and capital expenditure plans, as well as other factors considered
relevant by the Board of Directors. See "Dividend Policy."
Liquidation Rights. Owners of Common Stock and Class A Common Stock
will be equal and have the same rights with respect to distributions in
connection with a partial or complete liquidation of the Company.
Mergers and Consolidations. Each holder of Common Stock and Class A
Common Stock will be entitled to receive the same per share consideration in a
merger or consolidation of the Company (whether or not the Company is the
surviving corporation).
Preemptive Rights. Neither the Common Stock nor the Class A Common
Stock will carry any preemptive rights enabling a holder to subscribe for or
receive shares of any class of stock of the Company or any other securities
convertible into shares of any class of stock of the Company.
Convertibility. Shares of Class A Common Stock are convertible at any
time into shares of
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Common Stock on a share for share basis at the option of the holders thereof.
Certain Class A Common Stock Transfer Restrictions. The Company's
Bylaws restrict the sale, transfer or disposition of Class A Common Stock except
to existing Class A Common Stock stockholders and members of their families.
This restriction may be amended only by stockholders owning 75% or more of the
outstanding shares of Class A Common Stock. All Class A Common Stock
stockholders retain the ability to convert Class A Common Stock to Common Stock.
Common Stock is not subject to this transfer restriction.
Exchange Listing. Shares of Common Stock have been approved for listing
on the New York Stock Exchange, subject to official notice of issuance. Class A
Common Stock has not been registered with the Securities and Exchange Commission
or listed on any national securities exchange. The Company has no present
intention to register or list the Class A Common Stock.
State Statutes. Due to the dual class voting structure, some state
securities statutes contain provisions which may restrict offerings of equity
securities by the Company or the secondary trading of its equity securities in
such states. Because of the availability of applicable exemptions from such
restrictions and because such restrictions would only apply to offers or sales
made in a limited number of states, the Company does not believe that such
provisions will materially adversely affect the aggregate amount of equity
securities which the Company will be able to offer, the price obtainable for its
equity securities in such offerings, or the secondary trading market for its
equity securities.
Investments by Institutions. The holding of limited voting equity
securities such as the Common Stock may not be permitted or may be discouraged
by the investment policies of certain institutional investors, but the Company
does not believe that such restrictions will materially adversely effect the
aggregate amount of equity securities which the Company will be able to offer,
the price obtainable for its equity securities in such offerings or the
secondary trading market for its equity securities.
Preferred Stock
No shares of Preferred Stock are outstanding. The Company's Certificate
of Incorporation authorizes the Board of Directors to issue up to 1,000,000
shares of Preferred Stock in one or more series and to establish such relative
voting, dividend, redemption, liquidation, conversion and other powers,
preferences. rights, qualifications, limitations and restrictions as the Board
of Directors may determine without further approval of the stockholders of the
Company. The issuance of Preferred Stock by the Board of Directors could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a person or group
to gain control of the Company.
The issuance of any series of Preferred Stock and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any shares of Preferred
Stock.
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Possible Limitations on Transferability of Shares
Dover Downs is a Licensed Agent authorized to conduct licensed video
lottery operations under the Delaware State Lottery Code. Under Delaware law, a
change of ownership of a Licensed Agent will automatically terminate its license
90 days after the change of ownership occurs, unless the Director of the
Delaware State Lottery Office determines after application to issue a new
license to the new owners. Change of ownership may occur if any new individual
or entity acquires, directly or indirectly, 10% or more of the Licensed Agent,
or if more than 20% of the legal or beneficial interest in the Licensed Agent is
transferred, whether by direct or indirect means. The Commission may require
extensive background investigations of any new owner acquiring a 10% or greater
interest in a Licensed Agent, including criminal background checks. These
investigations and checks could severely limit transferability of the Company's
Common Stock and could have an adverse effect on the market for the Company's
securities.
Pursuant to the Company's Bylaws, (a) any holders of Common Stock found
to be disqualified or unsuitable or not possessing the qualifications required
by the appropriate gaming authority could be required to dispose of such stock,
and (b) any holder of Common Stock intending to acquire 10% or more of the
outstanding common stock of the Corporation must first obtain prior written
approval from the Delaware State Lottery Office. All certificates issued for
shares of Common Stock of the Company are legended and reflect these
requirements with the following legend:
"Any and all shares of Common Stock of the Corporation are
held subject to the condition that if (a) any regulatory
authority should request, determine or otherwise advise that
the holder or owner is disqualified, or unsuitable, must
qualify for or obtain a license, or must submit an application
and satisfy a review process, including background checks, in
order for the Corporation or any subsidiary to obtain or
retain a license or a relicense, or otherwise avoid
significant penalties or business disadvantage, and (b) such
holder or owner shall fail to submit to qualification within
fifteen (15) days following such request, determination or
advice, or fail to be found qualified or suitable, then (c)
such holder or owner, at the request of the Corporation or the
appropriate regulatory authority, shall promptly dispose of
such holder's or owner's interest in the Corporation's Common
Stock and shall be subject to any order of such regulatory
body limiting such holder's or owner's rights pending such
disposition. Without limiting the foregoing, any holder or
owner that intends to acquire, directly or indirectly, ten
percent (10%) or more of the outstanding common stock of the
Corporation (regardless of class or series) shall first notify
the Corporation and obtain prior written approval from the
Delaware State Lottery Office. Since money damages are
inadequate to protect the Corporation, it shall be entitled to
injunctive relief to enforce the foregoing provision."
Stock Purchase Rights
Common Stock
On June 14, 1996, the Board of Directors of the Company authorized and
declared the issuance of one Common Stock Purchase Right for each share of
Common Stock of the Company issued thereafter, subject to certain limitations.
Each Right entitles the registered holder to purchase from the
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<PAGE>
Company one share of Common Stock at a Purchase Price of $250 per share. The
description and terms of the Rights are set forth in a Rights Agreement between
the Company and ChaseMellon Shareholder Services, L.L.C., the Company's transfer
agent, as Rights Agent.
As discussed below, initially the Rights will not be exercisable,
certificates will not be sent to stockholders and the Rights will automatically
trade with the Common Stock.
Until the close of business on the Distribution Date, which will occur
on the earlier of (i) the tenth day following a public announcement that a
person or group of affiliated or associated persons ("Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 10% or more
of the outstanding combined equity of Common Stock and Class A Common Stock of
the Company (the "Stock Acquisition Date") or (ii) a date fixed by the Board of
Directors of the Company which is not later than the nineteenth business day
after the commencement of a tender offer or exchange offer which would result in
the ownership of 10% or more of the outstanding combined equity of Common Stock
and Class A Common Stock, the Rights will be represented by and transferred
with, and only with, the Common Stock. Certificates issued for Common Stock
after June 14, 1996 will contain a legend incorporating the Rights Agreement by
reference, and the surrender for transfer of any of the Company's Common Stock
certificates will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. As soon as practicable following
the Distribution Date, separate Right Certificates will be mailed to holders of
record of the Company's Common Stock as of the close of business on the
Distribution Date, and thereafter the separate certificates alone will evidence
the Rights.
The Rights are not exercisable until an event occurs which gives rise
to a Distribution Date. The Rights will expire at the close of business on June
13, 2006, unless earlier redeemed by the Company as described below. Common
Stock issued after the Distribution Date will be issued with Rights, if such
Common Stock certificates are issued pursuant to the exercise of stock options
or under an employee benefit plan.
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Common
Stock, (ii) upon the grant to holders of the Common Stock of certain rights or
warrants to subscribe for Common Stock or convertible securities at less than
the current market price thereof at the time of grant or (iii) upon the
distribution to holders of the Common Stock of evidences of indebtedness or
assets (excluding regular cash dividends and dividends payable in Common Stock)
or of subscription rights or warrants (other than those referred to above).
Unless the Rights are earlier redeemed, in the event that, after the
Stock Acquisition Date, the Company were to be acquired in a merger or other
business combination (in which any shares of the Company's Common Stock are
changed into or exchanged for other securities or assets) or more than 50% of
the assets or earning power of the Company and its subsidiaries (taken as a
whole) were to be sold or transferred in one or a series of related
transactions, the Rights Agreement provides that proper provision shall be made
so that each holder of record of a Right will from and after such date have the
right to receive, upon payment of the Purchase Price, that number of shares of
common stock of the acquiring company having a market value at the time of such
transaction equal to two times the Purchase Price.
In the event (i) any Person becomes the beneficial owner of 10% or more
of the then outstanding
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combined equity of Common Stock and Class A Common Stock, other than pursuant to
an all-cash tender offer on the same terms for all outstanding shares of Common
Stock and Class A Common Stock pursuant to which no purchases of Common Stock or
Class A Common Stock are made for at least 60 days from the date of commencement
thereof and which is accepted by holders of not less than the number of shares
of Common Stock and Class A Common Stock that, when aggregated with the number
of shares of Common Stock and Class A Common Stock owned by the person making
the offer (and its affiliates or associates), equals or exceeds 75% of the
outstanding Common Stock and Class A Common Stock, (a "Permitted Tender Offer"),
or (ii) any Acquiring Person or any of its affiliates or associates engages in
one or more "self-dealing" transactions as described in the Rights Agreement,
then each holder of a Right, other than the Acquiring Person, will have the
right to receive, upon payment of the Purchase Price, a number of shares of
Common Stock having a market value equal to twice the Purchase Price. This same
right will be available to each holder of record of a Right, other than the
Acquiring Person, if, while there is an Acquiring Person, there occurs any
reclassification of securities, any recapitalization of the Company, or any
merger or consolidation or other transaction involving the Company or any of its
subsidiaries which has the effect of increasing by more than 1% the
proportionate ownership interest in the Company or any of its subsidiaries which
is owned or controlled by the Acquiring Person. To the extent that insufficient
shares of Common Stock are available for the exercise in full of the Rights,
holders of Rights will receive upon exercise, shares of Common Stock to the
extent available and then cash, property or other securities of the Company
(which may be accompanied by a reduction in the Purchase Price), in proportions
determined by the Company, so that the aggregate value received is equal to
twice the Purchase Price. Rights are not exercisable following the occurrence of
the events described in this paragraph until the expiration of the period during
which the Rights may be redeemed as described below. Notwithstanding the
foregoing, following the occurrence of the events described in this paragraph,
Rights that are (or, under certain circumstances, Rights that were) beneficially
owned by an Acquiring Person will be null and void.
Any Person that is the beneficial owner of 10% or more of the
outstanding combined equity of Common Stock and Class A Common Stock prior to
the adoption of the Rights Plan will not be deemed an Acquiring Person. John W.
Rollins and Henry B. Tippie are, therefore, excluded from the definition of
Acquiring Person.
No fractional shares of Common Stock or other Company securities will
be issued upon exercise of the Rights and, in lieu thereof, a payment in cash
will be made to the holder of such Rights equal to the same fraction of the
current market value of a share of Common Stock or other Company securities.
At any time until ten days following the Stock Acquisition Date
(subject to extension by the Board of Directors), the Board of Directors may
cause the Company to redeem the Rights in whole, but not in part, at a price of
$.01 per Right, subject to adjustment. Immediately upon the action of the Board
of Directors authorizing redemption of the Rights, the right to exercise the
Rights will terminate, and the holders of Rights will only be entitled to
receive the Redemption Price without any interest thereon.
For as long as the Rights are then redeemable, the Company may, except
with respect to the redemption price or date of expiration of the Rights, amend
the Rights in any manner, including an amendment to extend the time period in
which the Rights may be redeemed. At any time when the Rights are not then
redeemable, the Company may amend the Rights in any manner that does not
adversely affect the interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as
a stockholder of the
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Company, including, without limitation, the right to vote or to receive
dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Registration Statement of which this
Prospectus is a part. A copy of the Rights Agreement is available free of charge
upon written request to the Company. This description of the Rights is qualified
in its entirety by reference to the Rights Agreement, which is incorporated in
this description by reference.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group who attempts to acquire the Company on
terms not approved by the Board of Directors of the Company. The Rights were not
declared in response to any specific effort to acquire control of the Company,
and the Board of Directors of the Company is not aware of any such effort. The
Rights should not interfere with any merger or other business combination
approved by the Board since they may be redeemed by the Company at $.01 per
Right at any time until the close of business on the tenth day after a person or
group has obtained beneficial ownership of 10% or more of the outstanding shares
of Common Stock and Class A Common Stock of the Company.
Class A Common Stock
A separate Rights Agreement applies to all shares of Class A Common
Stock and has substantially the same terms as the Rights Agreement with respect
to Common Stock, except that the Class A Common Stock Purchase Right is for the
purchase of one share of Class A Common Stock at the same $250 per share
Purchase Price and exercisable on the same triggering events. In both Rights
Agreements, the triggering events are based on calculations involving the
combined equity of Common Stock and Class A Common Stock.
Delaware Law and Certain Charter and Bylaw Provisions
Certain provisions of the General Corporation Law of the State of
Delaware and of the Company's Certificate of Incorporation and Bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest, removal of incumbent directors or management, takeover attempt or other
transactions involving control of the Company that a stockholder might consider
to be in such stockholder's best interest, including such an attempt as might
result in payment of a premium over the market price for shares held by
stockholders. The adoption of the Rights Plan also has certain anti-takeover
effects. See "Description of Capital Stock - Stock Purchase Rights."
The anti-takeover measures described below were proposed by the Board
of Directors and approved by the sole stockholder of the Company in 1996. Dover
Downs, Inc. was the sole stockholder of the Company immediately prior to the
1996 Restructuring. At that time, the Board expressed its confidence in the
continued leadership of John W. Rollins and existing management, viewing that
leadership as an important factor in the Company's growth and success. The
Charter and Bylaws are an effective means of assuring John W. Rollins and
existing management, the opportunity to maintain majority voting control of the
Company. They are also an effective means of assuring companies with which Dover
Downs has had long-term relationships, such as sponsors, and various regulatory
authorities that deal with the Company on a day-to-day basis, that continuity of
leadership and management is more secure than it might be without such measures.
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The dual class structure and super majority voting of Class A Common
Stock should facilitate continued ownership of a substantial portion of the
voting securities of Dover Downs by John W. Rollins and existing management,
even if one or more of the members of management should find it necessary to
sell a significant block of stock for diversification, for tax obligations or
for other reasons. This should enable the Company to continue to be managed
based on long-term objectives, something which the Company's Board of Directors
considers to be a significant benefit to the Company and its stockholders.
Delaware Anti-takeover Law. The Company, a Delaware corporation, is
subject to the provisions of the General Corporation Law of the State of
Delaware, including Section 203. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder unless: (i)
prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, or (ii) upon becoming an interested stockholder, the
stockholder then owned at least 85% of the voting stock, as defined in Section
203: or (iii) subsequent to such date, the business combination is approved by
both the Board of Directors and by holders of at least 66 2/3% of the
corporation's outstanding voting stock, excluding shares owned by the interested
stockholder. Under Section 203, the term "business combination" includes
mergers, asset sales and other similar transactions with an "interested
stockholder," and the term "interested stockholder" refers to a person who,
together with affiliates and associates, owns (or, within the prior three years,
did own) 15% or more of the corporation's voting stock. Although Section 203
permits a corporation to elect not to be governed by its provisions, the Company
to date has not made this election.
Classified Board of Directors. The Company's Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. The over-all effect of
the provision in the Certificate of Incorporation with respect to a classified
Board of Directors may be to render more difficult a change in control of the
Company or the removal of incumbent management.
Removal of Directors; Filling Vacancies. The Bylaws and Certificate of
Incorporation provide that directors may be removed by stockholders of the
Company only for cause. The Bylaws provide that vacant directorships may be
filled by the Board of Directors acting by vote of a majority of the directors
then in office.
Special Meetings of Stockholders. The Certificate of Incorporation and
Bylaws provide that special meetings of stockholders of the Company may be
called only by (i) the Chairman of the Board of Directors, (ii) the Vice
Chairman of the Board of Directors, (iii) the Chairman of the Executive
Committee, or (iv) the President. Special meetings may not be called by the
stockholders.
Stockholder Action by Written Consent. The Company's Bylaws provide
that action required to be taken or which may be taken at any annual or special
meeting of stockholders may be taken without a meeting, and stockholders shall
have the power to consent in writing, without a meeting, to the taking of any
action, except where prohibited by law or the rules and regulations of the New
York Stock Exchange.
Certain Business Combinations. The Company's Certificate of
Incorporation provides that the affirmative vote of holders of a least 75% of
the outstanding shares of capital stock of the Company
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entitled to vote in the election of directors is required to approve certain
business combinations involving the Company and any person owning more than 20%
of the Company's outstanding voting stock (an "Interested Stockholder"),
including any merger, consolidation or similar business combination, any
issuance or transfer of securities by the Company or its subsidiary to any
Interested Stockholder or its affiliate in exchange for cash, securities or
other property having an aggregate fair market value of $5,000,000 or more, the
transfer or other disposition of assets by the Company or its subsidiary to an
Interested Stockholder or its affiliate having an aggregate fair market value of
$5,000,000 or more, the adoption of any plan or proposal for liquidation or
dissolution of the Company, and any reclassification or recapitalization which
would increase the proportionate shareholdings of any class of stock owned by an
Interested Stockholder or an affiliate of such Interested Stockholder.
Amendment to Certain Provisions of the Certificate of Incorporation and
Bylaws. Subject to the General Corporation Law of the State of Delaware, the
Certificate of Incorporation may be amended by the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, together with the
affirmative vote of a majority of the outstanding shares of each class or series
entitled to vote thereon as a class or series in accordance with the Delaware
law and the Certificate of Incorporation. Notwithstanding the foregoing, the
amendment, modification or repeal of certain provisions of the Certificate of
Incorporation regarding (i) the Capital Stock of the Company, (ii) the
classification of the Board of Directors, (iii) certain business combinations
and (iv) amendments to the Certificate of Incorporation and the Bylaws requires
the affirmative vote of the holders of at least 75% of the outstanding shares of
capital stock of the Company then entitled to vote in the election of directors.
The stockholders may make, alter or repeal any bylaws whether or not
adopted by them, provided, that any such additional bylaws, alterations or
repeal may be adopted only by the affirmative vote of the holders of 75% or more
of the outstanding shares of capital stock of the Company entitled to vote in
the election of directors, unless such additional bylaws, alterations or repeal
have been recommended to the stockholders for adoption by a majority of the
Board of Directors, in which event such additional bylaws, alterations or repeal
may be adopted by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote in the
election of directors.
Transfer Agent
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C. Its address for such purposes is 450 West 33rd
Street, 15th Floor, New York, New York 10001-2697 and its telephone number at
that address is 212-946-8494.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering made by this Prospectus, the Company
will have outstanding 2,500,000 shares of Common Stock and 12,425,830
shares of Class A Common Stock. Class A Common Stock is convertible into Common
Stock at any time on a share for share basis at the option of the holders
thereof. The 2,500,000 shares of Common Stock sold in the Offering will be
freely transferable and may be resold without further registration under the
Securities Act. The holders of 12,425,830 shares of Class A Common Stock will be
entitled to resell such shares only pursuant to a registration statement under
the Securities Act or an applicable exemption from registration thereunder such
as an exemption provided by Rule 144. The foregoing numbers exclude up to
375,000 shares of Common Stock that may be sold by the
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Company or certain Selling Stockholders upon exercise of the over-allotment
option granted to the Underwriters and 585,000 shares of Class A Common Stock
reserved for issuance upon exercise of options granted pursuant to the Company's
1991 Stock Option Plan. See "Underwriting" and "Management - Stock Option
Plans."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least two years may, under certain circumstances, resell within any
three-month period such number of shares as does not exceed the greater of one
percent of the then-outstanding shares or the average weekly trading volume
during the four calendar weeks prior to such resale. Rule 144 also permits,
under certain circumstances, the resale of shares without any quantity
limitation by a person who has satisfied a three-year holding period and who is
not, and has not been for the preceding three months, an affiliate of the
Company. In addition, holding periods of successive non-affiliate owners are
aggregated for purposes of determining compliance with these two and three year
holding period requirements.
Upon completion of the Offering, 12,001,330 shares of Class A Common
Stock outstanding on the date of this Prospectus will have been held for at
least two years. If these shares of Class A Common Stock are converted into
Common Stock, the Common Stock may be resold pursuant to Rule 144 upon
completion of the Offering.
The availability of shares for sale or actual sales under Rule 144 may
have an adverse effect on the market price of the Common Stock. Sales
under Rule 144 also could impair the Company's ability to market additional
equity securities. The Company has agreed, however, not to issue, and all
officers and directors of the Company and the Selling Stockholders have agreed
not to, directly or indirectly, sell, or otherwise dispose of, any shares of
Common Stock, Class A Common Stock or other equity securities convertible or
exchangeable into, or exercisable for such capital stock, of the Company for 180
days after the date of this Prospectus without the prior written consent of the
representative of the Underwriters. The foregoing does not prohibit the
Company's issuing shares pursuant to the exercise of the Underwriters'
over-allotment option or under the 1991 or 1996 Stock Option Plans.
The Securities and Exchange Commission has proposed certain amendments
to Rule 144 that would reduce by one year the holding periods required for
shares subject to Rule 144 to become eligible for resale in the public market.
This proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate resale following the expiration of the lock-up agreements
described above. No assurance can be given concerning whether or when the
proposal will be adopted by the Commission.
UNDERWRITING
Subject to the terms and conditions set forth in the purchase agreement
(the "Purchase Agreement"), among the Company, the Selling Stockholders and each
of the Underwriters named below, the Company and the Selling Stockholders have
agreed to sell to each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated is acting as representative (the "Representative"),
and each of the Underwriters have severally agreed to purchase from the Company
and the Selling Stockholders the number of shares of Common Stock set forth
opposite its name below. In the Purchase Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all the shares of Common Stock offered hereby, if any are purchased. In the
event of default by an Underwriter, the Purchase Agreement provides that, in
certain circumstances, purchase
62
<PAGE>
commitments of the nondefaulting Underwriters may be increased or the Purchase
Agreement may be terminated.
Number of
Underwriter Shares
----------- ------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..........................
Total ....................................... 2,500,000
=========
The Underwriters have advised the Company that they propose initially
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share of Common Stock. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
The Company and certain Selling Stockholders have granted to the
Underwriters an option exercisable during the 30 day period after the date of
this Prospectus to purchase up to an additional 75,000 and 300,000 shares of
Common Stock, respectively, to cover over-allotments, if any, at the initial
public offering price set forth on the cover page hereof, less the underwriting
discount. If the Underwriters exercise this option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the foregoing table is of the 2,500,000 shares of
Common Stock initially offered hereby.
The Company, its officers, directors and the Selling Stockholders have
agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell,
grant any option to purchase or otherwise transfer or dispose of any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
Common Stock or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement or
transaction that transfers, in whole or in part, the economic consequence of
ownership of the Common Stock, without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, for a period of 180 days after the
date of this Prospectus. The foregoing does not prohibit the Company's issuing
shares pursuant to the exercise of the Underwriters' over-allotment option or
pursuant to the exercise of options currently outstanding under the 1991 or
1996 Stock Option Plans.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
63
<PAGE>
The Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange under the symbol "DVD."
Prior to the Offering, there has been no market for the Common Stock of
the Company. The initial public offering price was determined through
negotiation between the Company and the Representative. Among the factors
considered in determining the initial public offering price were the Company's
record of operations, the Company's current financial condition, its future
prospects, the state of the markets for its services, the experience of its
management, the economics of the industry in general, the general condition of
the equity securities market and the demand for similar securities of companies
considered comparable to the Company. The initial public offering price set
forth on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the Offering
at or above the initial public offering price.
LEGAL MATTERS
Legal matters in connection with the authorization and issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Duane, Morris & Heckscher, Philadelphia, Pennsylvania. Certain legal matters
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York.
EXPERTS
The financial statements for the three years ended July 31, 1995 have
been audited by Siegfried Schieffer & Seitz, independent certified public
accountants. These financial statements and auditors' report appearing herein
and elsewhere in the Registration Statement, have been so included in reliance
upon the reports of such firm given their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each such
instance, reference is hereby made to the copy of the contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by this reference thereto. The Registration Statement, together
with its exhibits and schedules, may be inspected at the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of such materials may be obtained from
any
64
<PAGE>
such office upon payment of the fees prescribed by the SEC. In addition, such
material may also be accessed electronically by means of the SEC's home page on
the Internet at http://www.sec.gov.
65
<PAGE>
Glossary of Certain Terms
Unless the context otherwise requires, references herein to "Dover Downs"
or to the "Company" means Dover Downs Entertainment, Inc. and its subsidiaries
considered as one enterprise. "Dover Downs" and "Monster Mile" are
registered trademarks and service marks of the Company. "NASCAR," "Grand
National," and "Winston Cup" are registered trademarks and service marks of
the National Association for Stock Car Auto Racing, Inc. ("NASCAR").
"Caesars" is a registered trademark of Caesars World, Inc. "TNN" is a
registered trademark of Opryland USA, Inc. "Pepsi" is a registered trademark
of Pepsi-Cola Company. "Miller" and "Miller Genuine Draft" are registered
trademarks of Miller Brewing Company. "MBNA" is a registered trademark of
MBNA America Bank, N.A. "Goodwrench" and "AC Delco" are registered
trademarks of General Motors Corporation.
"Busch Series" refers to NASCAR's Busch Series, Grand National Division racing
circuit.
"Caesars" refers to Caesars World Gaming Development Corporation, a wholly-owned
subsidiary of Caesars World, Inc., the casino gaming arm of ITT
Corporation. Caesars manages and operates the Company's video lottery
(slot) machine operations.
"Cloverleaf" refers to Cloverleaf Standardbred Owner's Association, Inc., an
organization representing horsemen participating at harness race
meetings at Dover Downs and elsewhere in the United States and Canada.
"Delaware State Harness Racing Commission" refers to the commission that
supervises and regulates harness racing and pari-mutuel wagering in the
State of Delaware.
"Delaware State Lottery Office" refers to the Delaware state agency that
operates and administers the operation of video lottery (slot)
machines.
"Handle" refers to the total amount bet or wagered on a harness race.
"Harness Horse Racing" refers to the racing of horses in which the horses
participating are harnessed to a sulky, carriage or similar vehicle and
are not mounted by a jockey. Harness horse racing is sometimes referred
to as standardbred horse racing.
"Horse Racing Redevelopment Act" refers to 1994 legislation amending the
Delaware State Lottery Code to permit video lottery (slot) machines at
the three operating harness and thoroughbred race tracks in the State
of Delaware.
"Horsemen" refers to owners, trainers and drivers of harness horses.
"NASCAR" refers to the National Association for Stock Car Auto Racing, Inc.
NASCAR sanctions the Winston Cup and Busch Series races.
"Paddock" refers to an enclosure in which horses scheduled to compete in a race
program are confined prior to racing.
"Pari-Mutuel Wagering" refers to pooled betting or wagering on harness horse
racing by means of a totalizator. Through pooled betting, the wagering
public, not the track, determines the odds and the payoff.
"Purse" refers to the amount for any particular race date or race event
distributed to the driving team owner for auto racing or to the
horsemen for harness horse racing (or to Cloverleaf for the benefit of
the horsemen).
"Simulcasting" refers to the transmission of live horse racing by television,
cable or satellite signal from one race track to another with
pari-mutuel wagering being conducted at the sending and receiving track
and a portion of the handle being shared by the sending and receiving
tracks.
"Superspeedway" refers to a motorsports racing track one mile or greater in
length.
"Totalizator" refers to an on-site or remote computer system that automatically
registers and totals the amounts wagered at a race and displays the
win, pool odds, pay off and similar items. For simulcast races, the
system registers and totals the amounts wagered at all simulcast
locations.
"Video Lottery (Slot) Machine" refers to a machine that uses spinning reels or
video displays or both, in which bills, coins or tokens are deposited
in order to play a game of chance in which the results are randomly and
immediately determined by the machine.
"Winston Cup" refers to NASCAR's premier stock car racing circuit.
66
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report.............................................................................F-2
Consolidated Statement of Earnings for the years ended July 31, 1993, 1994 and 1995......................F-3
Consolidated Balance Sheet as of July 31, 1994 and 1995..................................................F-4
Consolidated Statement of Cash Flows for the years ended July 31, 1993, 1994 and 1995....................F-5
Notes to Consolidated Financial Statements...............................................................F-6
Interim Consolidated Financial Statements (unaudited):
Consolidated Statement of Earnings for the eleven months ended June 30, 1995 and 1996...................F-11
Consolidated Balance Sheet as of June 30, 1996..........................................................F-12
Consolidated Statement of Cash Flows for the eleven months
ended June 30, 1995 and 1996.......................................................................F-13
Notes to Interim Consolidated Financial Statements......................................................F-14
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders of
Dover Downs Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Dover Downs
Entertainment, Inc. and its subsidiaries as of July 31, 1994 and 1995, and the
related consolidated statements of earnings and of cash flows for each of the
three years in the period ended July 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Dover Downs
Entertainment, Inc. and its subsidiaries as of July 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1995, in conformity with generally accepted accounting
principles.
Siegfried Schieffer & Seitz
Wilmington, DE
July 10, 1996
F-2
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
YEARS ENDED JULY 31, 1993, 1994, AND 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Motorsports $ 11,941 $ 13,524 $ 16,099
Gaming 1,936 1,024 1,309
----------- ----------- -----------
13,877 14,548 17,408
----------- ----------- -----------
Expenses:
Operating 6,706 6,107 7,445
Depreciation 721 775 1,088
General and administrative 1,603 1,468 1,643
----------- ----------- -----------
9,030 8,350 10,176
----------- ----------- -----------
Operating earnings 4,847 6,198 7,232
Interest expense 175 185 142
----------- ----------- -----------
Earnings before income taxes 4,672 6,013 7,090
Provision for income taxes 1,834 2,314 2,847
----------- ----------- -----------
Net earnings $ 2,838 $ 3,699 $ 4,243
=========== =========== ===========
Earnings per common share $ .20 $ .27 $ .29
=========== =========== ===========
Weighted average common shares and
common share equivalents
outstanding (000s) 13,935 13,935 14,511
</TABLE>
The Notes to the Consolidated Financial Statements are
an integral part of these statements.
F-3
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
JULY 31, 1994 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 185 $ 98
Short-term investments 5,126 3,300
Accounts receivable 1,416 1,066
Inventory 109 115
Prepaid expenses 408 363
----------- -----------
Total current assets 7,244 4,942
----------- -----------
Property, plant and equipment, at cost
Racing facility 21,461 25,757
Land 1,848 1,878
Machinery and equipment 1,166 1,897
Furniture and fixtures 153 171
Construction in progress - 1,790
----------- -----------
24,628 31,493
Less accumulated depreciation (11,628) (12,393)
----------- -----------
13,000 19,100
----------- -----------
$ 20,244 $ 24,042
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 142 $ 103
Accrued liabilities 829 1,956
Income taxes payable 1,123 859
Due to stockholder 2,001 193
Current portion of long-term debt 77 78
Deferred income taxes 1 -
Deferred revenue 5,155 5,735
----------- -----------
Total current liabilities 9,328 8,924
----------- -----------
Long-term debt 753 675
----------- -----------
Deferred income taxes 304 323
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value;
1,000,000 shares authorized;
issued and outstanding - none
Common stock, $.10 par value;
35,000,000 shares authorized;
issued and outstanding - none
Class A common stock, $.10 par value;
30,000,000 shares authorized;
13,723,330 shares issued and outstanding 1,371 1,372
Capital in excess of par value 4,379 4,396
Retained earnings 4,109 8,352
----------- -----------
Total stockholders' equity 9,859 14,120
----------- -----------
$ 20,244 $ 24,042
=========== ===========
</TABLE>
The Notes to the Consolidated Financial Statements are
an integral part of these statements.
F-4
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JULY 31, 1993, 1994 AND 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,838 $ 3,699 $ 4,243
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 721 775 1,088
Loss on disposition of property - - 135
(Increase) decrease in assets:
Accounts receivable (282) (829) 350
Inventory 53 (8) (6)
Prepaid expenses 52 (68) 45
Other assets 155 - -
Increase (decrease) in liabilities:
Accounts payable (239) 74 (39)
Accrued liabilities (2,061) (111) 118
Income taxes payable (221) 311 (264)
Deferred income taxes (42) (105) 19
Deferred revenue 722 1,133 580
Other liabilities (155) - -
--------- --------- ---------
Net cash provided by operating activities 1,541 4,871 6,269
--------- --------- ---------
Cash flows from investing activities:
Sale (purchase) of short-term investments, net 1,341 (1,457) 1,826
Capital expenditures (1,972) (3,006) (7,323)
--------- --------- ---------
Net cash used in investing activities (631) (4,463) (5,497)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of note payable 375 - -
Debt principal payments (1,057) (296) (877)
Issuance of stock - - 18
Purchase of stock (303) - -
--------- --------- ---------
Net cash used in financing activities (985) (296) (859)
--------- --------- ---------
Net (decrease) increase in cash (75) 112 (87)
Cash, beginning of year 148 73 185
--------- --------- ---------
Cash, end of year $ 73 $ 185 $ 98
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 2,231 $ 448 $ 1,141
Income taxes paid $ 2,096 $ 2,108 $ 3,093
</TABLE>
The Notes to the Consolidated Financial Statements are
an integral part of these statements.
F-5
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - REORGANIZATION
On June 14, 1996, Dover Downs Entertainment, Inc. (the Company) effected a
tax-free restructuring pursuant to which all former stockholders of Dover
Downs, Inc. exchanged each share of common stock held in Dover Downs, Inc.
for 4,500 shares of Class A Common Stock of the Company. As a result of this
share exchange, Dover Downs, Inc. became a wholly owned subsidiary of the
Company and the former stockholders of Dover Downs, Inc. acquired an equal
percentage of the equity of the Company. As part of the restructuring, the
Company acquired by dividend from Dover Downs, Inc. all of the outstanding
capital stock of Dover Downs International Speedway, Inc. (which was not
operational), and the motorsports operation of Dover Downs, Inc. were
transferred to Dover Downs International Speedway, Inc. Additionally, in
June 1996, the Company formed Dover Downs Properties, Inc. for the initial
purpose of holding some or all of the real estate of the Company. This
reorganization has been accounted for on an as if pooled basis.
All common share and per share amounts have been restated to give effect to
the reorganization assuming the transaction had occurred on July 31, 1992.
Results of operations, as previously reported, for each of the years in the
three-year period ended July 31, 1995 were not affected by the
reorganization.
NOTE 2 - BUSINESS OPERATIONS
The Company owns and operates the Dover Downs International Speedway and
the Dover Downs Raceway at a multi-purpose gaming and entertainment complex
located on approximately 775 acres owned by the Company in Dover, Delaware.
The Company hosts NASCAR and harness horse racing events throughout the
year. Management obtains sanction agreements for all NASCAR events and
operates harness racing under a license granted by the State of Delaware.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts
of the Company and all subsidiaries. Intercompany transactions and balances
among these subsidiaries have been eliminated.
Revenue and expense recognition - Tickets to motorsports races are sold and
certain expenses are incurred in advance of the race date. Such advance
sales and corresponding expenses are recorded as deferred revenue and
prepaid expenses, respectively, until the race is held.
Earnings per share - Earnings per common share are computed assuming the
conversion of all potentially dilutive outstanding stock options.
Short-term investments - Short-term investments in fiscal 1995 consist of
twelve certificates of deposit aggregating $3,300,000 which earned interest
ranging from 5.25% to 5.90% and were issued by two banks. In fiscal 1994,
such investments consisted of six certificates of deposit aggregating
$2,100,000 which earned interest at 2.96% and eleven U.S. Treasury Bills
with par values ranging from $200,000 to $500,000 and effective yields
ranging from 3.47% to 4.79%. All short-term investments are stated at cost
(which approximates market).
Inventories - Inventories, primarily items held for sale at concession
stands, are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) basis.
Property, plant and equipment - Substantially all property, plant and
equipment is stated at cost. Depreciation is computed on a straight-line
basis over the following estimated useful lives:
Racing facility 10 - 33 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 5 years
F-6
<PAGE>
Income taxes - Beginning in fiscal 1994, deferred income taxes were
provided in accordance with the provisions of Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" on
all differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements based upon enacted statutory
tax rates in effect at the balance sheet date.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 4 - RECAPITALIZATION
In June 1993, Dover Downs, Inc. notified its minority stockholders that the
merger of Dover Downs Enterprises, Inc. (Enterprises) into Dover Downs,
Inc. would be effective on June 17, 1993. The majority stockholder and six
other stockholders formed Enterprises and in June 1993 exchanged Dover
Downs, Inc. shares for Enterprises stock. Pursuant to Delaware General
Corporation Law, a greater than 90% stockholder has a right to merge and
cash out the remaining minority stockholders with no action required by the
minority stockholders. At the time of the merger, the shares held by
Enterprises were canceled and each of the minority shares were converted
into the right to receive $1.11 per share in cash, subject to the rights of
the minority stockholders to seek an appraisal of the fair value of their
shares as defined under Delaware General Corporation Law.
During fiscal 1994 and 1995, 27,900 and 14,625 shares, respectively, were
tendered relating to the merger. At July 31, 1994 and 1995, accrued
liabilities included $54,650 and $38,400, respectively, for shares not
tendered at the $1.11 per share price.
NOTE 5 - INDEBTEDNESS
In February 1996, the Company modified two lines of credit aggregating
$10,000,000 from PNC Bank to finance the capital improvements and working
capital requirements. One line is a decreasing, revolving facility with an
initial maximum amount of $8,000,000 and an expiration date of June 30,
2000. The other line is $2,000,000 and is renewable annually commencing
January 31, 1996. As of July 31, 1995, no funds had been borrowed under
either line. Under the terms of these credit facilities, Dover Downs, Inc.
(one of the Company's subsidiaries) is not permitted to pay any dividends
to the Company in excess of the net income of Dover Downs, Inc. for the
preceding fiscal year.
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Mortgage note at 9% payable in semi-annual installments of $20,000, plus
interest through January 2001, and collateralized by land with a
carrying value of $550,000. $ 260,000 $ 220,000
Mortgage note at 10% payable in quarterly principal and interest
installments of $5,225 through December 2008,
and collateralized by land with a carrying value of $193,000. 159,083 153,903
Mortgage note at 7% payable in quarterly principal and interest
installments of $13,115 through April 2003,
and collateralized by land with a carrying value of $425,000. 341,073 311,731
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C> <C>
Mortgage note at 8% payable in monthly principal and interest
installments of $536 through December 2018, and collateralized
by land with a carrying value of $91,000. 68,863 67,911
Note at 7% payable in monthly principal and interest
installments of $150 through August 1995. 1,594 43
----------- -----------
830,613 753,588
Less amounts due within one year (77,068) (78,200)
----------- -----------
$ 753,545 $ 675,388
=========== ===========
Aggregate long-term debt matures as follows: 1996 - $78,200; 1997 -
$81,139; 1998 - $84,309; 1999 - $87,729; 2000 - $91,419; and thereafter $330,792
for a total of $753,588.
</TABLE>
NOTE 6 - INCOME TAXES
On August 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". The statement
requires the recognition of a current income tax liability or asset for
estimated taxes payable or refundable on tax returns for the current year
and deferred tax liabilities or assets for estimated future tax effects
attributable to temporary differences and carryforwards using the enacted
marginal tax rate. The effects of future changes in tax laws or rates are
not anticipated when measuring current and deferred tax liabilities and
assets. The cumulative effect on prior years at the date of adoption was
not material to the results of operations. Through July 31, 1993, income
taxes were accounted for under APB opinion No. 11. The current and deferred
income tax provisions (benefit) were as follows:
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current -
Federal $ 1,465,268 $ 1,887,564 $ 2,222,135
State 410,004 531,449 606,964
------------ ------------ ------------
1,875,272 2,419,013 2,829,099
------------ ------------ ------------
Deferred -
Federal (32,610) (82,513) 14,166
State (9,175) (22,935) 3,937
------------ ----------- ------------
(41,785) (105,448) 18,103
------------ ----------- ------------
$ 1,833,487 $ 2,313,565 $ 2,847,202
============ ============ ============
</TABLE>
Deferred income taxes relate to the timing differences between financial
accounting income and taxable income and are primarily attributable to the
timing of the recognition of prior years' extraordinary gains and depreciation
using different methods for tax purposes.
A reconciliation of the effective income tax rate with the applicable statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
Years ended July 31,
----------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal tax at statutory rate 34.0% 34.0% 34.0%
State taxes 5.7 5.7 5.7
Other (.4) (1.2) .5
---- ---- ----
Effective income tax rate 39.3% 38.5% 40.2%
==== ==== ====
</TABLE>
The tax effect of temporary differences which comprise the non-current deferred
tax amounts shown on the balance sheet are principally related to the use of
different depreciation methods for income tax purposes.
F-8
<PAGE>
NOTE 7 - PENSION PLAN
The Company participates in a defined-benefit pension plan sponsored by an
affiliated company. Substantially all full-time employees are covered under
this plan. Plan benefits are based on years of service and employees'
remuneration over their employment with the Company. Pension costs are
funded in accordance with the provisions of the Internal Revenue Code.
Pension expense was $47,670, $49,279 and $32,900 for the years ended July
31, 1993, 1994 and 1995, respectively.
At September 30, 1995, (the fiscal year-end of the pension plan), the
assets of the plan were invested 74% in equity securities, 22% in fixed
income securities and the balance in other short-term interest-bearing
accounts. The discount rate and the rate of assumed compensation increase
for all three years were 8.0% and 5.0%, respectively. The expected
long-term rate of return on assets was 9.0% for 1995 and 9.5% for 1994 and
1993. With regard to the plan, at September 30, 1995, the actuarial present
value of accumulated benefit obligations was $28,348,000, the projected
benefit obligation was $33,734,000 and the market value of plan assets was
$35,230,000. The Company's portion of the projected benefit obligation is
less than two percent.
NOTE 8 - STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity are as follows:
<TABLE>
<CAPTION>
$.10 Par Value Capital in Retained
Class A Excess of Earnings
Common Stock Par Value (Deficit)
------------ --------- ---------
<S> <C> <C> <C>
Balance at July 31, 1992 $ 1,398,208 $ 4,654,150 $ (2,428,837)
Net earnings - - 2,838,115
Stock repurchase (27,225) (275,275) -
------------- ------------- ---------
Balance at July 31, 1993 1,370,983 4,378,875 409,278
Net earnings - - 3,699,397
------------- ------------- --------------
Balance at July 31, 1994 1,370,983 4,378,875 4,108,675
Net earnings - - 4,243,146
Issuance of Common Stock 1,350 16,650 -
------------- ------------- ---------
Balance at July 31, 1995 $ 1,372,333 $ 4,395,525 $ 8,351,821
============= ============= ==============
</TABLE>
The Company is authorized to issue 35,000,000 shares of its $.10 Par Value
Common Stock, 30,000,000 shares of its $.10 Par Value Class A Common Stock
and 1,000,000 shares of its $.10 Par Value Preferred Stock. Holders of
Common Stock have one vote per share, holders of Class A Common Stock have
ten votes per share. Shares of Class A Common Stock are convertible at any
time into shares of Common Stock on a share for share basis. The terms and
conditions of each issue of Preferred Stock are determined by the Board of
Directors. No Preferred shares have been issued.
The Company has adopted Rights Plans with respect to its Common Stock and
Class A Common Stock which include the distribution of Rights to holders of
such stock. The Rights entitle the holder, upon the occurrence of certain
events, to purchase additional stock of the Company. The Rights are
exercisable if a person, company or group acquires 10% or more of the
outstanding shares of Common Stock and Class A Common Stock or engages in a
tender offer. The Company is entitled to redeem each Right for one cent.
The Company has a stock option plan which provides that options be granted
at exercise prices equal to the market value on the date the option is
granted. Options granted under the plan generally become exercisable after
one year in increments of 20 percent per year and expire seven years from
the date of grant. The Company has reserved 900,000 shares of Common Stock
for distribution under the plan. During 1995, the Company granted options to
purchase 562,500 shares at a price of $1.33 per share. Previously, the
Company issued options to purchase 225,000 shares of Common Stock at $.46
per share in 1991.
F-9
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS
Management services are provided to a company principally owned by the
majority stockholder. Management fees for the years ended July 31, 1993,
1994 and 1995 were $323,347, $228,521 and $189,137, respectively. At July
31, 1994 and 1995, accounts receivable included $397,396 and $361,533,
respectively, related to such services.
The Company's obligation to its majority stockholder consisted of the
following at July 31:
1994 1995
------------- -----------
Note payable $ 1,000,000 $ 191,097
Related accrued interest 1,001,197 1,860
------------- -----------
$ 2,001,197 $ 192,957
============= ===========
Note payable and the related accrued interest represented amounts due to
the Company's majority stockholder upon demand. The note bears interest at
the rate of 2% above the prime rate (8.75% at July 31, 1995), with
interest at the greater of 10% or the prime rate plus 2% payable at least
quarterly. Interest accruing in excess of that currently payable is due
upon repayment of the loan principal. The note is secured by a first
mortgage on substantially all of the Company's property and plant. The
Company repaid the remaining balance due under this note arrangement in
September 1995.
Interest expense recognized on the note was $109,361, $103,215 and $74,492
in 1993, 1994 and 1995, respectively. During fiscal years 1994 and 1995,
the Company made principal payments aggregating $225,000 and $808,903,
respectively, and interest payments totaling $375,111 and $1,073,829,
respectively, under the note payable.
NOTE 10 - QUARTERLY RESULTS (unaudited)
<TABLE>
<CAPTION>
October January April July
1995 31 31 30 31
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,143,211 $ 703,979 $ 606,972 $ 8,953,626
Gross profit (loss) $ 4,423,187 $ (388,385) $ (365,749) $ 5,206,103
Net earnings (loss) $ 2,351,691 $ (641,517) $ (440,006) $ 2,972,978
Earnings (loss) per common share $ .17 $ (.05) $ (.03) $ .20
- --------------------------------------------------------------------------------------------------------------
1994
Revenues $ 5,922,418 $ 637,550 $ 544,220 $ 7,443,406
Gross profit (loss) $ 3,600,595 $ (329,575) $ (240,453) $ 4,635,450
Net earnings (loss) $ 1,856,125 $ (435,573) $ (356,671) $ 2,635,516
Earnings (loss) per common share $ .13 $ (.03) $ (.02) $ .19
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
ELEVEN MONTHS ENDED JUNE 30, 1995 AND 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
1995 1996
----------- -----------
<S> <C> <C>
Revenues:
Motorsports $ 15,871 $ 17,975
Gaming 1,231 31,746
----------- -----------
17,102 49,721
----------- -----------
Expenses:
Operating 7,181 30,559
Depreciation 968 1,349
General and administrative 1,482 2,166
----------- -----------
9,631 34,074
----------- -----------
Operating earnings 7,471 15,647
Interest expense 125 154
----------- -----------
Earnings before income taxes 7,346 15,493
Provision for income taxes 2,997 6,182
----------- -----------
Net earnings $ 4,349 $ 9,311
=========== ===========
Earnings per common share $ .30 $ .64
=========== ===========
Weighted average common shares and common share
equivalents outstanding (000s) 14,511 14,511
</TABLE>
The Notes to the Interim Consolidated Financial Statements are an
integral part of these statements.
F-11
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,521
Accounts receivable 2,145
Inventory 356
Prepaid expenses 520
-----------
Total current assets 7,542
-----------
Property, plant and equipment, at cost
Casino facility 6,442
Racing facility 28,872
Land 9,481
Machinery and equipment 4,120
Furniture and fixtures 393
Construction in progress 32
-----------
49,340
Less accumulated depreciation (13,743)
-----------
35,597
-----------
$ 43,139
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 3,500
Accounts payable 3,472
Accrued liabilities 2,566
Income taxes payable 2,709
Current portion of long-term debt 17
Deferred revenue 6,158
-----------
Total current liabilities 18,422
-----------
Long-term debt 771
-----------
Deferred income taxes 323
-----------
Stockholders' equity:
Preferred stock, $.10 par value; 1,000,000 shares authorized;
issued and outstanding - none
Common stock, $.10 par value; 35,000,000 shares authorized;
issued and outstanding - none
Class A Common stock, $.10 par value; 30,000,000 shares authorized;
13,925,830 shares issued and outstanding 1,393
Capital in excess of par value 4,567
Retained earnings 17,663
-----------
Total stockholders' equity 23,623
-----------
$ 43,139
===========
</TABLE>
The Notes to the Interim Consolidated Financial Statements are an
integral part of these statements.
F-12
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED JUNE 30, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,349 $ 9,311
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 968 1,349
(Increase) decrease in assets:
Accounts receivable (167) (1,079)
Inventory 2 (241)
Prepaid expenses (86) (157)
Increase (decrease) in liabilities:
Accounts payable 388 3,369
Accrued liabilities 1 418
Income taxes payable (60) 1,851
Deferred revenue 400 423
----------- -----------
Net cash provided by operating activities 5,795 15,244
----------- -----------
Cash flows from investing activities:
Sale of short-term investments -- 3,300
Capital expenditures (5,299) (17,847)
----------- -----------
Net cash used in investing activities (5,299) (14,547)
----------- -----------
Cash flows from financing activities:
Short-term borrowings -- 3,500
Long-term debt -- 34
Debt principal payments (1,856) --
Proceeds of stock options exercised -- 192
----------- -----------
Net cash (used in) provided by financing activities (1,856) 3,726
----------- -----------
Net (decrease) increase in cash (1,360) 4,423
Cash and cash equivalents, beginning of year 5,311 98
----------- -----------
Cash and cash equivalents, end of period $ 3,951 $ 4,521
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 1,036 $ 247
Income taxes paid $ 3,057 $ 4,331
</TABLE>
The Notes to the Interim Consolidated Financial Statements are an
integral part of these statements.
F-13
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - REORGANIZATION
On June 14, 1996, Dover Downs Entertainment, Inc. (the Company) effected a
tax-free restructuring pursuant to which all former stockholders of Dover
Downs, Inc. exchanged each share of common stock held in Dover Downs, Inc.
for 4,500 shares of Class A Common Stock of the Company. As a result of this
share exchange, Dover Downs, Inc. became a wholly owned subsidiary of the
Company and the former stockholders of Dover Downs, Inc. acquired an equal
percentage of the equity of the Company. As part of the restructuring, the
Company acquired by dividend from Dover Downs, Inc. all of the outstanding
capital stock of Dover Downs International Speedway, Inc. (which was not
operational), and the motorsports operation of Dover Downs, Inc. were
transferred to Dover Downs International Speedway, Inc. Additionally, in
June 1996, the Company formed Dover Downs Properties, Inc. for the initial
purpose of holding some or all of the real estate of the Company. This
reorganization has been accounted for on an as if pooled basis.
NOTE 2 - BUSINESS OPERATIONS
The Company owns and operates the Dover Downs International Speedway and
the Dover Downs Raceway at a multi-purpose gaming and entertainment complex
located on approximately 775 acres owned by the Company in Dover, Delaware.
The Company hosts a variety of NASCAR racing events and harness horse
racing events throughout the year. With expanded facilities completed at
the end of 1995, the Company is now open 363 days per year both for video
lottery (slot) machine gaming and for pari-mutuel wagering on simulcast
harness and thoroughbred horse races across the country. Video lottery
(slot) machine gaming began on December 29, 1995 pursuant to video lottery
legislation enacted in the State of Delaware.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Results (Unaudited) - The accompanying consolidated balance sheet
at June 30, 1996, the consolidated statements of earnings and of cash flows
for the eleven months ended June 30, 1995 and 1996 are unaudited. In the
opinion of management, these consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of financial data for such
periods.
Consolidation - The consolidated financial statements include the accounts
of all subsidiaries. Intercompany transactions and balances among these
subsidiaries have been eliminated.
Revenue and expense recognition - Tickets to motorsports races are sold and
certain expenses are incurred in advance of the race date. Such advance
sales and corresponding expenses are recorded as deferred revenue and
prepaid expenses, respectively, until the race is held. Gaming revenues
represent the net win from video lottery (slot) machine wins and losses and
commissions from pari-mutuel wagering. Payments to the State of Delaware
pursuant to the lottery legislation are reported in operating expenses.
Advertising Costs - The Company's marketing and advertising costs are
expensed when incurred.
Earnings per share - Earnings per common share are computed assuming the
conversion of all potentially dilutive outstanding stock options.
Cash and cash equivalents - The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or
less.
Pre-opening costs - The Company deferred costs in the amount of $759,000
associated with the opening of its new casino facility. Through June 30,
1996, $652,000 of these costs have been amortized with the balance to be
amortized in July 1996.
F-14
<PAGE>
Inventories - Inventories, primarily items held for sale at concession
stands, are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) basis.
Property, plant and equipment - Property, plant and equipment is stated at
cost. Depreciation is computed on a straight-line basis over the following
estimated useful lives:
Racing and casino facilities 10 - 33 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 5 years
Income taxes - Deferred income taxes are provided in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes" on all differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements based upon enacted statutory tax rates in effect at the balance
sheet date.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Values of Financial Instruments - The following methods and
assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates their
fair value.
Short-term debt: The carrying amounts of the Company's borrowings under
its short-term credit facilities approximate their fair value.
Accounts Receivable and Accounts Payable: The carrying amounts of the
Company's accounts receivable and accounts payable approximate
their fair value.
NOTE 4 - STOCKHOLDERS' EQUITY
Changes in the components of stockholders' equity are as follows:
<TABLE>
<CAPTION>
$.10 Par Value Capital in
Class A Excess of Retained
Common Stock Par Value Earnings
------------ --------- --------
<S> <C> <C> <C>
Balance at July 31, 1995 $ 1,372,333 $ 4,395,525 $ 8,351,821
Net earnings -- -- 9,311,023
Exercise of stock options 20,250 171,750 --
------------- ------------- --------------
Balance at June 30, 1996 $ 1,392,583 $ 4,567,275 $ 17,662,844
============= ============= ==============
</TABLE>
The Company is authorized to issue 35,000,000 shares of its $.10 Par Value
Common Stock, 30,000,000 shares of its $.10 Par Value Class A Common Stock
and 1,000,000 shares of its $.10 Par Value Preferred Stock. Holders of
Common Stock have one vote per share, holders of Class A Common Stock have
ten votes per share. Shares of Class A Common Stock are convertible at any
time into shares of Common Stock on a share for share basis. The terms and
conditions of each issue of Preferred Stock are determined by the Board of
Directors. No Preferred shares have been issued.
The Company has adopted Rights Plans with respect to its Common Stock and
Class A Common Stock which includes the distribution of Rights to holders
of such stock. The Rights entitle the holder, upon the occurrence of
certain events, to purchase additional stock of the Company. The Rights are
exercisable if a person, company or group acquires 10% or more of the
outstanding shares of Common Stock and Class A Common Stock or engages in a
tender offer. The Company is entitled to redeem each Right for one cent.
F-15
<PAGE>
The Company has stock option plans which provide that options be granted at
exercise prices equal to market value on the date the option is granted.
Options granted under the plan generally become exercisable after one year
in increments of 20 percent per year and expire seven years from the date
of grant. The Company has reserved 1,335,000 shares of common stock for
distribution under the plans. During 1995, the Company granted options to
purchase 562,500 shares at a price of $1.33 per share. Previously, the
Company issued options to purchase 225,000 shares of common stock at $.46
per share in 1991. In June 1996, options on 202,500 shares of Class A
Common Stock were exercised. At June 30, 1996, options for 90,000 shares
of Class A Common Stock were exercisable.
NOTE 5 - RELATED PARTY TRANSACTIONS
Management services are provided to a company principally owned by the
majority stockholder. Management fees for the eleven months ended June 30,
1995 and 1996 were $182,055 and $100,000, respectively. At June 30, 1995
accounts receivable included $332,645 related to such services. There was
no balance due the Company at June 30, 1996 as the management service
agreement was cancelled. In June 1996, the Company acquired for cash
several tracts of undeveloped land comprising a total of 206 acres for
$6,200,000 from a company wholly-owned by the majority stockholder. The
purchase price was determined on the basis of an independent appraisal
performed in 1996.
During the eleven-month period ended June 30, 1996, the Company purchased
certain paving, site work and construction services involving total
payments of $565,000 from a company wholly owned by an employee.
In the opinion of management of the Company, the foregoing transactions
were effected at rates which approximate those which the Company would have
realized or incurred had such transactions been effected with independent
third parties.
NOTE 6 - COMMITMENTS
At June 30, 1996, the Company had purchase commitments for capital
expenditures in connection with the expansion of its casino facility of
$5,900,000.
NOTE 7 - BUSINESS SEGMENT INFORMATION
The Company's operations are in motorsports and gaming. Revenues, operating
earnings, identifiable assets, capital expenditures and depreciation
pertaining to these business segments are presented below.
<TABLE>
<CAPTION>
Motorsports Gaming Consolidated
----------- ------ ------------
<S> <C> <C> <C>
Eleven months ended June 30, 1996
Revenue $ 17,975,124 $ 31,746,063 $ 49,721,187
Operating earnings 9,251,176 6,395,993 15,647,169
Identifiable assets 25,766,657 12,332,185 38,098,842
Capital expenditures 10,894,474 6,952,548 17,847,022
Depreciation 855,854 493,479 1,349,333
Eleven months ended June 30, 1995
Revenue $ 15,871,481 $ 1,230,723 $ 17,102,204
Operating earnings 8,435,060 (964,434) 7,470,626
Identifiable assets 14,311,464 4,708,012 19,019,476
Capital expenditures 5,108,169 190,863 5,299,032
Depreciation 786,823 181,575 968,398
</TABLE>
F-16
<PAGE>
===============================================================================
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company, the Selling Stockholders or the Underwriters. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, the
Common Stock in any jurisdiction where, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus or
in the offering of the Company since the date hereof.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..........................................................3
Risk Factors................................................................9
Use of Proceeds............................................................15
Dividend Policy............................................................16
Dilution...................................................................17
Capitalization.............................................................18
Selected Consolidated Financial Data.......................................19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..............................................20
Business...................................................................25
Management.................................................................43
Restructuring .............................................................53
Certain Transactions.......................................................54
Principal and Selling Stockholders.........................................55
Description of Capital Stock...............................................56
Shares Eligible for Future Sale............................................64
Underwriting...............................................................65
Legal Matters..............................................................67
Experts....................................................................67
Additional Information.....................................................67
Glossary of Certain Terms..................................................69
Index to Consolidated Financial Statements................................F-1
---------------
Until ______ , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
===============================================================================
===============================================================================
2,500,000 Shares
[DOVER LOGO GRAPHIC]
DOVER DOWNS
ENTERTAINMENT, INC.
Common Stock
----------
PROSPECTUS
----------
Merrill Lynch & Co.
, 1996
===============================================================================
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby other than underwriting discounts and commissions. All
expenses other than the SEC registration fee, the NASD filing fee, and the NYSE
filing fee are estimated.
SEC registration fee .............................................. $ 20,819
NASD filing fee .................................................... 6,538
NYSE listing fee ................................................... 72,775
Transfer agent's fee and expenses .................................. 15,000
Accounting fees and expenses ....................................... 50,000
Legal fees and expenses ............................................ 75,000
"Blue Sky" fees and expenses (including legal fees) ................ 20,000
Costs of printing and engraving .................................... 125,000
Miscellaneous....................................................... 50,000
--------
Total .................................................... $435,132
========
ITEM 14. Indemnification of Directors and Officers.
Certificate of Incorporation and Bylaw Provisions.
The Company is incorporated under the General Corporation Law of the
State of Delaware ("Delaware Law"). Delaware Law permits a corporation to
indemnify its directors (and officers) against expenses, judgements, settlement
payments and other costs incurred in connection with litigation or similar
proceedings, subject to certain limitations. The By-Laws of the Company provide
for indemnification of directors to the fullest extent legally permissible under
Delaware Law. Delaware Law authorizes a Delaware corporation to include in its
certificate of incorporation (and the Company's Certificate of Incorporation
contains) a provision that eliminates or limits the ability of the corporation
and its shareholders to recover monetary damages from a director for breach of
fiduciary duty as a director; but Delaware Law does not permit such a provision
to eliminate or limit the liability of a director for (i) any breach of the duty
of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) paying a dividend or
approving a stock repurchase which is illegal under certain provisions of
Delaware Law, or (iv) any transaction from which the director derived an
improper personal benefit.
ARTICLE VII of the Bylaws of the Company, amended and restated
as of June 28, 1996, provides as follows:
INDEMNIFICATION
Section 7.1. General. The Company shall indemnify, and advance Expenses
(as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest
extent permitted by applicable law in effect on the adoption of these Bylaws,
and to such greater extent as applicable
II - 1
<PAGE>
law may thereafter from time to time permit. The rights of Indemnitee provided
under the preceding sentence shall include, but shall not be limited to, the
rights set forth in the other Sections of this Article.
Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of
The Company. Indemnitee shall be entitled to the indemnification rights provided
in this Section 7.2 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 7.2,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee
shall be entitled to the indemnification rights provided in this Section 7.3 to
the fullest extent permitted by law if, by reason of his Corporate Status, he
is, or is threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Company.
Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or
Partly Successful. Notwithstanding any other provision of this Article, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding
any other provision of this Article, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7.6. Advancement Of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
II - 2
<PAGE>
Section 7.7. Procedure For Determination Of Entitlement To
Indemnification.
(a) To obtain indemnification under this Article, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The determination of Indemnitee's entitlement to
indemnification shall be made not later than 60 days after receipt by the
Company of the written request for indemnification. The Secretary of the Company
shall, promptly upon receipt of such a request for indemnification, advise the
Board of Directors in writing that Indemnitee has requested indemnification.
(b) Indemnitee's entitlement to indemnification under any of
Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific
case: (i) by the Board of Directors by a majority vote of a quorum of the Board
consisting of Disinterested Directors (as hereinafter defined); or (ii) by
Independent Counsel (as hereinafter defined), in a written opinion, if (A) a
Change of Control (as hereinafter defined) shall have occurred and Indemnitee so
requests, or (B) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs; or (iii) by the stockholders of the Company;
or (iv) as provided in Section 7.8 of this Article.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7.7(b)
of this Article, the Independent Counsel shall be selected as provided in this
Section 7.7(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, and if so
requested by Indemnitee in his written request for indemnification, the
Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give
written notice to the Company advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Company, as the case may
be, may, within 7 days after such written notice of selection shall have been
given, deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection. Such objection may be asserted only on the ground
that the Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 7.13 of this Article, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected shall be disqualified from acting as such. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if
selected shall have been objected to, in accordance with this Section 7.7(c),
either the Company or Indemnitee may petition the Court of Chancery of the State
of Delaware for the appointment as Independent Counsel of a person selected by
the Court or by such other person as the Court shall designate, and the person
so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in acting pursuant to Section
7.7(b) hereof, and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 7.7(c), regardless of the manner in
which such Independent Counsel was selected or appointed.
II - 3
<PAGE>
Section 7.8. Presumptions And Effect Of Certain Proceedings. If a
Change of Control shall have occurred, Indemnitee shall be presumed (except as
otherwise expressly provided in this Article) to be entitled to indemnification
under this Article upon submission of a request for indemnification in
accordance with Section 7.7(a) of this Article, and thereafter the Company shall
have the burden of proof to overcome that presumption in reaching a
determination contrary to that presumption. Whether or not a Change of Control
shall have occurred, if the person or persons empowered under Section 7.7 of
this Article to determine entitlement to indemnification shall not have made a
determination within 60 days after receipt by the Company of the request
therefor, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be entitled to such
indemnification unless (i) Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification, or (ii) such
indemnification is prohibited by law. The termination of any Proceeding
described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise
expressly provided in this Article) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
Section 7.9. Remedies Of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 7.7 of this Article that Indemnitee is not entitled to indemnification
under this Article, (ii) advancement of Expenses is not timely made pursuant to
Section 7.6 of this Article, or (iii) payment of indemnification is not made
within five (5) days after a determination of entitlement to indemnification has
been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this
Article, Indemnitee shall be entitled to an adjudication in an appropriate court
of the State of Delaware, or in any other court of competent jurisdiction, of
his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association. The Company shall not oppose Indemnitee's right to seek
any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7.7 of this Article that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 7.9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 7.9 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration commenced pursuant to this Section 7.9,
unless (i) Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification, or (ii) such indemnification is
prohibited by law.
II - 4
<PAGE>
(d) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 7.9 that
the procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Article.
(e) In the event that Indemnitee, pursuant to this Section
7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Article, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 7.13 of this Article) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of
indemnification and to receive advancement of Expenses as provided by this
Article shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the Certificate of
Incorporation, the By-Laws, any agreement, a vote of stockholders or a
resolution of directors, or otherwise. Notwithstanding any amendment, alteration
or repeal of any provision of this Article, Indemnitee shall, unless otherwise
prohibited by law, have the rights of indemnification and to receive advancement
of Expenses as provided by this Article in respect of any action taken or
omitted by Indemnitee in his Corporate Status and in respect of any claim
asserted in respect thereof at any time when such provision of this Article was
in effect. The provisions of this Article shall continue as to an Indemnitee
whose Corporate Status has ceased and shall inure to the benefit of his heirs,
executors and administrators.
Section 7.11. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, each portion of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this
Article (including, without limitation, each portion of any Section of this
Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
Section 7.12. Certain Persons Not Entitled To Indemnification Or
Advancement Of Expenses. Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or advancement of Expenses under
this Article with respect to any Proceeding, or any claim therein, brought or
made by him against the Company.
II - 5
<PAGE>
Section 7.13. Definitions. For purposes of this Article:
(a) "Change in Control" means a change in control of the
Company of a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Company is a
party to a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee, agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(e) "Indemnitee" includes any person who is, or is threatened
to be made, a witness in or a party to any Proceeding as described in Sections
7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5) years has been, retained to represent:
(i) the Company or Indemnitee in any matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Article.
II - 6
<PAGE>
(g) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 7.9 of this Article to
enforce his rights under this Article.
Section 7.14. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
Insurance.
Dover Downs may obtain, prior to or after the effective date of this
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.
Indemnification by Underwriters.
Section 6(b) of the Underwriting Agreement (filed as Exhibit 1.1 to
this Registration Statement) provides that the Underwriters severally and not
jointly will indemnify and hold harmless the Registrant and each director,
officer and controlling person of the Registrant from and against any liability
caused by any statement or omission in the Registration Statement, in the
Prospectus, in any Preliminary Prospectus or in any amendment or supplement
thereto, in each case to the extent that the statement or omission was made in
reliance upon and in conformity with written information furnished to the
Registrant by the Underwriters expressly for use therein.
ITEM 15. Recent Sales of Unregistered Securities.
There have been no sales of unregistered securities by the Registrant
within the past three years, except as follows:
1. On March 14, 1995, the Registrant issued to Thomas Hatzis,
13,500 shares of Class A Common Stock for $18,000 in cash.
2. On June 28, 1996, the Registrant issued to Denis McGlynn,
180,000 shares of Class A Common Stock for $162,000 in cash
upon the exercise of stock options granted under the 1991
Stock Option Plan.
3. On June 27, 1996, the Registrant issued to Melvin Joseph,
22,500 shares of Class A Common Stock for $30,000 in cash upon
the exercise of stock options granted under the 1991 Stock
Option Plan.
4. In 1996, prior to the Offering, the Registrant effected a tax
free restructuring pursuant to which all former stockholders of
Dover Downs, Inc. exchanged each share of common stock held in
Dover Downs, Inc. for 4,500 shares of Class A Common Stock of
the Registrant. As a result of this share exchange, Dover
Downs, Inc. became a wholly-owned subsidiary of the Registrant
and the former stockholders of Dover Downs, Inc. acquired a
percentage of the equity in the Registrant equal to the
percentage previously owned by them in Dover Downs, Inc. See
"Restructuring - 1996 Restructuring."
II - 7
<PAGE>
With respect to Items 1 through 3 above, the number of shares has been
adjusted to reflect the share exchange effected prior to the Offering. See
"Restructuring - 1996 Restructuring." None of the securities were registered
under the Securities Act of 1933, as amended, in reliance upon the exemption
from registration provided by Section 4 (2) of the Act. The factors that assured
the availability of that exemption for each such transaction included the
sophistication of the offerees and of the purchasers, their access to material
information, the disclosures actually made to them by the Registrant and the
absence of any general solicitation or advertising.
ITEM 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No.
- -------
<S> <C>
1.1 Form of Underwriting Agreement
2.1 Share Exchange Agreement and Plan of Reorganization dated June 14, 1996 between
Dover Downs Entertainment, Inc., Dover Downs, Inc., Dover Downs International
Speedway, Inc. and the shareholders of Dover Downs, Inc.
3.1 Certificate of Incorporation of Dover Downs Entertainment, Inc., amended
June 14, 1996, and further amended on June 28, 1996
3.2 Amended and Restated Bylaws of Dover Downs Entertainment, Inc.
4.1 Form of Common Stock Certificate
4.2 Rights Agreement dated as of June 14, 1996 between Dover Downs Entertainment, Inc.
and ChaseMellon Shareholder Services, L.L.C.
5.1 Opinion letter of Duane, Morris & Heckscher regarding the legality of the securities
registered*
10.1 Loan Agreement between PNC Bank and Dover Downs, Inc. dated February 28, 1996
10.2 Dover Downs, Inc. $8 Million Dollar Committed Line of Credit Note in favor of PNC
Bank
10.3 Dover Downs, Inc. $2 Million Dollar Committed Line of Credit Note in favor of PNC
Bank
10.4 Dover Downs International Speedway, Inc. Guaranty and Suretyship Agreement dated
November, 1995 in favor of PNC Bank
10.5 Dover Downs Entertainment, Inc. (formerly Dover Downs Investors, Inc.) Guaranty and
Suretyship Agreement dated March 1, 1995 in favor of PNC Bank
10.6 Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars
World Gaming Development Corporation dated May 10, 1995**
10.7 Agreement between Dover Downs, Inc. and Cloverleaf Standardbred Owners
Association, Inc. dated February 2, 1996
10.8 Dover Downs Entertainment, Inc. 1996 Stock Option Plan
10.9 Dover Downs Entertainment, Inc. 1991 Stock Option Plan
10.10 NASCAR Sanction Application and Agreement Form, NASCAR Busch Series, Grand
National Division, with Dover Downs International Speedway, Inc. dated January 1,
1996**
10.11 NASCAR Sanction Application and Agreement Form, Winston Cup Series, with Dover
Downs International Speedway, Inc. dated January 1, 1996**
21.1 Subsidiaries
23.1 Consent of Siegfried Schieffer & Seitz
23.2 Consent of Duane, Morris & Heckscher
(included in Exhibit 5.1 to this Registration Statement)
24 Power of Attorney (included on page II-11 to this Registration
Statement)
27 Financial Data Schedule
</TABLE>
- ----------------
* To be filed by amendment
** Portions of this exhibit have been deleted pursuant to the Company's
request for confidential treatment pursuant to Rule 406 promulgated under
the Securities Act of 1933.
II - 8
<PAGE>
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424 (b) (1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities assigned under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II - 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Dover, Delaware on July
15, 1996.
DOVER DOWNS ENTERTAINMENT, INC.
By: /s/ Denis McGlynn
-----------------------------------
Denis McGlynn, President
and Chief Executive Officer
II - 10
<PAGE>
POWER OF ATTORNEY
Know All Men by these Presents, that each person whose signature
appears below constitutes and appoints Klaus M. Belohoubek his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and his name, place and stead, in any and all capacities to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ John W. Rollins Chairman of the Board July 15, 1996
- ------------------------------
John W. Rollins
/s/ Henry B. Tippie Vice Chairman of the Board July 15, 1996
- ------------------------------
Henry B. Tippie
/s/ Denis McGlynn President, Chief Executive July 15, 1996
- ----------------------------- Officer and Director
Denis McGlynn (Principal Executive Officer)
/s/ Robert M. Comollo Treasurer and Secretary July 15, 1996
- ----------------------------- (Principal Financial and
Robert M. Comollo Accounting Officer)
/s/ Eugene W. Weaver Senior Vice President - July 15, 1996
- ----------------------------- Administration and
Eugene W. Weaver Director
</TABLE>
II - 11
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John W. Rollins, Jr. Director July 15, 1996
- -----------------------------
John W. Rollins, Jr.
/s/ R. Randall Rollins Director July 15, 1996
- -----------------------------
R. Randall Rollins
/s/ Patrick J. Bagley Director July 15, 1996
- -----------------------------
Patrick J. Bagley
/s/ Melvin L. Joseph Director July 15, 1996
- -----------------------------
Melvin L. Joseph
/s/ Jeffrey W. Rollins Director July 15, 1996
- -----------------------------
Jeffrey W. Rollins
</TABLE>
II - 12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
No. No.
- ------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement...........................................................
2.1 Share Exchange Agreement and Plan of Reorganization
dated June 14, 1996 between Dover Downs Entertainment,
Inc., Dover Downs, Inc., Dover Downs International
Speedway, Inc. and the shareholders of Dover Downs, Inc..................................
3.1 Certificate of Incorporation of Dover Downs Entertainment, Inc., amended
June 14, 1996, and further amended on June 28, 1996......................................
3.2 Amended and Restated Bylaws of Dover Downs Entertainment, Inc............................
4.1 Form of Common Stock Certificate.........................................................
4.2 Rights Agreement dated as of June 14, 1996 between
Dover Downs Entertainment, Inc. and ChaseMellon Shareholder
Services, L.L.C..........................................................................
5.1 Opinion letter of Duane, Morris & Heckscher regarding
the legality of the securities registered*...............................................
10.1 Loan Agreement between PNC Bank and Dover Downs, Inc.
dated February 28, 1996..................................................................
10.2 Dover Downs, Inc. $8 Million Dollar Committed Line of
Credit Note in favor of PNC Bank.........................................................
10.3 Dover Downs, Inc. $2 Million Dollar Committed Line of
Credit Note in favor of PNC Bank.........................................................
10.4 Dover Downs International Speedway, Inc. Guaranty and
Suretyship Agreement dated November, 1995 in favor of PNC Bank...........................
10.5 Dover Downs Entertainment, Inc. (formerly Dover
Downs Investors, Inc.) Guaranty and Suretyship
Agreement dated March 1, 1995 in favor of PNC Bank.......................................
10.6 Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars
World Gaming Development Corporation dated May 10, 1995**................................
10.7 Agreement between Dover Downs, Inc. and
Cloverleaf Standardbred Owners Association, Inc. dated February 2, 1996..................
10.8 Dover Downs Entertainment, Inc. 1996 Stock Option Plan...................................
10.9 Dover Downs Entertainment, Inc. 1991 Stock Option Plan...................................
10.10 NASCAR Sanction Application and Agreement Form,
NASCAR Busch Series, Grand National Division,
with Dover Downs International Speedway, Inc. dated January 1, 1996**....................
10.11 NASCAR Sanction Application and Agreement Form,
Winston Cup Series, with Dover Downs International
Speedway, Inc. dated January 1, 1996**...................................................
21.1 Subsidiaries.............................................................................
23.1 Consent of Siegfried Schieffer & Seitz...................................................
23.2 Consent of Duane, Morris & Heckscher
(included in Exhibit 5.1 to this Registration Statement).................................
24 Power of Attorney (included on page II-11 to this Registration Statement)................
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
** Portions of this exhibit have been deleted pursuant to the Company's
request for confidential treatment pursuant to Rule 406 promulgated under
the Securities Act of 1933.
DOVER DOWNS ENTERTAINMENT, INC.
(a Delaware corporation)
2,500,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: , 1996
DRAFT: July 11, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PURCHASE AGREEMENT.............................................................. 1
SECTION 1. Representations and Warranties......................... 3
(a) Representations and Warrants by the Company............ 3
(i) Compliance with Registration
Requirements.............................. 3
(ii) Independent Accountants..................... 4
(iii) Financial Statements........................ 5
(iv) No Material Adverse Change in Business...... 5
(v) Good Standing of the Company................ 5
(vi) Good Standing of Subsidiaries............... 6
(vii) Capitalization.............................. 6
(viii) Authorization of Agreement.................. 7
(ix) Authorization and Description of
Securities................................ 7
(x) Absence of Defaults and Conflicts........... 7
(xi) Absence of Labor Dispute.................... 8
(xii) Absence of Proceedings...................... 8
(xiii) Accuracy of Exhibits........................ 9
(xiv) Possession of Intellectual Property......... 9
(xv) Absence of Further Requirements............. 9
(xvi) Possession of Licenses and Permits.......... 10
(xvii) Title to Property........................... 10
(xviii) Compliance with Cuba Act.................... 11
(xix) Investment Company Act...................... 11
(xx) Environmental Laws.......................... 11
(xxi) Registration Rights......................... 12
(xxii) Taxes....................................... 12
(xxiii) Statistical Information..................... 12
(xxiv) Authorizations.............................. 12
(xxv) Internal Controls........................... 13
(xxvi) Insurance................................... 13
(b) Officer's Certificates................................. 12
(c) Representations and Warranties by
the Selling Shareholder(s)........................... 12
(i) Accurate Disclosure......................... 12
(ii) Authorization of Agreements................. 13
(iii) Good and Marketable Title................... 13
(iv) Due Execution of Power of Attorney
and Custody Agreement.................... 14
(v) Absence of Manipulation..................... 14
(vi) Absence of Further Requirements............. 14
(vii) Restriction on Sale of Securities........... 15
(viii) Certificates Suitable for Transfer.......... 15
(ix) No Association with NASD.................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(d) Officer's Certificates................................. 16
SECTION 2. Sale and Delivery to Underwriters;
Closing.............................................. 16
(a) Initial Securities.......................... 16
(b) Option Securities........................... 16
(c) Payment..................................... 17
(d) Denominations; Registration................. 18
SECTION 3. Covenants of the Company............................... 18
(a) Compliance with Securities
Regulations and Commission
Requests................................. 18
(b) Filing of Amendments........................ 19
(c) Delivery of Registration Statements......... 19
(d) Delivery of Prospectuses.................... 19
(e) Continued Compliance with
Securities Laws.......................... 20
(f) Blue Sky Qualifications..................... 20
(g) Rule 158.................................... 21
(h) Use of Proceeds............................. 21
(i) Listing..................................... 21
(j) Restriction on Sale of Securities........... 21
(k) Reporting Requirements...................... 22
(l) Reports on Form SR.......................... 23
(m) Furnish Reports............................. 23
(n) Interim Financials.......................... 23
SECTION 4. Payment of Expenses.................................... 22
(a) Expenses.................................... 22
(b) Expenses of the Selling Shareholders........ 23
(c) Termination of Agreement.................... 23
SECTION 5. Conditions of Underwriters' Obligations................ 23
(a) Effectiveness of Registration
Statement................................ 24
(b) Opinion of Counsel for Company.............. 24
(c) Opinion of Counsel for the Selling
Shareholder(s)........................... 24
(d) Opinion of Counsel for Underwriters......... 24
(e) Officers' Certificate....................... 25
(f) Certificate of Selling Shareholders......... 25
(g) Accountant's Comfort Letter................. 26
(h) Bring-down Comfort Letter................... 26
(i) Approval of Listing......................... 26
(j) No Objection................................ 26
(k) Lock-up Agreements.......................... 26
(l) Conditions to Purchase of Option
Securities............................... 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(m) Additional Documents........................ 28
(n) Termination of Agreement.................... 28
SECTION 6. Indemnification........................................ 28
(a) Indemnification of Underwriters............. 28
(b) Indemnification of Company,
Directors and Officers................... 30
(c) Actions against Parties; Notification....... 30
(d) Settlement without Consent if
Failure to Reimburse..................... 31
SECTION 7. Contribution........................................... 32
SECTION 8. Representations, Warranties and
Agreements to Survive Delivery....................... 34
SECTION 9. Termination of Agreement............................... 34
(a) Termination; General........................ 34
(b) Liabilities................................. 35
SECTION 10. Default by One or More of the
Underwriters......................................... 35
SECTION 11. Default by One or More of the Selling
Shareholders or the Company.......................... 35
SECTION 12. Notices. .............................................. 37
SECTION 13. Parties................................................ 37
SECTION 14. GOVERNING LAW AND TIME................................. 37
SECTION 15. Effect of Headings..................................... 37
</TABLE>
-iii-
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
(a Delaware corporation)
2,500,000 Shares of Common Stock
(Par Value $.10 Per Share)
PURCHASE AGREEMENT
, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representative of the several Underwriters
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Dover Downs Entertainment, Inc., a Delaware corporation (the
"Company"), and the persons listed in Schedule B hereto (the "Selling
Shreholders"), confirm their respective agreements with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of
the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch is acting as
representative (in such capacity, the "Representative"), with respect to (i) the
sale by the Company and the Selling Shareholders, acting severally and not
jointly, and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.10 per share,
of the Company ("Common Stock") set forth in Schedules A and B hereto and (ii)
the grant by the Company and the Selling Shareholders to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of 375,000 additional shares of Common Stock to
cover over-allotments, if any. The aforesaid 2,500,000 shares of Common Stock
(the "Initial Securities") to be purchased by the Underwriters and all or any
part of the 375,000 shares of Common Stock subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities."
The Company and the Selling Shareholders understand that
the Underwriters propose to make a public offering of the
<PAGE>
-2-
Securities as soon as the Representative deems advisable after this Agreement
has been executed and delivered.
The Company, the Selling Shareholders and the Underwriters
agree that up to ___________ shares of the Securities to be purchased by the
Underwriters (the "Reserved Securities") shall be reserved for sale by the
Underwriters to certain eligible employees and persons having business
relationships with the Company, as part of the distribution of the Securities by
the Underwriters, subject to the terms of this Agreement, the applicable rules,
regulations and interpretations of the National Association of Securities
Dealers, Inc. and all other applicable laws, rules and regulations. To the
extent that such Reserved Securities are not so purchased by such eligible
employees and persons having business relationships with the Company, such
Reserved Securities may be offered to the public as part of the public offering
contemplated hereby.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-_____) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses. Promptly after execution and delivery of this
Agreement, the Company will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included in
such prospectus or in such Term Sheet, as the case may be, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective (a)
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information"
or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto, if any, at the time it became effective and
including the Rule 430A Information and the Rule 434 Information, as applicable,
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule
<PAGE>
-3-
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement" and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus dated
_________, 1996 together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agreed with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at
the time the Prospectus or any such
<PAGE>
-4-
amendment or supplement was issued and at the Closing Time (and, if any
Option Securities are purchased, at the Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different," as such term is used in Rule 434, from the prospectus
include in the Registration Statement at the time it became effective.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and, if applicable, each preliminary prospectus and the
Prospectus delivered to the Underwriters for use in connection with
this offering was identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected
<PAGE>
-5-
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (b) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the state of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct is
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) [and _________]1 (each a "Subsidiary" and,
collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has
- --------
1 Any subsidiaries of the Company which are not sigificant
subsidiaries under Regulation S-X but which are important to
the Company's business and operations should be included in
the representation.
<PAGE>
-6-
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. The only subsidiaries of the
Company are [(a)] the subsidiaries listed in Exhibit 21.1 to the
Registration Statement [and (b) certain other subsidiaries which,
considered in the aggregate as a single Subsidiary, do not constitute a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X.]
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus. The shares of issued and
outstanding capital stock, including the Securities to be purchased by
the Underwriters from the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable;
none of the outstanding shares of capital stock, including the
Securities to be purchased by the Underwriters from the Selling
Shareholders, was issued in violation of the preemptive or other
similar rights of any securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against
<PAGE>
-7-
payment of the consideration set forth herein, will be validly issued
and fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectus and such
description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities, the 1996
Restructuring and the use of the proceeds from the sale of the
Securities each as described in the Prospectus under the captions
"Restructuring -- 1996 Restructuring," and "Use of Proceeds,"
respectively) and compliance by the Company with its obligations
hereunder have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of
<PAGE>
-8-
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body (including, without limitation, the
Delaware Harness Racing Commission and the Delaware Lottery Office),
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary, which
is required to be disclosed in the Registration Statement (other than
as disclosed therein), or which might reasonably be expected to result
in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder; the aggregate
of all pending legal or governmental proceedings to which the Company
or any subsidiary is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property
<PAGE>
-9-
(collectively, "Intellectual Property") necessary to carry on the
business now operated by them, and neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect
the interest of the Company or any of its subsidiaries therein, and
which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in
the aggregate, would result in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree ("Authorizations") of, any court or
governmental authority or agency (including, without limitation, the
Delaware Harness Racing Commission and the Delaware State Lottery
Office) is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities law.
(xvi) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by
<PAGE>
-10-
the Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries; and all of
the leases and subleases material to the business of the Company and
its subsidiaries, considered as one enterprise, and under which the
Company or any of its subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor
any subsidiary has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any
subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary
to the continued possession of the leased or subleased premises under
any such lease or sublease.
(xviii) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as would not, singly or in
the aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
<PAGE>
-11-
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) thee are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or any Environmental
Laws.
(xxi) Registration Rights. There are no persons with
registration rights or other similar rights to have any security
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxii) Taxes. The Company and each of its subsidiaries have
filed all federal or state income and franchise tax returns required to
be filed and have paid all taxes shown thereon as due, and there is no
material tax deficiency which has been or is reasonably likely to be
asserted against the Company or any of its subsidiaries; all material
tax liabilities of the Company and its subsidiaries are adequately
provided for on the books of the Company and its subsidiaries.
(xxiii) Statistical Information. The statistical and
market-related data included in the Prospectus are based on or
derived from sources that the Company and its subsidiaries
believe to be reliable and accurate.
(xxiv) Authorization. No event has occurred that allows, or
after notice or lapse of time would allow, revocation or termination by
the issuer thereof or that results in any other material impairment of
the rights of the holder of any such Authorizations. Such
Authorizations contain no restrictions that are materially burdensome
to the Company or any of its subsidiaries in light of their respective
business, and the Company has no reason to believe that any
governmental body or
<PAGE>
-12-
agency is considering limiting, suspending or revoking any such
Authorization. Except as described in the Prospectus, neither the
Company nor its management has any reasonable basis to believe that any
Authorization necessary in the future to conduct the business of the
Company or any of its subsidiaries as described in the Prospectus will
not be granted upon application, or that the Delaware State Lottery
office or any other governmental agencies are investigating the Company
or its subsidiary or any of their officers, directors, key employees,
security holders or affiliated companies, other than in ordinary course
administrative course review of the transactions contemplated hereby.
(xxv) Internal Controls. The Company and its subsidiaries
maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(xxvi) Insurance. The Company and its subsidiaries maintain
insurance covering their properties, operations, personnel and
businesses. Such insurance insures against such losses and risks as are
adequate in accordance with customary industry practice to protect the
Company and its subsidiaries and their businesses. Neither the Company
nor any of its subsidiaries has received notice from any insurer or
agent of such insurer that substantial capital improvements or other
expenditures will have to be made to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof and will
be outstanding and duly in force on the Closing Date.
(b) Representations and Warranties by the Selling
Shareholders. Each Selling Shareholder severally represents and warrants to each
Underwriter as of the date hereof, as of the Closing Time, and, if the Selling
Shareholder is selling Option Securities on a Date of Delivery, as of each such
Date of Delivery, and agrees with each Underwriter, as follows:
(i) Accurate Disclosure. To the best knowledge of such
Selling Shareholder, the representations and warranties of the
<PAGE>
-13-
Company contained in Section 1(a) hereof are true and correct; such
Selling Shareholder has reviewed and is familiar with the Registration
Statement and the Prospectus and the Prospectus does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; such Selling
Shareholder is not prompted to sell the Securities to be sold by such
Selling Shareholder hereunder by any information concerning the Company
or any subsidiary of the Company which is not set forth in the
Prospectus.
(ii) Authorization of Agreements. Each Selling Shareholder
has the full right, power and authority to enter into this Agreement
and a Power of Attorney and Custody Agreement (the "Power of Attorney
and Custody Agreement") and to sell, transfer and deliver the
Securities to be sold by such Selling Shareholder hereunder. The
execution and delivery of this Agreement and the Power of Attorney and
Custody Agreement and the sale and delivery of the Securities to be
sold by such Selling Shareholder and the consummation of the
transactions contemplated herein and compliance by such Selling
Shareholder with its obligations hereunder have been duly authorized by
such Selling Shareholder and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default under, or result in the creation
or imposition of any tax, lien, charge or encumbrance upon the
Securities to be sold by such Selling Shareholder or any property or
assets of such Selling Shareholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease
or other agreement or instrument to which such Selling Shareholder is a
party or by which such Selling Shareholder may be bound, or to which
any of the property or assets of such Selling Shareholder is subject,
nor will such action result in any violation of the provisions of the
charter or by-laws or other organizational instrument of such Selling
Shareholder, if applicable, or any applicable treaty, law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over such Selling Shareholder or any of its properties.
(iii) Good and Marketable Title. Such Selling Shareholder has
and will at the Closing Time and, if any Option Securities are
purchased, on the Date of Delivery have good and marketable title to
the Securities to be sold by such Selling Shareholder hereunder, free
and clear of any security
<PAGE>
-14-
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance
of any kind, other than pursuant to this Agreement; and upon delivery
of such Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any
adverse claim, each of the Underwriters will receive good and
marketable title to the Securities purchased by it from such Selling
Shareholder, free and clear of any security interest, mortgage, pledge,
lien, charge, claim, equity or encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody
Agreement. Such Selling Shareholder has duly executed and delivered, in
the form heretofore furnished to the Representative, the Power of
Attorney and Custody Agreement with [Names of Attorneys-in-Fact], or
any of them, as attorneys-in-fact (the "Attorneys-in-Fact") and [the
Company], as custodian (the "Custodian"); the Custodian is authorized
to deliver the Securities to be sold by such Selling Shareholder
hereunder and to accept payment therefor; and each Attorney-in-Fact is
authorized to execute and deliver this Agreement and the certificate
referred to in Section 5(f) or that may be required pursuant to
Section(s) 5(l) and 5(m) on behalf of such Selling Shareholder, to
sell, assign and transfer to the Underwriters the Securities to be sold
by such Selling Shareholder hereunder, to determine the purchase price
to be paid by the Underwriters to such Selling Shareholder, as provided
in Section 2(a) hereof, to authorize the delivery of the Securities to
be sold by such Selling Shareholder hereunder, to accept payment
therefor, and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has
not taken, and will not take, directly or indirectly, any action which
is designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities.
(vi) Absence of Further Requirements. No Authorization of,
any court or governmental authority or agency (including, without
limitation, the Delaware Harness Racing Commission and the Delaware
State Lottery Office), domestic or foreign, is necessary or required
for the performance by each Selling Shareholder of its obligations
hereunder or in the Power of Attorney and Custody Agreement, or in
connection with the sale and delivery of the Securities hereunder or
the consummation
<PAGE>
-15-
of the transactions contemplated by this Agreement, except such as may
have previously been made or obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws.
(vii) Restriction on Sale of Securities. During a period of
180 days from the date of the Prospectus, such Selling Shareholder will
not, without the prior written consent of Merrill Lynch, (i) offer,
pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or
file any registration statement under the 1933 Act with respect to any
of the foregoing or (ii) enter into any swap or any other agreement or
any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to the Securities to be sold hereunder.
(viii) Certificates Suitable for Transfer. Certificates for all
of the Securities to be sold by such Selling Shareholder pursuant to
this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in
blank with signature guaranteed, have been placed in custody with the
Custodian with irrevocable conditional instructions to deliver such
Securities to the Underwriters pursuant to this Agreement.
(ix) No Association with NASD. Neither such Selling
Shareholder nor any of his affiliates directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, or has any other association with (within the
meaning of Article I, Section 1(m) of the By-laws of the National
Association of Securities Dealers, Inc.), any member firm of the
National Association of Securities Dealers, Inc.
(c) Officer's Certificates. Any certificate signed by any
officer of the Company or any of its subsidiaries delivered to the
Representative or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby; and any certificate signed by or on behalf of the Selling
Shareholders as such and
<PAGE>
-16-
delivered to the Representative or to counsel for the Underwriters pursuant to
the terms of this Agreement shall be deemed a representation and warranty by
such Selling Shareholder to the Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to
Underwriters; Closing.
(a) Initial Securities. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and each Selling Shareholders, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
each Selling Shareholder, at the price per share set forth in Schedule C, that
proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or such Selling Shareholder, as the case may be, which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representative in
its sole discretion shall make to eliminate any sales or purchases of fractional
securities.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company and certain Selling Shareholders,
acting severally and not jointly, hereby grant an option to the Underwriters,
severally and not jointly, to purchase up to an additional 375,000 shares of
Common Stock, as set forth in Schedule B, at the price per share set forth in
Schedule C, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable on
the Option Securities. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representative to the Company and the certain Selling Shareholders setting forth
the number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Representative, but shall not be later than seven
full business days after the exercise of said option, nor in any
<PAGE>
-17-
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase pro rata that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery
of certificates for, the Initial Securities shall be made at the offices of
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, or at such
other place as shall be agreed upon by the Representative and the Company and
the Selling Shareholders, at 10:00 A.M. (Eastern time) on the third (fourth, if
the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Representative and the Company and the Selling
Shareholders (such time and date of payment and delivery being herein called
"Closing Time").
In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representative and the Company and the Selling Shareholder, on each Date of
Delivery as specified in the notice from the Representative to the Company and
the Selling Shareholder.
Payment shall be made to the Company and the Selling
Shareholders by wire transfer of immediately available funds to bank accounts
designated by the Company and the Custodian pursuant to each Selling
Shareholder's Power of Attorney and Custody Agreement, as the case may be,
against delivery to the Representative for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them. It is
understood that each Underwriter has authorized the Representative, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for the Initial Securities and the Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option
<PAGE>
-18-
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representative may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representative in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company
covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representative immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
<PAGE>
-19-
(b) Filing of Amendments. The Company will give the
Representative notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus will furnish the Representatives with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use
any such document to which the Representative or counsel for the
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representative and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representative, without charge, a conformed copy of
the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. If applicable,
the copies of the Registration Statement and each amendment thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"),
such number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. If applicable, the Prospectus
and any amendments or supplements thereto furnished to the Underwriters
will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the
<PAGE>
-20-
Prospectus. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus
comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as
the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions [(domestic or foreign)]2 as the
Representative may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
- --------
2 If the Company intends to do a reserved share program that
would include sales in foreign jurisdictions.
<PAGE>
-21-
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common stock issued or options to purchase Common Stock
granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectus or (D) any shares of Common Stock issued
pursuant to any non-employee director stock plan or dividend
reinvestment plan.
(k) Reporting Requirements. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
<PAGE>
-22-
(l) Reports on Form SR. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule
463 of the 1933 Act Regulations.
(m) Furnish Reports. For and during the period ending five
years after the effective date of the Registration Statement, the
Company will furnish to the Representative and, upon request, to each
of the other Underwriters copies of all reports and other
communications (financial or otherwise) furnished by the Company to its
securityholders generally and copies of any reports or financial
statements furnished to or filed by the Company with the Commission or
any national securities exchange on which any class of securities of
the Company may be listed.
(n) Interim Financials. Prior to the Closing Date and any
Delivery Date, as the case may be, the Company will furnish to the
Representative, as soon as they have been prepared and are available, a
copy of any unaudited interim consolidated financial statements of the
Company for any period subsequent to the period covered by its most
recent financial statements included in the Registration Statement and
the Prospectus.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company [and the Selling Shareholders will
pay or cause to be paid] will pay all expenses incident to the performance of
its obligations under this Agreement, including (i) the preparation, printing
and filing of the Registration Statement (including financial statements and
exhibits) as originally filed and of each amendment thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Agreement, any
Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, (iv) the fees disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Blue Sky Survey and any supplement thereto, (vi) the printing and
delivery to the Underwriters of copies of each preliminary prospectus, any
<PAGE>
-23-
Term Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities and (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities
and (x) the fees and expenses incurred in connection with the listing of the
Securities on the New York Stock Exchange [and (x) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to employee and others having a
business relationship with the Company].
(b) Expenses of the Selling Shareholders. The Selling
Shareholders, jointly and severally, will pay all expenses incident to the
performance of their respective obligations under, and the consummation of the
transactions contemplated by this Agreement, including (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of the
Securities to the Underwriters, and their transfer between the Underwriters
pursuant to an agreement between such Underwriters, and (ii) the fees and
disbursements of their respective counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated
by the Representative in accordance with the provisions of Section 5, Section
9(a)(i) or Section 11 hereof, the Company and the Selling Shareholders shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling Shareholder
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration
<PAGE>
-24-
Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on
the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or
a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of
Rule 430(A) or, if the Company has elected to rely upon Rule 434, a
Term Sheet shall have been filed with the Commission in accordance with
Rule 424(b)).
(b) Opinion of Counsel for Company. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Duane, Morris & Heckscher, counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for the Selling Shareholders. At
Closing Time, the Representative shall have received the favorable
opinion, dated as of Closing Time, of [NAME], counsel for the Selling
Shareholders, in form and substance satisfactory to counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the effect set forth in Exhibit B
hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representative shall have received the favorable opinion, dated as of
Closing Time, of Cahill Gordon & Reindel, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters with respect to the validity of the Securities,
the Registration Statement, the Prospectus and other related matters as
the Representative may reasonably request.
(e) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course
<PAGE>
-25-
of business, and the Representative shall have received a certificate
of the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(f) Certificate of Selling Shareholders. At Closing Time, the
Representative shall have received a certificate of an Attorney-in-Fact
on behalf of each Selling Shareholder, dated as of Closing Time, to the
effect that (i) the representations and warranties of each Selling
Shareholder contained in Section 1(b) hereof are true and correct in
all respects with the same force and effect as though expressly made at
and as of Closing Time and (ii) each Selling Shareholder has complied
in all material respects with all agreements and all conditions on its
part to be performed under this Agreement at or prior to Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representative shall have received from KPMG
Peat Marwick L.L.P. a letter dated such date, in form and substance
satisfactory to the Representative, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(h) Bring-down Comfort Letter. At Closing Time, the
Representative shall have received from KPMG Peat Marwick L.L.P. a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (g) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(i) Approval of Listing. At the Closing Time, the Securities
shall have been approved for listing on the New York
<PAGE>
-26-
Stock Exchange, subject only to official notice of issuance.
(j) No Objection. The NASD shall not have raised any objection
with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(k) Lock-up Agreements. At the date of this Agreement, the
Representative shall have received an agreement substantially in the
form of Exhibit C hereto signed by the persons listed on Schedule E
hereto.
(l) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company and the Selling
Shareholders contained herein and the statements in any certificates
furnished by the Company, any subsidiary of the Company and the Selling
Shareholders hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Representative
shall have received:
(i) Officers' Certificate. A certificate, dated
such Date of Delivery, of the President or a Vice President of
the Company and of the chief financial or chief accounting
officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(e) hereof
remains true and correct as of such Date of Delivery.
(ii) A certificate, dated such Date of Delivery, of
an Attorney-in-Fact on behalf of each Selling Shareholder
confirming that the certificate delivered at Closing Time
pursuant to Section 5(f) remains true and correct as of such
Date of Delivery.
(iii) Opinion of Counsel for Company. The favorable
opinion of Duane, Morris & Heckscher, counsel for the Company,
in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(b) hereof.
(iv) The favorable opinion of [NAME], counsel for
the Selling Shareholders, in form and substance satisfactory
to counsel for the Underwriters, dated such
<PAGE>
-27-
Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c).
(v) Opinion of Counsel for Underwriters. The
favorable opinion of Cahill Gordon & Reindel, counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(d) hereof.
(vi) Bring-down Comfort Letter. A letter from KPMG
Peat Marwick L.L.P., in form and substance satisfactory to the
Representative and dated such Date of Delivery, substantially
in the same form and substance as the letter furnished to the
Representative pursuant to Section 5(g) hereof, except that
the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(m) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
and the Selling Shareholders in connection with the issuance and sale
of the Securities as herein contemplated shall be satisfactory in form
and substance to the Representative and counsel for the Underwriters.
(n) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the Representative
by notice to the Company at any time at or prior to Closing Time or
such Date of Delivery, as the case may be, and such termination shall
be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
<PAGE>
-28-
(o) Securities Not Enjoined. The sale of the Securities by the
Company and the Selling Stockholders hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date or any Delivery Date,
as the case may be.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company and the
Selling Shareholders listed in Schedule F attached hereto, jointly and severally
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act to the extent and in the manner set forth in clauses
(i), (ii), (iii) and (iv) below. In addition, each Selling Shareholder,
severally and not jointly, (in the proportion that the number of Securities
being sold by such Selling Shareholder bears to the total number of Securities)
agrees to indemnify and hold harmless each Underwriter, its directors, officers
and employees, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
[(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the failure of
eligible employees and persons having business relationships with the
Company to pay for and accept delivery of Reserved Securities which
were subject to a properly confirmed agreement to purchase [and (B) any
untrue statement or alleged untrue statement of a material fact
concerning the Company contained in the supplement used in [Applicable
Jurisdictions(s)] in connection with the reservation and sale
<PAGE>
-29-
of the Reserved Securities to eligible employees and person having
business relationships with the Company];3
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company and the Selling Shareholders;
and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto). The obligations of the
Company and each Selling Shareholder pursuant to this Section 6 are joint and
several; provided, however, that each Selling Shareholder's aggregate liability
under this Section 6 shall be limited to an amount equal to the net proceeds
(after deducting the underwriting discount, but before deducting expenses)
received by such Selling Shareholder from the sale of Securities pursuant to
this Agreement.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless
- --------
3 Include Clause (B) if some of the Reserved Securities will
be placed in foreign jurisdictions by means of a separate
supplement to the Prospectus.
<PAGE>
-30-
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Shareholder against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through Merrill
Lynch expressly for use in the Registration Statement (or any amendment thereto)
or such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or
<PAGE>
-31-
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)[(iii)] effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) The provisions of this Section shall not affect any
agreement among the Company and the Selling Shareholders with respect to
indemnification.
SECTION 7. Contribution. If the indemnification provided for
in Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Shareholders on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions[, or in connection
with any failure of the nature referred to in Section 6(a)(ii)(A) hereof,]4
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
- --------
4 Include in the case of a reserved share program.
<PAGE>
-32-
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet bear to the aggregate initial public offering price of the
Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Shareholders
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission [or
any failure of the nature referred to in Section 6(a)(ii)(A) hereof].5
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter
- --------
5 Include in the case of a reserved share program.
<PAGE>
-33-
has otherwise been required to pay by reason of any such untrue or alleged
untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1993 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement
among the Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or the Selling
Shareholders submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company or the
Selling Shareholders, and shall survive delivery of the Securities to the
Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative may terminate
this Agreement, by notice to the Company and the Selling Shareholders, at any
time at or prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States, any outbreak of
<PAGE>
-34-
hostilities or escalation thereof or other calamity or crises or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representative, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6 and 7 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representative shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option
<PAGE>
-35-
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the Underwriters to purchase and the Company to sell the relevant Option
Securities, as the case may be, either the Representative or the Company and any
Selling Shareholder shall have the right to postpone Closing Time or the
relevant Date of Delivery, as the case may be, for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Default by One or More of the Selling Shareholders
or the Company. (a) If a Selling Shareholder shall fail at Closing Time or at a
Date of Delivery to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Shareholders as set
forth in Schedule B hereto, then the Underwriters may, at option of the
Representative, by notice from the Representative to the Company and the
non-defaulting Selling Shareholder, either (a) terminate this Agreement without
any liability on the fault of any non-defaulting party except that the
provisions of Sections 1, 4, 6 and 7 shall remain in full force and effect or
(b) elect to purchase the Securities which the non-defaulting Selling
Shareholders have agreed to sell hereunder. No action taken pursuant to this
Section 11 shall relieve any Selling Shareholder so defaulting from liability,
if any, in respect of such default.
In the event of a default by any Selling Shareholder as
referred to in this Section 11, each of Representative, the Company and the
non-defaulting Selling Shareholders shall have the right to postpone Closing
Time or Date of Delivery for a period not exceeding seven days in order to
effect any required change in the Registration Statement or Prospectus or in any
other documents or arrangements.
<PAGE>
-36-
(b) If the Company shall fail at Closing Time or at the Date
of Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
4, 6 and 7 shall remain in full force and effect. No action taken pursuant to
this Section shall relieve the Company from liability, if any, in respect of
such default.
SECTION 12. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative(s) at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Syndicate
Operations; notices to the Company shall be directed to it at
, attention of ; and notices to the Selling Shareholder
shall be directed to , attention of .
SECTION 13. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters, the Company and the Selling
Shareholders and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Shareholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
<PAGE>
-37-
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company and the Attorney-in-Fact
for the Selling Shareholders a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among the
Underwriters, the Company and the Selling Shareholders in accordance with is
terms.
Very truly yours,
DOVER DOWNS ENTERTAINMENT, INC.
By:
----------------------------
Title:
[NAME]
By:
----------------------------
As Attorney-in-Fact acting
on behalf of the Selling
Shareholder named in
Schedule B hereto
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _____________________________________
Authorized Signatory
For itself and as Representative of the other Underwriters named in Schedule A
hereto.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ................................. _________
Total .................................................... 2,500,000
=========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Maximum Number of
Number of Initial Option Securities
Securities to Be Sold to Be Sold
--------------------- -----------------
<S> <C> <C>
Dover Downs
Entertainment, Inc. 1,000,000 75,000
Melvin L. Joseph [ 25,712]
Dennis McGlynn [ 18,000]
Gary W. Rollins [ 104,282] *
Jeffrey W. Rollins [ 51,250]
John W. Rollins [ 950,000]
John W. Rollins, Jr. [ 25,500]
R. Randall Rollins [ 104,282]
Henry B. Tippie [ 100,000]
Eugene W. Weaver [ 119,974]
-----------
Total............................ 2,500,000 370,000
</TABLE>
- -----------------
* Identify Option Securities to be sold by certain Selling
Shareholders.
Sch B-1
<PAGE>
SCHEDULE C
DOVER DOWNS ENTERTAINMENT, INC.
2,500,000 Shares of Common Stock
(Par Value $.10 Per Share)
1. The initial public offering price per share of the
Securities, determined as provided in said Section 2, shall be $ .
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $ , being an amount equal to the
initial public offering price set forth above less $ per share; provided
that the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities.
Sch C-1
<PAGE>
SCHEDULE D
List of subsidiaries
Dover Downs, Inc.
Dover Downs International Speedway, Inc.
Dover Downs Properties, Inc.
Sch D-1
<PAGE>
SCHEDULE E
List of persons and entities
subject to lock-up
Dover Downs Entertainment, Inc.
Melvin L. Joseph
Michael B. Kinnard
Dennis McGlynn
Gary W. Rollins
Jeffrey W. Rollins
John W. Rollins
John W. Rollins, Jr.
R. Randall Rollins
Henry B. Tippie
Eugene W. Weaver
Sch E-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of
Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreement or pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Prospectus); the shares
of issued and outstanding capital stock of the Company, including the Securities
to be purchased by the Underwriters from the Selling Shareholders, have been
duly authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any securityholder of the
Company.
(v) The Securities to be purchased by the Underwriters from
the Company have been duly authorized for issuance and sale to the Underwriters
pursuant to the Purchase Agreement and, when issued and delivered by the Company
pursuant to the Purchase Agreement against payment of the consideration set
forth in the Purchase Agreement, will be validly issued and fully paid and
non-assessable and no holder of the Securities is or will be subject to personal
liability by reason of being such a holder.
(vi) The issuance and sale of the Securities by the Company
and the sale of the Securities by the Selling Shareholders
A-1
<PAGE>
is not subject to the preemptive or other similar rights of any securityholder
of the Company.
(vii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as otherwise
disclosed in the Registration Statement, all of the issued and outstanding
capital stock of each Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to the best of our knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus, and each amendment or supplement to the
Registration Statement and Prospectus, as of their respective effective or issue
dates (other than the financial statements and supporting schedules included
therein or omitted therefrom, as to which we need express no opinion) complied
as to form in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations.
(xi) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws of the
Company and the requirements of the New York Stock Exchange.
A-2
<PAGE>
(xii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the Company or
any subsidiary is subject, before or brought by any court or governmental agency
or body (including, without limitation, the Delaware Harness Racing Commission
and the Delaware State Lottery Office), domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in the
Purchase Agreement or the performance by the Company of its obligations
thereunder.
(xiii) The information in the Prospectus under "Description of
Capital Stock," "Business -- Government Regulation of Gaming," "Risk Factors --
Government Regulations and Taxation, and Anti-takeover Provisions" and "Shares
Eligible for Future Sales" and in the Registration Statement under item 15, to
the extent that it constitutes matters of law, summaries of legal matters, the
Company's charter and bylaws or legal proceedings, or legal conclusions, has
been reviewed by us and is correct in all material respects.
(xiv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required.
(xv) All descriptions in the Registration Statement of
contracts and other documents to which the Company or its subsidiaries are a
party are accurate in all material respects; to the best of our knowledge, there
are no franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by reference as
exhibits thereto, and the descriptions thereof or references thereto are correct
in all material respects.
(xvi) To the best of our knowledge, neither the Company nor
any subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xvii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree
A-3
<PAGE>
("Authorization") of, any court or governmental authority or agency (including,
without limitation, the Delaware Harness Racing Commission and the Delaware
State Lottery Office), domestic or foreign (other than under the 1933 Act and
the 1933 Act Regulations, which have been obtained, or as may be required under
the securities or blue sky laws of the various states, as to which we need
express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or for the
offering, issuance, sale or delivery of the Securities.
(xviii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities, the 1996 Restructuring and the use of the proceeds from the sale
of the Securities each as described in the Prospectus under the captions
"Restructuring -- 1996 Restructuring" and "Use of Proceeds") and compliance by
the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(xi) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to us, to which the Company or any subsidiary is
a party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect), nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiary, or
any applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
respective properties, assets or operations.
(xix) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xx) The Rights under the Company's Shareholder Rights Plan
to which holders of the Securities will be entitled have been duly authorized
and validly issued.
(xxi) None of the Underwriters or the holders of the
Securities is required, solely by reason of the transactions contemplated by or
the remedies provided for in the Purchase
A-4
<PAGE>
Agreement, to be found suitable or to be licensed by the Delaware State Lottery
Office.
(xxiii) No event has occurred that allows, or after notice or
lapse of time would allow, revocation or termination by the issuer thereof or
that results in any other material impairment of the rights of the holder of any
such Authorizations. Such Authorizations contain no restrictions that are
materially burdensome to the Company or any of its subsidiaries in light of
their respective business, and the Company has no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking any
such Authorization. Except as described in the Prospectus, neither the Company
nor its management has any reasonable basis to believe that any Authorization
necessary in the future to conduct the business of the Company or any of its
subsidiaries as described in the Prospectus will not be granted upon
application, or that the Delaware State Lottery office or any other governmental
agencies are investigating the Company or its subsidiary or any of their
officers, directors, key employees, security holders or affiliated companies,
other than in ordinary course administrative course review of the transactions
contemplated hereby.
Nothing has come to our attention that would lead us to
believe that the Registration Statement or any amendment thereto, including the
Rule 430A Information and Rule 434 Information (if applicable) (except for
financial statements and schedules and other financial data included or
incorporated by reference therein or omitted therefrom, as to which we need make
no statement), at the time such Registration Statement or any such amendment
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any amendment or
supplement thereto (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-5
<PAGE>
Exhibit B
FORM OF OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) No filing with, or consent, approval, authorization,
order, registration, qualification or decree of any court, or governmental
authority or agency (including, without limitation, the Delaware Harness Horse
Racing Commission and the Delaware State Lottery Office), domestic or foreign
(other than the issuance of the order of the Commission declaring the
Registration Statement effective and such authorizations, approvals or consents
as may be necessary under state securities laws, as to which I need express no
opinion), is necessary or required to be obtained by the Selling Shareholders
for the performance by each Selling Shareholder of its obligations under the
Purchase Agreement or in the Power of Attorney and Custody Agreement, or in
connection with the offer, sale or delivery of the Securities.
(ii) Each Power of Attorney and Custody Agreement has been
duly executed and delivered by the respective Selling Shareholder named therein
and constitutes the valid and binding agreement of such Selling Shareholder in
accordance with its terms.
(iii) The Purchase Agreement has been duly authorized, executed
and delivered by or on behalf of each Selling Shareholder.
(iv) Each Attorney-in-Fact has been duly authorized by the
Selling Shareholders to deliver the Securities on behalf of the Selling
Shareholders in accordance with the terms of the Purchase Agreement.
(v) The execution, delivery and performance of the Purchase
Agreement and the Power of Attorney and Custody Agreement and the sale and
delivery of the Securities and the consummation of the transactions contemplated
in the Purchase Agreement and in the Registration Statement and compliance by
the Selling Shareholders with their obligations under the Purchase Agreement
have been duly authorized by all necessary action on the part of the Selling
Shareholders and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of, or
default under or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Securities or any property or assets of the Selling
Shareholders pursuant to, any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, license, lease or other instrument or agreement to
which any Selling Shareholder is a party or by which they may be bound, or to
which any of the property or assets of the Selling Shareholders may be subject
nor will such action result in any violation of the provisions of the charter or
by-laws of the
B-1
<PAGE>
Selling Shareholders, if applicable, or any law, administrative regulation,
judgment or order of any governmental agency or body or any administrative or
court decree having jurisdiction over such Selling Shareholder or any of its
properties.
(vi) Each Selling Shareholder is, and immediately prior to
Closing Time will be, the sole registered owner of the Securities to be sold by
such Selling Shareholder; upon consummation of the sale of the Securities
pursuant to the Purchase Agreement, each of the Underwriters will be the
registered owner of the Securities purchased by it from such Selling Shareholder
and, assuming the Underwriters purchased the Securities for value in good faith
and without notice of any adverse claim, the Underwriters will have acquired all
rights of such Selling Shareholder in the Securities free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity, and the
owner of the Securities, if other than such Selling Shareholder, is precluded
from asserting against the Underwriters the ineffectiveness of any unauthorized
endorsement; and such Selling Shareholder has the full right, power and
authority (A) to enter into the Purchase Agreement and the Power of Attorney and
Custody Agreement and (B) to sell, transfer and deliver the Securities to be
sold by such Selling Shareholder under the Purchase Agreement.
Nothing has come to my attention that would lead me to believe
that the Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable) (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which I need made no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which I need
make no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statement therein, in the light
of the circumstances under which they were made, not misleading.
B-2
<PAGE>
[Form of lock-up from directors, officers or
other stockholders pursuant to Section 5(k)]
Exhibit C
, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representative of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by
Dover Downs Entertainment, Inc.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director
of Dover Downs Entertainment, Inc., a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") proposes to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company and the Selling Shareholder(s) providing
for the public offering of shares (the "Securities") of the Company's common
stock, par value $.10 per share (the "Common Stock"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
and an officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
that, during a period of 180 days from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic
C-1
<PAGE>
consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Very truly yours,
Signature:_________________________
Print Name_________________________
C-2
EXHIBIT 2.1
SHARE EXCHANGE AGREEMENT
AND
PLAN OF REORGANIZATION
This Share Exchange Agreement and Plan of Reorganization dated as of
June 14, 1996 by and between Dover Downs, Inc., a Delaware corporation ("Dover
Downs"), the nine shareholders to Dover Downs signatory hereto, constituting all
of the shareholders of Dover Downs (the "Shareholders"), and the following two
wholly-owned subsidiaries of Dover Downs, constituting all of the subsidiaries
of Dover Downs: Dover Downs Entertainment, Inc., a Delaware corporation
("Entertainment"); and Dover Downs International Speedway, Inc., a Delaware
corporation ("Speedway").
WHEREAS, the parties desire to reorganize Dover Downs by establishing
Entertainment as the holding company to Dover Downs, and transferring the auto
speedway division of Dover Downs to Speedway; and
WHEREAS, the corporate structure of Dover Downs immediately prior to
the share exchange and corporate reorganization contemplated by this Agreement
(the "Reorganization") is as follows:
<PAGE>
--------------------------
| Shareholders |
--------------------------
---------------------------
| Dover Downs, Inc. |
---------------------------
--------------------------- ----------------------------------
| Dover Downs | | Dover Downs |
| Entertainment, Inc. | | International Speedway, Inc. |
--------------------------- ----------------------------------
WHEREAS, the corporate structure of Entertainment immediately following
the Reorganization will be as follows:
--------------------------
| Shareholders |
--------------------------
--------------------------
| Dover Downs |
| Entertainment, Inc. |
--------------------------
--------------------------- ----------------------------------
| Dover Downs Inc. | | Dover Downs |
| | | International Speedway, Inc. |
--------------------------- ----------------------------------
2
<PAGE>
WHEREAS, the shareholders of Dover Downs immediately prior to the
Reorganization will become the shareholders of Entertainment immediately
following the Reorganization, and will maintain the same proportionate share
ownership in Entertainment as they previously held in Dover Downs; and
WHEREAS, Entertainment and Speedway have been formed for the purpose of
effecting the Reorganization and have not yet been operational; and
WHEREAS, the capital stock of Dover Downs consists of 5,000 shares of
common stock, $.10 par value (the "Dover Downs Common Stock"), of which
3,049.629 shares are issued and outstanding and held by the Shareholders; and
WHEREAS, the capital stock of Entertainment consists of 69,000,000
shares of common stock, $.10 par value (the "Entertainment Common Stock"),
60,000,000 shares of class A common stock, $.10 par value (the "Entertainment
Class A Common Stock") and 1,000,000 shares of preferred stock, $.10 par value
(the "Entertainment Preferred Stock"); of which 1,000 shares of Entertainment
Common Stock are issued and outstanding and held by Dover Downs and no shares of
Entertainment Class A Common Stock or Entertainment Preferred Stock have been
issued; and
WHEREAS, the capital stock of Speedway consists of 5,000 shares of
common stock, $.01 par value (the "Speedway Common Stock"), of which 1,000
shares are issued and
3
<PAGE>
outstanding and held by Dover Downs; and
WHEREAS, each of the Boards of Directors of Dover Downs, Entertainment
and Speedway, by unanimous vote of all the members of each, have approved the
Reorganization and this Agreement, and have authorized and directed appropriate
officers of each to execute and deliver this Agreement, together with such other
documents, agreements or instruments as may be required to fully effect the
Reorganization;
NOW THEREFORE, in consideration of the premises, the parties hereto
agree to the following:
1. Share Exchange.
(a) Each Shareholder hereby transfers to Entertainment all of
the shares of Dover Downs Common Stock owned by such Shareholder in Dover Downs
in exchange for newly issued shares of Entertainment Class A Common Stock, at a
rate of exchange of 4,500 shares of Entertainment Class A Common Stock for each
share of Dover Downs Common Stock (the "Exchange").
(b) The shares of Dover Downs Common Stock transferred by each
Shareholder hereunder and the number of shares of Entertainment Class A Common
Stock to be received in exchange is as follows:
4
<PAGE>
Entertainment Class A
Dover Downs Common Common Stock Issued
Shareholder Stock Transferred In Exchange
- ----------- ------------------ ---------------------
John W. Rollins 1,599.532 7,197,894
Henry B. Tippie 400 1,800,000
Eugene W. Weaver 248.772 1,119,474
R. Randall Rollins 250 1,125,000
Gary W. Rollins 250 1,125,000
Jeffrey W. Rollins 162.5 731,250
Melvin L. Joseph 76.825 345,712
John W. Rollins, Jr. 59 265,500
Thomas Hatzis 3 13,500
---------- -----------
TOTALS 3,049.629 13,723,330
(c) The Exchange is intended to be tax free under Section
368(a)(1)(B) of the Internal Revenue Code.
(d) The Exchange will be effective as of the date of this
Agreement whether or not shares of stock are physically transferred on such
date. From the date of this Agreement forward, the Dover Downs Common Stock
owned by each Shareholder prior to the date of this Agreement shall only
represent the right to receive Entertainment Class A Common Stock in the amounts
set forth herein.
(e) Immediately following the Exchange, the 1,000 shares of
Entertainment Common Stock owned by Dover Downs will be transferred to
Entertainment, by dividend,
5
<PAGE>
whereupon said shares shall be cancelled and retired.
2. Amendment of 1991 Stock Option Plan of Dover Downs.
(a) The Stock Option Plan of Dover Downs adopted by its Board
of Directors and shareholders on November 27, 1991 is hereby amended to apply to
shares of Entertainment Class A Common Stock, has been adopted by the Board of
Directors of Entertainment as its "1991 Stock Option Plan," and is hereby
adopted by the Shareholders in their capacity as the shareholders of
Entertainment immediately after the Exchange. For each option previously granted
to purchase Dover Downs Common Stock, the option will be deemed amended to apply
to shares of Entertainment Class A Common Stock at an exchange rate of 4,500
shares of Entertainment Class A Common Stock for each share of Dover Downs
Common Stock, the same exchange rate as was provided for in the Exchange
referred to in Section 1 above. The exercise price for each option shall be
similarly adjusted, such that the prior exercise price shall be divided by 4,500
in order to yield the revised exercise price.
(b) The following sets forth the option grants previously made
under the 1991 Stock Option Plan, the number of shares of Dover Downs Common
Stock for which the options were exercisable, the number of shares of
Entertainment Class A Common Stock for which the options are now exercisable,
and the revised exercise price for each such option:
6
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Dover Downs Entertainment Revised
Date of Common Class A Exercise
Employee Grant Stock Common Stock Price Per Share
- -------------- ------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Denis McGlynn 8/31/91 25 112,500 $ .46222
Denis McGlynn 3/31/95 100 450,000 $1.33333
Eugene W. Weaver 8/31/91 25 112,500 $ .46222
Melvin L. Joseph 3/31/95 25 112,500 $1.33333
</TABLE>
(c) The 1991 Stock Option Plan is hereby amended such that no
further options may be granted thereunder. The 1991 Stock Option Plan shall
continue in full force and effect with respect to the above previously granted
options only.
(d) Effective upon the date on which Entertainment offers any
shares of Entertainment Common Stock to the public pursuant to a registration
statement filed under the federal Securities Act of 1933, as amended, all
Incentive Stock Option Agreements referencing the 1991 Stock Option Plan are
automatically amended, by express provision therein, to eliminate any purchase
option available to Entertainment to acquire from an optionee any shares of
Entertainment Class A Common Stock acquired pursuant to the exercise of an
option granted under the 1991 Stock Option Plan.
(e) All Incentive Stock Option Agreements referencing the 1991
Stock Option Plan are hereby amended to eliminate any put option available to an
optionee to require that Entertainment purchase all or any portion of the shares
of Entertainment Class A Common Stock
7
<PAGE>
acquired pursuant to the exercise of an option granted under the 1991 Stock
Option Plan, such amendment to be effective upon the date on which, but only in
the event that, Entertainment offers any shares of Entertainment Common Stock to
the public pursuant to a registration statement filed under the federal
Securities Act of 1933, as amended. This amendment must be consented to by the
optionees under the 1991 Stock Option Plan before it becomes effective.
(f) It is the parties intent that the above conversion of and
amendments to the 1991 Stock Option Plan shall not be deemed a "modification"
within the meaning of Section 424(h)(3) of the Internal Revenue Code or
otherwise affect the tax status of option grants previously made under the 1991
Stock Option Plan, all of which shall continue to be treated as qualified
incentive stock options.
3. Speedway Business Transfer.
(a) Immediately after the Exchange and effective as of the
date of this Agreement, Dover Downs shall transfer to Entertainment, by
dividend, 1,000 shares of Speedway Common Stock, constituting all of the issued
and outstanding capital stock of Speedway, with the result that Speedway shall
become a wholly-owned subsidiary of Entertainment.
(b) Effective as of August 1, 1996, Dover Downs shall
transfer, assign, and deliver to Speedway the assets, business and goodwill of
its auto racing division, and Speedway
8
<PAGE>
shall assume and agree to perform and discharge the liabilities, contracts and
obligations of said auto racing division (the "Speedway Business Transfer").
(c) The parties agree to execute and deliver such further
agreements, documents or instruments, including assignments and assumption
agreements, as shall be deemed necessary to effect the Speedway Business
Transfer.
(d) The Speedway Business Transfer is intended to be a tax
free transaction effected by means of a dividend by Dover Downs to
Entertainment, with a corresponding contribution by Entertainment to the capital
of Speedway, of the auto racing division of Dover Downs.
4. Disclosure.
Each Shareholder acknowledges receiving a copy of the
Certificate of Incorporation of Entertainment, as amended June 14, 1996, and the
Bylaws of Entertainment, as amended and restated June 14, 1996, setting forth,
among other things, the rights and preferences of Entertainment Class A Common
Stock and certain restrictive legends to be placed on the Entertainment Class A
Common Stock.
5. Miscellaneous.
9
<PAGE>
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
(b) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(c) Amendment, Modification and Waiver. This Agreement may be
modified, amended and supplemented by mutual written agreement of the
Shareholders and the respective Boards of Directors of the parties hereto, or
their respective authorized officers. Each party may waive any condition
intended to be for its benefit. Each amendment, modification, supplement or
waiver shall be in writing and signed by the parties to be charged.
(d) Entire Agreement. This Agreement represents the parties'
entire Agreement and no provision or document of any kind shall be included in,
or form a part of, this Agreement unless it is in writing and is delivered to
the other party by the party to be charged.
(e) Prior Negotiations. All prior negotiations and discussions
by and among the parties to this Agreement which are not reflected or set forth
in this Agreement are merged into this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
DOVER DOWNS ENTERTAINMENT, INC.
By: /s/ Denis McGlynn
--------------------------------------
Denis McGlynn, President
DOVER DOWNS, INC.
By: /s/ Denis McGlynn
--------------------------------------
Denis McGlynn, President
DOVER DOWNS INTERNATIONAL SPEEDWAY, INC.
By: /s/ Denis McGlynn
--------------------------------------
Denis McGlynn, President
SHAREHOLDERS:
/s/ John W. Rollins
----------------------------------------
John W. Rollins
/s/ Henry B. Tippie
----------------------------------------
Henry B. Tippie
/s/ Eugene W. Weaver
----------------------------------------
Eugene W. Weaver
11
<PAGE>
/s/ R. Randall Rollins
----------------------------------------
R. Randall Rollins
/s/ Gary W. Rollins
----------------------------------------
Gary W. Rollins
/s/ Jeffrey W. Rollins
----------------------------------------
Jeffrey W. Rollins
/s/ Melvin L. Joseph
----------------------------------------
Melvin L. Joseph
/s/ John W. Rollins, Jr.
----------------------------------------
John W. Rollins, Jr.
/s/ Thomas Hatzis
----------------------------------------
Thomas Hatzis
12
<PAGE>
EMPLOYEE JOINDER
The undersigned employees, having previously been granted options under
the 1991 Stock Option Plan, consent to the amendments to the 1991 Stock Option
Plan identified in Section 2 to this Agreement.
/s/ Denis McGlynn
- ----------------------------------
Denis McGlynn
/s/ Eugene W. Weaver
- ----------------------------------
Eugene W. Weaver
/s/ Melvin L. Joseph
- ----------------------------------
Melvin L. Joseph
13
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DOVER DOWNS ENTERTAINMENT, INC.
IT IS HEREBY CERTIFIED THAT:
1. The name of the Corporation is DOVER DOWNS ENTERTAINMENT, INC.
(hereinafter, the "Corporation").
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out paragraph (a) of Article FOURTH in its entirety and
substituting in lieu of said paragraph (a) the following new paragraph (a):
"FOURTH: (a) Authorized Capital Stock. The total number of shares of
stock which the Corporation shall have the authority to issue is 66,000,000
shares, consisting of 35,000,000 shares of Common Stock, which shares shall have
a par value of $.10 per share; 30,000,000 shares of Class A Common Stock, which
shares shall have a par value of $.10 per share; 1,000,000 shares of Preferred
Stock, which shares shall have a par value of $.10 per share."
<PAGE>
3. This Certificate of Amendment to Certificate of Incorporation as
herein certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
4. The effective time of this Certificate of Amendment to Certificate
of Incorporation shall be upon filing.
IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of
Incorporation is executed this 28th day of June, 1996.
Dover Downs Entertainment, Inc.
BY: /s/ Robert M. Comollo
-------------------------------
Robert M. Comollo, Secretary
2
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DOVER DOWNS INVESTORS, INC.
IT IS HEREBY CERTIFIED THAT:
1. The name of the Corporation is DOVER DOWNS INVESTORS, INC.
(hereinafter, the "Corporation").
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Articles FIRST through ELEVENTH of the previous
Certificate of Incorporation in their entirety and substituting in lieu of said
Articles the following new Articles:
FIRST: The name of the Corporation is DOVER DOWNS ENTERTAINMENT, INC.
SECOND: The registered office of the corporation is to be located at
United States Corporation Company, 1013 Centre Road, Wilmington, Delaware 19805.
<PAGE>
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: (a) Authorized Capital Stock. The total number of shares of
stock which the Corporation shall have the authority to issue is 130,000,000
shares, consisting of 69,000,000 shares of Common Stock, which shares shall have
a par value of $.10 per share; 60,000,000 shares of Class A Common Stock, which
shares shall have a par value of $.10 per share; 1,000,000 shares of Preferred
Stock, which shares shall have a par value of $.10 per share.
(b) Common Stock. The designations, preferences, privileges,
and voting powers of the shares of each class of common stock and the
restrictions or qualifications thereof are as follows:
(i) Voting. The Common Stock and the Class A Common Stock
shall have the right to vote upon all matters which may come
before the stockholders, except that the holders of Class A
Common Stock shall have ten (10) votes per share and the
holders of Common Stock shall have one (1) vote per share,
3
<PAGE>
provided further that the holders of Common Stock and Class A
Common Stock shall be entitled to vote as separate classes on
all matters as to which a class vote is required by law.
(ii) Dividends. Each share of Common Stock and Class A
Common Stock shall be entitled to participate equally-in any
dividends (other than dividends of common stock) which may be
declared upon common stock; provided that the Board of
Directors of the Corporation shall have discretionary authority
to declare greater cash dividends on the Common Stock; and
provided further, that in the case of all dividends in common
stock of this Corporation or stock split-ups, the Common Stock
shall be entitled only to receive Common Stock and the Class A
Common Stock shall be entitled only to receive Class A Common
Stock.
(iii) Conversion. Shares of Class A Common Stock shall be
convertible at any time and from time to time at the option of
the holder thereof into shares of Common Stock at the rate of
4
<PAGE>
one share of Class A Common Stock for one share of Common
Stock. In order to exercise the conversion privilege, the
holder of any shares of Class A Common Stock shall surrender
the certificate or certificates for such shares accompanied by
proper instrument of surrender to the Corporation at its
principal office. The certificate or certificates for such
shares of Class A Common Stock shall also be accompanied by
written notice to the effect that the holder elects to convert
such shares of Class A Common Stock and stating the name or
names to which the certificate or certificates for shares of
Common Stock which shall be issuable on such conversion shall
be issued. As promptly as practicable after the receipt of such
notice and the surrender of such shares of Class A Common
Stock, the Corporation's Transfer Agent shall issue and deliver
to such holder or to the written order of such holder a
certificate or certificates for the number of shares of Common
Stock issuable upon conversion of such shares of Class A Common
Stock. Such conversion shall be deemed to have been effected on
the date on which such notice shall have been received by the
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Corporation and such Class A Common Stock shall have been
surrendered as hereinbefore provided. The shares of Class A
Common Stock so converted shall not be reissued and shall be
retired and cancelled as provided by law. All shares of Common
Stock which may be issued upon conversion of the Class A Common
Stock shall, upon issuance, be validly issued, fully paid, and
nonassessable by the Corporation.
(iv) Certain Changes. In case of the issuance of any shares
of stock as a dividend upon the shares of Common Stock or the
shares of Class A Common Stock or in the case of any
subdivision, split-up, combination, or change of the shares of
Common Stock or shares of Class A Common Stock into a different
number of shares of the same or any other class or classes of
stock, the conversion rate in clause (iii) above shall be
appropriately adjusted so that the rights of the holders of
Common Stock and of Class A Common Stock shall not be diluted
as a result of such stock dividend, sub-division, split-up,
combination, or change. Adjustments in the rate of conversion
shall be calculated to the nearest 1/10 of a share. The
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<PAGE>
Corporation shall not be required to issue fractions of shares
of Common Stock upon conversion of Class A Common Stock. If any
fractional interest in a share of Common Stock shall be
deliverable upon the conversion of any shares of Class A Common
Stock, the Corporation may purchase such fractional interest
for an amount in cash equal to the current market value of such
fractional interest.
(v) Common Stock Protection in the Event of Merger or
Consolidation. In the event of a merger or consolidation of the
Corporation, with or into another entity (whether or not the
Corporation is the surviving entity), the holders of Common
Stock and Class A Common Stock shall be entitled to receive the
same per share consideration in such merger or consolidation.
(vi) Distributions. In the event the Corporation shall be
liquidated (either partial or complete), dissolved or wound up,
whether voluntarily or involuntarily, the holders of the Common
Stock and the Class A Common Stock shall be entitled to share
ratably, as a single class, in the remaining net assets of the
Corporation.
7
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(vii) Preemptive Rights Denied. No holder of shares of any
class of common stock of the Corporation shall possess any
preemptive right to acquire additional shares of any class or
treasury shares of the Corporation, or obligations of the
Corporation convertible into such shares, whether now or
hereafter authorized.
(viii) Purchase of Shares. The Corporation shall have the
authority to purchase any amount of Common Stock or Class A
Common Stock upon such terms and conditions as the Board of
Directors shall from time to time, in its discretion,
determine, without regard to any differences in price or other
terms under which such shares may be purchased.
(ix) Sufficient Shares Reserved. So long an any shares of
Class A Common Stock are outstanding, the Corporation shall
reserve and keep available out of its duly authorized but
unissued stock, for the purpose of effecting the conversion of
the Class A Common Stock as hereinabove provided, such number
of its duly authorized
8
<PAGE>
shares of Common Stock and other securities as shall from time
to time be sufficient to effect the conversion of all
outstanding shares of Class A Common Stock.
(c) Preferred Stock. All preferred stock authorized for
issuance by the company may be issued in series or without series from time to
time with the designations, preferences, and relative, participating, optional
or other special rights of the class or series of the class fixed by resolution
or resolutions of the Board of Directors. Such resolutions may also provide for
the convertibility of the preferred stock or any series thereof into any other
classes of stock of the company, including the common stock, upon such terms and
ratios as shall be determined by the Board of Directors.
FIFTH: Special meetings of the stockholders may be called at any time
by the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President or the Chairman of the Executive Committee of the Board
of Directors and not by any other person.
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders:
(1) Election of directors need not be by ballot unless the
by-laws so provide.
9
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(2) The Board of Directors shall have power without the assent
or vote of the stockholders to make, alter, amend, change, add to or repeal the
by-laws of the Corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and liens upon
all or any part of the property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends. The stockholders may make, alter or repeal
any by-law whether or not adopted by them, provided however, that any such
additional by-laws, alterations or repeal may be adopted only by the affirmative
vote of the holders of 75% or more of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class), unless such additional by-laws,
alterations or repeal shall have been recommended to the stockholders for
adoption by a majority of the Board of Directors, in which event such additional
by-laws, alterations or repeal may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class).
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
such act or contract, and any contract or act that shall be approved or be
ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and as binding upon the
Corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation, whether or
10
<PAGE>
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised, or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-laws had not been made.
SEVENTH: The property and business of this corporation shall be managed
by a Board of up to nine directors. The directors shall be divided into three
classes. The first class (Class I) shall consist of three (3) directors and the
term of office of such class shall expire at the Annual Meeting of Stockholders
in 1997. The second class (Class II) shall consist of three (3) directors and
the term of office of such class shall expire at the Annual Meeting of
Stockholders in 1998. The third class (Class III) shall consist of three (3)
directors and the term of Stockholders in 1999. At each annual election,
commencing at the next Annual Meeting of Stockholders in 1997, the successors of
the class of directors whose term expires at that time shall be elected to hold
office for the term of three years to succeed those whose term expires, so that
the term of office of one class of directors shall expire in each year. Each
director shall hold office for the term for which he is elected or appointed or
until his successor shall be elected and qualified, or until his death or until
he shall resign. Directors need not be stockholders nor residents of the State
of Delaware.
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Notwithstanding any of the provisions of this Certificate of
Incorporation or the by-laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the by-laws of the Corporation), any director or the entire
Board of Directors of the Corporation may be removed at any time, but only for
cause, and only at a meeting of the stockholders called for that purpose by the
affirmative vote of the holders of 75% or more of the shares of the Corporation
entitled to vote at an election of directors.
Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing, delivered or
mailed by first class United States mail, postage prepaid, to the secretary of
the Corporation not less than 14 days nor more than 60 days prior to any meeting
of the stockholders called for the election of directors; provided, however,
that if less than 21 days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of business on the seventh day
following the day on which notice of the meeting was mailed to stockholders.
Notice of nominations which are proposed by the Board of Directors shall be
given by the Chairman on behalf of the Board.
Each such notice shall set forth (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee and
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee.
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The Chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and, if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
EIGHTH: (a) (1) In addition to any affirmative vote required by law,
and except as otherwise expressly provided in sections (b) and (c) of this
Article EIGHTH:
(A) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation (whether or
not itself an Interested Stockholder) which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with an Interested Stockholder, or an Affiliate of any
Interested Stockholder, of any assets of the Corporation or any Subsidiary
having an aggregate fair market value of $5,000,000 or more; or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation to any Interested Stockholder, or any Affiliate of
any Interested Stockholder, in exchange of cash, securities or other property
(or a combination thereof) having an aggregate fair market value of $5,000,000
or more; or
13
<PAGE>
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation; or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder, or any Affiliate of any
Interested Stockholder; shall require the affirmative vote of the holders
of at least 75% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, considered for the
purpose of this Article EIGHTH as one class ("Voting Shares"). Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that some lesser percentage may be specified, by law or in any agreement with
any national securities exchange or otherwise.
(2) The term "business combination" as used in this
Article EIGHTH shall mean any transaction which is referred to in any one or
more of clauses (A) through (E) of paragraph (1) of this section (a).
(b) The provisions of section (a) of this Article EIGHTH shall
not be applicable to any particular business combination and such business
14
<PAGE>
combination shall require only such affirmative vote as is required by law and
any other provisions of the Certificate of Incorporation or by-laws if such
business combination has been approved by a majority of the whole Board.
(c) For the purposes of this Article EIGHTH:
(1) A "person" shall mean any individual, firm, corporation
or other entity.
(2) "Interested Stockholder" shall mean, in respect of any
business combination, any person (other than the Corporation or any Subsidiary)
who or which, as of the record date for the determination of stockholders
entitled to notice of and to vote on such business combination, or immediately
prior to the consummation of any such transaction:
(A) is the beneficial owner, directly or indirectly,
of more than 20% of the Voting Shares; or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner, directly or indirectly,
of not less than 20% of the then outstanding Voting Shares; or
(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, and such
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act of 1933.
15
<PAGE>
Provided, however, that no person who on the date of the adoption of this
Article EIGHTH would otherwise be an "Interested Stockholder" as defined in this
subsection 2 shall be deemed to be an "Interested Stockholder".
(3) A person shall be the "beneficial owner" of any Voting
Shares:
(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of capital
stock of the Corporation.
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(4) The outstanding Voting Shares shall include shares
deemed owned through application of paragraph (3) above but shall not include
any other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options or otherwise.
(5) "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934 as in effect on the date of the
adoption of this provision.
(6) "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect on the date of the adoption of this provision), is owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph (2) of this section
(c), the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
(d) A majority of the directors shall have the power and duty
to determine for the purposes of this Article EIGHTH on the basis of information
known to them, (1) the number of Voting Shares beneficially owned by any person,
(2) whether a person is an Affiliate or Associate of another, (3) whether a
person has an agreement, arrangement or understanding with another as to the
matters referred to in paragraph (3) of section (c), or (4) whether the assets
subject to any business combination or the consideration received for the
issuance or transfer of securities by the Corporation or any Subsidiary has an
aggregate fair market value of $5,000,000 or more.
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<PAGE>
(e) Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
NINTH: Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
75% of the shares of the Corporation then entitled to be voted in an election of
directors shall be required to amend or repeal, or to adopt any provision
inconsistent with Articles FIFTH, SIXTH, SEVENTH, EIGHTH, or NINTH of this
Certificate of Incorporation, except that only the affirmative vote of the
holders of a simple majority of the shares of the Corporation then entitled to
be voted in an election of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with Articles FIFTH, SIXTH, or SEVENTH of this
Certificate of Incorporation if such amendment, repeal or adoption shall have
been approved by a majority of the members of the Board of Directors.
TENTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing clause shall not apply
to any liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. This Article Tenth shall not eliminate or limit the
liability of a director for any act or omission occurring prior to the time this
Article Tenth became effective.
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3. This Certificate of Amendment to Certificate of Incorporation as
herein certified has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
4. The effective time of this Certificate of Amendment to Certificate
of Incorporation shall be upon filing.
IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of
Incorporation is executed this 14th day of June, 1996.
Dover Downs Investors, Inc.
BY: /s/ Denis McGlynn
-----------------------------
Denis McGlynn, President
Amended and
Restated as of
June 14, 1996
EXHIBIT 3.2
BY-LAWS
OF
DOVER DOWNS ENTERTAINMENT, INC.
-------------------
ARTICLE I
The Corporation
Section 1.1 Name. The title of this Corporation is Dover Downs
Entertainment, Inc.
Section 1.2 Office. The registered office of this Corporation shall
be located at P.O. Box 843, Dover, Delaware, or at such other place as the
Board of Directors may designate in accordance with Section 133 of the Delaware
Corporation Law.
Section 1.3 Seal. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the year of its creation
(1994) and the words "Incorporated Delaware".
<PAGE>
Amended and
Restated as of
June 14, 1996
ARTICLE II
Stockholders
Section 2.1 Annual Meeting. The annual meeting of stockholders shall be
held at such place within or without the State of Delaware as the Board of
Directors from time to time determine.
A majority of the amount of the stock issued and outstanding and
entitled to vote shall constitute a quorum for the transaction of all business,
except as otherwise provided by law, the charter of the corporation or these
by-laws. Each stockholder of Common Stock shall be entitled to one vote and each
stockholder of Class A Common Stock shall be entitled to ten votes, either in
person or by proxy, for each share of stock standing registered in his or her
name on the books of the Corporation on the record date selected by the Board of
Directors in accordance with these by-laws, unless different voting is, by law
or by the terms of the instrument creating special or preferred shares,
conferred upon the holders thereof.
Notice of the annual meeting shall be mailed by the Secretary to each
stockholder at his or her last known post office address no less than ten days
and no more than sixty days prior thereto.
Section 2.2 Special Meetings. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Chairman of the Board
of Directors, the Vice Chairman of the Board
(2)
<PAGE>
Amended and
Restated as of
June 14, 1996
of Directors, the Chairman of the Executive Committee or the President and not
by any other person.
Section 2.3 Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
Section 2.4 Adjournments. Any meeting of the stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.5 Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a
(3)
<PAGE>
Amended and
Restated as of
June 14, 1996
quorum. In the absence of a quorum, the stockholders so present may, by majority
vote, adjourn the meeting from time to time in the manner provided in Section
2.4 of these by-laws until a quorum shall attend.
Section 2.6 Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in his
absence by the Chairman of the Executive Committee, if any, or in his absence by
a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.7 Voting; Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock of Common
Stock and ten votes for each share of Class A Common Stock held by such
shareholder which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
(4)
<PAGE>
Amended and
Restated as of
June 14, 1996
a later date with the Secretary of the Corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, be decided by the vote of the
holders of a majority of the outstanding shares of stock entitled to vote
thereon present in person or by proxy at the meeting, provided that (except as
otherwise required by law or by the certificate of incorporation or these
by-laws) the Board of Directors may require a larger vote upon any election or
question.
Section 2.8 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion of exchange or stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be
(5)
<PAGE>
Amended and
Restated as of
June 14, 1996
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
Section 2.10 Action by Consent Of Stockholders. Unless prohibited by
law or the rules and regulations of any national securities exchange on which
securities of the Corporation are listed, action required to be taken or which
may be taken at any annual or special meeting of stockholders of the Corporation
may be taken without a meeting, and stockholders shall have the power to consent
in writing, without a meeting, to the taking of any action.
(6)
<PAGE>
Amended and
Restated as of
June 14, 1996
ARTICLE III
Board of Directors
Section 3.1 Number; Qualifications. The Board of Directors shall
consist up to nine members. Directors need not be stockholders.
Section 3.2 Election; Resignation; Removal; Vacancies. At each annual
meeting of stockholders, the stockholders shall elect Directors to replace those
Directors whose terms then expire. Any Director may resign at any time upon
written notice to the Corporation. Stockholders may remove Directors only for
cause. Any vacancy occurring in the Board of Directors for any cause may be
filled only by the Board of Directors, acting by vote of a majority of the
Directors then in office, although less than quorum. Each Director so elected
shall hold office until the expiration of the term of office of the Director
whom he has replaced.
Section 3.3 Notice Of Nomination Of Directors. Nominations for the
election of directors may be made by the Chairman acting on behalf of the Board
of Directors or by any stockholder entitled to vote for the election of
directors. Such nominations shall be made by notice in writing, delivered or
mailed by first class United States mail, postage prepaid, to the Secretary of
the Corporation not less than fourteen days nor more than sixty days prior to
any meeting of the stockholders called for the election of directors; provided,
however, that if less than twenty-one days'
(7)
<PAGE>
Amended and
Restated as of
June 14, 1996
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the Corporation not
later than the close of the seventh day following the day on which notice of the
meeting was mailed to stockholders. Notice of nominations which are proposed by
the Board of Directors shall be given by the Chairman on behalf of the Board.
Each such notice shall set forth (i) the name, age, business address and, if
known, residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee and (iii) the number of
shares of stock of the Corporation which are beneficially owned by each such
nominee. The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 3.4 Non-Discrimination Statement. Consistent with the
Corporation's equal employment opportunity policy, nominations for the election
of directors shall be made by the Board of Directors and accepted from
stockholders in a manner consistent with these By-Laws and without regard to the
nominee's race, color, ethnicity, religion, sex, age, national origin, veteran
status, handicap or disability.
Section 3.5 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
(8)
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Section 3.6 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board of Directors, the Vice
Chairman of the Board of Directors, the Chairman of the Executive Committee, or
by the President. Reasonable notice thereof shall be given by the person calling
the meeting, not later than the second day before the date of the special
meeting.
Section 3.7 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board, may participate in any
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
Section 3.8 Quorum; Vote Required For Action; Informal Action. At all
meetings of the Board of Directors a majority of the whole Board shall
constitute a quorum for the transaction of business. Except in cases in which
the certificate of incorporation or these by-laws otherwise provide, the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
(9)
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Section 3.9 Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
his absence by the Chairman of the Executive Committee, if any, or in his
absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as a
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 3.10 Compensation Of Directors. The Directors and members of
standing committees shall receive such fees or salaries as fixed by resolution
of the Executive Committee and in addition will receive expenses in connection
with attendance or participation in each regular or special meeting.
ARTICLE IV
Committees
Section 4.1 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting
(10)
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in place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have power or authority in reference to amending the
certificate of incorporation of the Corporation, adopting an agreement of merger
or consolidation, recommending to the stockholders the sale, lease or exchange
or all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of dissolution, or amending these by-laws. The Board of Directors
shall, at the annual organization meeting thereof, elect an Executive Committee
which shall consist of not more than four members, all of whom shall be members
of the Board of Directors. The Executive Committee shall have and may exercise
all of the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, including, without limiting the
generality of the foregoing, the authority (1) to authorize the issuance of
stock of the Corporation; (2) to declare dividends; and (3) without prior
approval of the Board of Directors, to authorize the acquisition of property by
the Corporation at a cost of not more than Fifteen Million Dollars payable in
cash, stock or other property.
Section 4.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these by-laws.
(11)
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ARTICLE V
Officers
Section 5.1 Executive Officers; Election; Qualifications; Term of
Office; Resignation; Removal; Vacancies. The officers of the Corporation shall
consist of a Chairman, Vice Chairmen, President, Vice Presidents, Secretary,
Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and
such other officers as may from time to time be elected or appointed by the
Board of Directors. The President shall be elected from the Board of Directors.
Any officer may resign at any time upon written notice to the Corporation. The
Board of Directors may remove any officer with or without cause at any time, but
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation. Any number of offices may be held by the
same person, except that the offices of President and Chairman of the Board
shall be separate. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the Board of Directors at any regular or special meeting. In the
absence of any officer, the Board of Directors may delegate his power and duties
to any other officer or to any director for the time being.
Section 5.2 President. The President shall be the Chief Executive
Officer of the Corporation, shall execute in the name of the Corporation all
contracts and agreements authorized by the Board or the Executive Committee, and
shall affix the seal to any instrument requiring the same, which shall always be
attested by the signature of the President, the Vice President or the Secretary
or any Assistant Secretary or the Treasurer. He may sign certificates of stock;
he shall have general supervision and direction of all the other officers of the
Corporation; he shall submit a complete report
(12)
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of the operations and condition of the Corporation for the year to the Chairman
and to the directors at their regular meetings, and from time to time shall
report to the directors all matters which the interest of the Corporation may
require to be brought to their notice. He shall have the general powers and
duties usually vested in the office of a President of a corporation.
Section 5.3 Vice President - Finance. The Vice President - Finance
shall be the Chief Accounting and Chief Financial Officer of the Corporation and
shall be responsible to the Board of Directors, the Executive Committee and the
President for all financial control and internal audit of the Corporation and
its subsidiaries. He shall perform such other duties as may be assigned to him
by the Board of Directors, the Executive Committee or the President.
Section 5.4 Vice Presidents. The Vice Presidents elected or appointed
by the Board of Directors shall perform such duties and exercise such powers as
may be assigned to them from time to time by the Board of Directors, the
Executive Committee or the President. In the absence or disability of the
President, the Vice President designated by the Board of Directors, the
Executive Committee, or the President shall perform the duties and exercise the
powers of the President. A Vice President may sign and execute contracts and
other obligations pertaining to the regular course of his duties.
Section 5.5 Secretary. The Secretary shall be ex-officio Secretary of
the Board of Directors and of the standing committees. He shall attend all
sessions of the Board, act as clerk thereof, record all votes and keep the
minutes of all proceedings in a book to be kept for that purpose. He shall
(13)
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perform like duties for the standing committees when required. He shall see that
the proper notices are given of all meetings of stockholders and directors, and
perform such other duties as may be prescribed from time to time by the Board of
Directors, the Executive Committee, the Chairman or the President, and shall be
sworn to the faithful discharge of his duties. He shall keep the accounts of
stock registered and transferred in such form and manner and under such
regulations as the Board of Directors or Executive Committee may prescribe.
Section 5.6 Treasurer. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation, in such depositories as may be designated by the
Board of Directors or Executive Committee. He shall disburse the funds of the
Corporation as may be ordered by the Board, the Executive Committee or the
President, taking proper vouchers therefor, and shall render to the President
and the Executive Committee and Directors, whenever they may require it, an
account of all his transactions as Treasurer, and of the financial condition of
the Corporation, and at the annual organization meeting of the Board a like
report for the preceding year.
Section 5.7 General Counsel. The General Counsel shall be the legal
adviser of the Corporation and shall perform such services as the Chairman,
President, Board of Directors or Executive Committee may require.
(14)
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ARTICLE VI
Stock
Section 6.1 Certificates. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President of the
Corporation, certifying the number of shares owned by him in the Corporation.
Any of or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate, shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
(15)
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ARTICLE VII
Indemnification
Section 7.1. General. The Company shall indemnify, and advance
Expenses (as hereinafter defined) to, Indemnitee (as hereinafter defined) to
the fullest extent permitted by applicable law in effect on the adoption of
these By-Laws, and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Article.
Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of
The Company. Indemnitee shall be entitled to the indemnification rights provided
in this Section 7.2 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 7.2,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee
shall be entitled to the indemnification rights provided in this Section 7.3 to
the fullest extent permitted by law if, by reason of his Corporate Status, he
is, or is threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in
(16)
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connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company.
Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or
Partly Successful. Notwithstanding any other provision of this Article, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding
any other provision of this Article, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7.6. Advancement Of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the
(17)
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receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses.
Section 7.7. Procedure For Determination Of Entitlement To
Indemnification.
(a) To obtain indemnification under this Article, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The determination of Indemnitee's entitlement to
indemnification shall be made not later than 60 days after receipt by the
Company of the written request for indemnification. The Secretary of the Company
shall, promptly upon receipt of such a request for indemnification, advise the
Board of Directors in writing that Indemnitee has requested indemnification.
(b) Indemnitee's entitlement to indemnification under any of
Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific
case: (i) by the Board of Directors by a majority vote of a quorum of the Board
consisting of Disinterested Directors (as hereinafter defined); or (ii) by
Independent Counsel (as hereinafter defined), in a written opinion, if (A) a
Change of Control (as
(18)
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hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a
quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs; or (iii) by the stockholders of the Company; or (iv) as provided in
Section 7.8 of this Article.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7.7(b)
of this Article, the Independent Counsel shall be selected as provided in this
Section 7.7(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, and if so
requested by Indemnitee in his written request for indemnification, the
Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give
written notice to the Company advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Company, as the case may
be, may, within 7 days after such written notice of selection shall have been
given, deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection. Such objection may be asserted only on the ground
that the Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 7.13 of this Article, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected shall be disqualified from acting as such. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if
selected shall have been objected to, in accordance with this Section 7.7(c),
either the
(19)
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Company or Indemnitee may petition the Court of Chancery of the State of
Delaware for the appointment as Independent Counsel of a person selected by the
Court or by such other person as the Court shall designate, and the person so
appointed shall act as Independent Counsel under Section 7.7(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in acting pursuant to Section
7.7(b) hereof, and the Company shall pay all reasonable fees and expenses
incident to the procedures of this Section 7.7(c), regardless of the manner in
which such Independent Counsel was selected or appointed.
Section 7.8. Presumptions And Effect Of Certain Proceedings. If a
Change of Control shall have occurred, Indemnitee shall be presumed (except as
otherwise expressly provided in this Article) to be entitled to indemnification
under this Article upon submission of a request for indemnification in
accordance with Section 7.7(a) of this Article, and thereafter the Company shall
have the burden of proof to overcome that presumption in reaching a
determination contrary to that presumption. Whether or not a Change of Control
shall have occurred, if the person or persons empowered under Section 7.7 of
this Article to determine entitlement to indemnification shall not have made a
determination within 60 days after receipt by the Company of the request
therefor, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be entitled to such
indemnification unless (i) Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification, or (ii) such
indemnification is prohibited by law. The termination of any Proceeding
described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise
expressly provided in this Article)
(20)
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of itself adversely affect the right of Indemnitee to indemnification or create
a presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful.
Section 7.9. Remedies Of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 7.7 of this Article that Indemnitee is not entitled to indemnification
under this Article, (ii) advancement of Expenses is not timely made pursuant to
Section 7.6 of this Article, or (iii) payment of indemnification is not made
within five (5) days after a determination of entitlement to indemnification has
been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this
Article, Indemnitee shall be entitled to an adjudication in an appropriate court
of the State of Delaware, or in any other court of competent jurisdiction, of
his entitlement to such indemnification or advancement of Expenses.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association. The Company shall not oppose Indemnitee's right to seek
any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7.7 of this Article that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 7.9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse
(21)
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determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 7.9 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration commenced pursuant to this Section 7.9,
unless (i) Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification, or (ii) such indemnification is
prohibited by law.
(d) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 7.9 that
the procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Article.
(e) In the event that Indemnitee, pursuant to this Section
7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Article, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 7.13 of this Article) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
(22)
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or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of
indemnification and to receive advancement of Expenses as provided by this
Article shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the Certificate of
Incorporation, the By-Laws, any agreement, a vote of stockholders or a
resolution of directors, or otherwise. Notwithstanding any amendment, alteration
or repeal of any provision of this Article, Indemnitee shall, unless otherwise
prohibited by law, have the rights of indemnification and to receive advancement
of Expenses as provided by this Article in respect of any action taken or
omitted by Indemnitee in his Corporate Status and in respect of any claim
asserted in respect thereof at any time when such provision of this Article was
in effect. The provisions of this Article shall continue as to an Indemnitee
whose Corporate Status has ceased and shall inure to the benefit of his heirs,
executors and administrators.
Section 7.11. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, each portion of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and
(23)
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(b) to the fullest extent possible, the provisions of this
Article (including, without limitation, each portion of any Section of this
Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
Section 7.12. Certain Persons Not Entitled To Indemnification Or
Advancement Of Expenses. Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or advancement of Expenses under
this Article with respect to any Proceeding, or any claim therein, brought or
made by him against the Company.
Section 7.13. Definitions. For purposes of this Article:
(a) "Change in Control" means a change in control of the
Company of a nature that would be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest;
(24)
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(ii) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors (including for this purpose any
new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee, agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(25)
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(e) "Indemnitee" includes any person who is, or is threatened
to be made, a witness in or a party to any Proceeding as described in Sections
7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5) years has been, retained to represent:
(i) the Company or Indemnitee in any matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Article.
(g) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 7.9 of this Article to
enforce his rights under this Article.
Section 7.14. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
(26)
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ARTICLE VIII
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors,
And Committees. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 8.3 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the
(27)
<PAGE>
Amended and
Restated as of
June 14, 1996
Board or the committee in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (2) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 8.4 Form Of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 8.5 Amendment Of By-Laws. The Board of Directors of the
Corporation is expressly authorized to adopt, amend or repeal the by-laws of the
Corporation by a vote of a majority of the entire Board. The stockholders may
make, alter or repeal any by-law whether or not adopted by them, provided
however, that any such additional by-laws, alterations or repeal may be adopted
only by the affirmative vote of the holders of 75% or more of the outstanding
shares of capital stock
(28)
<PAGE>
Amended and
Restated as of
June 14, 1996
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class), unless such additional by-laws,
alterations or repeal shall have been recommended to the stockholders for
adoption by a majority of the Board of Directors, in which event such additional
by-laws, alterations or repeal may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class).
Section 8.6 Restrictive Gaming Legend. All certificates issued for
Shares of the $.10 par value Common Stock of the Corporation shall bear the
following legend:
"Any and all shares of Common Stock of the
Corporation are held subject to the condition that if
(a) any regulatory authority should request,
determine or otherwise advise that the holder or
owner is disqualified, or unsuitable, must qualify
for or obtain a license, or must submit an
application and satisfy a review process, including
background checks, in order for the Corporation or
any subsidiary to obtain or retain a license or a
relicense, or otherwise avoid significant penalties
or business disadvantage, and (b) such holder or
owner shall fail to submit to qualification within
fifteen (15) days following such request,
determination or advice, or fail to be found
qualified or suitable, then (c) such holder or owner,
at the request of the Corporation or the appropriate
regulatory authority, shall promptly dispose of such
holder's or owner's interest in the Corporation's
Common Stock and shall be subject to any order of
such
(29)
<PAGE>
Amended and
Restated as of
June 14, 1996
regulatory body limiting such holder's or owner's
rights pending such disposition. Without limiting the
foregoing, any holder or owner that intends to
acquire, directly or indirectly, ten percent (10%) or
more of the outstanding common stock of the
Corporation (regardless of class or series) shall
first notify the Corporation and obtain prior written
approval from the Delaware State Lottery Office.
Since money damages are inadequate to protect the
Corporation, it shall be entitled to injunctive
relief to enforce the foregoing provision."
Section 8.7 Restrictions on Transfer of Class A Common Stock.
(a) Restriction. Shares of the Company's Class A Common Stock (the
"Shares") may be sold, transferred or disposed of only in accordance with the
following:
(i) Shares may be sold or transferred to any other
holder of Shares, provided that such holder has not acquired
Shares in contravention of these Bylaws; or
(ii) Shares may be sold, transferred or pass by
intestacy, will or inheritance to:
(30)
<PAGE>
Amended and
Restated as of
June 14, 1996
(A) one or more members of the immediate
family of a holder of Shares, provided that such
holder has not acquired Shares in contravention of
these Bylaws;
(B) a corporation all of the shares of which
are owned by holders of Shares (or one or more
members of the immediate family of a holder of
Shares), provided that no such holder has acquired
Shares in contravention of these Bylaws;
(C) a trust all of the beneficial interests
of which are owned by holders of Shares (or one or
more members of the immediate family of a holder of
Shares), provided that no such holder has acquired
Shares in contravention of these Bylaws; or
(D) a general or limited partnership all of
the partnership interests in which are owned by
holders of Shares (or one or more members of the
immediate family of a holder of Shares), provided
that no such holder has acquired Shares in
contravention of these Bylaws.
(b) Family Member Defined. For purposes of clause (a)(ii) above,
"members of the immediate family" shall be limited to any child, stepchild,
grandchild, parent, stepparent, grandparent,
(31)
<PAGE>
Amended and
Restated as of
June 14, 1996
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, and shall include adoptive relationships.
(c) Evidence of Compliance. Prior to any sale, transfer or disposition
of Shares, the holder may be required, at the option of the Company, to furnish
appropriate evidence of compliance with these Bylaws, including but not limited
to an opinion of counsel.
(d) Conversion. Shares may be converted to shares of the Company's
Common Stock and sold, transferred or disposed of without regard to the
limitations set forth in clause (a) above.
(e) Pledge. The bona fide pledge of Shares as collateral security for
indebtedness to the pledgee shall not be deemed to violate clause (a) above,
provided that the pledgee provides to the Company a written undertaking not to
sell, transfer or dispose of the Shares in violation of these Bylaws.
(f) Legend. All certificates evidencing the Shares (and replacement
certificates issued in their stead) shall be inscribed with the following legend
(in addition to any other legends required hereunder or under federal or state
securities laws):
"The Shares of Class A Common Stock represented by
this certificate may be sold, transferred or otherwise
disposed of only in accordance with the terms and conditions
set forth in the Company's
(32)
<PAGE>
Amended and
Restated as of
June 14, 1996
Bylaws, which terms and conditions restrict, and in some
instances prohibit, the transfer or other disposition of such
Shares and which terms and conditions may only be amended by
shareholders owning 75% or more of the outstanding shares of
Class A Common Stock. The terms and conditions set forth in
the Company's Bylaws are incorporated herein by reference and
copies thereof are available for inspection or will be mailed
by the Company to any holder without charge within five days
after the Company's receipt of a written request therefor."
(g) Vote Required to Amend. This Section 8.7 may only be amended by
shareholders owning 75% or more of the outstanding Shares.
(h) Injunctive Relief. Since money damages would be inadequate, the
Company or any holder of Shares shall be entitled to injunctive relief to
enforce this Section 8.7.
(33)
EXHIBIT 4.1
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR DEFINITIVE
ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
NUMBER SHARES
DOVER DOWNS ENTERTAINMENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN RESTRICTIONS
CUSIP
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF
DOVER DOWNS ENTERTAINMENT, INC.
of the par value of $.10 per share, transferable on the books of the Corporation
by the registered owner hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Corporate
Seal.
Dated:
Denis McGlynn
President
Robert M. Comollo
Secretary
COUNTERSIGNED AND REGISTERED.
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
Any and all shares of Common Stock of the Corporation are held subject to the
condition that if (a) any regulatory authority should request, determine or
otherwise advise that the holder or owner is disqualified, or unsuitable,
must qualify for or obtain a license, or must submit an application and
satisfy a review process, including background checks, in order for the
Corporation or any subsidiary to obtain or retain a license or a relicense, or
otherwise avoid significant penalties or business disadvantage, and (b) such
holder or owner shall fail to submit to qualification within fifteen (15) days
following such request, determination or advice, or fail to be found qualified
or suitable, then (c) such holder or owner, at the request of the Corporation or
the appropriate regulatory authority, shall promptly dispose of such holder's or
owner's interest in the Corporation's Common Stock and shall be subject to any
order of such regulatory body limiting such holder's or owner's rights pending
such disposition. Without limiting the foregoing, any holder or owner that
intends to acquire, directly or indirectly, ten percent (10%) or more of the
outstanding common stock of the Corporation (regardless of class or series)
shall first notify the Corporation and obtain prior written approval from the
Delaware State Lottery Office. Since money damages are inadequate to protect the
Corporation, it shall be entitled to injunctive relief to enforce the foregoing
provision.
This certificate also evidences and entities the holder to certain Rights as
set forth in a Rights Agreement between the Corporation and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, dated as of June 14, 1996 (the
"Rights Agreement"), the terms of which are incorporated herein by reference
and a copy of which is on file at the principal executive office of the
Corporation. Under certain circumstances, as set forth in the Rights Agreement,
such Rights wil be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Corporation will mail to the holder of this
certificate a copy of the Rights Agreement without charge within five days after
receipt by it of a written request therefor. Under certain circumstances as
provided in the Rights Agreement, Rights issued to or beneficially owned by
Acquiring Person or their Associates or Affiliates (as such terms are defined
in the Rights Agreement) or any subsequent holder of such Rights may become
null and void as provided in Section 11(a)(ii) of the Rights Agreement.
The Corporation will furnish to any stockholder upon request and without
charge a full statement of the designations, preferences, limitations, and
relative rights of the shares of each class of stock authorized to be issued
and, with respect to the classes of stock which may be issued in series, the
variations in the relative rights and preferences between the shares of each
such series, so far as the same have been fixed and determined, and the
authority of the Board of Directors to fix and determine the relative rights
and preferences of subsequent series. Such request may be made to the Secretary
of the Corporation at its principal office or to the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in
full according to applicable laws of regulations:
<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian _________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act______________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFIYING NUMBER OF ASSIGNEE
- ----------------------------------------
/ /
- -------------------------------------------------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated__________________________________________
_______________________________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular, without
alteration or enlargement or any change whatever.
EXHIBIT 4.2
DOVER DOWNS ENTERTAINMENT, INC.
RIGHTS AGREEMENT WITH RESPECT TO COMMON STOCK
This agreement ("Rights Agreement"), dated as of June 14,
1996, between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Board of Directors of the Company on June 14, 1996
(the "Record Date"), authorized and declared the issuance of one right (a
"Right") for each share of Common Stock (as hereinafter defined) of the Company
that shall become outstanding (whether originally issued or delivered from the
Company's treasury) between the Record Date and the Distribution Date (as
defined herein), each Right representing the right to purchase one share
(subject to adjustment) of Common Stock;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Rights
Agreement, the following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates (as such term is hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 10% or more of the outstanding Subject
Stock (as hereinafter defined); provided, however, that an
Acquiring Person shall not
<PAGE>
include an Exempt Person (as such term is hereinafter
defined). Notwithstanding the foregoing, no Person shall
become an "Acquiring Person" as a result of an acquisition of
shares of Subject Stock by the Company which, by reducing the
number of such shares then outstanding, increases the
proportionate number of shares beneficially owned by such
person to 10% or more of the outstanding Subject Stock;
provided that if a Person (other than an Exempt Person)
becomes the Beneficial Owner of 10% or more of the outstanding
Subject Stock by reason of share purchases by the Company and,
after such share purchases by the Company, becomes the
Beneficial Owner of any additional shares of Subject Stock,
such Person shall be deemed to be an "Acquiring Person." The
word "outstanding," when used with reference to a Person's
Beneficial Ownership of securities of the Company, shall mean
the number of such securities then issued and outstanding
together with the number of such securities not then issued
and outstanding which such Person would be deemed to own
beneficially hereunder.
(b) "Adjustment Shares" shall have the meaning set
forth in Section 11(a)(ii) hereof.
(c) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Rights Agreement.
(d) A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own", any securities:
2
<PAGE>
(i) which such Person or any of such
Person's Affiliates or Associates beneficially owns,
directly or indirectly;
(ii) which such Person or any of such
Person's Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable
immediately or only after the passage of time)
pursuant to any agreement, arrangement or
understanding, whether or not in writing, or upon the
exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", (x)
securities tendered pursuant to a tender or exchange
offer made by such Person or any of such Person's
Affiliates or Associates until such tendered
securities are accepted for purchase or exchange or
(y) securities which such Person has a right to
acquire on the exercise of Rights at any time prior
to the occurrence of a Section 11(a)(ii) Event or a
Section 13 Event or (z) securities issuable upon
exercise of Rights from and after the occurrence of a
Section 11(a)(ii) Event or a Section 13 Event,
provided such Rights were acquired by such Person or
any of such Person's Affiliates or Associates prior
to the Distribution Date or pursuant to Section 3(a)
or Section 22 hereof ("Original Rights") or pursuant
to Section 11(i) with respect to an adjustment to
original Rights; or (B) the right to vote pursuant to
any agreement, arrangement or understanding (whether
or not in writing); provided, however, that a Person
shall not be deemed the
3
<PAGE>
"Beneficial Owner" of, or to "beneficially own", any
securities if the agreement, arrangement or
understanding to vote such security (1) arises solely
from a revocable proxy or consent given in response
to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is
not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly
or indirectly, by any other Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding, whether or not in writing, for the
purpose of acquiring, holding, voting (except as
described in clause (B) of subparagraph (ii) of this
paragraph (d)) or disposing of any securities of the
Company. Notwithstanding anything in this paragraph
(d) to the contrary, a Person engaged in the business
of underwriting securities shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", any
securities acquired in good faith in a firm
commitment underwriting until the expiration of sixty
days after the date of such acquisition.
(e) "Board of Directors" shall mean the Board of
Directors of the Company or any duly authorized committee
thereof.
(f) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in
the City of New York are authorized
4
<PAGE>
or obligated by law or executive order to close.
(g) "Class A Common Stock" shall mean the Company's
class A common stock, par value $.10 per share, entitled to
ten votes per share. Class A Common stock is presently
convertible into Common Stock on a share for share basis.
Common Stock and Class A Common Stock have presently equal
rights with respect to any distribution in complete or partial
liquidation and with respect to consideration which may be
received in a merger or consolidation of the Company.
(h) "close of business" on any given date shall mean
5:00 P.M., New York City time, on such date; provided,
however, that if such date is not a Business Day it shall mean
5:00 P.M., New York City time, on the next succeeding Business
Day.
(i) "Common Stock" shall mean the Company's common
stock, par value $.10 per share, entitled to one vote per
share. When used with reference to any Person other than the
Company which shall be organized in corporate form, "common
stock" shall mean the capital stock or other equity security
with the greatest per share voting power of such Person. When
used with reference to any Person other than the Company which
shall not be organized in corporate form, "common stock" shall
mean units of beneficial interest which shall represent the
right to participate in profits, losses, deductions and
credits of such Person and which shall be entitled to exercise
the greatest voting power per unit of such Person.
5
<PAGE>
(j) "common stock equivalents" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(k) "Current Market Price" shall have the meaning set
forth in section 11(d) hereof.
(l) "Current Value" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(m) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
(n) "equivalent common stock" shall have the meaning
set forth in Section 11(b) hereof.
(o) "Exchange Act" shall have the meaning set forth
in Section 1(c) hereof.
(p) "Exempt Person" shall mean the Company, any
Subsidiary of the Company, any employee benefit plan or
employee stock plan, including, but not limited to, a Stock
Option Plan, of the Company or of any Subsidiary of the
Company, any Person holding Common Stock for or pursuant to
the terms of any such plan, or any Person that is a Beneficial
Owner of 10% or more of the Subject Stock on the date hereof.
(q) "Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(r) "Final Expiration Date" shall have the meaning
set forth in Section 7(a) hereof.
6
<PAGE>
(s) "invalidation time" shall have the meaning set
forth in Section 11(a)(ii) hereof.
(t) "NASDAQ" shall have the meaning set forth in
Section 11(d) hereof.
(u) "NYSE" shall have the meaning set forth in
Section 9(b) hereof.
(v) "Subject Stock" shall mean both the Company's
Common Stock and Class A Common Stock. Equity percentages
relative to the Subject Stock shall refer to the combined
equity of Common Stock and Class A Common Stock.
(w) "Permitted Tender Offer" shall mean an all cash
tender offer for all outstanding shares of Subject Stock of
the Company on the same terms (i) which is made pursuant to
schedule 14D-1 filed with the Securities and Exchange
Commission, (ii) pursuant to which no purchases of Subject
Stock are made for at least 60 days from the date the offer is
first published, sent or given within the meaning of Rule
14d-2(a) under the Exchange Act and (iii) which is accepted by
the holders of not less than the number of shares of Subject
Stock that, when aggregated with the number of shares of
Subject Stock owned by the person making the offer (and its
Affiliates or Associates) equals or exceeds 75% of the then
outstanding shares of Subject Stock.
(x) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(y) "Principal Party" shall have the meaning set
forth in Section 13(b) hereof.
7
<PAGE>
(z) "Purchase Price" shall have the meaning set forth
in Section 4(a) hereof.
(aa) "Redemption Price" shall have the meaning set
forth in Section 23(a) hereof.
(bb) "Right Certificate" shall have the meaning set
forth in Section 3(a) hereof.
(cc) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) (A), (B) or (C) hereof.
(dd) "Section 11(a)(ii) Trigger Date" shall have the
meaning set forth in Section 11(a)(iii) hereof.
(ee) "Section 13 Event" shall mean any event
described in clause (x), (y) or (z) of Section 13(a) hereof.
(ff) "Securities Act" shall mean the Securities Act
of 1933, as amended.
(gg) "Stock Acquisition Date" shall mean the first
date of public announcement by the Company or an Acquiring
Person that the Acquiring Person has become such or such
earlier date as a majority of the Board of Directors of the
Company shall become aware of the existence of an Acquiring
Person.
(hh) "Substitution Period" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(ii) "Subsidiary" of a Person shall mean any
corporation or other entity of which securities or other
ownership interests having ordinary voting power
8
<PAGE>
sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially
owned, directly or indirectly, by such Person and any
corporation or other entity that is otherwise controlled by
such Person.
(jj) "Summary of Rights" shall have the meaning set
forth in Section 3(b) hereof.
(kk) "Trading Day" shall have the meaning set forth
in Section 11(d) hereof.
(ll) "Triggering Event" shall mean any event
described in Section 11(a)(ii)(A), (B), or (C) or Section 13
hereof.
Any determination required by the definitions contained or referred to in this
Section 1 shall be made by the Board of Directors in good faith, and any such
determination shall be binding on the Rights Agent and the holders of the
Rights.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may change Rights Agents at its discretion. The Company
may from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issuance of Right Certificates.
(a) Until the close of business on the day (the "Distribution
Date") which is the earlier of (i) the tenth day after the Stock Acquisition
Date or (ii) such date as the Board of Directors may fix following the
commencement by any Person (other than an Exempt Person)
9
<PAGE>
of, or the first public announcement of the intent of any Person (other than an
Exempt Person) to commence, a tender or exchange offer upon the successful
consummation of which such Person, together with its Affiliates and Associates,
would be the Beneficial Owner of 10% or more of the outstanding Subject Stock
(irrespective of whether any shares are actually purchased pursuant to any such
offer), provided that such date fixed by the Board of Directors shall not be
later than the nineteenth Business Day after the date of such commencement or
public announcement (the date specified in clauses (i) and (ii) being subject to
extension by the Board of Directors pursuant to Section 25 hereof), (x) the
Rights will be evidenced (subject to the provisions of Section 3(c) hereof) by
the certificates for the Common Stock registered in the names of the holders of
the Common Stock and not by separate Right certificates, and (y) each Right will
be transferable only in connection with the transfer of a share (subject to
adjustment as hereinafter provided) of Common Stock; provided that if the
Distribution Date would be prior to the Record Date, the Record date shall be
the Distribution Date; and provided, further, that if a tender or exchange offer
referred to in clause (ii) above is cancelled or withdrawn prior to the
Distribution Date, such offer shall be deemed, for purposes of this Rights
Agreement, never to have been made. As soon as practicable after the
Distribution Date, the Rights Agent will mail, by first-class, postage prepaid
mail, to each record holder of the Common Stock as of the close of business on
the Distribution Date, as shown by the records of the Company, at the address of
such holder shown on such records, a Right certificate in substantially the form
of Exhibit A hereto ("Right Certificate") evidencing one Right for each share of
Common Stock so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per share of Common Stock has been
made pursuant to Section 11(p) hereof, at the
10
<PAGE>
time of distribution of the Right Certificates, the Company shall make the
necessary and appropriate rounding adjustments (in accordance with Section 14(a)
hereof) so that Right Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date the rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Common Stock,
substantially in the form attached hereto as Exhibit B ("Summary of Rights"), by
first-class, postage prepaid mail, to each record holder of Common Stock as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company.
(c) With respect to certificates for Common Stock outstanding
as of the Record Date, until the Distribution Date (or, if earlier, the
Expiration Date), the Rights will be evidenced by such certificates for Common
Stock registered in the names of the holders thereof together with a copy of the
Summary of Rights. Until the Distribution Date (or, if earlier, the Expiration
Date), the surrender for transfer of any certificate for Common Stock
outstanding on the Record Date, with or without a copy of the Summary of Rights,
shall also constitute the surrender for transfer of the Rights associated with
the Common Stock represented thereby.
(d) Rights shall be issued in respect of all shares of Common
Stock that become outstanding after the Record Date but prior to the earlier of
the Distribution Date or the expiration Date and, in certain circumstances
provided in Section 22 hereof, may be issued in respect of shares of Common
Stock that become outstanding after the Distribution Date. Certificates issued
for Common Stock (including, without limitation, certificates issued upon
11
<PAGE>
original issuance, disposition from the Company's treasury or transfer or
exchange of Common Stock) after the Record date but prior to the earlier of the
Distribution Date, the Expiration Date or the Final Expiration Date (or, in
certain circumstances as provided in Section 22 hereof, after the Distribution
Date) shall have impressed on, printed on, written on or otherwise affixed to
them the following (or a substantially similar) legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement between
the Corporation and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent, dated as of June 14, 1996 (the "Rights
Agreement"), the terms of which are incorporated herein by
reference and a copy of which is on file at the principal
executive office of the Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Corporation will
mail to the holder of this certificate a copy of the Rights
Agreement without charge within five days after receipt by it
of a written request therefor. Under certain circumstances as
provided in the Rights Agreement, Rights issued to or
beneficially owned by Acquiring Persons or their Associates or
Affiliates (as such terms are defined in the Rights Agreement)
or any subsequent holder of such Rights may become null and
void as provided in Section 11(a)(ii) of the Rights Agreement.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock represented by such certificates shall, until
the Distribution Date, be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to
purchase shares and of assignment to be printed on the reverse thereof), when,
as and if issued, shall be substantially in the form set forth in Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may
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deem appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Sections 11 and 22 hereof, the Right
Certificates evidencing the Rights, whenever issued, shall be dated as of the
Record Date, and on their face Right Certificates shall entitle the holders
thereof to purchase one share of Common Stock, or other securities or property
as provided herein, as the same may from time to time be adjusted as provided
herein, at the price per share set forth therein, as the same may from time to
time be adjusted as provided herein (the "Purchase Price").
(b) Notwithstanding any other provision of this Rights
Agreement, any Right Certificate that represents Rights that are beneficially
owned by (i) an Acquiring Person or any Affiliate or Associate thereof, (ii) a
transferee of an Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the Acquiring Person became such or (iii) a
transferee of an Acquiring Person who becomes a transferee prior to or
concurrently with the Acquiring Person's becoming such pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer (whether or not for consideration) which the Board of Directors has
determined is part of a plan, arrangement or understanding which has the purpose
or effect of avoiding the provisions of Section 11(a)(ii) hereof, and subsequent
transferees of such Persons (or of any transferee of such Rights), and any Right
Certificate issued pursuant to Section 6 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
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sentence, shall have impressed on, printed on, written on or otherwise affixed
to it (if the Company or the Rights Agent has knowledge that such Person is an
Acquiring Person or an Associate or Affiliate thereof or transferee of such
Persons or a nominee of any of the foregoing) the following legend:
The beneficial owner of the Rights represented by this Right
Certificate is an Acquiring Person or an Affiliate or
Associate (as defined in the Rights Agreement) of an Acquiring
Person or a subsequent holder of such Right Certificates
beneficially owned by such Persons. Accordingly, under certain
circumstances as provided in the Rights Agreement, this Right
Certificate and the Rights represented hereby may become null
and void as provided in Section 11(a)(ii) of the Rights
Agreement.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Right Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, issued and delivered
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the
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<PAGE>
execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates, the
date of each of the Right Certificates, and the certificate numbers for each of
the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions hereof, at any time after the
close of business on the Distribution Date and at or prior to the close of
business on the Expiration Date, any Right Certificate or Certificates may be
(i) transferred or (ii) split up, combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase a
like number of shares of Common Stock as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer any Right Certificate shall surrender the Right
Certificate at the shareholder services office of the Rights Agent with the form
of assignment on the reverse side thereof duly endorsed (or enclose with such
Right Certificate a written instrument of transfer in form satisfactory to the
Company and the Rights Agent), duly executed by the registered holder thereof or
his attorney duly authorized in writing, and with such signature duly
guaranteed. Any registered holder desiring to split up, combine or exchange any
Right Certificate shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
split up, combined or exchanged at the shareholder services office of the Rights
Agent. Thereupon the Rights Agent, subject to the
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provisions hereof, shall countersign (by manual signature) and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation or a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, if requested by
the Company, reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will execute and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
owner in lieu of the Right Certificate to lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.
(a) Except as otherwise provided herein, the Rights shall
become exercisable at the close of business on the Distribution Date, and may be
exercised in whole or in part at any time after the Distribution Date upon
surrender of the Right Certificates, with the form of election to purchase on
the reverse side thereof duly executed (with such signature duly guaranteed), to
the Rights Agent at its principal office in New York, New York, together with
payment of the aggregate Purchase Price, subject to adjustment as hereinafter
provided, with respect to the number of shares of Common Stock (except as
otherwise provided herein) as to which such surrendered Rights are then being
exercised, at or prior to the close of business on the date (the "Expiration
Date") which is the earlier of (i) June 13, 2006 (the "Final Expiration Date"),
or (ii) the time at
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<PAGE>
which the Rights are redeemed as provided in Section 23 hereof.
(b) The Purchase Price shall initially be $250 for each share
of Common Stock issued pursuant to the exercise of a Right. The Purchase Price
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof. The Purchase Price shall be payable in lawful money of the United
States of America, in accordance with Section 7(c) hereof.
(c) Except as provided in Section 7(d) hereof, upon receipt of
a Right Certificate representing exercisable Rights with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares to be purchased and an amount equal to any applicable transfer
tax, by cash, certified or official bank check or draft payable to the order of
the Company or the Rights Agent, the Rights Agent shall, subject to Section
20(j) hereof, thereupon promptly (i) provide itself or requisition from any
transfer agent of the Common Stock certificates for the number of shares of
Common Stock so elected to be purchased and the Company will comply and hereby
authorizes and directs such transfer agent to comply with all such requests,
(ii) requisition from the Company the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 14(b) hereof, and (iii)
promptly after receipt of such Common Stock certificates cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and, when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities, other than Common Stock
of the Company, pursuant to Section 13 hereof, the Rights Agent shall promptly
take the appropriate actions corresponding to the foregoing clauses (i) through
(iii). In the event that the Company is obligated to issue other
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<PAGE>
securities of the Company, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Rights Agreement.
The Company shall deliver to the Rights Agent for cancellation and retirement,
and the Rights Agent shall so cancel and retire, any
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<PAGE>
Right Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Shares of Common
Stock.
(a) The Company covenants and agrees that at all times it will
cause to be reserved and kept available, out of and to the extent of its
authorized and unissued shares of Common Stock not reserved for another purpose
or shares held in its treasury, the number of shares of Common Stock (and,
following the occurrence of a Triggering Event, other securities) that, as
provided in this Agreement, including Section 11(a)(ii) hereof, will be
sufficient to permit the exercise in full of all outstanding Rights; provided,
however, that the Company shall not be required to reserve and keep available
shares of Common Stock or other securities sufficient to permit the exercise in
full of all outstanding Rights pursuant to the adjustments set forth in Section
11(a)(ii), Section 11(a)(iii) or Section 13 hereof unless the Rights become
exercisable pursuant to such adjustments, and then only to the extent the Rights
become exercisable pursuant to such adjustments.
(b) The Company shall (i) use its best efforts to cause, from
and after such times as the Rights become exercisable, the Rights and all shares
of Common Stock (and following the occurrence of a Triggering Event, other
securities) issued or reserved for issuance upon exercise thereof to be listed
on the New York Stock Exchange (the "NYSE") upon official notice of issuance
upon such exercise and (ii) if then necessary to permit the offer and issuance
of such shares of Common Stock (and, following the occurrence of a Triggering
Event, other securities),
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<PAGE>
register and qualify such shares of Common Stock (and, following the occurrence
of a Triggering Event, other securities) under the Securities Act and any
applicable state securities or "blue sky" laws (to the extent exemptions
therefrom are not available), cause such registration statement and
qualifications to become effective as soon as possible after such filing and
keep such registration and qualifications effective until the earlier of the
date as of which the Rights are no longer exercisable for such securities or the
Expiration Date of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety days, the exercisability of the Rights in order to
prepare and file a registration statement under the Securities Act and permit it
to become effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.
(c) The Company covenants and agrees that it will take all
such actions as may be necessary to insure that all shares of Common Stock (and
following the occurrence of a Triggering Event, other securities) delivered upon
exercise of Rights shall, to the extent applicable, at the time of delivery of
the certificates for such shares (subject to payment of the Purchase Price in
respect thereof), be duly and validly authorized and issued and fully paid and
nonassessable shares in accordance with applicable law.
(d) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect
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<PAGE>
of the issuance or delivery of the Right Certificates or of any shares of Common
Stock (or other securities, as the case may be) upon the exercise of Rights. The
Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a Person
other than the registered holder of the Right Certificate, or the issuance or
delivery of certificates for Common Stock (or other securities, as the case may
be) upon exercise of Rights in a name other than that of, the registered holder
of the Right Certificate, and the Company shall not be required to issue or
deliver a Right Certificate or certificate for Common Stock (or other
securities, as the case may be) to a person other than such registered holder
until any such tax shall have been paid (any such tax being payable by the
holder of such Right Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
Section 10. Common Stock Record Date. Each Person in whose
name any certificate for shares of Common Stock (or other securities, as the
case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Common Stock (or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such rights
was duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made.
Section 11. Adjustments to Number and Kind of Shares, Number
of Rights or Purchase Price.
The number and kind of shares subject to purchase upon the
exercise of each Right, the number of Rights outstanding and the Purchase Price
are subject to adjustment from time to time as provided in this Section 11.
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<PAGE>
(a) (i) In the event the Company shall at any time after the
Record Date (A) declare or pay any dividend on Common Stock payable in shares of
Common Stock, (B) subdivide or split the outstanding shares of Common Stock into
a greater number of shares, (C) combine or consolidate the outstanding shares of
Common Stock into a smaller number of shares or effect a reverse split of the
outstanding shares of Common Stock or (D) issue any shares of its capital stock
in a reclassification of the Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), except as otherwise provided in this
Section 11(a), the Purchase Price in effect immediately prior to the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of Common
Stock or capital stock, as the case may be, issuable upon exercise of a Right on
such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of an
amount equal to (x) the Purchase Price in effect immediately prior to the record
date or effective date of such dividend, subdivision, combination or
reclassification multiplied by (y) the number of shares of Common Stock or
capital stock, as the case may be, as to which a Right was exercisable
immediately prior to such date, the aggregate number and kind of shares of
Common Stock or capital stock, as the case may be, which, if such Right had been
exercised immediately prior to such date, the holder thereof would have owned
upon such exercise and been entitled to receive, or would be deemed to have
owned, by virtue of such dividend, subdivision, combination or reclassification.
If an event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this
Section 11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
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(ii) In the event, at any time after the date
of this Agreement
(A) any Acquiring Person, directly or
indirectly, other than pursuant to any transaction
set forth in Section 13(a) hereof, (1) shall merge
with and into the Company or any of its Subsidiaries
or otherwise combine with the Company or any of its
Subsidiaries and the Company or such Subsidiary
shall be the continuing or surviving corporation of
such merger combination and the Common Stock of the
Company shall remain outstanding and no shares
thereof shall be changed into or exchanged for stock
or other securities of the Company or of any other
Person or cash or any other property, or (2) shall,
in one or more transactions, other than in
connection with the exercise of a Right or Rights
and other than in connection with the exercise or
conversion of securities exercisable for or
convertible into securities of the Company or of any
Subsidiary of the Company (which securities were
outstanding prior to the time the Acquiring Person
became such), transfer any assets or property to the
Company or any of its Subsidiaries in exchange (in
whole or in part) for any shares of any class of
capital stock of the Company or any of its
Subsidiaries or any securities exercisable for or
convertible into shares of any class of capital
stock of the Company or any of its Subsidiaries, or
otherwise obtain from the Company or any of its
Subsidiaries, with or without consideration, any
additional shares of any class of capital stock of
the Company or any of its Subsidiaries or any
securities exercisable for or convertible into
shares of
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<PAGE>
any class of capital stock of the Company or any of
its Subsidiaries (other than as part of a pro rata
offer or distribution by the Company or such
Subsidiary to all holders of such shares), or (3)
shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire (other than as
a pro rata dividend) or dispose, in one transaction
or a series of transactions, to, from or with, as
the case may be, the Company or any of its
Subsidiaries, assets (including securities) on terms
and conditions less favorable to the Company or such
Subsidiary than the Company or such Subsidiary would
be able to obtain in arm's-length negotiation with
an unaffiliated third party, or (4) shall receive
any compensation from the Company or any of its
Subsidiaries for services other than compensation
for employment as a regular or part time employee,
or fees for serving as a director, at rates in
accordance with the Company's (or its Subsidiaries')
past practices, or (5) shall receive the benefit,
directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees,
pledges or other financial assistance or any tax
credits or tax advantage provided by the Company or
any of its Subsidiaries, or (6) shall sell,
purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire (other than as a pro
rata dividend) or dispose, in one transaction or a
series of transactions, to, from or with, as the
case may be, the Company or any of its subsidiaries
(other than in connection with the lines of
business, if any, engaged in between the Company and
the Acquiring Person or
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<PAGE>
Associate or Affiliate thereof prior to the time the
Acquiring Person became such) assets having an
aggregate fair market value of more than
$100,000,000; or
(B) any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring
Person; other than pursuant to a Permitted Tender
Offer; or
(C) during such time as there is an
Acquiring Person, there shall be any
reclassification of securities (including any
reverse stock split), or any recapitalization of the
Company, or any merger or consolidation of the
Company with any of its Subsidiaries or any other
transaction or series of transactions involving the
Company or any of its Subsidiaries (whether or not
with or into or otherwise involving an Acquiring
Person or any Affiliate or Associate of such
Acquiring Person) which has the effect, directly or
indirectly, of increasing by more than 1% the
proportionate share of the outstanding shares of any
class of equity securities of the Company or any of
its Subsidiaries, or securities exercisable for or
convertible into equity securities of the Company or
any of its Subsidiaries, which is directly or
indirectly beneficially owned by any Acquiring
Person or any Affiliate or Associate of any
Acquiring Person;
then, subject to the last sentence of Section 23(a) hereof, and except as
otherwise provided in this Section 11, each holder of a Right shall thereafter
have the right to receive, upon exercise of a Right in accordance with the terms
of this Rights Agreement and payment of the aggregate
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Purchase Price with respect to the total number of shares of Common Stock for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, such number of shares of Common Stock of the Company as
shall equal the result obtained by (x) multiplying the then current Purchase
Price by the number of shares of Common Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product by 50% of the Current Market Price per share of Common
Stock on the date of such first occurrence (such number of shares is herein
called the "Adjustment Shares"); provided that the number of Adjustment Shares
shall be further appropriately adjusted to reflect any events described in
Sections 11(a)(i), (b) or (c) hereof occurring after the date of such first
occurrence; and provided, further, that if the transaction that would otherwise
give rise to the foregoing adjustment is also subject to the provisions of
Section 13 hereof, then only the provisions of Section 13 hereof shall apply and
no adjustment shall be made pursuant to this Section 11(a)(ii).
Notwithstanding anything in this Rights Agreement to the contrary,
from and after the time (the "invalidation time") when (A) any Person first
becomes an Acquiring Person, other than through a Permitted Tender Offer or (B)
there occurs any event described in Section 11(a)(ii)(A) or (C) in respect of
any Acquiring Person who became such through a Permitted Tender Offer, any
Rights that are beneficially owned by (x) such Acquiring Person (or any
Associate or Affiliate of such Acquiring Person), (y) a transferee of such
Acquiring Person (or any such Associate or Affiliate) who becomes a transferee
after the invalidation time or (z) a transferee of such Acquiring Person (or any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the invalidation time pursuant to either (I) a transfer from the Acquiring
Person to holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or
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<PAGE>
understanding regarding the transferred Rights or (II) a transfer which the
Board of Directors has determined is part of a plan, arrangement or
understanding which has the purpose or effect of avoiding the provisions of this
paragraph, and subsequent transferees of such Persons, shall be void without any
further action and any holder of such Rights shall thereafter have no rights
whatsoever with respect to such rights under any provision of this Rights
Agreement. The Company shall use all reasonable effort to insure that the
provisions of this Section 11(a)(ii) and of Section 4(b) hereof are complied
with, but shall have no liability to any holder of Right Certificates or other
Person as a result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder. No
Right Certificate shall be issued pursuant to Section 3 hereof that represents
Rights beneficially owned by an Acquiring Person whose Rights would be void
pursuant to the provisions of this paragraph or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
provisions of this paragraph or any Associate or Affiliate thereof or to any
nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the provisions of this paragraph shall be
cancelled.
(iii) In the event that the number of shares of
Common Stock which are authorized by the Company's certificate of incorporation
but not outstanding or reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the exercise in full of the
Rights in accordance with Section 11(a)(ii) and the Rights shall become so
exercisable, the Company shall, to the extent permitted by applicable law and
any material agreements in effect on the date hereof to which the Company is a
party: (A) determine the value
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<PAGE>
of the Adjustment Shares issuable upon the exercise of a Right (the "Current
Value") and (B) with respect to each Right, upon exercise of such Right, issue
shares of Common Stock to the extent available for the exercise in full of such
Right and, to the extent shares of Common Stock are not so available, make
adequate provision to substitute for the Adjustment Shares not received upon
exercise of such Right (1) cash, (2) other equity securities of the Company
(including, without limitation, shares or units of shares of preferred stock
which, by virtue of having dividend, voting and liquidation rights substantially
comparable to those of the Common Stock, are deemed in good faith by the Board
of Directors to have substantially the same value as shares of Common Stock
(such shares or units of shares of preferred stock are herein called "common
stock equivalents")), (3) debt securities of the Company, (4) other assets, (5)
a reduction of the Purchase Price or (6) any combination of the foregoing,
having a value which, when added to the value of the shares of Common Stock
actually issued upon exercise of such Right, shall have an aggregate value equal
to the Current Value, where such aggregate value has been determined in good
faith by the Board of Directors based upon the advice of a nationally recognized
independent investment banking firm selected in good faith by the Board of
Directors; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty days
following the date (the "Section 11(a)(ii) Trigger Date") which is the later of
(x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which
the Company's right of redemption pursuant to Section 23(a) expires, then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the excess of (x) the Current Value
over (y) the Purchase Price times the number
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<PAGE>
of shares of Common Stock for which a Right was exercisable immediately prior to
the first occurrence of a Section 11(a)(ii) Event. If the Board of Directors
shall determine in good faith that it is likely sufficient additional shares of
Common Stock could be authorized for issuance upon exercise in full of the
Rights, the thirty day period set forth above may be extended to the extent
necessary, but not more than ninety days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek shareholder approval for the
authorization of such additional shares (such thirty day period, as it may be
extended, is herein called the "Substitution Period"). To the extent that the
Company determines that some action must be taken pursuant to the first and/or
second sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this Section
11(a)(iii), that such action shall apply uniformly to all outstanding Rights
until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the Current Market Price per share of the
Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit
value of any "common stock equivalent" shall be deemed to equal the Current
Market Price per share of the Common Stock on such date. The Board of Directors
may, but shall not be required to, establish procedures to allocate the right to
receive Common Stock upon the exercise of the Rights among holders of rights
pursuant to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance
of rights (other than
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the Rights), options or warrants to all holders of Common Stock entitling them
to subscribe for or purchase (for a period expiring within forty-five calendar
days after such record date) Common Stock, shares having the same rights,
privileges and preferences as the Common Stock ("equivalent common stock") or
securities convertible into Common Stock or equivalent common stock at a price
per share of Common Stock or equivalent common stock (or having a conversion
price per share, if a security convertible into Common Stock or equivalent
common stock) less than the Current Market Price per share of Common Stock on
such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date, plus the
number of shares of Common Stock which the aggregate offering price of the total
number of shares of Common Stock and/or equivalent common stock (and/or the
aggregate initial conversion price of the convertible securities so to be
offered, including the price required to be paid to purchase such convertible
security) would purchase at such current Market Price, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date, plus the number of additional shares of Common Stock and/or equivalent
common stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such non-cash consideration shall
be as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Shares of Common Stock owned by or held for the account of the Company shall not
be deemed outstanding for the purpose of any such computation. Such
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adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution
to all holders of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Common Stock, but including any dividend
payable in stock other than Common Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price per share of Common Stock
on such record date, less the fair market value (as described in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Common Stock and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustments
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would have been in effect if such record
date had not been fixed.
(d) For the purpose of any computation hereunder (including
computations pursuant to Section 14 hereof), other than computations made
pursuant to Section 11(a)(iii) hereof, the
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"Current Market Price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of the Common Stock for the
thirty consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for purpose of computations made pursuant to
Section 11(a)(iii) hereof, the "Current Market Price" per share of the Common
Stock on any date shall be deemed to be the average of the daily closing prices
per share of the Common Stock for the ten consecutive Trading Days immediately
following such date; provided, however, that in the event that the Current
Market Price per share of the Common Stock is determined during a period
following the announcement by the issuer of the Common Stock of (i) any dividend
or distribution on the Common Stock (other than a regular quarterly cash
dividend) or (ii) any subdivision, combination or reclassification of the Common
Stock, and prior to the expiration of the requisite thirty Trading Day or ten
Trading Day period, as set forth above, the ex-dividend date for such dividend
or distribution, or the effective date of such subdivision, combination or
reclassification occurs, then, and in each such case, the current Market Price
shall be properly adjusted to take into account ex-dividend trading. The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of common stock are not listed or admitted
to trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the
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high bid and low asked price in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the shares
of Common Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the Company.
If on any such date no market maker is making a market in the Common Stock, the
fair value of such shares on such date as determined in good faith by the Board
of Directors shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, a Business Day. If the Common Stock is not publicly held or
not so listed or traded, "Current Market Price" per share shall mean the fair
value per share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment
in the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest ten-thousandth of a share, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment, or (ii)
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one month prior to the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(i) or (ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the applicable provisions with respect to the shares of common
stock contained in Sections 7, 9, 10, 11, 13, and 14 hereof, and such provisions
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Common Stock
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase that number of shares of Common Stock (calculated
to the nearest ten-thousandth) obtained by (i) multiplying (x) the number of
shares covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect, on or after the date of any adjustment
of the Purchase Price, to adjust the number of Rights, in addition to the
adjustment provided in Section 11(p)
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hereof. Each of the Rights outstanding after the adjustment in the number of
Rights shall be exercisable for a number of shares of Common Stock equal to the
number of shares of Common Stock for which a Right was exercisable immediately
prior to such adjustment multiplied by a fraction the numerator of which shall
be the total number of Rights outstanding immediately prior to such adjustment
and the denominator of which shall be the total number of Rights outstanding
immediately following such adjustment. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least ten days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
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(j) Irrespective of any adjustment or change in the Purchase Price
or the number of shares of Common Stock issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of shares which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value of the shares of Common
Stock issuable upon exercise of the Rights, the Company shall take any corporate
action, including using its best efforts to obtain any required shareholder
approvals, which may, in the opinion of its counsel, be necessary in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the shares of Common Stock and cash, other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and cash, other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares of Common Stock and cash, other capital stock
or securities upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments
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expressly required by this Section 11, as and to the extent that in their good
faith judgment the Board of Directors of the Company shall determine to be
advisable in order that any (i) consolidation or subdivision of the Common
Stock, (ii) issuance for cash of any shares of Common Stock at less than the
current market price, (iii) issuance for cash of shares of Common Stock or
securities which by their terms are convertible into or exchangeable for shares
of Common Stock, (iv) stock dividends or (v) issuance of rights, options or
warrants referred to in this Section 11, hereafter made by the Company to
holders of its Common Stock shall not be taxable to such shareholders. No
reduction in the Purchase Price shall be made as a consequence of the exercise
of qualified or unqualified stock options by employees of the Company to whom
stock options have been granted.
(n) The Company covenants and agrees that it shall not, at any
time after the earlier of the Distribution Date or the Stock Acquisition Date,
(i) consolidate with any other Person, (ii) merge with or into any other Person,
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person or Persons, or (iv) engage
in any transaction described in Section 11(a)(ii) (A) or (C) hereof, if (x) at
the time of or immediately after such consolidation, merger, sale or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale or other transactions, the shareholders of the Person who constitutes, or
would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall
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have received a distribution of Rights previously owned by such Person or any of
its Affiliates and Associates or (z) the form or nature of organization of the
Principal Party would preclude or limit the exercisability of the Rights.
(o) The Company covenants and agrees that, after the earlier of
the Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
(p) Anything in this Rights Agreement to the contrary
notwithstanding, in the event that the Company shall at anytime after the Record
Date and prior to the Distribution Date (i) declare a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
Section 12. Certification of Adjustments. Whenever an adjustment
is made as provided
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in Sections 11 and 13 hereof, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
giving rise to such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Common Stock a copy of such certificate and (c) mail
a brief summary thereof to each record holder of a Right (or, if prior to the
Distribution Date, to each holder of Common Stock) in accordance with Section 25
hereof. Notwithstanding the foregoing sentence, the failure of the Company to
give such notice shall not affect the validity of or the force or effect of or
the requirement for such adjustment. The Rights Agent shall be fully protected
in relying on any certificate prepared by the Company pursuant to Sections 11
and 13 and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, at anytime on or after the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate with
any other Person or Persons or shall merge with and into any other Person or
Persons and the Company shall not be the surviving or continuing corporation of
such merger, or (y) any Person or Persons shall merge with and into the Company,
and the Company shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the outstanding shares of
Common Stock shall be changed into or exchanged for stock or other securities of
any other Person or of the Company or cash or any other property, or (z) the
Company or one or more of its subsidiaries shall sell or otherwise transfer to
any other Person or any Affiliate or Associate of such Person, in one or more
transactions, or the Company or one or more of its Subsidiaries shall sell or
otherwise transfer to any Person in one or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole),
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then, on the first occurrence of any such event, except as may be contemplated
by Section 13(d), proper provision shall be made so that (i) each holder of
record of a Right, other than as provided in Section 11(a)(ii), shall thereafter
have the right to receive, upon the exercise thereof and payment of the
aggregate Purchase Price with respect to the total number of shares for which a
Right was exercisable immediately prior to the first occurrence of a Section 13
Event (or, if earlier, the first occurrence of a Section 11(a)(ii) Event) in
accordance with the terms of this Rights Agreement, such number of shares of
validly issued, fully paid and nonassessable and freely tradeable common stock
of the Principal Party (as defined herein) not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then current Purchase Price by the
number of shares of Common Stock for which a Right was exercisable immediately
prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii)
Event has occurred prior to the first occurrence of a Section 13 Event,
multiplying the Purchase Price in effect immediately prior to the first
occurrence of a Section 11(a)(ii) Event by the number of shares of Common Stock
for which a Right was exercisable immediately prior to such first occurrence of
a Section 11(a)(ii) Event) and (2) dividing that product by 50% of the Current
Market Price (determined as provided in Section 11(d) hereof with respect to the
Common Stock) per share of the common stock of such Principal Party on the date
of consummation of such Section 13 Event; provided that the Purchase Price and
the number of shares of common stock of such Principal Party issuable upon
exercise of each Right shall be further adjusted as provided in this Agreement
to reflect any events occurring after the date of the first occurrence of a
Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the obligations and duties
of the Company
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pursuant to this Rights Agreement; (iii) the term "Company" for all purposes of
this Rights Agreement shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of a
Section 13 Event; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of shares
of its common stock in accordance with Section 9 hereof) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of common stock thereafter deliverable upon the
exercise of the Rights; provided, however, that, upon the subsequent occurrence
of any merger, consolidation, sale of all or substantially all of the assets,
recapitalization, reclassification of shares, reorganization or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise or a Right and
payment of the Purchase Price, such cash, shares, rights, warrants and other
property which such holder would have been entitled to receive had he, at the
time of such transaction, owned the shares of common stock of the Principal
Party purchasable upon the exercise of a Right, and such Principal Party shall
take such steps (including, but not limited to, reservation of shares of stock)
as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights, warrants and
other property and (v) the provisions of Section 11(a)(ii) hereof shall be of no
effect following the occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (x)
or (y) of the first sentence of Section 13(a) hereof; (A)
the Person that is the issuer of the securities into
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which shares of Common Stock of the Company are converted
in such merger or consolidation, or, if there is more than
one such issuer, the issuer the common stock of which has
the greatest aggregate market value of shares outstanding
or (B) if no securities are so issued, (x) the Person that
is the other party to the merger, if such Person survives
said merger or, if there is more than one such Person, the
Person, the common stock of which has the greatest
aggregate market value of shares outstanding or (y) if the
Person that is the other party to the merger does not
survive the merger, the Person that does survive the merger
(including the Company if it survives) or (x) the Person
resulting from the consolidation; and
(ii) in the case of any transaction described in (z)
of the first sentence in Section 13(a) hereof, the Person
that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same
portion of the assets or earning power so transferred or if
the Person receiving the greatest portion of the assets or
earning power cannot be determined, whichever of such
Persons as is the issuer of common stock having the
greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing (b)(i) or
(b)(ii), if the common stock of such Person is not at such time or has not been
continuously over the preceding 12-month period registered under Section 12 of
the Exchange Act, and (1) if such Person is a direct or indirect Subsidiary of
another Person the common stock of which is and has been so registered,
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the term "Principal Party" shall refer to such other Person, or (2) if such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
common stocks of all of which are and have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of the
common stock having the greatest aggregate market value of shares outstanding or
(3) if such Person is owned, directly or indirectly, by a joint venture formed
by two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth in clauses (1) and (2) above shall apply to each of
the owners having an interest in the venture as if the Person owned by the joint
venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in this
Section 13 in the same ratio as its interest in such Person bears to the total
of such interests.
(c) The Company shall not consummate any consolidation, merger,
sale or transfer referred to in Section 13(a) unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Rights Agreement as the same shall
have been assumed by the Principal Party pursuant to Sections 13(a) and (b)
hereof and further providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an
appropriate form, use its best efforts to cause such registration
statement to become effective as soon as practicable after such
filing and use its best efforts to
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cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities
Act) until the Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts, if the common stock of the
Principal Party shall become listed on a national securities
exchange, to list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on such
securities exchange and, if the common stock of the Principal
Party shall not be listed on a national securities exchange, to
cause the Rights and the securities purchasable upon exercise of
the Rights to be reported by NASDAQ or such other system then in
use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects
with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the shares of common stock of the
Principal Party subject to purchase upon exercise of outstanding
Rights.
In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall thereafter be exercisable in the manner described in Section 13(a).
(d) Furthermore, in case the Principal Party which is to be a
party to a transaction referred to in this Section 13 has provision in any of
its authorized securities or in its Certificate of Incorporation or By-laws or
other instrument governing its corporate affairs, which provision
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would have the effect of (i) causing such Principal Party to issue, in
connection with, or as a consequence of, the consummation of a transaction
referred to in this Section 13, shares of common stock of such Principal Party
at less than the then Current Market Price per share (determined pursuant to
Section 11(d) hereof) or securities exercisable for, or convertible into, common
stock of such Principal Party at less than such then Current Market Price (other
than to holders of Rights pursuant to this Section 13) or (ii) providing for any
special payment, tax or similar provisions in connection with the issuance of
the common stock of such Principal Party pursuant to the provisions of Section
13; then, in such event, the Company hereby agrees with each holder of Rights
that it shall not consummate any such transaction unless prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights. If the
Company shall not issue fractions of Rights, in lieu of such fractional Rights,
there shall be paid to the holders of record of the Right Certificates with
regard to which such fractional Rights would otherwise be issuable, an amount in
cash equal to the same fraction of the then current market value of a whole
Right. For the purposes of this Section 14(a), the then current market value of
a Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which fractional Rights would
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have been issuable, determined in the same manner as the closing price of a
share of Common Stock shall be determined pursuant to Section 11(d) hereof.
(b) The Company shall not be required to issue fractions of shares
of Common Stock or other securities of the Company upon exercise of the Rights
or to distribute certificates which evidence fractional shares. In lieu of
issuing fractions of shares of Common Stock or other securities of the Company,
there shall be paid to the holders of record of Right Certificates at the time
such Right Certificates are exercised as herein provided an amount in cash equal
to the same fraction of the then current market value of a share of Common Stock
or other securities of the Company. For purposes of this Section 14(b), the then
current market value of a share of Common Stock or other securities of the
Company shall be the closing price thereof for the Trading Day immediately prior
to the date of such exercise, as determined pursuant to Section 11(d) hereof or
in the same manner as the closing price of a share of Common Stock shall be
determined pursuant to Section 11(d) hereof, as the case may be.
(c) The holder of a Right by the acceptance of a Right expressly
waives his right to receive any fractional Right or any fractional shares of
Common Stock or other securities of the Company upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective holders of record of the Right
Certificates (and, prior to the Distribution Date, the holders of record of the
Common Stock); and any holder of record of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute
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and maintain any suit, action or proceeding against the Company or any other
Person to enforce, or otherwise act in respect of, his right to exercise the
Rights evidenced by such Right Certificate in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and, accordingly, that they will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations of any Person subject to
this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will not be
evidenced by a Right Certificate and will be transferable only in connection
with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the shareholder services office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the person
in whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent or the transfer agent
of the Common Stock) for all purposes whatsoever, and neither the Company nor
the Rights Agent
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shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Shareholder.
No holder of a Right, as such, shall be entitled to vote, receive
dividends in respect of or be deemed for any purpose to be the holder of Common
Stock or any other securities of the Company which may at any time be issuable
upon the exercise of the Rights, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders, or to receive dividends or subscription rights in respect of any
such stock or securities, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
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(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent for anything done or omitted to be
done by the Rights Agent in connection with the acceptance and administration of
this Rights Agreement, including the cost and expenses of defending against any
claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Rights Agreement in reliance upon any
Right Certificate, certificate for Common Stock or other securities of the
Company, instrument or assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, guaranteed, verified or acknowledged, by the proper person or
Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Rights Agreement
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without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 31
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by the Rights Agreement, any of the Right Certificates shall have
been countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver such Right Certificates so countersigned; and
in case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Rights Agreement upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted to be taken by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the Vice
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Rights Agreement or in
the Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Rights Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect of
the validity or execution of any Right Certificate (except its
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countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Rights Agreement or in
any Right Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or 13 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual notice of any
such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock to be issued pursuant to this Rights Agreement or any Right
Certificate or as to whether any shares of Common Stock will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Vice Chairman of the Board, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer, or any
Assistant Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become
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pecuniarily interested in any transaction in which the Company may be
interested, or contract with or otherwise act as fully and freely as though it
were not the Rights Agent under this Rights Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company or
for any other entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificates surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has either not been completed or indicates an affirmative
response to clause 1 and/or 2 thereof, the Rights Agent shall not take any
further action with respect to such requested exercise of transfer without first
consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent (with or without cause)
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and
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to each transfer agent of the Common Stock by registered or certified mail, and
to the holders of the Right Certificates by first class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. Notwithstanding the
foregoing provisions of this Section 21, in no event shall the resignation or
removal of a Rights Agent be effective until a successor Rights Agent shall have
been appointed and have accepted such appointment. If the Company shall fail to
make such appointment within a period of 30 days after such removal or after it
has been notified in writing of such resignation or incapacity by the resigning
or incapacitated Rights Agent or by the holder of a Right Certificate (who
shall, with such notice, submit his Right Certificate for inspection by the
Company), then the incumbent Rights Agent or the holder of record of any Right
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or any State thereof, in good
standing, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000 or (b) an Affiliate
controlled by a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file
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notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding
any of the provisions of this Rights Agreement or of the Rights to the contrary,
the Company may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares of stock or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Rights Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company may, with respect to shares of Common Stock issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereafter issued by the Company, or in any other case, if deemed necessary or
appropriate by the Board of Directors, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
however, that (i) no such Right Certificate shall be issued if, and to the
extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
the Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued, if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
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Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option, at
any time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date, subject to extension by the Board of
Directors as provided in Section 26 hereof, or (ii) the close of business on the
Final Expiration Date, cause the Company to redeem all but not less than all of
the then outstanding Rights at a redemption price of $0.01 per Right, as such
amount may be appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Rights Agreement to the contrary, the Rights shall
not be exercisable after the first occurrence of any of the transactions
referred to in Section 11(a)(ii) hereof until such time as the Board of
Directors' right of redemption hereunder has expired.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price, without any interest thereon. Within 10 days after the action
of the Board of Directors ordering the redemption of the Rights, the Company
shall give notice of such redemption to the holders of the then outstanding
Rights by mailing such notice to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent of the Common
Stock. Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment
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of the Redemption Price will be made and the time for such payment. The failure
to give notice required by this Section 23(b) or any defect therein shall not
affect the legality or validity of the action taken by the Company.
Section 24. Notice of Proposed Actions.
(a) In case the Company, after the earlier of the Distribution
Date or the Stock Acquisition Date, shall propose (i) to effect any of the
transactions referred to in Section 11(a)(i) or to pay any dividend to the
holders of record of its Common Stock payable in stock of any class or to make
any other distribution to the holders of record of its Common Stock (other than
a regular quarterly cash dividend), or (ii) to offer to the holders of record of
its Common Stock options, warrants, or other rights to subscribe for or to
purchase shares of Common Stock (including any security convertible into or
exchangeable for Common Stock) or shares of stock of any class or any other
securities, options, warrants, convertible or exchangeable securities or other
rights, or (iii) to effect any reclassification of its Common Stock or any
recapitalization or reorganization of the Company, or (iv) to effect any
consolidation or merger with or into, or to effect any sale or other transfer
(or to permit one or more of its Subsidiaries to effect any sale or other
transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of record of a Right Certificate, in accordance with Section 25
hereof, notice of such proposed action, which shall specify the record date for
the purpose of such transaction referred to in Section 11(a)(i), or such
dividend or distribution, or the date on which such reclassification,
recapitalization, reorganization, consolidation, merger, sale or transfer of
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assets, liquidation, dissolution, or winding up is to take place and the record
date for determining participation therein by the holders of record of Common
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least 10 days prior to
the record date for determining holders of record of the Common Stock for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of record of Common Stock, whichever shall
be the earlier. The failure to give notice required by this Section 24 or any
defect therein shall not affect the legality or validity of the action taken by
the Company or the vote upon any such action.
(b) In case any of the transactions referred to in Section
11(a)(ii)(A) or (C) or Section 13 of this Rights Agreement are proposed after
the earlier of the Distribution Date or the Stock Acquisition Date, then, in any
such case, the Company shall give to each holder of Rights, in accordance with
Section 25 hereof, notice of the proposal of such transaction, which notice
shall specify the proposed event and the consequences of the event to holders of
Rights under Section 11(a)(ii)(A) or (C) or Section 13 hereof, as the case may
be, and, upon consummating such transaction, shall similarly give notice thereof
to each holder of Rights.
Section 25. Notices. Notices or demands authorized by this Rights
Agreement to be given or made by the Rights Agent or by the holder of record of
any Right Certificate or Right to or on the Company shall be sufficiently given
or made if sent by first class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
Dover Downs Entertainment, Inc.
One Rollins Plaza
2200 Concord Pike
14th Floor
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Wilmington, DE 19803
Attention: General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
ChaseMellon Shareholder Services, L.L.C.
450 West 33rd Street
15th Floor
New York, NY 10001-2697
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of record of any Right Certificate
or Right shall be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to such holder at the address of such holder as it
appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent.
Section 26. Supplements and Amendments. For as long as the Rights
are then redeemable and except as provided in the penultimate sentence of this
Section 26, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of the Rights or the Common Stock.
At any time when the Rights are not then redeemable and except as provided in
the penultimate sentence of this Section 26, the Company may, and the Rights
Agent shall if the Company so directs, supplement or amend this Agreement
without the approval of any holders of Right Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement any
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provision contained herein which may be defective or inconsistent with any other
provisions herein, or (iii) to change or supplement the provisions hereunder in
any manner which the Company may deem necessary or desirable; provided, that no
such supplement or amendment shall adversely affect the interests of the holders
of Right Certificates as such (other than any Acquiring Person who became such
other than pursuant to a Permitted Tender Offer or has participated in a Section
11(a)(ii) Event or an Affiliate or Associate of such an Acquiring Person);
provided, further, that this Rights Agreement may not be supplemented or amended
to lengthen, pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed or this Agreement amended at the
sole and absolute discretion of the Company at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights as such (other than any Acquiring Person who
became such other than pursuant to a Permitted Tender Offer or has participated
in a Section 11(a)(ii) or an Affiliate or Associate of such an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 26, the Rights Agent shall execute such
supplement or amendment. Notwithstanding anything contained in this Rights
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Final Expiration Date or the number of shares
of Common Stock for which a Right is exercisable. Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Stock.
Section 27. Successors. All of the covenants and provisions of
this Rights Agreement by or for the benefit of the Company or the Rights Agent
shall bind and inure to the benefit of
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their respective successors and assigns hereunder.
Section 28. Benefits of this Rights Agreement. Nothing in this
Rights Agreement shall be construed to give to any person or corporation other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Rights Agreement; but this Rights
Agreement shall be for the sole and exclusive benefit of the Company, the Rights
Agent and the holders of record of the Right Certificates (and, prior to the
Distribution Date, the Common Stock).
Section 29. Delaware Contract. This Rights Agreement and each
Right Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and performed entirely within such state.
Section 30. Counterparts. This Rights Agreement may be executed
in any number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 31. Descriptive Headings. Descriptive headings of the
several sections of this Rights Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
Section 32. Severability. If any term, provision, covenant or
restriction of this Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, illegal, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Rights
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Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed, all as of the day and year first above written.
DOVER DOWNS ENTERTAINMENT, INC.
By:
------------------------------------
ChaseMellon Shareholder Services, L.L.C.
By:
------------------------------------
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EXHIBIT A
[Form of Right Certificate]
Certificate No. ________ Rights
NOT EXERCISABLE AFTER JUNE 13, 2006 OR EARLIER IF REDEEMED. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$0.01 PER RIGHT (SUBJECT TO ADJUSTMENT) ON THE TERMS SET FORTH IN
THE RIGHTS AGREEMENT. IN THE EVENT THAT THE RIGHTS REPRESENTED BY
THIS CERTIFICATE ARE ISSUED TO A PERSON WHO IS AN ACQUIRING PERSON
OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON OR A
TRANSFEREE OF THE RIGHTS PREVIOUSLY OWNED BY SUCH PERSONS, THIS
RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME
NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 11(a)(ii)
OF THE RIGHTS AGREEMENT.
Right Certificate
DOVER DOWNS ENTERTAINMENT, INC.
This certifies that , or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of June 14, 1996 ("Rights Agreement") between DOVER DOWNS
ENTERTAINMENT, INC., a Delaware corporation ("Company"), and ChaseMellon
Shareholder Services, L.L.C. ("Rights Agent"), to purchase from the Company at
any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M. (New York City time) on June 13, 2006 at the
principal office of the Rights Agent, or its successors as Rights Agent, in New
York, New York, one fully paid and nonassessable share of Common Stock, par
value $1.00 per share ("Common stock"), of the Company at a purchase price of
$250.00 as the same may from time to time be adjusted in
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accordance with the Rights Agreement ("Purchase Price"), upon presentation and
surrender of this Right Certificate with the Form of Election to Purchase duly
executed.
As provided in the Rights Agreement, the Purchase Price and the
number of shares of Common Stock which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events and, upon the happening of
certain events, securities other than shares of Common Stock, or other property,
may be acquired upon exercise of the Rights evidenced by this Right Certificate,
as provided by the Rights Agreement.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of record of this Right Certificate. Copies of the
Rights Agreement are on file at the principal executive office of the Company.
This Right Certificate, with or without other Right Certificates,
upon surrender at the shareholder services office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder of record to purchase a like
aggregate number of shares of Common Stock as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive, upon surrender hereof, another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
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Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company by the action of
the Board of Directors at its option at a redemption price of $0.01 per Right at
any time prior to the earlier of the close of business on (i) the tenth day
following the Stock Acquisition date (as such time period may be extended
pursuant to the Rights Agreement) and (ii) the Final Expiration Date.
No fractional shares of Common Stock or other securities of the
Company are required to be issued upon the exercise of any Right or Rights
evidenced hereby, and in lieu thereof, as provided in the Rights Agreement, a
cash payment will be made.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Stock or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action or to receive notice of meetings or
other actions affecting shareholders or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
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This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of June 14, 1996.
ATTEST: DOVER DOWNS ENTERTAINMENT, INC.
By:
- ----------------------------------------- ----------------------------
Secretary Title:
Countersigned:
ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent
By:
--------------------------------------
Authorized signature
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer this
Right Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells,
assigns and transfers unto _____________________________________________________
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_______________________________________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
Rights evidenced by this Right Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and
appoint _______________________________ Attorney to transfer the within Right
Certificate on the books of the within-named Company, with full power of
substitution. Dated:______ ___, 19__
____________________________________
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are
not being sold, assigned and transferred by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, I, we or it [ ] did [ ] did not acquire the Rights evidenced by
this Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or any transferee of such Persons.
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Dated: _______ ____, 19__ ____________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment must correspond to the
name as written upon the face of this Right Certificate in every particular,
without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if registered holder desires to exercise the Right Certificate.)
TO: DOVER DOWNS ENTERTAINMENT, INC.
The undersigned hereby irrevocably elects to exercise ___________
Rights represented by this Right Certificate to purchase the shares of Common
Stock issuable upon the exercise of such Rights and requests that certificates
for such share(s) be issued in the name:
_______________________________________________________________________________
(Please print name and address)
Please insert social security
or other identifying number
____________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and
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delivered to:
_______________________________________________________________________________
(Please print name and address)
Please insert social security
or other identifying number
___________________________________________
Dated: _______ ____, 19__
__________________________________
Signature
(Signature must conform in all respects to name/s
of holder/s as specified on the face of this Right
Certificate)
Signature Guaranteed:
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, I, we or it [ ] did [ ] did not acquire the Rights evidenced by
this Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or any transferee of such Persons.
Dated: _______ ____, 19__ ____________________________________
Signature
Signature Guaranteed:
69
<PAGE>
EXHIBIT B
DOVER DOWNS ENTERTAINMENT, INC.
SUMMARY OF RIGHTS TO PURCHASE
COMMON STOCK
On June 14, 1996, the Board of Directors of the Company authorized
and declared the issuance of one Common Stock Purchase Right for each share of
Common Stock of the Company. Each Right entitles the registered holder to
purchase from the Company one share of Common Stock at a Purchase Price of $250
per share. The description and terms of the Rights are set forth in a Rights
Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., the
Company's transfer agent, as Rights Agent.
As discussed below, initially the Rights will not be exercisable,
certificates will not be sent to stockholders and the Rights will automatically
trade with the Common Stock.
Until the close of business on the Distribution Date, which will
occur on the earlier of (i) the tenth day following a public announcement that a
person or group of affiliated or associated persons ("Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 10% or more
of the outstanding combined equity of Common Stock and Class A Common Stock of
the Company (the "Stock Acquisition Date") or (ii) a date fixed by the Board of
Directors of the Company which is not later than the nineteenth business day
after the commencement of a tender offer or exchange offer which would result in
the ownership of 10% or more of the
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outstanding combined equity of Common Stock and Class A Common Stock, the Rights
will be represented by and transferred with, and only with, the Common Stock.
Certificates issued for Common Stock after June 14, 1996 will contain a legend
incorporating the Rights Agreement by reference, and the surrender for transfer
of any of the Company's Common Stock certificates will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
Right Certificates will be mailed to holders of record of the Company's Common
Stock as of the close of business on the Distribution Date, and thereafter the
separate certificates alone will evidence the Rights.
The Rights are not exercisable until an event occurs which gives
rise to a Distribution Date. The Rights will expire at the close of business on
June 13, 2006, unless earlier redeemed by the Company as described below. Common
Stock issued after the Distribution Date will be issued with Rights if such
Common Stock certificates are issued pursuant to the exercise of stock options
or under an employee benefit plan.
The Purchase Price payable, and the number of shares of Common
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Common Stock, (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to subscribe for Common Stock or convertible securities at
less than the current market price thereof at the time of grant or (iii) upon
the distribution to holders of the Common Stock of evidences of indebtedness or
assets (excluding regular cash dividends and
71
<PAGE>
dividends payable in Common Stock) or of subscription rights or warrants (other
than those referred to above).
Unless the Rights are earlier redeemed, in the event that, after
the Stock Acquisition Date, the Company were to be acquired in a merger or other
business combination (in which any shares of the Company's Common Stock are
changed into or exchanged for other securities or assets) or more than 50% of
the assets or earning power of the Company and its subsidiaries (taken as a
whole) were to be sold or transferred in one or a series of related
transactions, the Rights Agreement provides that proper provision shall be made
so that each holder of record of a Right will from and after such date have the
right to receive, upon payment of the Purchase Price, that number of shares of
common stock of the acquiring company having a market value at the time of such
transaction equal to two times the Purchase Price.
In the event (i) any Person becomes the beneficial owner of 10% or
more of the then outstanding combined equity of Common Stock and Class A Common
Stock, other than pursuant to an all-cash tender offer on the same terms for all
outstanding shares of Common Stock and Class A Common Stock pursuant to which no
purchases of Common Stock or Class A Common Stock are made for at least 60 days
from the date of commencement thereof and which is accepted by holders of not
less than the number of shares of Common Stock and Class A Common Stock that,
when aggregated with the number of shares of Common Stock and Class A Common
Stock owned by the person making the offer (and its affiliates or associates),
equals or exceeds 80% of the outstanding Common Stock and Class A Common Stock,
(a "Permitted Tender Offer"), or (ii) any
72
<PAGE>
Acquiring Person or any of its affiliates or associates engages in one or more
"self-dealing" transactions as described in the Rights Agreement, then each
holder of a Right, other than the Acquiring Person, will have the right to
receive, upon payment of the Purchase Price, a number of shares of Common Stock
having a market value equal to twice the Purchase Price. This same right will be
available to each holder of record of a Right, other than the Acquiring Person,
if, while there is an Acquiring Person, there occurs any reclassification of
securities, any recapitalization of the Company, or any merger or consolidation
or other transaction involving the Company or any of its subsidiaries which has
the effect of increasing by more than 1% the proportionate ownership interest in
the Company or any of its subsidiaries which is owned or controlled by the
Acquiring Person. To the extent that insufficient shares of Common Stock are
available for the exercise in full of the Rights, holders of Rights will receive
upon exercise, shares of Common Stock to the extent available and then cash,
property or other securities of the Company (which may be accompanied by a
reduction in the Purchase Price), in proportions determined by the Company, so
that the aggregate value received is equal to twice the Purchase Price. Rights
are not exercisable following the occurrence of the events described in this
paragraph until the expiration of the period during which the Rights may be
redeemed as described below. Notwithstanding the foregoing, following the
occurrence of the events described in this paragraph, Rights that are (or, under
certain circumstances, Rights that were) beneficially owned by an Acquiring
Person will be null and void.
Any Person that is the beneficial owner of 10% or more of the
outstanding combined equity of Common Stock and Class A Common Stock prior to
the adoption of the Rights Plan will
73
<PAGE>
not be deemed an Acquiring Person.
No fractional shares of Common Stock or other Company securities
will be issued upon exercise of the Rights and, in lieu thereof, a payment in
cash will be made to the holder of such Rights equal to the same fraction of the
current market value of a share of Common Stock or other Company securities.
At any time until ten days following the Stock Acquisition Date
(subject to extension by the Board of Directors), the Board of Directors may
cause the Company to redeem the Rights in whole, but not in part, at a price of
$.01 per Right, subject to adjustment. Immediately upon the action of the Board
of Directors authorizing redemption of the Rights, the right to exercise the
Rights will terminate, and the holders of Rights will only be entitled to
receive the Redemption Price without any interest thereon.
For as long as the Rights are then redeemable, the Company may,
except with respect to the redemption price or date of expiration of the Rights,
amend the Rights in any manner, including an amendment to extend the time period
in which the Rights may be redeemed. At any time when the Rights are not then
redeemable, the Company may amend the Rights in any manner that does not
adversely affect the interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
74
<PAGE>
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement with respect
to the Company's Common Stock. A copy of the Rights Agreement is available free
of charge upon written request to the Company. This description of the Rights is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated in this description by reference.
The Rights have certain anti-takeover effects. The Rights may
cause substantial dilution to a person or group who attempts to acquire from the
Company on terms not approved by the Board of Directors of the Company. The
Rights were not declared in response to any specific effort to acquire control
of the Company, and the Board of Directors of the Company is not aware of any
such effort. The Rights should not interfere with any merger or other business
combination approved by the Board since they may be redeemed by the Company at
$.01 per Right at any time until the close of business on the tenth day after a
person or group has obtained beneficial ownership of 10% or more of the
outstanding Common Stock and Class A Common Stock of the Company.
75
EXHIBIT 10.1
February 28, 1996
Mr. Denis McGlynn, President
Dover Downs, Inc.
Box 843, Route 13
Dover, DE 19901
Re: $8.0MM committed, decreasing line of credit ("Facility A")
$2.0MM committed line of credit ("Facility B")
$100,000 standby letter of credit ("Facility C")
Dear Denis:
We are pleased to inform you that PNC Bank, Delaware (the "Bank"), has
approved your request for two lines of credit to Dover Downs, Inc. (the
"Borrower") and for a standby letter of credit in favor of the State of Delaware
Lottery Office. This letter agreement supersedes our previous letter agreement
dated February 14, 1995 and the amendment to it dated December 5, 1995.
This letter, with respect to Facility A, represents an increase to the
facility from $6.0MM to $8.0MM. As to Facility B, this letter will serve as
confirmation of renewal of the facility and extension of the expiration date
thereof, as indicated below. All the details regarding these facilities
(collectively, the "Credit Facilities") are outlined in the following sections
of this letter. If these terms are satisfactory, please follow the instructions
for proceeding with your loan provided at the end of this letter.
1. Facility A: Type of Facility and Use of Proceeds. Facility A is a committed,
decreasing, revolving line of credit for an initial maximum amount of
$8,000,000.00. The Borrower may request and the Bank will, subject to the terms
and conditions of this letter, make advances under Facility A from time to time
until the applicable Expiration Date, in an amount in the aggregate at any time
outstanding not to exceed the Available Amount (as defined below). The
"Expiration Date" for Facility A means June 30, 2000 or such later date as may
be designated by the Bank by written notice to the Borrower. Advances may be
used for improvements to the Borrower's facilities at Dover, Delaware.
The maximum amount of funding available (the "Available Amount") under
Facility A will reduce periodically according to the following schedule:
Availability Period
------------ ------
$8,000,000.00 3/1/96 to 6/30/96
$7,000,000.00 7/1/96 to 6/30/97
$5,500,000.00 7/1/97 to 6/30/98
$4,000,000.00 7/1/98 to 6/30/99
$2,000,000.00 7/1/99 to 6/30/00
-0- 7/1/00
<PAGE>
1.1 Facility B: Type of Facility and Use of Proceeds. Facility B is a committed,
revolving line of credit under which the Borrower may request and the Bank will,
subject to the terms and conditions of this letter, make advances from time to
time until the applicable Expiration Date, in an amount in the aggregate at any
time outstanding not to exceed $2,000,000.00. The "Expiration Date" for Facility
B means January 31, 1997 or such later date as may be designated by the Bank by
written notice to the Borrower. Advances will be used for general working
capital purposes.
1.2 Facility B: Clearing Requirement. The Borrower acknowledges and agrees that
prior to the applicable Expiration Date (and annually thereafter if the
Expiration Date is extended), Facility B must be repaid in full so that there is
no outstanding principal balance for a period of at least 30 consecutive days.
1.3 Facility B: Annual Review. The Bank will complete its annual review of
Facility B within 45 days of receipt of required financial information from the
Borrower. If, within such 45-day period, the Bank has not provided the Borrower
with written notice of intention to extend the Expiration Date, Facility B will
terminate as of the Expiration Date and any outstanding balance will be due and
payable on the Expiration Date.
1.4 Facility C: Type of Facility and Use of Proceeds. Facility C is our
Irrevocable Standby Letter of Credit No. D1011 for the account of Dover Downs,
Inc. issued in favor of the State of Delaware, Department of Finance, State
Lottery Office (the "Beneficiary") available by drafts drawn on us at sight, for
any sum or sums not to exceed, in the aggregate, $100,000.00 and governed by the
terms and conditions of an application and reimbursement agreement dated
December 5, 1995. The "Expiration Date" for Facility C means January 31, 1997 or
such later date as may be designated by the Bank by written notice to the
Borrower. An annual commission of 1.50% of the aggregate amount is payable in
quarterly installments.
2. Interest Rate. Interest on the unpaid balance of advances under the Credit
Facilities will be payable as follows:
(a) Facility A. (i) On any outstanding balance equal to or less than
$1,000,000.00, interest will be charged at a rate per annum which is at all
times equal to the sum of the rate of interest publicly announced by the Bank
from time to time as its prime rate (the "Prime Rate") minus one percent (1.0%);
(ii) On any outstanding balance in excess of $1,000,000.00, interest will be
charged at a rate per annum which is at all times equal to the sum of the Prime
Rate minus one half of one percent (0.50%).
(b) Facility B. At a rate per annum which is at all times equal to the
sum of the Prime Rate minus one half of one percent (0.50%).
3. Repayment; Revolving Facilities. Subject to the terms and conditions of this
letter, the Borrower may borrow, repay and reborrow under Facility A and
Facility B until the applicable Expiration Date for such facility, on which date
the outstanding principal balance of such facility and any accrued but unpaid
interest thereon shall be due and payable in full. Interest will be due and
payable on a monthly basis, and will be computed on the basis of a year of 360
days and paid on the actual number of days elapsed.
- 2 -
<PAGE>
4. Note. The obligation of the Borrower to repay loans under the Credit
Facilities shall be evidenced by promissory notes (the "Notes") in form and
content satisfactory to the Bank.
5. Depository. The Borrower and its affiliated companies as listed on Exhibit
"A" (the "Affiliated Companies") will establish and maintain at the Bank their
primary depository accounts.
6. Guarantors. The Credit Facilities will be jointly and severally guaranteed by
the Borrower's Affiliated Companies under a guaranty and suretyship agreement in
form and content satisfactory to the Bank.
7. Covenants. Unless compliance is waived in writing by the Bank, or until
payment in full and termination of both Credit Facilities:
(a) The Borrower will promptly submit to the Bank such financial
information, including but not limited to annual financial statements and tax
returns for the Borrower and any guarantor, as the Bank may reasonably request.
(b) The Borrower will not make or permit any change in its equity
ownership which results in John Rollins, Rollins family members or existing
principal officers (as listed in Exhibit B) having an equity ownership, in the
aggregate, of less than 55%.
(c) The Borrower will comply with the financial and other covenants
referenced in Exhibit "A" hereto.
8. Additional Provisions.
(a) Before the first advance under the Credit Facilities, the Borrower
agrees to sign and deliver to the Bank the Note, and other required documents
(including a certificate in the form attached as Exhibit B hereto) and such
other instruments and documents as the Bank may reasonably request, such as,
certificates of good standing for the Borrower and its Affiliated Companies,
certified resolutions, incumbency certificates or other evidence of authority.
The Bank will not be obligated to make any advance under the Credit Facilities
if any Event of Default (as defined in the Notes) or event which with the
passage of time, provision of notice or both would constitute an Event of
Default under the Notes shall have occurred and be continuing.
(b) Prior to execution of the final documents, the Bank may terminate
this letter if a material adverse change occurs with respect to the Borrower, or
if the Borrower fails to comply with any of the terms and conditions of this
letter, or if the Bank reasonably determines that any of the conditions cannot
be met.
(c) The Borrower will promptly inform the Bank in writing from time to
time of any material change in (i) the nature of its business as carried on as
of the date of this letter or (ii) its senior management.
- 3 -
<PAGE>
(d) If, at any point during any fiscal year, the Borrower shall have
sold, leased, transferred or otherwise disposed of property or assets having an
aggregate value (on the Borrower's books) in excess of $1,000,000.00, the
Borrower shall promptly notify the Bank in writing of such fact.
(e) The Borrower and the Bank each acknowledge a duty of good faith and
fair dealing in connection with the terms, covenants and conditions of the
Credit Facilities as set forth in this letter.
(f) The Borrower and the Bank irrevocably waive any and all rights they
may have to a trial by jury in any action, proceeding or claim of any nature
relating to this agreement, any documents executed in connection with this
agreement or any transaction contemplated in any of such documents. Each party
acknowledges that the foregoing waiver is knowing and voluntary.
To accept these terms, please sign the enclosed copy of this letter as set forth
below and return it to the Bank within 10 days from the date of this letter. If
accepted, the final documents must be executed within 45 days from the date of
this letter, or this letter may be terminated at the Bank's option without
liability or further obligation of the Bank.
Thank you for giving PNC Bank this opportunity to work with your business. We
look forward to other ways in which we may be of service to your business or to
you personally.
Very truly yours,
PNC BANK, DELAWARE
By: /s/ Paul L. Frick
-------------------------------
Paul L. Frick
Assistant Vice President
(302) 735-3140
cc: Calvert A. Morgan, Jr., Chairman, President, & CEO
George W. Forbes, III, Executive Vice President
Jeffrey C. Allen, Vice President
- 4 -
<PAGE>
ACCEPTANCE
With the intent to be legally bound hereby, the above terms and conditions are
hereby agreed to and accepted this 28th day of February, 1996.
BORROWER:
DOVER DOWNS, INC.
By: /s/ Denis McGlynn
---------------------------------
Print Name: Denis McGlynn
Title: President
- 5 -
<PAGE>
EXHIBIT A
FINANCIAL REPORTING COVENANTS:
The Borrower will deliver to the Bank:
Financial Statements for its fiscal year, within 120 days after fiscal
year end, audited and certified without disclaimer or adverse opinion
by a certified public accountant who is (i) a member in good standing
of the Private Company's Practice Sessions (PCPS) of the AICPA, or (ii)
otherwise acceptable to the Bank.
With each delivery of Financial Statements, the Borrower's chief
financial officer shall also deliver a certificate as to the Borrower's
compliance with the financial covenants for the period then ended and
whether any known Event of Default (as defined in the Note) exists to
the best of Borrower's knowledge, and, if so, the nature thereof and
the corrective measures the Borrower proposes to take.
"Financial Statements" means the consolidated balance sheet and
statements of income and cash flows prepared in accordance with
generally accepted accounting principles in effect from time to time
("GAAP") applied on a consistent basis (subject in the case of interim
statements to normal year-end adjustments).
FINANCIAL COVENANTS:
Effective as of the date of acceptance of this letter agreement,
through 7/1/2000, the Borrower will have and maintain as of the end of
each fiscal year a ratio of total liabilities to Tangible Net Worth of
not greater than 2.00 to 1.00.
Effective as of the date of acceptance of this letter agreement,
through 7/1/2000, the Borrower will have and maintain at all times a
minimum Tangible Net Worth of $10,000,000.00.
"Tangible Net Worth" means stockholders' equity in the Borrower less
loans or advances to officers, shareholders or other related parties
and all items properly classified as intangibles, in accordance with
GAAP.
NEGATIVE COVENANTS:
The Borrower will not create, assume, incur or suffer to exist any
mortgage, pledge, encumbrance, security interest, lien or charge of any
kind upon any of its property, now owned or hereafter acquired, or
acquire or agree to acquire any kind of property under conditional
sales or other title retention agreements; provided, however, that the
foregoing restrictions shall not prevent the Borrower from:
- 6 -
<PAGE>
(i) incurring liens for taxes, assessments or governmental
charges or levies which shall not at the time be due and
payable or can thereafter be paid without penalty or are being
contested in good faith by appropriate proceedings diligently
conducted and with respect to which it has created adequate
reserves;
(ii) making pledges or deposits to secure obligations under
workers' compensation laws or similar legislation;
(iii) granting liens or security interests in favor of the
Bank;
(iv) maintaining its existing acquisition-related mortgages on
its real estate, as disclosed on the Borrower's latest
Financial Statements provided to the Bank prior to the date of
this letter.
(v) granting any security interest, mortgage, encumbrance or
other lien (collectively, a "Lien") in or upon any item of
real or personal property, or interest therein, hereafter
acquired, which Lien is created or assumed contemporaneously
with such acquisition to secure or provide for the payment or
financing of any part of the purchase price thereof, or the
assumption of any Lien in or upon any such property hereafter
acquired, existing at the time of such acquisition, or the
acquisition of any such property subject to any Lien without
the assumption thereof; provided, however, that:
a) the indebtedness secured by any such Lien so created,
assumed or existing shall not exceed 100% of the lower of
the actual cost or fair market value of the property
covered thereby;
b) each such Lien shall attach only to the property so
acquired; and
c) the acquisition to which any such Lien relates shall
not result in a default under any provision of any other
agreements with the Bank.
The Borrower will not create, incur, guarantee, endorse (except
endorsements in the course of collection), assume or suffer to exist
any indebtedness, except (i) indebtedness incurred to finance the
actual cost of acquiring real property used, or to be used, to expand
the Borrower's existing operations, (ii) indebtedness to the Bank,
(iii) open account trade debt incurred in the ordinary course of
business and not past due, (iv) other indebtedness disclosed on the
Borrower's latest Financial Statements which have been provided to the
Bank prior to the date of this letter, or (v) additional indebtedness
that is made expressly subordinate to the Bank indebtedness.
The Borrower will not liquidate, merge or consolidate with any person,
firm, corporation or other entity.
- 7 -
<PAGE>
The Borrower will not in any fiscal year through July 31, 1996 make
acquisitions of all or substantially all of the property or assets of
any person, firm, corporation or other entity, unless the contract
price or actual value given for such property or assets is
$2,000,000.00 or less.
The Borrower will not in any fiscal year declare or pay any dividends
on or make any distribution with respect to any class of its equity, or
purchase, redeem, retire or otherwise acquire any of its equity in an
amount, or to a value, in excess of the Borrower's net income
(determined in accordance with GAAP) for the preceding fiscal year.
The Borrower will not make or have outstanding any loans or advances to
or otherwise extend credit to any person, firm or corporation, except
in the ordinary course of business.
NAMES OF AFFILIATED COMPANIES
Dover Downs Investors, Inc. and Dover Downs International Speedway, Inc.
- 8 -
<PAGE>
EXHIBIT B
(To be executed and delivered at or before closing)
Dover Downs, Inc. as Borrower pursuant to letter agreement dated February 28,
1996 hereby represents, warrants and certifies to the Bank, to the best of
Borrower's knowledge, as follows:
Litigation. There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrower, threatened against
the Borrower, none of which could result in a material adverse change in its
business, assets, operations, financial condition or results of operations and
there is no basis known to the Borrower for any action, suit, proceedings or
investigation which could result in such a material adverse change. All pending
or threatened litigation against the Borrower is listed on the Addendum attached
hereto and incorporated by reference (the "Addendum").
Tax Returns. The Borrower has filed all returns and reports that are required to
be filed by it in connection with any federal, state or local tax, duty or
charge levied, assessed or imposed upon it or its property or withheld by it,
including unemployment, social security and similar taxes and all of such taxes,
have been either paid or adequate reserve or other provision has been made.
Environmental Matters. The Borrower is in compliance, in all material respects,
with all Environmental Laws, including, without limitation, all applicable
Environmental Laws in jurisdictions in which the Borrower owns or operates, or
has owned or operated, a facility or site, or holds or has held any interest in
real property. Except as otherwise disclosed on the Addendum, no litigation or
proceeding arising under, relating to or in connection with any Environmental
Law is pending or, to the best of the Borrower's knowledge, threatened against
the Borrower, any real property which the Borrower holds or has held an interest
or any past or present operation of the Borrower. No release, threatened release
or disposal of hazardous waste, solid waste or other wastes is occurring, or to
the best of the Borrower's knowledge has occurred, on, under or to any real
property in which the Borrower holds any interest or performs any of its
operations, in violation of any Environmental Law. As used in this Section,
"litigation or proceeding" means any demand, claim notice, suit, suit in equity,
action, administrative action, or investigation brought by a governmental
authority, and "Environmental Laws" means all provisions of laws, statutes,
ordinances, rules, regulations, permits, licenses, judgments, writs,
injunctions, decrees, orders, awards and standards promulgated by any
governmental authority concerning health, safety and protection of, or
regulation of the discharge of substances into, the environment.
Books and Records. The Borrower maintains and will continue to maintain books
and records in accordance with GAAP. Borrower will give representatives of the
Bank access thereto at all reasonable times, including permission to examine,
copy and make abstracts from any of such books and records and such other
information as the Bank may from time to time reasonably request, and the
Borrower will make available to the Bank for examination copies of any reports,
statements or returns which the Borrower may make to or file with any
governmental department, bureau or agency, federal or state.
Principal Officers. As of the above-referenced date, the individuals named in
the Addendum, having the titles indicated, are the principal managing officers
of the Borrower:
ATTEST/WITNESS: DOVER DOWNS, INC.
By: /s/ Denis McGlynn
- ------------------------------ -------------------------
Print Name: Denis McGlynn
Title: President
- 9 -
<PAGE>
ADDENDUM TO EXHIBIT B
Litigation: Describe pending or threatened litigation, proceedings, etc. below:
NONE
Principal Officers:
Name: Title:
1. Denis McGlynn President
2. Eugene W. Weaver Vice President
3. Robert M. Comollo Treasurer
4.
5.
- 10 -
EXHIBIT 10.2
COMMITTED LINE OF CREDIT NOTE
$8,000,000.00 March 1, 1996
FOR VALUE RECEIVED, DOVER DOWNS, INC. (the "Borrower"), with an address at
Box 843, Route 13, Dover, DE 19901, promises to pay to the order of PNC BANK,
DELAWARE (the "Bank"), in lawful money of the United States of America in
immediately available funds at its offices located at 222 Delaware Avenue,
Wilmington, DE 19899, or at such other location as the Bank may designate from
time to time, the principal sum of EIGHT MILLION AND 00/100 DOLLARS
($8,000,000.00) (the "Facility") or such lesser amount as may be advanced to or
for the benefit of the Borrower hereunder, together with interest accruing on
the outstanding principal balance from the date hereof, as provided below:
1. Rate of Interest. Amounts outstanding under this Note will bear interest as
follows:
a. On any outstanding balance equal to or less than $1,000,000.00,
interest will be paid at a rate per annum which is at all times equal to the sum
of the Prime Rate minus one percent (1.0%).
b. On any outstanding balance in excess of $1,000,000.00, interest will
be paid at a rate per annum which is at all times equal to the sum of the Prime
Rate minus one half of one percent (.50%).
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. As used herein, "Prime Rate" shall mean
the rate publicly announced by the Bank from time to time as its prime rate. The
Prime Rate is not tied to any external rate or index and does not necessarily
reflect the lowest rate of interest actually charged by the Bank to any
particular class or category of customers. If and when the Prime Rate changes,
the rate of interest on this Note will change automatically without notice to
the Borrower, effective on the date of any such change. In no event will the
rate of interest hereunder exceed the maximum rate allowed by law.
2. Advances. The Borrower may borrow, repay and reborrow hereunder until the
Expiration Date, subject to the terms and conditions of this Note and the Loan
Documents (as defined herein). The "Expiration Date" shall mean June 30, 2000,
or such later date as may be designated by the Bank by written notice from the
Bank to the Borrower. The Borrower acknowledges and agrees that in no event will
the Bank be under any obligation to extend or renew the Facility or this Note
beyond the initial Expiration Date.
In no event shall the aggregate unpaid principal amount of advances under this
Note exceed the Available Amount as defined in the letter agreement dated
February 28, 1996 (the "Letter Agreement") establishing the terms and conditions
of the Facility.
3. Advance Procedures. A request for advance made by telephone must be promptly
confirmed in writing by such method as the Bank may require. The Borrower
authorizes the Bank to accept telephonic requests for advances, and the Bank
shall be entitled to rely upon the authority of any person providing such
instructions. The Borrower hereby indemnifies and holds the Bank harmless from
and against any and all damages, losses, liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) which may arise or be
created by the acceptance of such telephone requests or making such advances.
The Bank will enter on its books and records, which entry when made will be
presumed correct, the date and amount of each advance, as well as the date and
amount of each payment made by the Borrower.
<PAGE>
4. Payment Terms. Accrued interest will be due and payable on the first day
of each month as billed by the Bank. In addition, the Borrower shall make such
principal payments as may be required so that the outstanding balance will not
exceed the Available Amount.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the state of Delaware, such payment shall be made on
the next succeeding business day and such extension of time shall be included in
computing interest in connection with such payment. Payments received will be
applied to charges, fees and expenses (including attorneys' fees), accrued
interest and principal in any order the Bank may choose, in its sole discretion.
5. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount becoming due pursuant to the provisions of
this Note within 15 calendar days of the date due and payable, the Borrower also
shall pay to the Bank a late charge equal to five percent (5.0%) of the amount
of such payment. Such 15-day period shall not be construed in any way to extend
the due date of any such payment. The late charge is imposed for the purpose of
defraying the Bank's expenses incident to the handling of delinquent payments
and is in addition to, and not in lieu of, the exercise by the Bank of any
rights and remedies hereunder, under the other Loan Documents or under
applicable laws, and any fees and expenses of any agents or attorneys which the
Bank may employ. Upon maturity, whether by acceleration, demand or otherwise,
and at the option of the Bank upon the occurrence of any Event of Default (as
hereinafter defined) and during the continuance thereof, this Note shall bear
interest at a rate per annum (based on a year of 360 days and actual days
elapsed) which shall be three percentage points (3.0%) in excess of the interest
rate in effect from time to time under this Note but not more than the maximum
rate allowed by law (the "Default Rate"). The contract interest rate(s) herein
shall continue to apply whether or not judgment shall be entered on this Note.
6. Prepayment. The indebtedness evidenced by this Note may be prepaid in whole
or in part at any time without penalty.
7. Other Loan Documents. This Note is issued in connection with the Letter
Agreement, guaranties and related documents, the terms of which are incorporated
herein by reference (the "Loan Documents").
8. Events of Default. The occurrence of any of the following events will be
deemed to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any other debt, liability or obligation to the Bank of any
Borrower or any Guarantor of this Note, including but not limited to any of the
foregoing arising under the Loan Documents or any other documents now or in the
future securing the obligations of any Borrower or any Guarantor to the Bank;
(iii) the filing by or against any Borrower or any Guarantor of any proceeding
in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding, or any assignment by any Borrower or any
Guarantor for the benefit of creditors, or any levy, garnishment, attachment or
similar proceeding is instituted against any property of any Borrower or any
Guarantor held by or deposited with the Bank; (iv) a default with respect to any
other indebtedness of any Borrower or any Guarantor for borrowed money in excess
of $100,000, if the effect of such default is to cause or permit the
acceleration of such debt; (v) [omitted intentionally]; (vi) the entry of a
final judgment against any Borrower or any Guarantor in excess of $100,000 and
the failure of such Borrower or Guarantor to discharge the judgment within ten
days of the entry thereof; (vii) [omitted intentionally]; (viii) any material
adverse change in the business, assets, operations, financial condition or
results of operations of any Borrower or any Guarantor (ix) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(x) the death of any individual Borrower or Guarantor or, if any Borrower is a
partnership, the death of any individual general partner; (xi) any
representation or warranty made by any Borrower or any Guarantor to the Bank in
any document, including but not limited to the Loan Documents or any other
documents now or in the future securing the obligations of any Borrower or any
Guarantor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Borrower or any Guarantor to observe or
perform any covenant or other agreement with the Bank contained in any document,
including but not limited to the Loan Documents or any documents
2
<PAGE>
now or in the future securing the obligations of any Borrower or any Guarantor
to the Bank. As used herein, the term "Guarantor" will mean any guarantor of the
obligations of the Borrower to the Bank existing on the date of this Note or
arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no
further obligation to make advances hereunder unless and until the default is
cured to the Bank's satisfaction; (b) if an Event of Default specified in clause
(iii) above shall occur, the outstanding principal balance and accrued interest
hereunder together with any additional amounts payable hereunder, shall be
immediately due and payable without demand or notice of any kind; (c) if an
Event of Default specified in clause (i) shall occur and Borrower shall fail to
effect a cure of such Event of Default within ten (10) days of notice thereof
from the Bank, the outstanding principal balance and accrued interest hereunder,
together with any additional amounts payable hereunder, at the option of the
Bank and without demand or notice of any kind may be accelerated and become
immediately due and payable; (d) if any other Event of Default shall occur and
Borrower shall fail to effect a cure of such Event of Default within thirty (30)
days of notice thereof from the Bank, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder, at the option of the Bank and without further demand or notice of any
kind may be accelerated and become immediately due and payable; (e) at the
option of the Bank, this Note will bear interest at the Default Rate from the
date after the lapse of any applicable cure period with respect to the Event of
Default; and (f) the Bank may exercise from time to time any of the rights and
remedies available to the Bank under the Loan Documents or under applicable law.
9. Power to Confess Judgment. The Borrower hereby empowers any attorney of any
court of record within the State of Delaware, after the occurrence of any Event
of Default hereunder, to appear for the Borrower and confess judgment, or a
series of judgments, against the Borrower in favor of the Bank or any holder
hereof for the entire principal balance of this Note and all accrued interest,
together with costs of suit and an attorney's commission of $2,500.00 added as a
reasonable attorney's fee, and for doing so this Note or a copy verified by
affidavit shall be a sufficient warrant. Interest on any such judgment shall
accrue at the Default Rate.
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Bank shall elect until such time as the Bank shall have received
payment in full of the debt, interest and costs.
10. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power or any acquiescence therein nor shall the
action or inaction of the Bank impair any right or power resulting therefrom.
The Borrower agrees to pay on demand, to the extent permitted by law, all costs
and expenses incurred by the Bank in the enforcement of its rights in this Note
and any security therefor, including without limitation reasonable fees and
expenses of the Bank's counsel. If any provision of this Note is found to be
invalid by a court, all the other provisions of this Note will remain in full
force and effect.
Except for notices of default as provided in Section 8 above, the Borrower
hereby forever waives presentment, demand, protest, notice of dishonor, notice
of nonpayment or default and any other notices of any kind. The Borrower also
waives all defenses based on suretyship or impairment of collateral.
If this Note is executed by more than one Borrower, the obligations of such
persons or entities hereunder will be joint and several. This Note shall bind
the Borrower and the heirs, executors, administrators, successors and assigns of
the Borrower, and the benefits hereof shall inure to the benefit of Bank and its
successors and assigns. All references herein to the "Borrower" and "Bank" shall
be deemed to apply to the Borrower and Bank and their respective heirs,
executors, administrators, successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the state of Delaware. This Note will be interpreted and the rights
and liabilities of the parties hereto determined in
3
<PAGE>
accordance with the laws of the state of Delaware, excluding its conflict of
laws rules. The Borrower hereby agrees to the jurisdiction of any state or
federal court located within the state of Delaware, and consents that all
service of process be sent by nationally recognized overnight courier service
directed to Borrower at the Borrower's address set forth herein and service so
made will be deemed to be completed on the date of actual delivery to the
Borrower; provided that nothing contained herein will prevent the Bank from
bringing any action or exercising any rights against any security or against the
Borrower individually, or against any property of the Borrower within any other
state or nation to enforce any award or judgment obtained in the venue specified
above, or such other venue as the Bank chooses. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted hereunder.
12. Waiver of Jury Trial. The Borrower irrevocably waives any and all rights the
Borrower may have to a trial by jury in any action, proceeding or claim of any
nature relating to this Note, any documents executed in connection with this
note or any transaction contemplated in any of such documents. The Borrower
acknowledges that the foregoing waiver is knowing and voluntary.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the confession of judgment and waiver of jury trial, and
has been advised by counsel as necessary or appropriate.
WITNESS the due execution and sealing hereof with the intent to be legally bound
hereby.
WITNESS/ATTEST: DOVER DOWNS, INC.
___________________________ By: /s/ Denis McGlynn (SEAL)
-------------------------------------
Denis McGlynn
President
___________________________ By: /s/ Robert M. Comollo (SEAL)
--------------------------------------
Robert M. Comollo
Treasurer
4
EXHIBIT 10.3
COMMITTED LINE OF CREDIT NOTE
$2,000,000.00 March 1, 1995
FOR VALUE RECEIVED, DOVER DOWNS, INC., a Delaware corporation (the "Borrower"),
promises to pay to the order of PNC BANK, DELAWARE (the "Bank"), in lawful money
of the United States of America in immediately available funds at its offices
located at 222 Delaware Avenue, Wilmington, Delaware 19899, or at such other
location as the Bank may designate from time to time, the principal sum of TWO
MILLION AND 00/100 DOLLARS ($2,000,000.00) (the "Facility") or such lesser
amount as may be advanced to or for the benefit of the Borrower hereunder,
together with interest accruing on the outstanding principal balance from the
date hereof, as provided below:
1. Rate of Interest. Amounts outstanding under this Note will bear interest at a
rate per annum which is at all times equal to the sum of the Prime Rate minus
one half of one percent (.50%).
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. As used herein, "Prime Rate" shall mean
the rate publicly announced by the Bank from time to time as its prime rate. The
Prime Rate is not tied to any external rate or index and does not necessarily
reflect the lowest rate of interest actually charged by the Bank to any
particular class or category of customers. If and when the Prime Rate changes,
the rate of interest on this Note will change automatically without notice to
the Borrower, effective on the date of any such change. In no event will the
rate of interest hereunder exceed the maximum rate allowed by law.
2. Advances. The Borrower may borrow, repay and reborrow hereunder until the
Expiration Date, subject to the terms and conditions of this Note and the Loan
Documents (as defined herein). The "Expiration Date" shall mean January 31,
1996, or such later date as may be designated by the Bank by written notice from
the Bank to the Borrower. The Borrower acknowledges and agrees that in no event
will the Bank be under any obligation to extend or renew the Facility or this
Note beyond the initial Expiration Date.
3. Advance Procedures. A request for advance made by telephone must be promptly
confirmed in writing by such method as the Bank may require. The Borrower
authorizes the Bank to accept telephonic requests for advances, and the Bank
shall be entitled to rely upon the authority of any person providing such
instructions. The Borrower hereby indemnifies and holds the Bank harmless from
and against any and all damages, losses, liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) which may arise or be
created by the acceptance of such telephone requests or making such advances.
The Bank will enter on its books and records, which entry when made will be
presumed correct, the date and amount of each advance, as well as the date and
amount of each payment made by the Borrower.
4. Payment Terms. Accrued interest will be due and payable on the first day of
each month, as billed by the Bank.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the state of Delaware, such payment shall be made on
the next succeeding business day and such extension of time shall be included in
computing interest in connection with such payment. Payments received will be
applied to charges, fees and expenses (including attorneys' fees), accrued
interest and principal in any order the Bank may choose, in its sole discretion.
5. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount becoming due pursuant to the provisions of
this Note within 15 calendar days of the date due and payable, the Borrower also
shall pay to the Bank a late charge equal to five percent (5.0%) of the amount
of
<PAGE>
such payment. Such 15-day period shall not be construed in any way to extend the
due date of any such payment. The late charge is imposed for the purpose of
defraying the Bank's expenses incident to the handling of delinquent payments
and is in addition to, and not in lieu of, the exercise by the Bank of any
rights and remedies hereunder, under the other Loan Documents or under
applicable laws, and any fees and expenses of any agents or attorneys which the
Bank may employ. Upon maturity, whether by acceleration, demand or otherwise,
and at the option of the Bank upon the occurrence of any Event of Default (as
hereinafter defined) and during the continuance thereof, this Note shall bear
interest at a rate per annum (based on a year of 360 days and actual days
elapsed) which shall be three percentage points (3.0%) in excess of the interest
rate in effect from time to time under this Note but not more than the maximum
rate allowed by law (the "Default Rate"). The contract interest rate(s) herein
shall continue to apply whether or not judgment shall be entered on this Note.
6. Prepayment. The indebtedness evidenced by this Note may be prepaid in whole
or in part at any time without penalty.
7. Other Loan Documents. This Note is issued in connection with the Letter
Agreement, guaranties and related documents, the terms of which are incorporated
herein by reference (the "Loan Documents").
8. Events of Default. The occurrence of any of the following events will be
deemed to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any other debt, liability or obligation to the Bank of any
Borrower or any Guarantor of this Note, including but not limited to any of the
foregoing arising under the Loan Documents or any other documents now or in the
future securing the obligations of any Borrower or any Guarantor to the Bank;
(iii) the filing by or against any Borrower or any Guarantor of any proceeding
in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding, or any assignment by any Borrower or any
Guarantor for the benefit of creditors, or any levy, garnishment, attachment or
similar proceeding is instituted against any property of any Borrower or any
Guarantor held by or deposited with the Bank; (iv) a default with respect to any
other indebtedness of any Borrower or any Guarantor for borrowed money in excess
of $100,000, if the effect of such default is to cause or permit the
acceleration of such debt; (v) [omitted intentionally]; (vi) the entry of a
final judgment against any Borrower or any Guarantor in excess of $100,000 and
the failure of such Borrower or Guarantor to discharge the judgment within ten
days of the entry thereof; (vii) [omitted intentionally]; (viii) any material
adverse change in the business, assets, operations, financial condition or
results of operations of any Borrower or any Guarantor (ix) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(x) the death of any individual Borrower or Guarantor or, if any Borrower is a
partnership, the death of any individual general partner; (xi) any
representation or warranty made by any Borrower or any Guarantor to the Bank in
any document, including but not limited to the Loan Documents or any other
documents now or in the future securing the obligations of any Borrower or any
Guarantor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Borrower or any Guarantor to observe or
perform any covenant or other agreement with the Bank contained in any document,
including but not limited to the Loan Documents or any documents now or in the
future securing the obligations of any Borrower or any Guarantor to the Bank. As
used herein, the term "Guarantor" will mean any guarantor of the obligations of
the Borrower to the Bank existing on the date of this Note or arising in the
future.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no
further obligation to make advances hereunder unless and until the default is
cured to the Bank's satisfaction; (b) if an Event of Default specified in clause
(iii) above shall occur, the outstanding principal balance and accrued interest
hereunder together with any additional amounts payable hereunder, shall be
immediately due and payable without demand or notice of any kind; (c) if an
Event of Default specified in clause (i) shall occur and Borrower shall fail to
effect a cure of such Event of Default within ten (10) days of notice thereof
from the Bank, the outstanding principal balance and accrued interest hereunder,
together with any additional amounts payable hereunder, at the option of the
Bank and without demand or notice of any kind may be accelerated and become
immediately due and payable; (d) if any other Event of Default shall occur and
Borrower shall fail to
2
<PAGE>
effect a cure of such Event of Default within thirty (30) days of notice thereof
from the Bank, the outstanding principal balance and accrued interest hereunder
together with any additional amounts payable hereunder, at the option of the
Bank and without further demand or notice of any kind may be accelerated and
become immediately due and payable; (e) at the option of the Bank, this Note
will bear interest at the Default Rate from the date after the lapse of any
applicable cure period with respect to the Event of Default; and (f) the Bank
may exercise from time to time any of the rights and remedies available to the
Bank under the Loan Documents or under applicable law.
9. Power to Confess Judgment. The Borrower hereby empowers any attorney of any
court of record within the State of Delaware, after the occurrence of any Event
of Default hereunder, to appear for the Borrower and confess judgment, or a
series of judgments, against the Borrower in favor of the Bank or any holder
hereof for the entire principal balance of this Note and all accrued interest,
together with costs of suit and an attorney's commission of $2,500.00 added as a
reasonable attorney's fee, and for doing so this Note or a copy verified by
affidavit shall be a sufficient warrant. Interest on any such judgment shall
accrue at the Default Rate.
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Bank shall elect until such time as the Bank shall have received
payment in full of the debt, interest and costs.
10. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power or any acquiescence therein nor shall the
action or inaction of the Bank impair any right or power resulting therefrom.
The Borrower agrees to pay on demand, to the extent permitted by law, all costs
and expenses incurred by the Bank in the enforcement of its rights in this Note
and any security therefor, including without limitation reasonable fees and
expenses of the Bank's counsel. If any provision of this Note is found to be
invalid by a court, all the other provisions of this Note will remain in full
force and effect.
Except for notices of default as provided in Section 8 above, the Borrower
hereby forever waives presentment, demand, protest, notice of dishonor, notice
of nonpayment or default and any other notices of any kind. The Borrower also
waives all defenses based on suretyship or impairment of collateral.
If this Note is executed by more than one Borrower, the obligations of such
persons or entities hereunder will be joint and several. This Note shall bind
the Borrower and the heirs, executors, administrators, successors and assigns of
the Borrower, and the benefits hereof shall inure to the benefit of Bank and its
successors and assigns. All references herein to the "Borrower" and "Bank" shall
be deemed to apply to the Borrower and Bank and their respective heirs,
executors, administrators, successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the state of Delaware. This Note will be interpreted and the rights
and liabilities of the parties hereto determined in accordance with the laws of
the state of Delaware, excluding its conflict of laws rules. The Borrower hereby
agrees to the jurisdiction of any state or federal court located within the
state of Delaware, and consents that all service of process be sent by
nationally recognized overnight courier service directed to Borrower at the
Borrower's address set forth herein and service so made will be deemed to be
completed on the date of actual delivery to the Borrower; provided that nothing
contained herein will prevent the Bank from bringing any action or exercising
any rights against any security or against the Borrower individually, or against
any property of the Borrower within any other state or nation to enforce any
award or judgment obtained in the venue specified above, or such other venue as
the Bank chooses. The Borrower waives any objection to venue and any objection
based on a more convenient forum in any action instituted hereunder.
12. Waiver of Jury Trial. The Borrower irrevocably waives any and all rights the
Borrower may have to a trial by jury in any action, proceeding or claim of any
nature relating to this Note, any documents
3
<PAGE>
executed in connection with this note or any transaction contemplated in any of
such documents. The Borrower acknowledges that the foregoing waiver is knowing
and voluntary.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the confession of judgment and waiver of jury trial, and
has been advised by counsel as necessary or appropriate.
WITNESS the due execution and sealing hereof with the intent to be legally bound
hereby.
WITNESS/ATTEST: DOVER DOWNS, INC.
___________________________ By: /s/ Denis McGlynn (SEAL)
---------------------------------------
Denis McGlynn
President
Borrower's Address: Box 843, Route 13, Dover, DE 19901.
4
EXHIBIT 10.4
GUARANTY AND SURETYSHIP AGREEMENT
with
POWER TO CONFESS JUDGMENT
In consideration of the extension of credit by PNC BANK, DELAWARE (the
"Bank"), with an address at 222 Delaware Avenue, Wilmington, Delaware 19899 to
DOVER DOWNS, INC. (the "Borrower"), and other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, DOVER DOWNS
INTERNATIONAL SPEEDWAY, INC. (the "Guarantor"), with an address at Box 843,
Route 13, Dover, DE 19901 hereby guarantees, and becomes surety for, the prompt
payment of all types of indebtedness, liabilities and obligations of the
Borrower to the Bank of every kind and description, direct or indirect, absolute
or contingent, joint or several, whether as drawer, maker, endorser, guarantor,
surety, pursuant to letter of credit obligations or otherwise, whether due or to
become due, and whether now existing or hereinafter arising or contracted, plus
interest thereon, and all costs and expenses incurred by the Bank in the
collection thereof (hereinafter collectively referred to as the "Obligations").
If the Borrower defaults in the payment of any such Obligations, the Guarantor
will pay the amount due to the Bank.
1. Nature of Guaranty; Waivers. This is a guaranty of payment and not
of collection and the Bank shall not be required, as a condition of the
liability of the Guarantor, to make any demand upon, or to pursue any of its
rights against, the Borrower, or to pursue any rights which may be available to
it with respect to any other person who may be liable for the payment of the
Obligations.
This is an absolute, unconditional, irrevocable and continuing guaranty
and will remain in full force and effect until all of the Obligations have been
indefeasibly paid in full. This Guaranty will extend to and cover any and all
amendments, extensions, supplements, substitutions and renewals of the
Obligations and any number of extensions of time for payment thereof and will
not be affected by any surrender, exchange, acceptance, compromise or release by
the Bank of any other party, or any other guaranty or any security held by it
for any of the Obligations, by any delay or omission of the Bank in exercising
any right or power with respect to any of the Obligations or any guaranty or
collateral held by it for any of the Obligations or this Guaranty, by any
failure of the Bank to take any steps to perfect or maintain its lien or
security interest in or to preserve its rights to any security or other
collateral for any of the Obligations or any guaranty, or by any irregularity,
unenforceability or invalidity of any of the Obligations or any part thereof or
any security or other guaranty thereof.
Notice of acceptance of this Guaranty, notice of extensions of credit
to the Borrower from time to time, notice of default, diligence, presentment,
protest, demand for payment, notice of demand or protest, and any defense based
upon a failure of the Bank to comply with the notice requirements of the
applicable version of Uniform Commercial Code ss. 9-504 are hereby waived.
The Bank at any time and from time to time, without notice to or the
consent of the Guarantor, and without impairing or releasing, discharging or
modifying the liabilities of the Guarantor hereunder, may (a) change the manner,
place or terms of payment or performance of or interest rates on, or change or
extend the time of payment or performance of, or other terms relating to any of
the Obligations; (b) renew, substitute, modify, amend or alter, or grant
consents or waivers relating to any of the Obligations, any other guaranties, or
any security for any Obligations or guaranties; (c) apply any and all payments
by whomever paid or however realized including any proceeds of any collateral,
to any Obligations of the Borrower in such order, manner and amount as the Bank
may determine in its sole discretion; (d) deal with any other person with
respect to any Obligations in such manner as the Bank deems appropriate in its
sole discretion; and/or (e) substitute, exchange or release any security or
guaranty.
Irrespective of the taking or refraining from taking of any action
concerning the Obligations, the obligations of the Guarantor shall remain in
full force and effect and shall not be affected, impaired, discharged or
released in any manner. the Bank in its sole discretion may determine the
reasonableness of the period which may elapse prior to the making of demand for
any payment upon the Borrower.
2. Repayments or Recovery from the Bank. If any demand is made at any
time upon the Bank for the repayment or recovery of any amount or amounts
received by it in payment or on account of any of the Obligations and if the
Bank repays all or any part of such amount or amounts by reason of any judgment,
decree or order of any court or administrative body or by reason of any
settlement or compromise of any such demand, the Guarantor will be and remain
liable hereunder for the amount or amounts so repaid or recovered to the same
extent as if such amount or amounts had never been received originally by the
Bank. The provisions of this section will be and remain effective
notwithstanding any contrary action which may have been taken by the Guarantor
in reliance upon such payment, and any such contrary action so taken will be
without prejudice to the Bank's rights under this Guaranty and will be deemed to
have been conditioned upon such payment having become final and irrevocable.
3. Bankruptcy, etc. It is specifically understood that any
modification, limitation or discharge of the Obligations arising out of or by
virtue of any bankruptcy, reorganization or similar proceeding for relief of
debtors under federal or state law will not affect, modify, limit or discharge
the liability of the Guarantor in any manner whatsoever and this Guaranty will
<PAGE>
remain and continue in full force and effect and will be enforceable against the
Guarantor to the same extent and with the same force and effect as if any such
proceeding had not been instituted. The Guarantor waives all rights and benefits
which might accrue to it by reason of any such proceeding and will be liable to
the full extent hereunder, irrespective of any modification, limitation or
discharge of the liability of the Borrower that may result from any such
proceeding.
4. Events of Default. In the event of the occurrence of any of the
followings events of default (each an "Event of Default"):
(i) any Event of Default (as defined in any of the Obligations) and
the lapse of any notice or cure period provided in the Obligations
with respect to such Event of Default;
(ii) [omitted intentionally]
(iii) [omitted intentionally]
(iv) the failure by the Guarantor to perform any of its obligations
under this Guaranty; or
(v) the termination or attempted termination of this Guaranty,
the Guarantor will, on the demand of the Bank, immediately deposit with the Bank
in U.S. dollars all amounts due or to become due under the Obligations and the
Bank will use such funds to prepay the Obligations. Such amounts will be paid by
the Guarantor to the Bank without presentment, demand, protest or notice of any
kind, which are hereby expressly waived.
The rights and remedies of the Bank, after the occurrence of any such
Event of Default, will include but not be limited to the right of the Bank at
any time after such occurrence, without notice, to set off against the
Obligations the amount of any or all deposits of the Guarantor with the Bank. In
addition, upon any such occurrence, the Bank in its discretion may exercise with
respect to the collateral any one or more of the rights and remedies provided a
secured party under the applicable version of the Uniform Commercial Code.
5. Costs. To the extent that the Bank incurs any costs or expenses in
protecting or enforcing its rights under the Obligations or this Guaranty,
including but not limited to reasonable attorneys' fees and the costs and
expenses of litigation, such costs and expenses will be due on demand, will be
included in the Obligations and will bear interest from the incurring or payment
thereof at the Default Rate (as defined in any of the Obligations).
6. Power to Confess Judgment. The Guarantor hereby empowers any
attorney of any court of record within the State of Delaware, after the
occurrence of any Event of Default hereunder, to appear for the Guarantor and
confess judgment, or a series of judgments, against the Guarantor in favor of
the Bank or any holder hereof for the entire principal balance of the
Obligations and all accrued interest, together with costs of suit and an
attorney's commission of $2,500.00 added as a reasonable attorney's fee, and for
doing so this Guaranty or a copy verified by affidavit shall be a sufficient
warrant.
No single exercise of the foregoing power to confess judgment, or a
series of judgments, shall be deemed to exhaust the power, whether or not any
such exercise shall be held by any court to be invalid, voidable, or void, but
the power shall continue undiminished and it may be exercised from time to time
as often as the Bank shall elect until such time as the Bank shall have received
payment in full of the Obligations and costs.
7. Indemnification. In addition to the Obligations, the Guarantor will
indemnify, defend and hold harmless the Bank, its directors, officers, counsel
and employees, from and against all claims, demands, liabilities, judgments,
losses, damages, costs and expenses, joint or several (including all accounting
fees and attorneys' fees reasonably incurred), that any such indemnified party
may incur arising under or by reason of this Guaranty or any act hereunder or
with respect hereto or thereto except as a result of the willful misconduct or
negligence of such indemnified party. The provisions of this section and the
section captioned "Repayments or Recovery from the Bank" of this Guaranty will
survive the termination of this Guaranty.
8. Notices. All notices, demands, requests, consents or approvals and
other communications required or permitted hereunder must be in writing and will
be deemed effective upon receipt if delivered personally to such party, sent by
U.S. mail, postage prepaid, or sent by nationally recognized overnight courier
service, at the address set forth above or to such other address as any party
may give to the other in writing for such purpose.
9. Waiver. No delay or omission on the part of the Bank to exercise any
right or power arising from any Event of Default will impair any such right or
power or be considered a waiver of any such right or power or a waiver of any
such Event of Default or an acquiescence therein nor will the action or
non-action of the Bank in case of such default impair any right or power arising
as a result thereof.
2
<PAGE>
10. Illegality. In case any one or more of the provisions contained in
this Guaranty should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
11. Successors and Assigns. This Guaranty will be binding upon and
inure to the benefit of the Guarantor and the Bank and their respective
successors and assigns, provided, however, that the Guarantor may not assign
this Guaranty in whole or in part without the prior written consent of the Bank
and the Bank at any time may assign this Guaranty in whole or in part.
12. Changes in Writing. No modification, amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom, will in any event be effective unless the same is in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on the Guarantor in any case will entitle the Guarantor to any other or
further notice or demand in the same, similar or other circumstance.
13. Entire Agreement. This Guaranty (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
14. Gender, etc. Whenever used herein, the singular number will include
the plural, the plural the singular and the use of the masculine, feminine or
neuter gender will include all genders. If more than one party signs below as
the Guarantor, such parties shall be jointly and severally liable hereunder.
15. Liability of the Bank. The Guarantor hereby agrees that the Bank
will not be chargeable for any mistake, act or omission of any employee,
accountant, examiner, agent or attorney employed by the Bank (except for the
willful misconduct, or gross negligence of any person, corporation, partnership
or other entity employed by the Bank) in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.
16. Governing Law and Jurisdiction. This Guaranty has been delivered to
and accepted by the Bank and will be deemed to be made in the State of Delaware.
This Guaranty will be interpreted and the rights and liabilities of the parties
hereto determined in accordance with the laws of the State of Delaware, except
conflict of laws rules. The Guarantor hereby agrees to the jurisdiction of any
state or federal court located within the State of Delaware, and consents that
all service of process sent by nationally recognized overnight courier service
directed to undersigned at the undersigned's address set forth herein for
notices and service so made will be deemed to be completed on the date of actual
delivery to the Guarantor. Nothing contained herein will prevent the Bank from
bringing any action or exercising any rights against any security or against the
Borrower individually, or against any property of the Borrower within any other
state or nation to enforce any award or judgment obtained in the venue provided
above, or such other venue as the Bank chooses. The Guarantor waives any
objection to venue and any objection based on a more convenient forum in any
action instituted hereunder.
17. NO JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL RIGHT
THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS GUARANTY, OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS AND THE
GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Guarantor acknowledges that it has read and understood all the
provisions of this Guaranty, including the confession of judgment and waiver of
jury trial, and has been advised by counsel as necessary or appropriate.
WITNESS the due execution and sealing hereof with the intent of being legally
bound this ______ day of November, 1995.
WITNESS/ATTEST: DOVER DOWNS INTERNATIONAL SPEEDWAY, INC.
By /s/ Denis McGlynn (SEAL)
- ------------------------ --------------------------------------
Denis McGlynn, President
By /s/ Robert M. Comollo (SEAL)
- ------------------------ --------------------------------------
Robert M. Comollo, Treasurer
3
EXHIBIT 10.5
GUARANTY AND SURETYSHIP AGREEMENT
with
POWER TO CONFESS JUDGMENT
In consideration of the extension of credit by PNC BANK, DELAWARE (the
"Bank"), with an address at 222 Delaware Avenue, Wilmington, Delaware 19899 to
DOVER DOWNS, INC. (the "Borrower"), and other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, DOVER DOWNS
INVESTORS, INC. (the "Guarantor"), with an address at Box 843, Route 13, Dover,
DE 19901 hereby guarantees, and becomes surety for, the prompt payment of all
types of indebtedness, liabilities and obligations of the Borrower to the Bank
of every kind and description, direct or indirect, absolute or contingent, joint
or several, whether as drawer, maker, endorser, guarantor, surety, pursuant to
letter of credit obligations or otherwise, whether due or to become due, and
whether now existing or hereinafter arising or contracted, plus interest
thereon, and all costs and expenses incurred by the Bank in the collection
thereof (hereinafter collectively referred to as the "Obligations"). If the
Borrower defaults in the payment of any such Obligations, the Guarantor will pay
the amount due to the Bank.
1. Nature of Guaranty; Waivers. This is a guaranty of payment and not
of collection and the Bank shall not be required, as a condition of the
liability of the Guarantor, to make any demand upon, or to pursue any of its
rights against, the Borrower, or to pursue any rights which may be available to
it with respect to any other person who may be liable for the payment of the
Obligations.
This is an absolute, unconditional, irrevocable and continuing guaranty
and will remain in full force and effect until all of the Obligations have been
indefeasibly paid in full. This Guaranty will extend to and cover any and all
amendments, extensions, supplements, substitutions and renewals of the
Obligations and any number of extensions of time for payment thereof and will
not be affected by any surrender, exchange, acceptance, compromise or release by
the Bank of any other party, or any other guaranty or any security held by it
for any of the Obligations, by any delay or omission of the Bank in exercising
any right or power with respect to any of the Obligations or any guaranty or
collateral held by it for any of the Obligations or this Guaranty, by any
failure of the Bank to take any steps to perfect or maintain its lien or
security interest in or to preserve its rights to any security or other
collateral for any of the Obligations or any guaranty, or by any irregularity,
unenforceability or invalidity of any of the Obligations or any part thereof or
any security or other guaranty thereof.
Notice of acceptance of this Guaranty, notice of extensions of credit
to the Borrower from time to time, notice of default, diligence, presentment,
protest, demand for payment, notice of demand or protest, and any defense based
upon a failure of the Bank to comply with the notice requirements of the
applicable version of Uniform Commercial Code ss. 9-504 are hereby waived.
The Bank at any time and from time to time, without notice to or the
consent of the Guarantor, and without impairing or releasing, discharging or
modifying the liabilities of the Guarantor hereunder, may (a) change the manner,
place or terms of payment or performance of or interest rates on, or change or
extend the time of payment or performance of, or other terms relating to any of
the Obligations; (b) renew, substitute, modify, amend or alter, or grant
consents or waivers relating to any of the Obligations, any other guaranties, or
any security for any Obligations or guaranties; (c) apply any and all payments
by whomever paid or however realized including any proceeds of any collateral,
to any Obligations of the Borrower in such order, manner and amount as the Bank
may determine in its sole discretion; (d) deal with any other person with
respect to any Obligations in such manner as the Bank deems appropriate in its
sole discretion; and/or (e) substitute, exchange or release any security or
guaranty.
Irrespective of the taking or refraining from taking of any action
concerning the Obligations, the obligations of the Guarantor shall remain in
full force and effect and shall not be affected, impaired, discharged or
released in any manner. the Bank in its sole discretion may determine the
reasonableness of the period which may elapse prior to the making of demand for
any payment upon the Borrower.
2. Repayments or Recovery from the Bank. If any demand is made at any
time upon the Bank for the repayment or recovery of any amount or amounts
received by it in payment or on account of any of the Obligations and if the
Bank repays all or any part of such amount or amounts by reason of any judgment,
decree or order of any court or administrative body or by reason of any
settlement or compromise of any such demand, the Guarantor will be and remain
liable hereunder for the amount or amounts so repaid or recovered to the same
extent as if such amount or amounts had never been received originally by the
Bank. The provisions of this section will be and remain effective
notwithstanding any contrary action which may have been taken by the Guarantor
in reliance upon such payment, and any such contrary action so taken will be
without prejudice to the Bank's rights under this Guaranty and will be deemed to
have been conditioned upon such payment having become final and irrevocable.
3. Bankruptcy, etc. It is specifically understood that any
modification, limitation or discharge of the Obligations arising out of or by
virtue of any bankruptcy, reorganization or similar proceeding for relief of
debtors under federal or state
<PAGE>
law will not affect, modify, limit or discharge the liability of the Guarantor
in any manner whatsoever and this Guaranty will remain and continue in full
force and effect and will be enforceable against the Guarantor to the same
extent and with the same force and effect as if any such proceeding had not been
instituted. The Guarantor waives all rights and benefits which might accrue to
it by reason of any such proceeding and will be liable to the full extent
hereunder, irrespective of any modification, limitation or discharge of the
liability of the Borrower that may result from any such proceeding.
4. Events of Default. In the event of the occurrence of any of the
followings events of default (each an "Event of Default"):
(i) any Event of Default (as defined in any of the Obligations) and the
lapse of any notice or cure period provided in the Obligations with
respect to such Event of Default;
(ii) [omitted intentionally]
(iii) [omitted intentionally]
(iv) the failure by the Guarantor to perform any of its obligations
under this Guaranty; or
(v) the termination or attempted termination of this Guaranty,
the Guarantor will, on the demand of the Bank, immediately deposit with the Bank
in U.S. dollars all amounts due or to become due under the Obligations and the
Bank will use such funds to prepay the Obligations. Such amounts will be paid by
the Guarantor to the Bank without presentment, demand, protest or notice of any
kind, which are hereby expressly waived.
The rights and remedies of the Bank, after the occurrence of any such
Event of Default, will include but not be limited to the right of the Bank at
any time after such occurrence, without notice, to set off against the
Obligations the amount of any or all deposits of the Guarantor with the Bank. In
addition, upon any such occurrence, the Bank in its discretion may exercise with
respect to the collateral any one or more of the rights and remedies provided a
secured party under the applicable version of the Uniform Commercial Code.
5. Costs. To the extent that the Bank incurs any costs or expenses in
protecting or enforcing its rights under the Obligations or this Guaranty,
including but not limited to reasonable attorneys' fees and the costs and
expenses of litigation, such costs and expenses will be due on demand, will be
included in the Obligations and will bear interest from the incurring or payment
thereof at the Default Rate (as defined in any of the Obligations).
6. Power to Confess Judgment. The Guarantor hereby empowers any
attorney of any court of record within the State of Delaware, after the
occurrence of any Event of Default hereunder, to appear for the Guarantor and
confess judgment, or a series of judgments, against the Guarantor in favor of
the Bank or any holder hereof for the entire principal balance of the
Obligations and all accrued interest, together with costs of suit and an
attorney's commission of $2,500.00 added as a reasonable attorney's fee, and for
doing so this Guaranty or a copy verified by affidavit shall be a sufficient
warrant.
No single exercise of the foregoing power to confess judgment, or a
series of judgments, shall be deemed to exhaust the power, whether or not any
such exercise shall be held by any court to be invalid, voidable, or void, but
the power shall continue undiminished and it may be exercised from time to time
as often as the Bank shall elect until such time as the Bank shall have received
payment in full of the Obligations and costs.
7. Indemnification. In addition to the Obligations, the Guarantor will
indemnify, defend and hold harmless the Bank, its directors, officers, counsel
and employees, from and against all claims, demands, liabilities, judgments,
losses, damages, costs and expenses, joint or several (including all accounting
fees and attorneys' fees reasonably incurred), that any such indemnified party
may incur arising under or by reason of this Guaranty or any act hereunder or
with respect hereto or thereto except as a result of the willful misconduct or
negligence of such indemnified party. The provisions of this section and the
section captioned "Repayments or Recovery from the Bank" of this Guaranty will
survive the termination of this Guaranty.
8. Notices. All notices, demands, requests, consents or approvals and
other communications required or permitted hereunder must be in writing and will
be deemed effective upon receipt if delivered personally to such party, sent by
U.S. mail, postage prepaid, or sent by nationally recognized overnight courier
service, at the address set forth above or to such other address as any party
may give to the other in writing for such purpose.
9. Waiver. No delay or omission on the part of the Bank to exercise any
right or power arising from any Event of Default will impair any such right or
power or be considered a waiver of any such right or power or a waiver of any
such Event
2
<PAGE>
of Default or an acquiescence therein nor will the action or non-action of the
Bank in case of such default impair any right or power arising as a result
thereof.
10. Illegality. In case any one or more of the provisions contained in
this Guaranty should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
11. Successors and Assigns. This Guaranty will be binding upon and
inure to the benefit of the Guarantor and the Bank and their respective
successors and assigns, provided, however, that the Guarantor may not assign
this Guaranty in whole or in part without the prior written consent of the Bank
and the Bank at any time may assign this Guaranty in whole or in part.
12. Changes in Writing. No modification, amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom, will in any event be effective unless the same is in writing and
signed by the Bank, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand on the Guarantor in any case will entitle the Guarantor to any other or
further notice or demand in the same, similar or other circumstance.
13. Entire Agreement. This Guaranty (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof.
14. Gender, etc. Whenever used herein, the singular number will include
the plural, the plural the singular and the use of the masculine, feminine or
neuter gender will include all genders. If more than one party signs below as
the Guarantor, such parties shall be jointly and severally liable hereunder.
15. Liability of the Bank. The Guarantor hereby agrees that the Bank
will not be chargeable for any mistake, act or omission of any employee,
accountant, examiner, agent or attorney employed by the Bank (except for the
willful misconduct, or gross negligence of any person, corporation, partnership
or other entity employed by the Bank) in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations.
16. Governing Law and Jurisdiction. This Guaranty has been delivered to
and accepted by the Bank and will be deemed to be made in the State of Delaware.
This Guaranty will be interpreted and the rights and liabilities of the parties
hereto determined in accordance with the laws of the State of Delaware, except
conflict of laws rules. The Guarantor hereby agrees to the jurisdiction of any
state or federal court located within the State of Delaware, and consents that
all service of process sent by nationally recognized overnight courier service
directed to undersigned at the undersigned's address set forth herein for
notices and service so made will be deemed to be completed on the date of actual
delivery to the Guarantor. Nothing contained herein will prevent the Bank from
bringing any action or exercising any rights against any security or against the
Borrower individually, or against any property of the Borrower within any other
state or nation to enforce any award or judgment obtained in the venue provided
above, or such other venue as the Bank chooses. The Guarantor waives any
objection to venue and any objection based on a more convenient forum in any
action instituted hereunder.
17. NO JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL RIGHT
THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS GUARANTY, OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS AND THE
GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Guarantor acknowledges that it has read and understood all the
provisions of this Guaranty, including the confession of judgment and waiver of
jury trial, and has been advised by counsel as necessary or appropriate.
WITNESS the due execution and sealing hereof with the intent of being legally
bound this 1st day of March, 1995.
WITNESS/ATTEST: DOVER DOWNS INVESTORS, INC.
By /s/ Denis McGlynn (SEAL)
---------------------------------------
Denis McGlynn, President
3
EXHIBIT 10.6
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECRETARY OF THE COMMISSION PURSUANT TO REGISTRANT'S APPLICATION OBJECTING
TO DISCLOSURE AND REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 406. THE
OMITTED PORTIONS HAVE BEEN MARKED WITH BRACKETS.
- --------------------------------------------------------------------------------
PROJECT CONSULTING AND MANAGEMENT AGREEMENT
BY AND BETWEEN
DOVER DOWNS, INC.
("OWNER")
AND
CAESARS WORLD GAMING DEVELOPMENT CORPORATION
("OPERATOR")
- --------------------------------------------------------------------------------
<PAGE>
THIS PROJECT CONSULTING AND MANAGEMENT AGREEMENT (the
"Agreement") is made and entered into this 10th day of May 1995, by and between
DOVER DOWNS, INC., a Delaware corporation (hereinafter referred to as "Owner"),
and CAESARS WORLD GAMING DEVELOPMENT CORPORATION, a Nevada corporation
(hereinafter referred to as "Operator").
R E C I T A L S
A. Owner owns and operates Dover Downs which is located in Dover,
Delaware (the "Racetrack"). Owner and / or Affiliates currently conduct
automobile racing, harness racing and simulcast wagering together with various
activities related thereto, at the Racetrack ("Non-gaming Operations"). Owner
desires to designate certain areas at the Racetrack for (i) the operation of a
minimum of 500 "Gaming Devices" (as herein defined) and (ii) if authorized by
Delaware gaming laws, the operation of "Gaming Activities" (as herein defined).
B. Owner desires to hire Operator to provide consultation on the
construction, refurbishing, installation and design issues relating to the areas
designated for Gaming Activities and manage the Gaming Activities, together with
other Owner-approved activities which take place within the confines of the area
designated for Gaming Activities (collectively, the "Project"), and Operator
desires to provide such services, subject to the terms, conditions and
limitations hereinafter set forth.
C. Owner and Operator acknowledge and understand that Owner shall
continue to operate Non-gaming Operations at the Racetrack and that Owner shall
be entitled to all revenue therefrom and shall be responsible for all expenses
and liabilities relating thereto.
A G R E E M E N T
NOW, THEREFORE, for and in consideration of the above recitals
which are hereby incorporated herein as an integral part of this Agreement and
the mutual covenants, promises and agreements herein contained, the parties
hereto do hereby agree as follows:
1. DEFINITIONS/ARTICLE
1.1 Definitions. All capitalized terms referenced or used in this
Agreement and not specifically defined herein shall have the meaning set forth
on Exhibit "A", which is attached hereto and incorporated by reference.
1.2 Article. All references to "Article" in this Agreement shall refer
to a major section designed by a single arabic number with a caption entirely in
capital letters.
2. TERM
2.1 Initial Term. The Initial Term of this Agreement shall be Three (3)
years beginning on the Commencement Date unless sooner terminated pursuant to
the terms contained herein.
<PAGE>
2.2 Extended Term. Operator shall have Two (2) options to extend the
term for additional Three (3) year periods each in succession (each such
additional Three (3) year period being designated as an "Extended Term"). If
Operator does not give written notice of cancellation to Owner at least one
hundred twenty (120) days prior to the date of the expiration of the Initial
Term or the first Extended Term under this paragraph if the first option has
been exercised, then this Agreement shall be automatically extended for the next
Three (3) years upon the terms, conditions, covenants and provisions set forth
herein without the necessity of any new management agreement or other
instruments or agreements or of any notice being executed, delivered or given.
Notwithstanding the foregoing, the automatic extension of the Term or an
Extended Term shall become null and void, at Owner's Option, if:
a. at Owner's sole and absolute discretion, Owner ceases Gaming
Activities at the Racetrack; or
b. if Net Cash Flow for the twelve (12) Month period prior to the end
of the Initial Term or the Extended Term if applicable, is less than
Two Hundred (200%) Percent of the Management Fee due to Operator
calculated in accordance with Section 8.2 hereof for that same twelve
(12) Month period; or
c. at the time of the automatic extension, Operator is in Default under
this Agreement or an event exists which with the lapse of time or
notice or both would constitute an Event of Default hereunder or
Operator is otherwise not in substantial compliance with the material
terms and conditions of this Agreement.
If Owner ceases Gaming Activities pursuant to sub-clause (a) above, any
incremental costs of the Project associated with or attributable to such
cessation of Gaming Activities shall be absorbed by Owner. Additionally, if
Operator is unable to exercise its option for an Extended Term due to subclause
(a) above, and Owner elects to re-commence Gaming Activities within three (3)
years after Owner's termination of this Agreement, then Owner shall give notice
to Operator and Operator may, at its election, reinstate this Agreement by
notice to Owner within sixty (60) days following to receipt of Owner's notice to
Operator.
2.3 Recording of Memorandum of Project Consulting and Management
Agreement. At the request of Operator, Owner shall execute a Memorandum of
Project Consulting and Management Agreement substantially in the form of Exhibit
"B" attached hereto, which Memorandum shall be recorded, if possible, in the
real property records of the Office of the Kent County Recorder, in the State of
Delaware.
3. CONSULTING AND CONSTRUCTION SERVICES
3.1 Owner's Obligations. Owner shall pay all costs to develop,
construct, furnish and equip the Project, in accordance with the Project Budget
and the Plans and Specifications and FF&E Specifications as and when approved by
Owner and Operator. The Project shall be of first class quality taking into
account the market and competitive projects. Owner shall pay the costs of any
and all certificates of occupancy or local equivalents, gaming licenses or
qualifications and any and all other permits, agreements and other approvals
required for development and construction of the Project, and for Operator to
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commence operation of the Project, except any license required to be obtained by
Operator with respect to its management of the Project. All approvals of Owner
under this Article 3 are subject to Paragraph 23.6 (as in the case of other
approvals under this Agreement, unless specified to the contrary).
3.2 Plans and Specifications. Following Owner's approval of such
preliminary drawings or plans and associated budgets relating to the concept,
idea and design relating to the Project prepared by Operator or Consultants, as
Operator deems necessary, Operator will engage and retain, within the Project
Budget, for Owner's account and at Owner's sole cost and expense, such
Consultants as shall be necessary to prepare all site plans, construction
drawings, surveys, materials, specifications, architectural plans and drawings,
engineering plans and drawings, and all other plans, drawings, studies or
reports of any nature related to (a) the construction and/or remodeling of the
Project (the "Plans and Specifications") and (b) the furnishings, fixtures and
equipment, wall and floor coverings, design and color, wall hangings, signage,
art, accoutrements, and all other aesthetic and operational elements of design
and other nonstructural elements (the "FF&E") to be installed in the Project
(the "FF&E Specifications"). All Consultants retained by Operator on Owner's
behalf shall be required to carry errors and omissions insurance( with Owner and
Operator listed as additional insured to the extent commercially reasonable).
Operator shall consult with Owner as to the selection of the Project interior
designer and the selection shall be subject to the approval of Owner. The FF&E
Specifications shall be prepared under the direction of Operator and shall be
delivered to Owner for its review and approval prior to the ordering of the
items set forth therein and in accordance with the approved Construction
Schedule. Such FF&E Specifications shall cover all furniture, furnishings,
equipment and fixtures necessary or appropriate to operate the Project in
conformity with this Agreement. FF&E shall bear the name or identifying
characteristic of the Project, where appropriate, and shall comply with all
applicable Laws. The various components of the Plans and Specifications (i.e.,
conceptual, preliminary and final plans) shall be prepared and delivered to
Owner for its review and approval.
3.3 Changes. Any Plans and Specifications or FF&E Specifications not
specifically marked, stamped or otherwise identified as "final" are all
understood to be subject to change at any time, as and to the extent any such
changes may be recommended by Operator or by any Consultant with the approval of
the Operator, subject only to any required Approvals. After approval and
identification of final Plans and Specifications or FF&E Specifications for the
Project or a part thereof by Owner, such final Plans and Specifications or FF&E
Specifications shall not be changed in any material respect without Owner's and
Operator's approval (Owner's approval may be withheld for any reason whatsoever
at its sole and absolute discretion), except as otherwise provided herein.
Operator may recommend, subject to Owner's approval which approval may be
withheld for any reason whatsoever at Owner's sole and absolute discretion, such
further changes in the final Plans and Specifications or FF&E Specifications as
Operator may deem appropriate on account of engineering, aesthetic, economic,
availability or any other reasons whatsoever. In addition, Operator may, with
the concurrence of the Consultant responsible for the particular aspect of the
Project and without prior notice or approval of Owner, make or agree on behalf
of Owner to permit any non-material changes in the final Plans and
Specifications or FF&E Specifications, or interpretations thereof or field
directives, substitutions or other orders with respect thereto, as Operator may
deem necessary or appropriate to meet problems, shortages, disputes, design
deficiencies, sub-contractor failures or other exigent circumstances as may
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arise during the period of constructing, furnishing and equipping the Project.
For purposes of this Paragraph, "non-material changes" shall be defined as any
change that does not exceed Twenty-Five Thousand Dollars ($25,000) which, in
conjunction with all other changes, has no net effect on the total budgeted cost
of the Project as approved by Owner. Any material changes shall require Owner's
approval which approval may be withheld for any reason whatsoever at Owner's
sole and absolute discretion. Except in the case of minor or immaterial matters,
a written record shall be kept by Operator or the responsible Consultant with
respect to any such change, interpretation, field directive, substitution or
other order.
3.4 Construction Schedule. Prior to or simultaneously with the
preparation of the Plans and Specifications and the FF&E Specifications,
Operator shall prepare and submit to Owner for Owner's review and approval, a
construction schedule for: (i) the preparation of all Plans and Specifications
and (ii) the construction/remodeling and equipping of the Project (the
"Construction Schedule"). Owner shall have approval rights (which rights shall
not be unreasonably withheld) with respect to Operator's selection of all
contractors for the Project and the construction contracts relating thereto.
3.5 Extent of Review. Although the Plans and Specifications and FF&E
Specifications (collectively, "Plans") will be prepared by Consultants under
the direction and supervision of Operator, and will be subject to Operator's
review and approval, Operator has no obligation or responsibility of any
nature for any defect, mistake or omission in (i) the Plans, or (ii) the
construction/remodeling and equipping of the Project, as said responsibility is
solely with said Consultants. It is understood that all matters to be submitted
to Owner for review and approval hereunder will have been competently prepared
by said Consultants. Operator's review of such matters will be for the limited
purposes of enabling Operator to make suggestions to Owner and to assure that
the Project is constructed or remodeled so that it will be acceptable to
Operator for its purposes.
3.6 Technical Services. From the date hereof until the Project is
substantially completed (including FF&E installation), Operator shall provide
the following technical services to Owner, either itself or through its
Affiliates (the "Technical Services") or Consultants, subject to the conditions
and limitations set forth in Paragraph 3.5.;
3.6.1 Operator's advice and consultation with the Project
Consultants in connection with the architectural, engineering and other planning
of the Project and in the selection and specification of FF&E;
3.6.2 advice and counsel to Project Consultants regarding
mechanical installations, recreational areas and such other areas as energy and
security;
3.6.3 advice to Owner in the planning as to aesthetic and quality
aspects and Operator's operational requirements with respect to all areas of the
Project, staff structure, data processing equipment and software, surveillance
and security services, marketing, and entertainment programs;
3.6.4 advice to Project Consultants in the selection, purchase,
installation and layout of all equipment required or desirable for the efficient
and economical operation of the Project; and
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3.6.5 coordination with the Project Consultant responsible as
contractor of the Project with respect to each of the foregoing.
3.7 Final Approval by Operator. Operator shall not be required to open
the Project to the public until final approval by Operator. Operator may,
without accepting the Project and with Owner's consent, conduct pre-opening
operations of the Project to the extent allowed by Law. Final approval of the
Project by Operator shall occur on the latest to occur of:
3.7.1 the date that the Project is substantially completed; and
3.7.2 the date that FF&E and Gaming Devices have been substantially
installed therein in accordance with the provisions of this Agreement;
and
3.7.3 the date that all licenses and permits required for the operation
of the Project (including, without limitation, a certificate of
occupancy (or local equivalents), and gaming licenses) are obtained;
and
3.7.4 the date that adequate Working Capital and Gaming Bankroll for
the Project has been furnished by Owner in accordance with the
provisions of this Agreement; and
3.7.5 the date that the Project is, in the reasonable opinion of
Operator, ready to render first-class service to customers on a fully
operational basis in compliance with Law.
4. PRE-OPENING SERVICES BY OPERATOR
Prior to the Opening Date, Operator, as agent and for the account of
Owner pursuant to the Pre-opening Budget, shall perform or arrange through
Consultants, Affiliates, initial staff or other Persons for the performance of
the following services on behalf of and for the account of Owner (the
"Pre-Opening Services").
4.1 Staffing. Arrange for the recruitment and training of the
initial staff of the Project;
4.2 Marketing. Supervise the creation and implementation of a
marketing program consisting of sales, advertising, promotion, publicity and
public relations, in order to attract customers to the Project on and after the
Opening Date;
4.3 Lease and Agreements. Subject to Owner's approval, negotiate
and enter into on behalf of Owner all leases, licenses and concession agreements
appropriate for the Project;
4.4 Licensing. Assist Owner to apply for, and use its best efforts
to procure, such licenses and permits, as may be required by applicable Law
(whether in Operator's name or Owner's name, or both, as may be determined by
Owner or required by applicable Law) for the operation of the Project and its
related facilities;
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4.5 Supplies and Inventory. Provide a listing of Project supplies
and cause the purchase of initial inventories of Operating Supplies with funds
furnished by Owner;
4.6 Inaugural Ceremonies. In cooperation with Owner, arrange for
suitable inaugural ceremonies for the Project; and
4.7 Budget Planning. Develop and deliver to Owner the Pre-Opening
Budget, Start-up Budget and Annual Operations Budget for the Project's first
Fiscal Year.
5. APPOINTMENT OF OPERATOR
5.1 Appointment. Owner hereby appoints, hires and employs Operator, as
Owner's exclusive agent, to supervise, manage, direct and operate the Project
during the Term of this Agreement. Operator hereby accepts said appointment and
assignment upon and subject to the terms, conditions, covenants and provisions
set forth herein.
5.2 Management of the Project. Subject to and in accordance with
Paragraph 6.15 of this Agreement and other limiting provisions of this
Agreement, Operator shall have all the prerogatives normally accorded to
management in the ordinary course of commerce (except those relating to
maintenance of the Racetrack and those which primarily impact the Non-gaming
Operations which shall be Owner's responsibility), including, but not limited
to, the collection of receivables, the incurring of trade debts, the approval
and payment of checks, the advancement of credit (it being understood that
Operator shall be solely responsible for all bad debts incurred in the operation
of the Gaming Operation above that which is set forth in the Annual Operations
Budget approved by Owner), and the negotiating and signing of operational leases
and contracts which will not extend beyond the Term of this Agreement without
the consent of Owner, which consent may be withheld for any reason whatsoever in
its sole and absolute discretion. In managing the Project, Operator shall apply
a standard of diligence and professional management consistent with that which
is customary and usual with respect to the industry but taking into account the
physical characteristics of the Project and the nature of its market.
5.3. Contracts and Expenses. Operator is authorized to make, enter into
and perform, in the name of, for the account of, on behalf of, and at the
expense of Owner, any contracts and agreements provided for under this
Agreement, so long as Operator has complied with all the requirements of this
Agreement with respect to such contracts and agreements, including, but not
limited to, any required consent or approval of Owner. Unless this Agreement
expressly provides for an item or service to be at Operator's own expense, all
costs and expenses incurred by Operator or an Affiliate of Operator in the
performance of Operator's obligations under this Agreement shall be for and on
behalf of Owner and for the Project's account provided that such costs and
expenses are reflected in budgets approved by Owner or are otherwise approved by
Owner which approval may be withheld by Owner for any reason whatsoever at its
sole and absolute discretion. All debts and liabilities incurred to third
parties by Operator on behalf of either the Owner or the Project shall be
Operating Expenses of the Project.
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6. CERTAIN SPECIFIC AUTHORITIES AND RESPONSIBILITIES OF OPERATOR
6.1 Personnel Matters. Operator shall have the authority to perform
the following acts for the account and cost of Owner and subject to funds being
available from operations or being provided by Owner.
6.1.1 Recruitment. Operator shall establish procedures, techniques,
and programs to obtain, evaluate and train qualified applicants to become
Project employees such as, the gaming manager, marketing manager, slot
operations manager, credit manager and credit executives, gaming cage personnel,
service personnel, security personnel, internal audit personnel, management
information services personnel and gaming hosts, and to properly train such
individuals to fill those positions. Notwithstanding the foregoing, Operator
shall submit to Owner for Owner's approval (which shall not be unreasonably
withheld) a staffing plan identifying the necessary personnel to operate the
Project. Once the staffing plan has been approved, Operator shall have the sole
authority to fill all positions subject to Paragraph 6.1.2. Any changes to such
staffing plan shall be subject to Owner's approval, which approval shall not be
reasonably withheld.
6.1.2 Personnel Decisions. Operator shall have the sole authority
to hire, promote, discharge, and supervise all personnel assigned to the
Project. All employees hired for the Project shall be employees of Owner. In any
event, expenses and costs pertaining to the Project employees' employment,
including without limitation severance pay, shall be an Operating Expense. With
respect to the retention of all managers, Operator shall consult with Owner in
the hiring of such people and Owner shall have the right of approval (not to be
unreasonably withheld) with respect to the selection and replacement of the
general manager of the Project.
6.1.3 Labor Relations Operator and Owner shall consult and
cooperate with each other with respect to labor relations affecting the Project.
6.2 Financial Management. Operator shall be responsible for the
management of the day-to-day financial affairs of the Project.
6.3 Budgets and Forecasts. Operator shall prepare all development,
construction and operating budgets, cash flow budgets, and other financial
projections and forecasts.
6.3.1 Project Development and Construction Budgets. As soon as
practicable after the date of this Agreement, Operator shall prepare a
preliminary Project budget (the "Initial Project Budget") for the development,
construction/refurbishment, equipment and pre-opening costs of the Project. The
Initial Project Budget shall be revised and updated periodically along with the
ongoing planning and development of the Project, and Operator shall prepare a
final Project budget based upon actual bids received from Consultants after
preparation of the Plans and Specifications and FF&E Specifications for the
Project.
6.3.2 Annual Budgets. At least sixty (60) days prior to the
beginning of a Fiscal Year, Operator shall provide Owner with preliminary Annual
Operations and Capital Expenditure Budgets for such Fiscal Year. Adjusted
budgets will be provided from
<PAGE>
time to time as needed during the Fiscal Year. The Annual Operations Budget
shall set forth the proposed operating costs and revenues of the Project for the
relevant Fiscal Year. The Capital Expenditure Budget shall set forth Project
capital improvements and replacements (including, without limitation, FF&E) for
the forthcoming year which are to be spent out of the Replacement Fund.
6.3.3 Forecasts. Within sixty (60) days prior to the Opening Date
and prior to the start of each subsequent Fiscal Year, Operator shall prepare an
operations forecast for the operation of the Project for the three (3) Fiscal
Years starting with the current Fiscal Year (the "Three Year Operating Budget")
and submit same to Owner for its review and approval as set forth in Paragraph
6.5 of this Agreement. The Three Year Operating Budget will be superseded on a
year-by-year basis by the then current applicable Annual Operations Budget and
new Three Year Operating Budget.
6.4 Replacement Fund. Operator shall have the sole authority to oversee
and contract for all capital replacements and improvements to the Project or any
portion thereof. Operator shall create a Replacement Fund by making deposits
from the positive Net Cash Flow derived from the Project. Both parties
acknowledge that the funds allocated to the Replacement Fund shall be utilized
first for replacement expenditures to the Project and the FF&E, and then for new
improvements. Owner shall fund all reasonable and necessary capital expenditures
required for or on behalf of the Project whether or not such expenditures have
been contemplated in an approved budget prepared by Operator in accordance with
this Agreement or if there are insufficient funds in the Replacement Fund.
6.5 Owner's Review of Budgets. All budgets contained in this Agreement
shall require Owner's approval, which shall not be unreasonably withheld and are
subject to the terms and conditions of this Agreement. In the event that Owner
fails to provide Operator with written notice setting forth Owner's comments to
any proposed budget within thirty (30) days after Owner's receipt of such budget
, such budget shall be automatically deemed approved by Owner. Operator shall
have a period of fifteen (15) days (from the date of the receipt by Operator of
Owner's comments) to revise the applicable budget and resubmit it to Owner.
After Operator's resubmission of the budget to Owner, if Owner fails to provide
Operator with written notice setting forth Owner's comments to the revised
budget within fifteen (15) days after Owner's receipt of such budget , such
budget shall be automatically deemed approved by Owner. In the event the parties
cannot agree on a final budget within sixty (60) days after Owner receives the
initial proposed budget, then either party may cause the disputed items to be
submitted to arbitration pursuant to the provisions of Article 22 hereof, which
decision shall be final. In the interim period during which the final budget is
being determined, Operator shall use its best efforts to operate the Project
pursuant to the prior year's actual results, adjusted by the following: (i) any
percentage increase in the Consumer Price Index over the prior year, plus (ii)
any revisions required due to change in circumstances from the prior year.
Except as provided in Paragraph 6.3.2, Operator's preparation of the Annual
Operations Budgets shall be based on the actual results of the prior year,
information on possible occurrences which may impact the marketing and/or,
operation of the Project or cause changes from the previous year's results,
reasonable predictions for the future, and such other information and
assumptions as shall be reasonable under the circumstances.
<PAGE>
6.6 Unanticipated Expenditures and Reallocation of Funds. Owner agrees
that these operating and capital budgets are intended to be reasonable
estimates, and, accordingly, Operator shall, with Owner's consent (which shall
not be unreasonably withheld), be entitled to increase these budgets to cover
any expenditures or contingencies that were unanticipated by Operator at the
time of preparation of these budgets but are reasonable and necessary to carry
out the provisions of this Agreement. Operator, for and on behalf of the
Project, is authorized to take all action deemed necessary by Operator to
implement, perform, or cause the performance of the items set forth in these
budgets. Further, Operator may reallocate all or any portion of any amount
budgeted with respect to any one item in any of the budgets to another item
budgeted therein provided that such reallocation has been made from an item that
has been over budgeted.
6.7 Accounting Records. During the Term of this Agreement, Operator
shall maintain reasonably complete accounting records. Operator shall keep all
current vendor invoices, records, payroll records, general ledgers and other
records relating to the Project at the Project or at such other location as
shall be approved by Owner, subject to such reasonable record retention and
storage policies as are established by Owner or required by applicable Law. The
accounting records are the sole property of Owner and Owner shall be provided
reasonable access to such files upon demand. All accounting records shall be
returned promptly to Owner by Operator upon termination of this Agreement.
6.8 Financial Statements. Operator shall provide Owner with unaudited
Financial Statements of the Project for each month within fifteen (15) days
after month end. Operator shall deliver annual Audited Financial Statements of
the Project within ninety (90) days after the end of each fiscal year. An
unaudited comparison of actual results with budgeted amounts shall be provided
with such annual Financial Statements. The Project auditor shall be selected by
Owner, subject to Operator's approval, which shall not be unreasonably withheld,
it being understood that the auditor shall be independent, nationally recognized
and have significant audit experience in the gaming industry. Operator shall
cooperate with Owner to provide financial information in sufficient detail and
form to allow Owner to integrate such financial information into Owner's
accounting system.
6.9 Review and Audit. Owner acknowledges that the calculation of the
Management Fees and the accounting information set forth in the Financial
Statements shall be binding and conclusive on the parties unless a written
statement setting forth any objections and the basis for the objections is
received by Operator within ninety (90) days of the date the audited financial
statements are issued. If the parties cannot resolve the disputed items within
thirty (30) days after Operator receives the written objections, then the
disputed matters shall be submitted to arbitration pursuant to the provisions of
Article 22 hereof, which decision shall be final. No dispute pertaining to
budgets, Financial Statements or Management Fee computations shall be a Default
or an Event of Default under this Agreement.
6.10 Limitation of Responsibility for Budgets. All budgets are intended
only to be estimates and, provided Operator has exercised a standard of
diligence and professionalism consistent with standards which are customary in
the gaming industry, Operator shall not be liable or responsible in any event if
any of the budgeted figures are not attained or there is any variance between
the actual revenues and expenditures and the amounts set forth in any budgets.
Subject to adherence to a reasonable good faith standard,
<PAGE>
to the fullest extent legally permitted, Owner does hereby release and exculpate
Operator and Operator's Affiliates and their employees, officers, agents,
directors and legal representatives from any and all liabilities, claims,
damages and actions of whatsoever kind or nature arising directly or indirectly
from or out of: (i) any variance between actual revenues and expenditures and
the amounts set forth in any of the budgets, and (ii) any of the budgets to be
prepared or submitted under the terms of this Agreement. Owner acknowledges that
Operator has not made any guarantee, warranty or representation of any nature
concerning or related to the amounts of Gross Revenue and Operating Expenses to
be generated or incurred from the operation of the Project during the Term of
this Agreement by Operator.
6.11 Management. Subject to the provisions of Article 5, Paragraph 6.15
and the approval requirements specifically recited herein, and provided that no
action on the part of Operator would violate any applicable law, regulation or
order of any government agency, Operator shall have the absolute discretion and
authority, to the extent permitted by law, to determine operating policies and
procedures, standards of operation, credit policies, complimentary policies, win
payment arrangements, standards of service and maintenance, pricing, and other
policies affecting the Project, or the operation thereof, to implement all such
policies and procedures, including, but not limited to, the following, as
applicable:
6.11.1 Service Agreements. Operator shall negotiate and consummate
such agreements as necessary for the operation of the Project with the consent
of Owner.
6.11.2 Purchases. To the extent permissible under applicable law,
Operator shall purchase such equipment, Operating Supplies, and other materials
as shall be necessary for the operation of the Project.
6.11.3 Repairs. Operator and Owner shall work together to keep the
Project in first class condition.
6.11.4 Licenses, Permits, and Accreditation. Operator shall assist
Owner administratively in applying for and maintaining all licenses, permits,
and accreditation required in connection with the management and operation of
the Project. Operator shall file all required regulatory reports pertaining to
the Project and itself. Owner shall file such reports pertaining to itself.
6.11.5 Government Regulations. Operator shall cause all actions to
be done in and about the Project as shall be required by Law. Operator, with the
consent of Owner, which consent shall not be unreasonably withheld, may contest
the validity and/or application of any Law.
6.11.6 Legal Actions. Operator shall coordinate all gaming-related
legal actions relating to the Project with Owner and may retain an attorney, the
identity of which is subject to Owner's consent, provided such consent is not
unreasonably withheld, and take any reasonable legal actions, with the consent
of Owner, which consent shall not be unreasonably withheld, necessary to protect
the assets of the Project and insure compliance with contractual obligations by
others. As to legal actions other than personal injury or Project-related
claims, Operator and Owner shall jointly select the attorneys.
<PAGE>
6.11.7 Accounting Services. Operator shall establish and maintain
a gaming accounting system, internal controls, and reporting systems in
accordance with customary policies and procedures appropriate for the Project.
6.11.8 Bank Accounts. Operator shall establish in the Project's
name such bank accounts as are required for the operation and maintenance of the
Project. Owner shall select the bank with Operator's approval (not to be
unreasonably withheld) and Owner shall have the risk of insolvency of any such
institutions. Operator shall have sole signature authority on such accounts to
the extent permitted by applicable Law.
6.11.9 Credit. All decisions regarding the granting and collection
of credit shall be made by Operator, including without limitation any discounts
or cancellations. All bad debt expense incurred by the Gaming Operation above
those amounts contained in any approved budget shall be incurred at the sole
expense of Operator and shall be a credit against any amounts due to Operator as
a Management Fee.
6.12 Emergency Expenditures. Without limiting the generality of this
Article 6, in the event that a condition should exist in, on, or about the
Project of an emergency nature, including structural repairs, which requires
immediate repairs to preserve and protect the Project and assure its continued
operation or to protect its customers, guests or employees, Operator, on behalf
of and at the expense of Owner, is authorized to take all reasonable steps and
to make all reasonable expenditures necessary to repair and correct any such
condition, whether or not provisions have been made in the applicable budgets
for any such emergency expenditures. Operator agrees to give telephone notice to
Owner at the earliest reasonable opportunity concerning any emergency
expenditure.
6.13 Expenditures Required for Compliance With Law. Without limiting
the generality of this Article 6, if at any time during the Term of this
Agreement repairs, additions, changes or corrections in the Project of any
nature shall be required by reason of any Law now or hereafter in force, such
repairs, additions, changes or corrections shall be made at the direction of
Operator with Owner's consent (which shall not be unreasonably withheld) and
shall be paid for as Operating Expenses.
6.14 Disbursement of Unneeded Cash to Owner. To the extent available,
Operator shall distribute any Net Cash Flow, in excess of amounts required to
fund the Working Capital and those payable to Operator which are accrued and
payable, to Owner on a monthly basis.
6.15 Conflicts Due to Shared Facility. Operator and Owner acknowledge
that, due to the fact that Gaming Activities and Non-gaming Operations will be
conducted in a shared facility, certain actions taken by either Operator or
Owner with respect to the management of the Project and the Racetrack,
respectively, may have an impact on the other. To the extent that any party
anticipates that any new activity taken by it could materially adversely impact
the business of the other party, such party shall consult with the other party
prior to engaging in such activity. Operator and Owner agree to cooperate with
each other in good faith to assure that actions taken by one shall not have a
materially adverse impact on the business of the other.
<PAGE>
6.16 Shared Expenses. Owner and Operator acknowledge and agree that in
the course of operating Gaming Activities at the Project, and Non-Gaming
Operations at the Racetrack there will exist certain expenses, including,
without limitation, depreciation, which benefit both the Project and the
Racetrack but which are not specifically identifiable with or attributable to
either ("Shared Expenses"). Owner and Operator agree to work together in good
faith to determine a mutually acceptable procedure to determine the costs and
allocation to be charged to either party in connection with such Shared
Expenses. As soon as such costs and allocations are determined by Owner and
Operator, the methods at arriving at such allocations or the amounts of such
allocations shall be documented and attached to this Agreement as an Exhibit.
7. CERTAIN RESPONSIBILITIES OF OWNER
7.1 Owner's Advances. Owner shall advance amounts as are provided for
in the budgets discussed herein to Operator as are necessary to conduct the
affairs of the Project and maintain the Project (hereinafter referred to as
"Owner's Advances") as provided hereunder.
7.1.1 Pre-Opening Budget. Within five (5) Business Days after
receipt of written notice from Operator requesting said amounts, Owner shall
fund to Operator the initial amounts agreed to by the parties and thereafter
such other amounts as set forth in the Pre-Opening Budget or any revisions
thereof approved by Owner.
7.1.2 Start-up Budget. Within Five (5) days prior to the date which
Gaming Operations commence, Owner shall fund to Operator the amounts set forth
in a Start-up Budget prepared by Operator and approved by Owner. This start-up
budget shall cover the initial three (3) months of operations and shall be
replaced by the Annual Operations Budget for the initial fiscal period of
operations when completed as provided for herein . In addition, within five (5)
Business Days of receipt of written notice from Operator, Owner shall thereafter
present Operator with Owner's Advances adequate to cover the start-up
requirements to the extent additional requirements are necessary based on Owner
approved revisions of the Start-up Budget as provided for herein.
7.1.3 Working Capital. During the Term of this Agreement, within
fifteen (15) Business Days after receipt of written notice from Operator, Owner
shall present Operator with Owner's Advances adequate to cover the initial
Working Capital and any additional amount required thereafter to cover any
deficiency in the level of Working Capital required in connection with the
ongoing operation of the Project as approved by Owner in the Operations Budget.
The written request for any additional Working Capital shall be submitted by
Operator to Owner on a monthly basis based on the Financial Statements and the
Working Capital Budget.
7.1.4 Additional Expenses. Owner shall pay the following expenses
on or before their applicable due date: (i) all debt service on any mortgage or
debt instrument encumbering or related to the Project or the Racetrack, (ii)
payments on leases or purchase contracts for FF&E which are due and payable on
or before the Opening Date, and (iii) approved budgeted Capital Improvements to
the extent funds in the Replacement Fund are insufficient to cover such
requirements.
<PAGE>
7.1.5 Negative Cash Flow. Subject to Owner's right to terminate
this Agreement pursuant to Paragraph 17.4.7, for all months in which the Project
Net Cash Flow is projected to operate at a deficit Owner shall, on a monthly
basis within five (5) Business Days after receipt of notice from Operator, remit
to Operator Owner's Advances in an amount equal to the sum of the negative cash
flow for the prior month, if any, and the estimated negative cash flow for the
subsequent month. Notwithstanding the foregoing, if negative flow exceeds Twenty
Five Thousand Dollars ($25,000) for any month during the Term, Owner and
Operator agree to consult with each other to attempt to minimize expenses with
respect to the Project.
7.1.6 Bank Roll. The Gaming Bankroll, including, without
limitation, any necessary replenishment of Operator's account in the event of
reduction, shall be provided by Owner on demand.
7.1.7 Optional Funding by Operator. In the event Owner fails to
fund any Owner's Advance within the specific time period set forth in this
Section 7.1 or make any other payment required to be made by Owner hereunder, or
if sums are required prior to such time as Owner is obligated to advance the
same, Operator may, at its sole option, without assuming any liability for the
payment of any account, advance the amount required, or any portion thereof, on
behalf of Owner. The amount advanced and paid on behalf of Owner ("Operator's
Advances") shall be reimbursed and shall bear interest (i) at the Default Rate
until Operator is reimbursed in full, including all accrued interest, if
Operator's Advances are the result of Owner's refusal to fund such amounts
within ten (10) days of being requested to do so or Owner's inadvertence in
funding any budgeted amount required pursuant to this Agreement upon demand by
Operator and (ii) at Bank of America's prime rate in all other events. The
advance of Operator's Advances by Operator does not in any manner waive any
rights or remedies granted to Operator under the terms of this Agreement,
including the right to declare Owner in Default as provided in Article 16 and to
proceed with any remedies granted under Article 17.
7.2 Other Requirements. Owner shall comply with all Laws and with all
agreements with the State of Delaware, Kent County and other governmental
authorities and any other Person with respect to the Project, except to the
extent that such compliance is the obligation of Operator hereunder.
7.3 Mutual Cooperation. Owner shall cooperate fully with Operator and
Operator shall cooperate fully with Owner during the Term of this Agreement in
order to facilitate the performance by both parties of their obligations set
forth in this Agreement and to procure and maintain all licenses, permits or
authorizations necessary for operation of the Project. The parties hereto shall
provide each other with such information pertaining to the Project and the
Racetrack as may be requested from time to time.
7.4 Owners Services. During the Term or any Extended Term, Owner shall
provide the following services and/or rights to customers of the Project on a no
less favorable basis than similar services and/or rights provided to customers
in Non-gaming Operations at the Racetrack: (i) right of ingress and egress; (ii)
parking in Racetrack parking facilities; and (iii) such other services and/or
rights as Operator and Owner may agree from time to time. To the extent
applicable, Plans and Specifications shall specifically incorporate such rights
and/or services.
<PAGE>
7.5 Owner's Promotion and Support of Project. Owner acknowledges that
the Project will be located, and all Gaming Activities will be conducted, at the
Racetrack and may, to a certain extent, compete with Owner's Non-gaming
Operations conducted at the Racetrack. Notwithstanding the foregoing, Owner
shall use its reasonable efforts to promote the Project and facilitate
Operator's management of the Project. Additionally, Owner shall maintain in full
force and effect during the term of this Agreement its license to operate the
Racetrack unless Owner and Operator mutually agree that the combined Non-gaming
Operations and Gaming Activities are not economically feasible.
8. MANAGEMENT FEES AND COMPENSATION
8.1 Consulting Fee. Operator shall be paid a consulting fee (the
"Consulting Fee") of Two Hundred Fifty Thousand Dollars ($250,000) , payable One
Hundred Thousand Dollars ($100,000) upon execution of this Agreement and One
Hundred Fifty Thousand Dollars ($150,000) on the Opening Date of the Project.
Notwithstanding the foregoing, Caesars shall be obligated to pay the first Fifty
Thousand Dollars ($50,000) of direct construction management costs relating to
the Project. At Caesars' option, this obligation may be satisfied by Caesars
through either of the following: (i) direct payments of expenses actually
incurred in the construction management of the Project which are contained in
the Project Budget as approved by Owner; or (ii) a Fifty Thousand Dollar
($50,000) reduction of that portion of the Consulting Fee due on the Opening
Date of the Project.
8.2 Operations Management Fee. During the Term of this Agreement,
commencing with the opening of the Project for business, Operator shall be paid
an operations Management Fee (the "Management Fee"). This Management Fee for
each Fiscal Year shall be equal to the greater of (i) $[ ] (the "Minimum
Annual Management Fee") or (ii) [ ] percent [ ]% of pre-tax accounting
income determined in accordance with Generally Accepted Accounting Principles
before actual interest expense associated with capital expenditures and less an
annual deduction of $[ ] (the "Allowed Deduction"). Based on the following
assumptions, the Management Fee would be calculated as set forth in the
following examples below:
<TABLE>
<CAPTION>
Example 1 Example 2
--------- ---------
<S> <C> <C>
Pre-tax Accounting Income [ ] [ ]
Interest Expense [ ] [ ]
--------- ---------
Subtotal [ ] [ ]
Allowed Deduction [ ] [ ]
--------- ---------
Total [ ] [ ]
Management Fee Percentage [ ]% [ ]%
--------- ---------
Management Fee [ ] [ ]
</TABLE>
Such fee shall be due and payable monthly in arrears. The Management Fee shall
be adjusted quarterly based on actual reported results for each such Fiscal
Quarter. A partial Fiscal Year at the beginning and end of this Agreement shall
result in a proration of the Minimum Annual Management Fee or the Allowed
Deduction of $[ ] as applicable.
<PAGE>
9. OWNER'S COVENANTS AND REPRESENTATIONS
9.1 Owner's Covenants and Representations. Owner makes the following
covenants and representations to Operator, which representations and covenants
shall, unless otherwise stated herein, survive the execution and delivery of
this Agreement and the Commencement Date and shall continue to be true during
the Term of this Agreement.
9.1.1 Corporate Status. Owner is a corporation duly organized and
validly existing under the Laws of the State of Delaware, with full capacity and
power to enter into this Agreement and execute all documents required hereunder.
9.1.2 Authorization. The making, execution, delivery and
performance of this Agreement by Owner has been duly authorized and approved by
all requisite action of the Board of Directors of Owner, and this Agreement has
been duly executed and delivered by Owner and constitutes a valid and binding
obligation of Owner, enforceable in accordance with its terms.
9.1.3 Other Agreements. Neither the execution and delivery of this
Agreement by Owner nor Owner's performance of its obligations hereunder will
result in a violation or breach of, or constitute a default with respect to or
accelerate the performance required under any other material agreement or
obligation to which Owner is a party or is otherwise bound or to which the
Project or any part thereof is subject, and will not constitute a violation of
any Law to which Owner or the Project is subject.
9.1.4 Documentation. If necessary to carry out the intent of this
Agreement, Owner agrees to execute and provide to Operator, on or after the date
hereof, any and all other instruments, documents, conveyances, assignments and
agreements which Operator may reasonably request in connection with the
operation of the Project.
9.1.5 Environmental Laws. Owner represents, warrants and agrees
that Operator has no obligation or responsibility relating to the presence of,
removal, spill, release, leaking, or disposal of oil, petroleum, toxic
pollutants, solid waste or other hazardous substances at the Project or the
Racetrack under any applicable Laws pertaining to health or the environment
(hereinafter sometimes collectively referred to as "Applicable Environmental
Laws"), including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, as hereafter amended ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Hazardous and Solid Waste Amendments of 1984, as hereafter amended
("RCRA"), the Federal Water Pollution Control Act, as now or hereafter amended
("WPCA"), and any Laws of the State of the Delaware, or any subdivision thereof
or any other matter of any environmental nature resulting from or in connection
with any event at the Racetrack or the Project which occurred prior to, or after
the effective date of this Agreement, or after the termination of this
Agreement, except if such matter is caused by Operator.
9.1.6 Communications. Owner shall promptly provide Operator with
copies of any communications relating to pollution or environmental concerns to
or from any governmental authority with respect to the Racetrack.
<PAGE>
9.1.7 Owners' Licensing Approval. Owner shall apply for and use
its reasonable efforts to obtain and maintain all appropriate licensing and
approvals under Delaware gaming Law as expeditiously as possible to allow
Operator to conduct Gaming Activities contemplated by this Agreement.
10. OPERATOR'S COVENANTS AND REPRESENTATIONS
10.1 Operator's Covenants and Representations. Operator makes the
following covenants and representations to Owner, which covenants and
representations shall, unless otherwise stated herein, survive the execution and
delivery of this Agreement and the Commencement Date and continue to be true
during the Term of this Agreement:
10.1.1 Corporate Status. Operator is a corporation duly organized,
validly existing, and in good standing under the Laws of Nevada, with full
corporate power to enter into this Agreement and execute all documents required
hereunder;
10.1.2 Authorization. The making, execution, delivery and
performance of this Agreement by Operator has been duly authorized and approved
by all requisite action of the Board of Directors of Operator, and this
Agreement has been duly executed and delivered by Operator and constitutes a
valid and binding obligation of Operator, enforceable in accordance with its
terms; and
10.1.3 Other Agreements. Neither the execution and delivery of
this Agreement by Operator nor Operator's performance of its obligations
hereunder will result in a violation or breach of, or constitute a default with
respect to or accelerate the performance required under any other agreement or
obligation to which Operator is a party or is otherwise bound and will not
constitute a violation of any Law to which Operator is subject.
10.1.4 Documentation. If necessary to carry out the intent of this
Agreement, Operator agrees to execute and provide to Owner, on or after the date
hereof, any and all other instruments, documents, conveyances, assignments and
agreements which Owner may reasonably request in connection with the operation
of the Project.
10.1.5 Operator's Licensing Approval. Operator shall apply for and
use its reasonable efforts to obtain and maintain all appropriate licensing and
approvals under Delaware gaming Law as expeditiously as possible to allow
Operator to conduct Gaming Activities contemplated by this Agreement.
11. INSURANCE
11.1 Operating Insurance. Owner shall, to the extent commercially
available, maintain at all times during the term of this Agreement, insurance
coverage as set forth below:
A. Commercial General Liability Insurance with limits no less than
Twenty Million Dollars ($20,000,000)
<PAGE>
B. Workers Compensation Insurance, with statutory requirements and
employer's legal liability coverage with the limits no less than Five Hundred
Thousand Dollars ($500,000).
C. Blanket Crime Insurance with limits no less than One Million
Dollars ($1,000,000).
D. Automobile Liability Insurance with limits no less than
$1,000,000.
E. Property Insurance insuring the real and personal property of
the Project against fire, with all risk coverage, including flood and
earthquake; business interruption and currency coverage.
F. Such other insurance as deemed necessary by the Owner after
consultation with the Operator.
11.2 All required coverage shall be primary. Premiums for all insurance
effected under this paragraph and the uninsured portion of any loss shall be
Operating Expenses.
11.3 Operator shall maintain at all times during the Term of this
Agreement errors and omissions insurance covering all of its activities under
the Agreement with a deductible and in such amounts as Owner and Operator deem
necessary.
11.4 The party required to provide insurance pursuant to this Agreement
shall cause the other party to be named as an additional insured under the
coverage contained herein to the extent possible.
11.5 Limitation on Scope of Services. Owner acknowledges that in
arranging for insurance coverage under this Article 11 nothing contained herein
or therein shall be deemed to constitute a representation or warranty by
Operator or any insurance broker utilized by Operator with regard to the nature
or extent of the insurance coverage which should be considered by Owner for the
ownership and operation of the Project, and Owner is to rely exclusively on its
own insurance advisors with regard thereto. Neither Operator nor Owner shall be
responsible for the bankruptcy or insolvency of any insurance provider providing
coverage with respect to the Project which has otherwise complied with the
insurance requirements hereunder.
12. DAMAGE AND CONDEMNATION
12.1 Total Destruction. In the event the Project is totally destroyed
by fire or other casualty, either party hereto may terminate this Agreement by
written notice to the other party given within thirty (30) days following such
destruction, provided that Owner may only terminate this Agreement if it has
determined not to rebuild the Project. Notwithstanding the foregoing, nothing
contained in this Section 12.1 shall serve to prevent Owner from exercising any
of its rights to terminate this Agreement pursuant to Article 17. In the event
of termination of this Agreement pursuant to a total destruction, this Agreement
<PAGE>
and the Term hereof shall cease and come to an end as of the date of such damage
or destruction as though such date were the date originally fixed for the
expiration of the Term of this Agreement, and neither party shall have any
obligation to the other arising out of or in any way connected with the
provisions of this Agreement, except for those provisions which by their terms
are intended to apply after termination or which have already accrued. In the
event that Owner shall determine to proceed to restore the Project within three
years of such total destruction and commence Gaming Operations thereafter, Owner
shall give notice to Operator and Operator may reinstate this Agreement by
notice to Owner within sixty (60) days following the later of (a) the
commencement of repairs, replacement, and/or restoration, or (b) the receipt by
Operator of notice thereof.
12.2 Partial Destruction. In the event the Project is damaged by fire
or other casualty, and such damage can be materially restored with due diligence
in twelve (12) months following such event, plus any period caused by
Unavoidable Delay, or if neither party has terminated this Agreement pursuant to
Paragraph 12.1, Owner shall have the obligation to repair the Project as nearly
as practical to the condition same was in prior to such damage. Notwithstanding
the foregoing, nothing contained in this Section 12.2 shall serve to prevent
Owner from exercising any of its rights to terminate this Agreement pursuant to
Article 17. All casualty insurance proceeds arising out of any loss or damage to
the Project or any portion thereof shall be specifically utilized for the repair
and restoration of the portion of the Project so damaged. Owner shall cause such
repair to be made with all reasonable dispatch so as to complete the same at the
earliest possible date and shall seek the advice and counsel of Operator as to
the allocation and expenditure of insurance proceeds in connection with any
repair and/or replacement within the Project. The Term or Extended Term shall be
extended for the same length of time during which the Project was being repaired
in accordance with this Section 12.2.
12.3 Substantial Condemnation. In the event all or substantially all of
the Project shall be taken in any eminent domain, condemnation, compulsory
acquisition or similar proceeding by any competent authority for any public or
quasi-public use or purpose, and the result is that it is unreasonable to
continue to operate the Project after making all reasonable repairs and
restoration, then either party shall have the right to terminate this Agreement
upon written notice to the other party within thirty (30) days of the conclusion
of the condemnation proceedings. Owner and Operator shall each have the right to
initiate such proceedings as they deem advisable to recover any damages to which
they may be entitled due to said condemnation proceedings. All compensation
awarded for any taking (or the proceeds of private sale in lieu thereof) of the
Project shall be the property of Owner subject to Operator's right to receive
20% of the award resulting from loss of its business from the Gaming Operation.
12.4 Partial Condemnation. In the event a portion of the Project shall
be taken by the events described in Paragraph 12.3, or is affected but on a
temporary basis, and the result is not to make it unreasonable to continue to
operate the Project after making all reasonable repairs and restoration, and
provided Owner does not terminate this Agreement pursuant to Article 16, this
Agreement shall not terminate and Owner shall repair and restore the Project as
close as reasonably possible to its condition prior to such event. All
compensation awarded for any taking of the Project shall be the property of
Owner subject to Operator's right to receive 20% of the award resulting from
loss of its business from the Gaming Operation.
<PAGE>
12.5 Casualty Management Fees. In the event of a destruction, damage,
or condemnation covered under this Article 12, Owner's obligation to pay
Operator a Management Fee shall become void during the period in which and as to
such portion of the Project that has been destroyed, damaged or condemned, it
being understood that Operator may obtain business interruption insurance at its
own expense to cover such event. In the event that either Owner or Operator
chooses to obtain business interruption insurance for the Project, the premiums
for such insurance shall be at the sole expense of the party obtaining such
insurance and shall not be a deduction in calculating pre-tax accounting income.
Notwithstanding the foregoing, if Owner obtains business interruption insurance
which covers the Operator's Management Fee as an insured item, Operator shall
be paid a Management Fee each month during such period of damage, destruction,
or condemnation but only to the extent that Owner receives insurance proceeds
under such policy to cover the same and the premium paid by Owner for such
insurance shall be a deduction in calculating pre-tax accounting income.. The
Management Fee during such period shall be in an amount equal to the average
total monthly amounts earned by Operator hereunder during the twelve (12) months
preceding the damage, destruction or condemnation (or such lesser period if the
Project shall not have been open for at least twelve (12) months). Such payment
shall continue to the extent covered by Owner's business interruption insurance
until operations of the Project are fully recommenced.
13. INDEMNIFICATION
13.1 (a) Owner hereby covenants and agrees to indemnify, save, and
defend, at Owner's sole cost and expense, and hold harmless, Operator,
Operator's Affiliates, and the officers, directors, agents, employees, legal
representatives and shareholders of Operator and Operator's Affiliates and the
successors and assigns of each of the foregoing (all of such Persons being
collectively referred to herein as the "Indemnified Persons" and each such
reference shall refer jointly and severally to each such Person) from and
against the full amount of any and all Losses. The term "Losses" shall mean any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including, but not limited to, all
attorneys' fees and all other professional or consultants' expenses incurred in
investigating, preparing for, serving as a witness in, or defending against any
action or proceeding, whether actually commenced or threatened, which may be
asserted against any Indemnified Person, arising from, in respect of, as a
consequence of, or in connection with any of the following: (a) any claims
asserted by any Person including, without limitation, any governmental agency or
quasi-governmental authority, board, bureau, commission, department,
instrumentality, or public body, court, or administrative tribunal (a
"Governmental Agency"), in connection with or in any way arising out of the
presence, storage, use, disposal, generation, transportation, or treatment of
any substances which are regulated by or otherwise the subject of any Applicable
Environmental Law on, in, or under the Racetrack or the Project, or any portion
thereof, either prior to or after the date of this Agreement; (b) the violation
or claimed violation of any Applicable Environmental Laws in regard to the
Racetrack or the Project or any portion thereof, whether any such violation or
claimed violation occurred prior to or after the date of this Agreement; (c) the
preparation of an environmental audit on the Racetrack or the Project or any
portion thereof authorized by Owner or the implementation of any environmental
audit's recommendations; and (d) the design, construction, organization,
management, operation or maintenance of the Project or any adjacent property and
any other activity by Owner and/or
<PAGE>
its Affiliates, regardless of cause or responsibility for negligence (either
active or passive), to the fullest extent legally permitted by Law, except (e)
in the case of clauses (a) through (d) above, those liabilities caused by
Operator's willful, wanton or criminal misconduct, gross negligence or fraud.
Operator will promptly notify Owner of such action, suit or proceeding. Owner's
duty to indemnify Operator and Operator's Affiliates shall survive the
termination of this Agreement and shall apply to any event or occurrence arising
before or after the execution or termination, as the case may be, of this
Agreement.
13.1 (b) Operator hereby covenants and agrees to indemnify, save and
defend, at Operator's sole cost and expense, Owner, Owner's Affiliates, and the
officers, directors, agents, employees, legal representatives and shareholders
of Owner and Owner's Affiliates and the successors and assigns of each of the
foregoing from any Losses arising from, in respect of, as a consequence of or in
connection with the willful, wanton or criminal misconduct, gross negligence or
fraud of Operator, its Affiliates, and the officers, directors, agents or
employees of Operator and its Affiliates with respect to the management of the
Project.
13.2 Each indemnified party hereunder agrees that promptly upon its
discovery of facts giving rise to a claim for indemnity under the provisions of
this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as a "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. The indemnifying party shall
be entitled, at its cost and expense, to contest and defend by all appropriate
legal proceedings any Claim with respect to which it is called upon to indemnify
the indemnified party under the provisions of this Agreement. Any such contest
may be conducted, as determined by the indemnifying party, in the name and on
behalf of the indemnifying party or the indemnified party as may be appropriate.
Such contest shall be conducted by reputable counsel employed by the
indemnifying party with the indemnified party's consent, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, the indemnified party
shall have the right but not the obligation to participate in such proceedings
and to be represented by counsel of its own choosing at its sole cost and
expense. The indemnifying party shall have full authority to determine all
action to be taken with respect thereto; however, the indemnifying party will
not have the authority to subject the indemnified party to any obligation
whatsoever, other than the performance of purely ministerial tasks or
obligations not involving material expense. In addition, without the consent of
the indemnified party, which consent may be withheld in its sole and absolute
discretion, the indemnifying party shall not consent to the entry of any
judgment or enter into any settlement that does not include an unconditional and
complete release of the indemnified party.
Anything to the contrary herein notwithstanding, if requested by the
indemnifying party, the indemnified party agrees to cooperate with the
indemnifying party and its counsel in contesting any Claim the indemnifying
party elects to contest and the indemnifying party will reimburse the
indemnified party for any expenses incurred by its so cooperating. Each party
shall, upon written request and at the requesting party's expense, make
personnel available to assist in locating and obtaining any of its books and
records to the extent that they relate to the other party's indemnification
obligations hereunder and make
<PAGE>
personnel available whose assistance, participation or testimony is reasonably
required in anticipation of, preparation for or the prosecution or defense of
any Claim in which the other party does not have any adverse interest.
14. PROTECTION OF OPERATOR; NONDISTURBANCE AGREEMENT
14.1 Protection of Operator. Owner covenants that so long as Operator
is not in Default under this Agreement, Operator shall have, and Owner hereby
grants to Operator, the right to manage and operate the Project pursuant to this
Agreement as agent for the Owner throughout the Term hereof, free from
hindrance, ejection or disturbance by Owner or any other party claiming under,
through, or by right of Owner.
14.2 Nondisturbance Agreement. Owner shall obtain for Operator from the
present or any future mortgagee(s) of the Racetrack, or any portion thereof, a
nondisturbance agreement in a form reasonably acceptable to Operator and such
present or any future mortgagee(s), assuring Operator that in the event of a
default by Owner under any mortgage, deed of trust or other instrument or
document creating a lien on the Racetrack, or any portion thereof, Operator's
exclusive use and possession of the Project as agent of Owner, and all of
Operator's exclusive rights and privileges under this Agreement, shall continue
unimpaired.
15. ASSIGNMENT
15.1 Sale/Assignment. Neither party may assign or otherwise transfer
this Agreement without the prior consent of the other party which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, either party may
assign this Agreement to an Affiliate without the consent of the other party.
Additionally, the following shall not be deemed an assignment or transfer:
(i) the issuance of additional stock by either party or their
respective parent corporations, if applicable, which does not result
in a material change in control of the company; and
(ii) subject to compliance with Operator's Affiliates' security
clearance procedures (which shall be interpreted and applied to Owner
consistent with such procedures' interpretation and application to
others in contractual relationships with Operator or its Affiliates)
and privileged license protection set forth in Paragraph 18.1, any
Person (a "Shareholder") who is a shareholder in Owner (or in any
entity that holds a direct or indirect interest in Owner) may transfer
all or any portion of his, her or its interest in the Owner (or in
such other entity), or make a gift thereof: (a) to an Affiliate of the
Shareholder (the "Related Shareholder") in which the Shareholder holds
a direct or indirect interest, (b) to any other existing shareholder
(directly or indirectly) in the Related Shareholder, Owner or any
grantor or beneficiary of any trust which is a partner or shareholder
(directly or indirectly) in their Related Shareholder; (c) whether
voluntarily or involuntarily, on death (by will or intestate) or inter
vivos (in trust or otherwise), to or for the benefit of any member of
his or
<PAGE>
her immediate family (which shall be defined to mean the spouse,
brothers and sisters, parents, direct descendants whether natural or
adopted) of the Shareholder or of his or her spouse, or (d) to the
Shareholder's representatives in the event of his or her legal
incapacity.
15.2 Effect of Assignment. In the event either party consents to an
assignment of this Agreement by the other, no further assignment shall be made
without the express consent in writing of such party. An assignment with
approval of the other party shall relieve the assignor of its obligations under
this Agreement provided that the assignee specifically assumes all of the
assignor's obligations and duties recited herein pursuant to an assignment and
assumption agreement the form of which shall be acceptable to the non-assigning
party and this Agreement shall continue in full force and effect. An assignment
by either Owner or Operator of its interest in this Agreement which is permitted
under its terms shall inure to the benefit of and be binding upon their
respective successors, heirs, legal representatives or assigns.
15.3 Right To Make An Offer. If at any time during the Term Owner
decides to sell the Project and solicits offers from potential purchasers, then
Owner shall notify Operator, in writing simultaneous with the solicitation of
such offers, of its intention to sell its interest in the Project and Operator
shall thereafter be free to submit an offer to purchase the Project.
16. DEFAULT
16.1 Definition. The occurrence of any one or more of the following
events which is not cured in the time permitted shall constitute a default under
this Agreement (hereinafter referred to as a "Default" or an "Event of Default")
as to the party failing in the performance or effecting the breaching act:
16.1.1 Operator's Default. If Operator shall fail in the material
performance of or material compliance with any of the material covenants,
agreements, terms or conditions contained in this Agreement and shall continue
for a period of thirty (30) days after written notice thereof from Owner to
Operator specifying in detail the nature of such failure, or, in the case such
failure cannot with due diligence be cured within such period of thirty (30)
days, if Operator fails to proceed promptly and with all due diligence to cure
the same and thereafter to prosecute the curing of such failure with all due
diligence, it being intended that in connection with a failure not susceptible
of being cured with due diligence within thirty (30) days that the time within
which to cure the same shall be extended for such period as may be necessary to
complete the same with all due diligence unless such failure is not susceptible
to cure regardless of time period in which case no cure period shall be
provided;
16.1.2 Owner's Default. If Owner shall (i) fail to make any
monetary payment required under this Agreement, including, but not limited to,
Management Fees or Owner's Advances, on or before the due date recited herein
and said failure continues for five (5) business days after written notice, or
(ii) fail in the material performance of or material compliance with any of the
other material covenants, agreements, terms or conditions contained in this
Agreement and such failure shall continue for a period of thirty
<PAGE>
(30) days after written notice thereof from Operator to Owner specifying in
detail the nature of such failure, or, in the case such failure cannot with due
diligence be cured within such period of thirty (30) days, if Owner fails to
proceed promptly and with all due diligence to cure the same and thereafter to
prosecute the curing of such failure with all due diligence, it being intended
that in connection with a failure not susceptible of being cured with due
diligence within thirty (30) days that the time within which to cure the same
shall be extended for such period as may be necessary to complete the same with
all due diligence unless such failure is not susceptible to cure regardless of
time period in which case no cure period shall be provided;
16.1.3 Bankruptcy. If either party (i) applies for or consents to
the appointment of a receiver, trustee or liquidator of itself or any of its
property, (ii) is unable to pay its debts as they mature or admits in writing
its inability to pay its debts as they mature, (iii) makes a general assignment
for the benefit of creditors, (iv) is adjudicated a bankrupt or insolvent, or
(v) files a voluntary petition in bankruptcy or a petition or an answer seeking
reorganization or an arrangement with creditors, takes advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation Law, or admits the material allegations of a petition filed against
it in any proceedings under any such Law, or if any action is taken by Operator
or Owner, as the case may be, for the purpose of effecting any of the foregoing;
and
16.1.4 Reorganization, Receiver. If an order, judgment or decree
is entered without the application, approval or consent of the applicable party
by any court of competent jurisdiction approving a petition seeking
reorganization of Operator or Owner, as the case may be, or appointing a
receiver, trustee or liquidator of Operator or Owner, as the case may be, or of
all or a substantial part of any of the assets of Operator or Owner, as the case
may be, and such order, judgment or decree continues unstayed and in effect for
a period of sixty (60) days from the date of entry thereof.
16.1.5 Prior Arbitration. If Operator or Owner challenges the
alleged Default and makes/seeks arbitration pursuant to this Agreement, then the
thirty (30) day cure period provided in Paragraphs 16.1.1 and 16.1.2 will not
commence until there is a decision by the arbitrator(s) that in fact the
designated act or omission was a failure that if not cured would be a Default.
16.2 Regulatory Actions. Actions by regulatory authorities for alleged
violations shall not be a Default or Event of Default by Operator or an Operator
Denial (as hereinafter defined) provided such actions were effected in the good
faith belief that they were not in violation of any law or regulation and were
in the best interests of the Project enterprise.
16.3 Delays and Omissions. No delay or omission as to the exercise of
any right or power accruing upon any Event of Default shall impair the
non-defaulting party's exercise of any right or power or shall be construed to
be a waiver of any Event of Default or acquiescence therein.
17. REMEDIES AND TERMINATION
<PAGE>
17.1 Owner's Remedies. Upon the occurrence of a Default by Operator,
Owner shall be entitled to terminate this Agreement by Owner's written notice of
termination to Operator and such termination shall be effective thirty (30) days
after delivery of such notice.
17.2 Operator's Remedies. Upon the occurrence of a Default by Owner,
Operator shall be entitled to:
17.2.1 terminate this Agreement by Operator's written notice of
termination to Owner, and such termination shall be effective thirty (30) days
after delivery of such notice; or
17.2.2 obtain specific performance of Owner's obligations
hereunder and injunctive relief.
17.3 Remedies Nonexclusive. Except as provided in Paragraph 18.2, no
remedy granted to either Owner or Operator under Paragraphs 17.1 and 17.2 above
is intended to be exclusive of any other remedy herein or by Law provided, but
each shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at Law.
17.4 Termination. The Term of this Agreement shall terminate on the
occurrence of any of the following events:
17.4.1 Upon the expiration of the stated Term;
17.4.2 Upon agreement by both parties in writing to terminate this
Agreement;
17.4.3 Upon the (10) days' notice to Owner, if Owner engages in
any Non-gaming Operations or other activities at the Racetrack which are
detrimental or harmful to the Project other than those in existence on the date
hereof or which are otherwise approved by the parties hereto and Owner
thereafter fails to reimburse Operator for any substantiated monetary damages
incurred;
17.4.4 Upon the exercise of any termination right expressly
granted to either Owner or Operator in this Agreement;
17.4.5 Upon the occurrence of an Event of Default pursuant to
Article 16 at the option of the non-defaulting party;
17.4.6 In the event that changes or modifications to the Law make
operation of the Gaming Operation uneconomical for either Owner or Operator; and
17.4.7 At Owner's election, if one of the following should occur:
a. if at any time commencing on the Opening Date through
the twelve month anniversary of the Opening Date (the
"First Year"), the cumulative Net Cash Flow of the
Project is a deficit greater than $1,000,000; or
<PAGE>
b. if at anytime commencing on the twelve month
anniversary of the Opening Date through the twenty four
month anniversary of the Opening Date, the cumulative
Net Cash Flow of the Project, excluding the First Year,
is a deficit greater than $1,000,000; or
c. if, on the twenty four (24) month anniversary of the
Opening Date and thereafter for the remainder of the
Term, the Net Cash Flow received by Owner pursuant to
Section 6.14 for the preceding twelve (12) consecutive
month period is less than one hundred fifty percent
(150%) of the amount paid to Operator hereunder as a
Management Fee for such twelve (12) month period.
17.5 Operator's Contingent Termination Rights. If Owner and Operator
have not obtained all required Approvals of the Delaware Gaming Authority and
other governmental authorities having jurisdiction on or before twelve months
from the date hereof either party shall have the option to terminate this
Agreement by written notice to the other.
17.6 Effect of Certain Terminations. Upon termination, all sums owed by
either party to the other shall be paid within thirty (30) days of the
termination date. In the event of any termination of this Agreement resulting
from Owner's Default or pursuant to Paragraph 17.5, Owner shall, notwithstanding
such termination, be liable to Operator for the fair and reasonable value of all
activities that Operator, any of its Affiliates, or any third parties have
performed pursuant to or in connection with this Agreement prior to such
termination provided such amounts are contained in budgets approved by Owner or
are otherwise approved by Owner which approval may be withheld by Owner for any
reason whatsoever at its sole and absolute discretion. The parties agree that
the fair and reasonable value of such activities performed by Operator pursuant
to this Agreement shall be, (i) unpaid accrued Management Fees and Operator's
Advances (including any unpaid accrued interest), if any, plus (ii) all costs to
Operator which result from such termination or are incurred in connection with
the performance of Operator's obligations under this Agreement, and (iii) legal
and regulatory costs incurred by Operator in connection with this Agreement. In
addition, in the event of termination of this Agreement resulting from a
Default, the defaulting party shall pay the non-defaulting party on demand all
reasonable expenses and other reasonable costs (including, but not limited to,
any attorneys' fees and expenses) incurred as a result of such Default.
17.7 Damages In the Event of Termination Under Section 17.2. In the
event of termination of this Agreement by Operator pursuant to Paragraph 17.2,
Operator shall be entitled to recover the following liquidated damages from
Owner:
17.7.1 All amounts due Operator under Paragraph 17.6 above; and
17.7.2 The present value of unpaid Management Fees under this
Agreement for the balance of the Term including any options computed using the
following assumptions:
(i) eight percent (8%) discount rate,
(ii) operating results the same as those for the
twelve (12) month period immediately preceding the
termination. The parties hereby agree that the amount
<PAGE>
payable for future Management Fees under this Paragraph
17.7.2 is a reasonable estimate of the amount of damages
incurred by Operator arising out of such Default by
Owner and the termination of this Agreement and shall be
the sole damages in the event of such termination.
17.8 Proprietary Information. In the event of termination of this
Agreement, Operator will return to Owner (or Owner can remove) all of the
marketing, credit and customer data generated by Operator in connection with its
duties hereunder. Operator shall have no right to use, sell, transfer, convey,
assign, license, or otherwise benefit from such data, and such marketing, credit
and customer data shall be Owner's sole and exclusive property. Upon termination
of this Agreement for any reason, Operator's proprietary computer programs and
Operator's operations manuals, shall remain the sole property of Operator, and
shall not be used or disclosed to other persons by Owner or its agents or
Affiliates. Owner recognizes, acknowledges and agrees that Operator and/or its
Affiliates manage other properties in addition to the Project and that Operator
and/or its Affiliates shall, during the Term of this Agreement and thereafter,
have and enjoy the continuing right to use all portions of its national
marketing data base, including, without limitation, that portion used but not
developed in discharging its duties under this Agreement, in conjunction with
management, operation or ownership by Operator and/or its Affiliates of any
other such property.
17.9 Survival of Representations and Indemnifications. Notwithstanding
anything contained herein to the contrary, the parties acknowledge that the
representations, covenants and indemnifications set forth in Articles 9.1.5, 13,
17, 22 and 23.2 shall survive the termination or expiration of this Agreement.
All amounts due and payable from either party to the other shall survive the
termination of this Agreement.
18. LICENSE PROTECTION.
18.1 Owner Denial. If at any time (a) either Owner or any Person
associated in any way with Owner is denied a license, found unsuitable, or is
denied or otherwise unable to obtain any other Approval with respect to the
Project or any other gaming operation elsewhere in the world by a Gaming
Authority or is required by any Gaming Authority to apply for an Approval and
does not apply within any required time limit (including extensions, if any),
withdraws any application for Approval other than upon a determination by the
applicable Gaming Authority that such Approval is not required, and if the
result of the foregoing has or would have an adverse effect on Operator or any
Affiliate of Operator or does or would materially delay obtaining any Approval
affecting Operator or any Affiliate of Operator, or (b) any Gaming Authority
commences or threatens to commence any suit or proceeding against either
Operator or an Affiliate or to terminate or deny any right or Approval of
Operator or any Affiliate because of this Agreement or Operator's relationship
to Owner or any Person associated with Owner (all of the foregoing events
described in (a) and (b) above are collectively referred to as an "Owner
Denial"), Operator may, as its sole and exclusive remedy, terminate this
Agreement as provided in Article 17. If Operator exercises its right to
terminate this Agreement pursuant to this Paragraph 18.1 solely as the result of
an association of Owner or any Person associated with Owner, this Agreement
shall not terminate if Owner ends such association within such period of time,
if any, as the aggrieved Gaming Authority gives for termination such
association. Owner and all Persons
<PAGE>
associated with Owner shall promptly, and in all events within any time limit
established by Law or such Gaming Authority, furnish each Gaming Authority any
information requested by such Gaming Authority and shall otherwise fully
cooperate with all Gaming Authorities.
18.2 Operator Denial. If at any time (a) either Operator or any Person
associated in any way with Operator is denied a license, found unsuitable, or is
denied or otherwise unable to obtain any other Approval with respect to the
Project other than as the result of a competitive bid in which Operator is not
the successful bidder or any other gaming operation elsewhere in the world by a
Gaming Authority or is required by any Gaming Authority to apply for an Approval
and does not apply within any required time limit (including extensions, if
any), withdraws any application for Approval other than upon a determination by
the applicable Gaming Authority that such Approval is not required, and if the
result of the foregoing has or would have an adverse effect on Owner or any
Affiliate of Owner or does or would materially delay obtaining any Approval
affecting Owner or any Affiliate of Owner, or (b) any Gaming Authority commences
or threatens to commence any suit or proceeding against either Owner or an
Affiliate or to terminate or deny any right or Approval of Owner or any
Affiliate because of this Agreement or Owner's relationship to Operator or any
Person associated with Operator (all of the foregoing events described in (a)
and (b) above are collectively referred to as an "Operator Denial"), Owner may,
as its sole and exclusive remedy, terminate this Agreement as provided in
Article 17. If Owner exercises its right to terminate this Agreement pursuant to
this Paragraph 18.2.2 solely as the result of an association of Operator or any
Person associated with Operator, this Agreement shall not terminate if Operator
ends such association within such period of time, if any, as the aggrieved
Gaming Authority gives for termination such association. Operator and all
Persons associated with Operator shall promptly, and in all events within any
time limit established by Law or such Gaming Authority, furnish each Gaming
Authority any information requested by such Gaming Authority and shall otherwise
fully cooperate with all Gaming Authorities.
18.3 Owner's Delaware Licensing. Owner shall maintain any licensing and
permits required of it under Delaware Law with respect to the operation of the
Project and the Racetrack (to the extent such licensing affects the Project's
licensing) except for those licenses required by law to be maintained by or
which are more appropriately maintained by Operator, in which case Operator
shall maintain such licenses.
19. UNAVOIDABLE DELAYS
The provisions of this Article shall be applicable if there shall occur
during the Term of this Agreement any (i) strike(s), lockout(s) or labor
dispute(s), (ii) inability to obtain labor or materials, or reasonable
substitutes therefore, (iii) acts of God, governmental restrictions, regulations
or controls, enemy or hostile governmental action, civil commotion, fire or
other casualty, or (iv) other conditions similar to those enumerated in this
Section beyond the reasonable control of the party obligated to perform
(collectively referred to as "Unavoidable Delay"). If Operator or Owner shall,
as the result of any of the above-described events, fail punctually to perform
any obligation on its part to be performed under this Agreement, then, upon
written notice to the other within ten (10) days of such event, such failure
shall be excused and not be a breach of this Agreement by the party claiming an
Unavoidable Delay, but only to the extent occasioned by such event. If any right
or option of either party to take
<PAGE>
any action under or with respect to the Term of this Agreement is conditioned
upon the same being exercised within any prescribed period of time or at or
before a named date, then such prescribed period of time or such named date
shall be deemed to be extended or delayed, as the case may be, upon written
notice, as provided above, for a time equal to the period of the Unavoidable
Delay. Notwithstanding anything contained herein to the contrary, the provisions
of this Article shall not be applicable to Operator's or Owner's obligation to
make any payments to the other pursuant to the terms of this Agreement nor shall
this Article operate to extend any time period set forth in Paragraph 17.5 or
Article 18.
20. RELATIONSHIP, AUTHORITY AND FURTHER ACTIONS
20.1 No Joint Venture. Nothing contained in this Agreement shall be
deemed or construed by the parties or by any third party as creating the
relationship of a partnership or joint venture between the parties to this
Agreement. Neither any provisions contained herein nor any acts of the parties
shall be deemed to create any relationship between the parties other than the
relationship of owner and manager, as provided in this Agreement.
20.2 Independent Corporation. Owner recognizes and acknowledges that
Operator is an independent corporation to whom Owner will solely look and who is
solely responsible for the obligations and liabilities of Operator recited
herein and arising hereunder. Owner further recognizes and acknowledges that no
other entity or entities, including any Affiliate of Operator or any individual
with Operator which may supply services to or take actions on behalf of or for
the benefit of Operator with respect to the Project is in any manner liable or
responsible for the obligations and liabilities of Operator unless specifically
set forth in an instrument executed by the party to be charged with such
obligation, duty or liability.
20.3 Affiliate Services.
a. It is agreed and understood among the parties in this Agreement that
the parent of Operator and/or other Affiliates of Operator may form,
organize, provide services to, provide loans and funds to, negotiate
for, provide personnel to, make representations on behalf of and, from
time to time take actions on behalf of or for the benefit of Operator
in furtherance of satisfying Operator's obligations under this
Agreement through direct agreements with Operator. The parent and
Affiliates of Operator may provide such services for a fee to Operator
and the provision of such services for a fee and the actions taken in
providing such services shall in no manner be construed to constitute
the undertaking by such parent or other Affiliate of any obligation,
duty or liability of Operator to Owner under the terms of this
Agreement or with respect to any other relationship existing between
Operator and Owner, unless specifically set forth in an instrument
executed by the party to be charged with such obligation, duty or
liability.
b. It is agreed and understood among the parties in this Agreement that
the parent of Operator and/or other Affiliates of Operator may enter
into a direct contractual relationship with Owner and that the
obligations, duties or liabilities of the parties to such agreement
shall be specifically set forth in a written instrument executed by the
parties thereto. The parties acknowledge that in the event of a dispute
between the
<PAGE>
parties concerning the fees or charges of an Affiliate of Operator, if
the parties cannot resolve the matter within forty-five (45) days, the
matter shall not be a Default under any terms of this Agreement, but
shall be submitted to arbitration pursuant to the provisions of Article
22, and the results of the arbitration shall be final on both parties
and any adjustment, if required, shall be paid by the applicable party.
c. Anything to the contrary notwithstanding, all contracts with
Affiliates of Operator requiring payments in excess of $10,000 per year
or cumulative payments over the Term in excess of $50,000 are subject
to Owner's consent, provided that such consent is not unreasonably
withheld.
21. FINANCING MATTERS
21.1 Restrictions on Financing Representations. In no event may either
party represent that the other party or any Affiliate thereof is or in any way
may be liable for the obligations of such party in connection with (i) any
financing agreement, or (ii) any public or private offering of securities. Any
financing and offering materials pertaining to a security offering on the
Racetrack or any related property which reference Operator or its affiliates or
data provided by Operator shall not be filed or disseminated without the prior
written approval of Operator as to references to Operator or its Affiliates or
as to data provided by Operator. Operator shall have the option, with Owner's
consent, said consent not to be unreasonably withheld, of notifying any third
party participating in such financing or security offering of any errors
pertaining to its relationship to the transaction, the facts of the contractual
relationship which exists between Owner and Operator and its Affiliates, and the
absence of an obligation of any nature with respect to such financing on the
part of the Operator or any Affiliate. Operator shall have the right to require
inclusion in offering or financing document of a statement implementing its
rights under this Article and any reasonable restrictions or disclosure which is
appropriate under the circumstances. In any event, such financing and offering
materials shall clearly and conspicuously state that neither the accuracy nor
adequacy of such materials has been passed on by Operator or its Affiliates.
Owner shall provide the forecasted Gross Revenue for any financing projections.
21.2 Permissible Disclosure. Notwithstanding the above restrictions,
subject to Operator's right of review set forth in Paragraph 21.1, following the
date of the first public announcement of the Project by CWI, Owner may represent
that the Project shall be managed by Operator and Operator may represent that it
manages the Project and both may describe the terms of this Agreement and the
physical characteristics of the Project in regulatory filings and public or
private offerings. Subject to the next sentence, Owner and Operator will use
their respective best efforts to keep all confidential matters pertaining to the
Project confidential except as required by law and except to the extent
necessary to complete the Project or to carry on their other businesses and
comply with governmental or contractual requirements applicable to them.
Operator or its Affiliates may make such announcements, file such documents
including without limitation this Agreement, with the Securities and Exchange
Commission, all regulatory authorities and otherwise take such actions to comply
with the requirements of federal and state securities laws as it deems
appropriate. To the extent reasonably practicable, Operator shall provide Owner
with the portion of any such announcement or filing that refers to this
Agreement and the transactions
<PAGE>
contemplated hereby with as much advance notice as is practicable but no later
than concurrently with the releasing or filing the same. Operator and Owner, and
their respective Affiliates, also may file such documents, including without
limitation this Agreement, with any other applicable regulatory authorities and
otherwise take such actions as may be necessary or appropriate to comply with
the requirements of any other applicable federal or state laws. Both parties
shall use their best efforts to consult with the other concerning disclosures as
to the Project.
21.3 Compliance. Both parties shall cause their respective Affiliates
or controlling Persons, and any partner or joint venturer, to comply with all
provisions of this Article that are applicable to such party.
22. ARBITRATION
22.1 Disputes. Every dispute between the parties arising with respect
to this Agreement, other than disputes concerning Paragraph 15.3 and Article 21,
shall be resolved in the manner provided in this Article.
22.2 Arbitrators. The arbitration shall be conducted by three (3)
arbitrators appointed in accordance with the provisions hereof and, to the
extent consistent with this Article, in accordance with the then prevailing
rules of the American Arbitration Association (or any organization successor
thereto) in the State of Delaware. The parties shall respond to any proposed
list of arbitrators within ten (10) days after the receipt thereof. The
arbitrator(s) shall have the right to retain and consult experts and competent
authorities skilled in the matters under arbitration. The arbitrator(s) shall
render their decision and award, upon the concurrence of at least two (2) of
their number (if there is more than one (1) arbitrator), within four (4) months
after the appointment of the last arbitrator or fifteen (15) days after the
final hearing of the arbitrator(s), whichever is earlier. In the event that two
(2) arbitrators cannot agree on the amount of an award, such amount shall be the
average of the two (2) closest proposed awards. The arbitrators' decision and
award shall be in writing and counterpart copies thereof shall be delivered to
each of the parties. In rendering such decision and award, the arbitrator(s)
shall not add to, subtract from, or otherwise modify the provisions of this
Agreement. Judgment may be entered on the determination and award made by the
arbitrator(s) in any court of competent jurisdiction and may be enforced in
accordance with the Laws of the State of Delaware. The arbitrator(s) will follow
and apply the terms of this Agreement and Delaware Law in rendering their
decision.
22.3 Procedures and Discovery. The parties hereby agree that in any
such arbitration each party shall be entitled to discovery of the other party as
provided by Delaware Law; provided, however, any such discovery shall be
completed within one (1) month from the date the last arbitrator is appointed,
unless such period is extended by agreement of the parties and any disputes
concerning discovery shall be determined by the arbitrator(s) with any such
determination being binding on the parties. The arbitrator(s) shall apply
Delaware substantive Law and the Delaware evidence Law to the proceeding. The
arbitrator(s) shall have the power to grant all legal and equitable remedies and
award compensatory damages provided by Delaware Law to the extent not
inconsistent with this Agreement. The arbitrator(s) shall prepare in writing and
provide to the parties an award
<PAGE>
including factual findings and the reasons on which the decision is based. The
arbitrator(s) shall apply the terms of the Agreement and shall not have the
power to commit errors of Law or legal reasoning. Each party shall bear its own
expenses of the arbitration including, without limitation, attorney fees, and
shall divide the arbitration expenses and fees equally. The parties further
agree that arbitration proceedings must be instituted within the later to occur
of (i) one year after the claimed breach occurred, or (ii) within one (1) year
of the date that complaining party became aware of such breach and that the
failure to institute arbitration proceedings within such periods shall
constitute an absolute bar to the institution of any proceedings and a waiver of
claims.
22.4 No Timely Decision. If for any reason whatsoever the written
decision and award of the arbitrators shall not be rendered within the time
limits set forth in this Article, either party may apply to any court having
jurisdiction by action, proceeding or otherwise (but not by a new arbitration
proceeding) as may be proper to determine the question in dispute consistently
with the provisions of this Agreement.
22.5 Extension of Time. Any time periods for performance of a matter
submitted to arbitration hereunder shall be extended by the amount of time taken
by the arbitration.
23. MISCELLANEOUS
23.1 Authorizations. Until Owner shall advise Operator to the contrary
in writing, Operator may rely on Denis McGlynn as authorized to take or approve
any action required or permitted to be taken by Owner, including, without
limitation, the giving of all approvals hereunder. Until Operator shall advise
Owner to the contrary, Owner may rely on Kenneth A. Rosevear as being authorized
to take any action required or permitted to be taken or approved by Operator,
including, without limitation, the giving of all approvals hereunder.
23.2 Restrictions as to Employees. It is agreed that neither party
shall seek to contact, entice or discuss employment with any employee of the
other party, nor shall either party employ or seek to employ any such employee,
without first obtaining the consent of the other party which consent may be
withheld for any reason whatsoever at the sole and absolute discretion of the
party from which consent is being sought. It is further agreed that this
restriction shall survive for a period of two (2) years following the expiration
or termination of this Agreement.
23.3 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if in writing and addressed as shown
below, and (i) delivered personally, (ii) sent by overnight courier, (iii) sent
by registered or certified mail, return receipt requested, postage prepaid, or
(iv) transmitted by facsimile machine. All notices personally delivered or sent
by overnight courier shall be deemed received on the date of delivery. Notices
sent by facsimile transmission shall be deemed received by the addressee upon
the transmitter's receipt of acknowledgement of receipt from the offices of such
addressee provided that properly addressed hard copy is put in the mail with
sufficient postage within twenty-four (24) hours of transmission. All notices
forwarded by registered or certified mail shall be deemed received on a date
three (3) Business Days immediately following date of deposit in the mail.
Notwithstanding anything to the contrary herein, the
<PAGE>
return receipt indicating the date upon which all notices were received shall be
prima facie evidence that such notices were received on the date on the return
receipt.
If to Owner: Dover Downs, Inc.
1131 North DuPont Highway
Dover, DE 19901
P.O. Box 843
Dover, DE 19903
Attention: Denis McGlynn
Telephone: (302) 674-4600 Ext. 201
Facsimile: (302) 734-3142
With a copy to: Dover Downs, Inc.
P.O. Box 1026
Wilmington, DE 19899
Attention: Eugene W. Weaver
Telephone: (302) 426-2906
Facsimile: (302) 426-2909
If to Operator: Caesars World Gaming
Development Corporation
3570 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: Kenneth A. Rosevear
Telephone: (702) 731-7697
Facsimile: (702) 741-7696
With a copy to: Caesars World, Inc.
1801 Century Park East, Suite 2600
Los Angeles, California 90067
Attention: Philip L. Ball, General Counsel
Telephone: (310) 552-2711
Facsimile: (310) 552-9254
The addresses and addressees may be changed by giving notice of such
change in the manner provided herein for giving notice. Unless and until such
written notice is received, the last address and addressee given shall be deemed
to continue in effect for all purposes. No notice to either Owner or Operator
shall be deemed given or received unless the entity noted "With a copy to" is
simultaneously delivered notice in the same manner as any notice given to either
Owner or Operator.
23.4 Entire Agreement. This Agreement embodies the entire agreement and
understanding of Owner and Operator relating to the subject matter hereof and
supersedes all prior representations, agreements and understandings, oral or
written, relating to such subject matter.
<PAGE>
23.5 Confidentiality.
23.5.1 Generally. Both parties shall maintain confidentiality with
respect to material developments in the course of development and operation of
the Project subject to legal and regulatory requirements. Except as required by
Law, material confidential information shall only be made available to such of a
party's employees and consultants as are required to have access to the same in
order for the recipient party to adequately use such information for the
purposes for which it was furnished. Any Person to whom such information is
disclosed shall be informed of its confidential nature and shall agree to keep
it confidential as provided herein. Information provided by one party to the
other shall not be presumed confidential unless the information is presented to
the recipient under circumstances which clearly and directly indicate the
delivering party intends such information to be confidential and such
information is not:
(a) already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;
(b) generally available to the public or otherwise part of the public
domain at the time of its disclosure to the receiving party;
(c) generally available to the public or otherwise part of the public
domain after its disclosure other than through an act or omission of
the receiving party in breach of this Agreement;
(d) subsequently lawfully disclosed to the receiving party by a person
other than a party to this Agreement.
23.5.2 Securities Law Requirements. Owner acknowledges that CWI is
a publicly held company and that trading in its securities based on non-public
information or unauthorized disclosure or other use of material developments
could expose both CWI and Owner to significant penalties. Owner shall take
appropriate precautions to inform its employees and independent contractors of
such requirements.
23.6 Approvals. Any consent or approval referred to herein (by whatever
words used) of either party shall not be unreasonably withheld or delayed,
except in those situations in which this Agreement explicitly gives the party
absolute discretion to take or forego to take an action. Except as otherwise
expressly provided herein, whenever either party has called upon the other to
execute and deliver a consent or approval in accordance with the terms of this
Agreement, the failure of such party to expressly disapprove within twenty (20)
business days after written request therefor is given in accordance with the
terms of Paragraph 23.3, or such other period as specifically set forth herein,
shall be deemed to be a consent or approval. In the event that either party
refuses to give its consent or approval to any request by the other, such
refusing party shall indicate by written notice to the other the reason for such
refusal. An approval or consent given or deemed given by a party to this
Agreement may not be revoked for any reason, other than inducement of such
approval or consent by actual fraud or a felony violation of criminal Law.
23.7 Conflict of Interest. Nothing contained in this Agreement shall be
construed to restrict or prevent, in any manner, any party or any party's parent
corporation, principals
<PAGE>
or other Affiliates or representatives from engaging in any other businesses or
investments during the Term of this Agreement, including, without limitation,
any similar or competitive gaming operation. Notwithstanding the foregoing or
any other provision contained in this Section 23.7, during the term of this
Agreement, neither Owner nor Operator (nor CWI or its subsidiaries) will seek to
develop, acquire or operate a casino operation within the State of Delaware
without first offering the other the opportunity to participate in any such
project on such terms and conditions as are acceptable to Owner and Operator.
This covenant, however, shall not prohibit Operator, CWI or their respective
subsidiaries, from acquiring a casino operation within the geographic area
otherwise prohibited herein if such acquisition occurs as a result of an
acquisition of an entire company through an asset, stock or equity purchase,
merger or similar transaction. Owner acknowledges that Operator and/or its
Affiliates operate other gaming and may in the future operate additional gaming
in different areas of the world and that marketing efforts may cross over in the
same markets and with respect to the same potential customer base. Owner hereby
waives any conflict of interest by Operator and/or its Affiliates in the
marketing or operation of any such gaming. Similarly, Operator waives any
conflict of interest by Owner in marketing and operations of the Project and
Non-gaming Operations at the Racetrack within or outside the State of Delaware.
Further, Operator, in the course of managing the Project, may refer customers of
the Project and other parties to other facilities operated by Affiliates of
Operator to utilize gaming, entertainment and other amenities, without payment
of any fees to Owner, and said actions shall not constitute a conflict of
interest or breach of any fiduciary duty or obligation by Operator. Owner
acknowledges and agrees that Operator may have and distribute promotional
materials for Operator's Affiliates and facilities, including gaming, at the
Project. Owner expressly disclaims and waives any and all claims of any nature
against Operator or its Affiliates arising from such conflict of interest or any
matter related thereto. Operator may, but shall not be obligated to, jointly
market and advertise the Project with other properties owned or operated by
Operator or its affiliates. Any such joint marketing or advertising shall be
subject to the prior approval of Owner. If Operator and Owner agree that the
Project is to be jointly marketed and advertised with properties owned or
operated by Operator or its affiliates, the total costs and expenses associated
with such joint marketing or advertising shall be shared on a reasonable basis
among the properties and the portion allocated to the Project shall be an
Operating Expense.
23.8 Exhibits. All Exhibits attached hereto are incorporated herein by
this reference as if fully set forth herein.
23.9 Choice of Law and Construction of Agreement, Service of Process,
and Jurisdiction. This Agreement shall be governed by and construed under the
Laws of Delaware. This Agreement shall be deemed to contain all provisions
required by the Delaware Code or any other Delaware Law relating to Gaming
Activities (collectively, the "Act") and is subject to any approvals required
under the Act. To the extent any provision in this Agreement is inconsistent
with the Act, the Act shall govern. Should any provision of this Agreement
require judicial interpretation or as to any arbitration under this Agreement,
it is agreed that the court or arbitrators interpreting or considering such
provision shall not apply the presumption that the terms hereof shall be more
strictly construed against a party by reason of the rule or conclusion that a
document should be construed more strictly against the party who itself or
through its agent prepared the same. It is agreed and stipulated that all
parties hereto have participated equally in the preparation of this Agreement
and that legal counsel was consulted by each party before the execution of this
Agreement.
<PAGE>
23.10 Amendment and Waiver. This Agreement may not be amended or
modified in any way except by an instrument in writing executed by all parties
hereto, except for agreement signed by the waiving party. A waiver by a party of
any of the terms or provisions of this Agreement shall not constitute a
subsequent waiver of any of the terms or provisions of this Agreement.
23.11 Severability. If any provisions are void or unenforceable if
enforced to their maximum extent, the provisions in question shall be enforced
to the maximum extent such provisions are enforceable.
23.12 Governing Document. This Agreement shall govern in the event of
any inconsistency between this Agreement and any of the Exhibits attached hereto
or any document or instrument executed and/or delivered in connection herewith.
23.13 Inspection of Project. Owner and Owner's representatives shall
have the right, at any reasonable time during the Term of this Agreement, to
enter upon the Project or any portion thereof, to inspect same and all FF&E
located therein for any purpose reasonably related to this Agreement; provided,
however, Owner and Owner's representatives shall use their best efforts to
minimize any interruption of or interference with Operator's management and
operation of the Project and shall adhere to all rules and regulations
concerning the Project and its activities during any such inspection.
23.14 No Third-Party Beneficiaries. There shall be no third-party
beneficiaries with respect to this Agreement.
23.15 Regulatory Information. Owner and Operator each to the other
shall provide all information pertaining to this arrangement and the Project and
as to their ownership structure, corporate structure, officers and directors,
stockholders and partners' identity, financing, transfers of interest, etc., as
shall be required by any regulatory authority with jurisdiction over the other
or any of its affiliates including, without limitation, Delaware, New Jersey and
Nevada, or with respect to any federal or state security Law requirement.
23.16 Interpretation. In this Agreement, whenever the context so
requires, the masculine gender includes the feminine and/or neuter, the singular
number includes the plural and vice-versa. The captions preceding the text of
Articles and Paragraphs are included only for convenience of reference and shall
be disregarded in the construction and interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
Owner:
DOVER DOWNS, INC.
By:__________________________________________
Authorized Officer
Operator:
CAESARS WORLD GAMING DEVELOPMENT CORPORATION
By:_________________________________________
Authorized Officer
<PAGE>
EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in the Project Consulting and
Management Agreement (the "Agreement") and not specifically defined therein
shall have the meaning set forth below in this Exhibit "A", which is attached to
and made a part of the Agreement for all purposes. The article, paragraph and
exhibit references herein refer to the Articles, Paragraphs and Exhibits in and
to the Agreement.
1.1 Act. The term "Act" shall mean those provisions of the Delaware
Code or any other Delaware Law regulating Gaming Activities.
1.2 Affiliate. The term "Affiliate" shall mean a Person that directly
or indirectly, or through one or more intermediaries, controls, is controlled
by, or is under common control with the Person in question and any officer,
director or trustee, and any stockholder or partner of any Person referred to in
the preceding clause owning fifty percent (50%) or more of such Person. For
purposes of this definition, the term "control" means the ownership of fifty
percent (50%) or more of the beneficial interest or the voting power of the
appropriate entity.
1.3 Annual Operations Budget. The term "Annual Operations Budget" shall
have the meaning set forth in Paragraph 6.3.2.
1.4 Approval. The term "Approval" means any license, finding of
suitability, qualification, approval or permit by or from any Gaming Authority,
1.5 Business Days. The term "Business Days" shall mean all weekdays
except those that are official holidays of the State of Delaware or the U.S.
federal government. Unless specifically stated as "Business Days", a reference
to "days" means calendar days.
1.6 Capital Expenditure Budget. The term "Capital Expenditure Budget"
shall have the meaning set forth in Paragraph 6.3.2.
1.7 Gaming Activities. The term "Gaming Activities" shall mean any form
of gaming as may be authorized from time to time during the Term by the Delaware
Gaming Authorities and/or the Act other than race parimutuel and race simulcast
wagering.
1.8 Gaming Bankroll. The term "Gaming Bankroll" shall mean an amount
reasonably determined by Operator and approved by Owner as funding required to
bankroll Gaming Activities but in no case less than the amount required by Law.
In no event shall such Gaming Bankroll include amounts necessary to cover
Operating Expenses or Working Capital.
1.9 Commencement Date. The term "Commencement Date" shall mean a date
which is the earlier of (i) one (1) year from the date of execution of the
Agreement, or (ii) the date the Project opens to the public for full operation.
<PAGE>
1.10 Construction Schedule. The term "Construction Schedule" shall have
the meaning as said term is defined in Section 3.4.
1.11 Consumer Price Index. The term "Consumer Price Index" shall mean
the Consumer Price Index for All Urban Consumers, All Items (1982-84-100), from
time to time published by the Bureau of Labor Statistics, United States
Department of Labor for Dover, Delaware, or if none is published for said city,
then the metropolitan area closest to the city in which the Project is situated
and for which the Bureau of Labor Statistics does publish such information. In
the event the Consumer Price Index shall be discontinued, the Bureau of Labor
Statistics shall be requested to furnish a new index comparable to the Consumer
Price Index, together with information which will make possible the conversion
of the new index. If for any reason the Bureau of Labor Statistics does not
furnish such index and information, the parties hereto shall thereafter accept
and use such other index or comparable statistics regarding the cost of living
for Dover, Delaware, or the closest metropolitan area for which the applicable
agency, periodical or authority does publish such information, as the case may
be, which shall be computed and published by an agency of the United States or
by a responsible financial periodical or recognized authority then to be
selected by the parties.
1.12 Debt Service. The term "Debt Service" shall mean payments
(including, without limitation, principal, interest and expense reimbursement)
with respect to (i) capitalized leases, as defined in accordance with Generally
Accepted Accounting Principles, (ii) all third party borrowed funds related to
the Project, and (iii) any purchase money financing related to the Project.
1.13 Default/Event of Default. The term "Default" and "Event of
Default" shall have the meaning set forth in Article 16.
1.14 Default Rate. The term "Default Rate" shall mean the lesser of (i)
the reference or prime commercial lending rate established by Bank of America,
San Francisco, California, plus three percent (3%) per annum, or (ii) the
highest rate permitted by applicable Law, to the extent applicable Law
establishes a maximum rate of interest which may be charged with respect to
obligations of the type in question, until paid.
1.15 Estimated Opening Date. The term "Estimated Opening Date" shall
mean that projected date as set forth in the agreed Construction Schedule.
1.16 Financial Statements. The term "Financial Statements" for any
fiscal period shall mean a balance sheet as of the close of such fiscal period
and statements of operations and cash flow for the Fiscal period then ended all
prepared in conformity with Generally Accepted Accounting Principles and on a
basis consistent with that of the preceding period (except as to those changes
or exceptions disclosed in such Financial Statements).
1.17 Fiscal Quarter. The term "Fiscal Quarter" shall mean the four (4)
quarters corresponding to the Fiscal Year commencing on August 1, November 1,
February 1 and May 1 of each fiscal year.
<PAGE>
1.18 Fiscal Year. The term "Fiscal Year" shall mean a period beginning
August 1 and ending on July 31 of each year (excepting any short year(s) at the
beginning and end of the term of this Agreement).
1.19 FF&E. The term "FF&E" shall mean all furniture, furnishings,
equipment (excluding Gaming Devices) and fixtures necessary or appropriate to
operate the Project in conformity with this Agreement.
1.20 FF&E Specifications. The term "FF&E Specifications" shall have the
meaning set forth in Paragraph 3.2.
1.21 Gaming Authorities. The term "Gaming Authorities" or "Gaming
Authority" shall mean all agencies, authorities and instrumentalities of any
state, nation, or other governmental entity, or any subdivision thereof,
regulating gaming or related activities.
1.22 Gaming Devices. The term "Gaming Devices" shall mean slot
machines, coin operated machines, electronic, electrical or mechanical machines
and video lottery terminals selected by Operator on Owner's behalf and for
Owner's account and obtained in accordance with the requirements of the Act.
1.23 Generally Accepted Accounting Principles. The term "Generally
Accepted Accounting Principles" shall mean generally accepted accounting
principles in all material respects as established from time to time by the
Financial Accounting Standards Board and its predecessors as applicable to the
gaming industry.
1.24 Gross Revenue. The term "Gross Revenue" shall include all of the
revenue from the operation of the Project computed on an accrual basis from all
business conducted upon, related to or from the Project in accordance with
Generally Accepted Accounting Principles and shall include, but not be limited
to, the net win from Gaming Activities, which is the difference between gaming
wins and losses before deducting taxes and other costs and expenses, plus the
amount of all sales of goods, wares, services or merchandise at or from the
Project.
Gross Revenue shall not include:
(a) Applicable gross receipts taxes, admission, cabaret, excise,
sales and use taxes, or similar governmental charges collected directly from
customers or as a part of the sales price of any goods or services, or collected
in store and building rentals or rentals received from tenants, licensees or
concessionaires;
(b) Income and revenues of tenants, licensees and concessionaires
of Operator or Owner from the Project or any part thereof; provided, however,
that all fees, rents, commissions, percentages or other payments received from
any licensee or concessionaire shall be included in Gross Revenue;
(c) Service charges, which are defined to mean percentage
gratuities added to customer billings as compensation to employees of the
Project;
(d) Proceeds of borrowings by Owner;
<PAGE>
(e) Proceeds paid as a result of an insurable loss (unless paid
for the loss or interruption of business and representing payment for damage for
loss of income and profits of the Project),
(f) Owner's Advances and any funds advanced or investments by
Operator;
(g) Proceeds of condemnation and eminent domain awards; and
(h) Revenues from any non-gaming operations at the Racetrack.
Any of the above provisions resulting in a double exclusion from Gross
Revenue shall be allowed as an exclusion only once.
1.25 Initial Term. The term "Initial Term" shall mean the period as
defined in Section 2.1.
1.26 Law. The term "Law" means any statute, ordinance, promulgation,
law, treaty, rule, regulation, code, judicial precedent or order of any court or
any governmental or regulatory entity, power, department, agency, authority, or
officer whether international, foreign, federal, state, local, or any
subdivision thereof.
1.27 Management Fee. The terms "Management Fee" or "Management Fees"
mean and include the fees payable to the Operator following opening of the
Project for business as described in Paragraph 8.2.
1.28 Memorandum of Management Agreement. The term "Memorandum of
Project Consulting and Management Agreement" shall mean a memorandum in
substantially the form attached to the Agreement as Exhibit "B".
1.29 Minimum Annual Management Fee. The term "Minimum Annual Management
Fee" shall have the meaning described in Section 8.2.
1.30 Net Cash Flow. The term "Net Cash Flow" shall be an amount equal
to pre-tax accounting income of the Project determined in accordance with
Generally Accepted Accounting Principles with the following amounts added back
and deducted:
ADD-BACKS
---------
a. any pre-opening expenses or amortization thereof deducted in
arriving at pre-tax net income; and
b. interest expense, including amortization of financing fees,
associated with capital expenditures; and
c. depreciation relating to the Project.
DEDUCTIONS
----------
<PAGE>
a. the Allowed Deduction of $[ ].
1.31 Net Revenue The term "Net Revenue" shall mean Gross Revenue less
Statutory Payments.
1.32 Opening Date. The term "Opening Date" shall mean the first date a
revenue-paying customer is admitted to the Project.
1.33 Operating Expenses. The term "Operating Expenses" shall mean those
necessary or reasonable operating expenses, including, without limitation, the
Project's allocation of Shared Expenses, travel expenses incurred by Operator's
personnel for the benefit of the Project, any payments made to Harrington
Racetrack or any other entity for such entity's agreement not to engage in
gaming activities which compete with the Project, costs of Operating Supplies
and all costs and expenses of licensing Operator's or Owner's employees
performing services for the Project, incurred on behalf of Owner after the
Opening Date in connection with conducting and operating the business affairs of
the Project and maintenance of the Project, computed on an accrual basis,
deductible under Generally Accepted Accounting Principles in determining
"Operating Income" (as defined in gaming industry practice) for purpose of
preparing a statement of operations for the Project; provided, however,
Operating Expenses shall not include depreciation or amortization with respect
to the Project or the FF&E, Debt Service, Replacement Fund deposits, or expenses
relating to the operation of the Racetrack for the use of such facility
immediately preceding the Opening Date.
1.34 Operating Supplies. The term "Operating Supplies" shall mean
gaming supplies, paper supplies, cleaning materials, and all other consumable
supplies and materials used in the operation of the Project.
1.35 Operator's Advances. The term "Operator's Advances" shall have the
meaning set forth in Paragraph 7.1.7.
1.36 Owner's Advances. The term "Owner's Advances" shall mean the
amounts to be advanced by Owner to Operator pursuant to Paragraph 7.1.
1.37 Person. The term "Person" shall mean any individual, partnership,
corporation, association or other entity, including, but not limited to, any
government or agency or subdivision thereof, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
1.38 Plans and Specifications. The term "Plans and Specifications"
shall have the meaning as said term is defined in Section 3.2.
1.39 Pre-Opening Budget. The term "Pre-Opening Budget" shall mean the
budget approved by Owner of expenses to be incurred prior to the Opening Date
pursuant to Article 4 of the Agreement and with respect to any other provision
of the Agreement
<PAGE>
pertaining to the period prior to the Opening Date and any other items as shall
be approved by Owner and Operator. No pre-opening activities shall be commenced
and no obligations entered into by Operator on Owner's behalf until Owner has
approved the Pre-Opening Budget. Upon approval of the Pre-Opening Budget,
Operator shall use reasonable efforts to perform pre-opening activities in
compliance with such budget. The Pre-Opening Budget shall be subject to periodic
revision during the pre-Opening Date period with Owner's approval. A final
accounting of pre-opening activities shall be due thirty (30) days after the
Opening Date. Such expenses shall include without limitation all expenses
incurred by Operator or by any of Operator's Affiliates in performing
pre-opening services and other pre-opening functions, including, without
limitation, travel expenses, the costs of moving executive level Project
personnel, their families and their belongings to the area in which the Project
is located at the commencement of their employment at the Project in accordance
with Operator's then current practice, expenses of business entertainment,
salary compensation, benefits and reimbursable expenses and any related taxes
for the general manager and other Project personnel prior to the Opening Date,
the cost of recruitment and training for all personnel of the Project, all
expenses incurred in conducting training, or licensing qualification operations
of the Project, Project employees or Operator prior to the Opening Date, the
cost of pre-opening sales, marketing, advertising, promotion and publicity. No
expenses corresponding to the pre-opening period, including, without limitation,
the expenses provided for in the Pre-Opening Budget or specifically enumerated
in this Section 1.39 and no amortization of any of the foregoing shall be
included in Operating Expenses of the Project.
1.40 Project. The term "Project" means the area intended to be
developed by Owner for purposes of accommodating Gaming Activities as currently
authorized by Act. The Project area will be more particularly defined through
the Plans and Specifications and the FF&E Specifications to be prepared as
provided in Article 3, and the Project Budget to be prepared and updated
pursuant to Paragraph 6.3.1 as the scope and particulars of the Project are
defined from time to time.
1.41 Project Budget. "Project Budget" means the Initial Project Budget
and the Final Project Budget for development and construction of the Project,
and any interim or revised versions of each as approved by the parties from time
to time as described in Paragraph 6.3.1.
1.42 Racetrack. The term "Racetrack" means Dover Downs, the harness
racing facility and international speedway located in Dover, Delaware.
1.43 Replacement Fund. The term "Replacement Fund" shall mean those
amounts at any given time allocated to an account for the purpose of funding
capital replacements, renewals, non-routine repairs and maintenance and
improvements within and to the Project pursuant to the Capital Expenditure
Budget. The amount to be deposited to the Replacement Fund, if available out of
Net Cash Flow, shall not exceed one percent (1%) of Gross Revenue during the
first Fiscal Year and two percent (2%) of Gross Revenue thereafter, unless
mutually agreed to between Operator and Owner. The Replacement Fund shall be
maintained at a financial institution selected by Operator and approved by
Owner. In the event that Net Cash Flow in any month is insufficient to permit a
deposit to the Replacement Fund after paying Operating Expenses, the amount of
the deficiency shall be
<PAGE>
carried over and added to the amount to be deposited in the Replacement Fund in
subsequent months.
1.44 Start-up Budget. The term "Start-up Budget" shall have the meaning
set forth in Paragraph 7.1.2. Gaming Operations shall not commence until fifteen
(15) days after Operator has submitted to Owner and Owner has approved the
Start-up Budget. Any revisions to the Start-up Budget must be approved by Owner.
1.45 Statutory Payments. The term "Statutory Payments" shall mean all
payments, distributions, commissions or reimbursements payable in connection
with Gaming Activities at the Project pursuant to the Act.
1.46 Term. The term "Term" shall mean the Initial Term and any Extended
Term for which operator has exercised its option to extend as provided in the
Agreement.
1.47 Three-Year Operating Budget. The term "Three-Year Operating
Budget" shall have the meaning set forth in Paragraph 6.3.3.
1.48 Unavoidable Delay. The term "Unavoidable Delay" shall have the
meaning set forth in Article 19.
1.49 Working Capital. The term "Working Capital" shall mean an amount
equal to: the sum of the estimated average weekly Operating Expenses, as
determined by Operator from time to time and approved by Owner, times four (4).
<PAGE>
EXHIBIT B
MEMORANDUM OF PROJECT CONSULTING AND MANAGEMENT AGREEMENT
After recording, return to
Caesars World, Inc.
1801 Century Park East
Suite 2600
Los Angeles, CA 90067
Attention; General Counsel
ss.
ss.
ss.
THIS MEMORANDUM OF PROJECT CONSULTING AND MANAGEMENT AGREEMENT is made
and entered into this ____ day of ____________, 1995 by and between Dover Downs,
Inc., a Delaware corporation ("Owner"), and Caesars World Gaming Development
Corporation, a Nevada corporation ("Operator").
WITNESSETH
1. Management Agreement. Owner and Operator have entered into a Project
Consulting and Management Agreement dated May ______, 1995 (the "Agreement")
being an agreement to manage and operate that certain facility described in the
Agreement (the "Project").
2. Initial Term. The initial term of the Agreement is for a period of
three (3) years, commencing on the Commencement Date (as defined in the
Agreement).
3. Extended Terms. The Agreement provides that if Operator does not
give written notice of cancellation to Owner at least one hundred twenty (120)
days prior to the date of the commencement of the First Extended Term or the
Second Extended Term (individually referred to as the "Extended Term" and
collectively referred to as the "Extended Terms"), then the Agreement shall be
automatically extended for the next Extended Term upon the terms, conditions,
covenants and provisions set forth therein. Each Extended Term will be for a
period of three (3) years each.
4. Counterparts. This Memorandum of Project Consulting and Management
Agreement may be executed in multiple counterparts, each of which shall have the
force and effect of an original.
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of
Project Consulting and Management Agreement to be executed by their respective
duly authorized representatives on the day and year first above written, before
the undersigned Notaries Public, for the purposed of providing an instrument for
recording.
<PAGE>
OWNER:
DOVER DOWNS, INC.,
a Delaware corporation
By: ____________________________________
Title: _________________________________
OPERATOR:
CAESARS WORLD GAMING
DEVELOPMENT CORPORATION,
a Nevada corporation
By: ___________________________________
Title: ________________________________
<PAGE>
STATE OF ____________________________________________________________________)
) SS.
COUNTY OF ____________________________________________________________________)
On _______________________, 199___ before me, _____________________,
personally appeared ____________________________________________________________
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the instrument and acknowledged to
me that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the Person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: _____________________________
_______________________________________
Name (typed or printed)
My commission expires: ____________________
(This area reserved for official seal)
<PAGE>
STATE OF ____________________________________________________________________)
) SS.
COUNTY OF ____________________________________________________________________)
On _______________________, 199___ before me, _____________________,
personally appeared ____________________________________________________________
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the instrument and acknowledged to
me that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the Person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature: _____________________________
_______________________________________
Name (typed or printed)
My commission expires: ____________________
(This area reserved for official seal)
EXHIBIT 10.7
AGREEMENT
This Agreement is made and entered into this 2nd day of February, 1996,
superseding the agreement entered into on the 28th day of November, 1995 by and
between Dover Downs, Inc., a Corporation of the State of Delaware (hereinafter
called Dover Downs), and Cloverleaf Standardbred Owners Association, Inc., a
Maryland Corporation (hereinafter called Cloverleaf) and is executed in
duplicate original copies.
WITNESSETH THAT:
WHEREAS, Dover Downs is licensed to conduct and is engaged in the
business of conducting harness racing meetings at a harness racing track known
as Dover Downs, located in Dover, Delaware; and
WHEREAS, Cloverleaf's membership consists of owners, trainers, and
drivers of harness horses participating in harness race meetings at Dover Downs
and elsewhere in the United States and Canada, and Cloverleaf has been organized
and exists for the purpose of promoting the sport of harness racing; improving
the lot of owners, drivers, and trainers of harness racing horses participating
in race meetings; establishing health, welfare and insurance programs for
owners, drivers, and trainers of harness racing horses; negotiating with harness
racing tracks on behalf of owners, trainers, drivers, and grooms of harness
racing horses; and generally rendering assistance to them whenever and wherever
possible; and
WHEREAS, the parties hereto desire to cooperate in promoting the
popularity of the sport of harness racing, and in insuring the continuity of
harness racing at Dover Downs for the best interests of the parties hereto and
the public; and
WHEREAS, the parties hereto believe that the amount of parimutuel
wagering at Dover Downs is the best basis upon which to fix the financial
arrangements between the parties.
1
<PAGE>
In consideration of the premises, the covenants set forth herein, and
other considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Term of Agreement
The provisions of this Agreement shall apply to and govern
every harness racing meeting conducted by or at Dover Downs effective February
1, 1996, and continuing through June 30, 1998.
2. Basic Purse Distribution
A. Subject to Paragraphs 3, 5, and 6 below, the following
schedule states the percentage of Dover Downs' 12-1/2% retained share of
pari-mutuel handle plus breakage that shall be distributed as racing purses at
all meetings conducted at Dover Downs during the term of this Agreement. The
percentages specified below shall apply to the full dollar amount of the
pari-mutuel commissions retained by Dover Downs at the levels of daily handles
stated opposite such percentages.
Levels of Average Percentage
Daily Dollar Handle For Purses
------------------- ----------
Up to $150,000 48-1/2%
$150,000 - $159,999 49%
$160,000 - $164,999 49-1/2%
$165,000 and Over 50%
B. Over and above the purses payable under 2 (A) above, Dover
Downs shall add to such purses the dollar amounts provided by Delaware law in
Chapter 5 Title 28 ss.556 subsections (b) and (c) prior to recodification of
Chapter 100 Title 3 ss.10057(b) of the Delaware Code. Dover Downs shall further
distribute in purses one-half of the dollar amount of any gross
2
<PAGE>
income it receives by reason of legislation raising its authorized pari-mutuel
commission including breakage above that allowed under existing law as of
January 1, 1979; provided however, that for purposes of this provision, any
legislation providing Dover Downs with a credit against the amount of tax on
pari-mutuel and totalizator pools shall not be deemed to constitute "gross
income" received by Dover Downs by reason of such legislation.
C. For every harness racing meet conducted by or at Dover
Downs during the term of this Agreement, a minimum of four (4) races on average
per race night shall be written and, if possible, filled for Delaware-owned
horses. The purses for these aforesaid events shall be 20% greater than purses
for the same class not restricted to Delaware owned horses. For purposes of this
paragraph, Delaware-owned shall be defined as a horse wholly owned by a Delaware
United States Trotting Association (USTA) member(s) who has not had an address
other than Delaware with the USTA for at least one year race in which the horse
is entered. In case of a leased horse, all leaseholders and owners of the horse
must be Delaware residents. A committee will be appointed by Cloverleaf to
resolve any disputes regarding eligibility and its decision shall be final.
D. During the term of this Agreement, Dover Downs, at least
once every month during any race meeting conducted by Dover Downs, shall pay
directly to the drivers of the horses whose owners are entitled to receive a
portion of the purse money an amount equal to 5% of the purse money, which
amount shall be credited against the purses required to be paid to the owners of
such horses. In no event shall the aggregate payment made by Dover Downs on
account of purses and other items specified in Paragraph 5 be increased beyond
the applicable percentage for purses at the correct level of average daily
dollar handle of Dover Downs' retained share of its pari-mutuel handle and
breakage.
3
<PAGE>
3. Projection of Purses and Carry-over of Purse Money
A. Following the first week of any meeting, the specifications
of the applicable purses for each week, in accordance with Paragraph 2, shall be
projected on the basis of the average weekly handle during the preceding week or
weeks of the meeting, with consideration given to seasonal fluctuation of
handle, so as to maintain a reasonably uniform purse distribution schedule
throughout the Dover Downs meetings each year.
B. (i) If any purse money due under Paragraph 2 has not been
fully distributed at any meeting covered by this Agreement, the amount due shall
be carried over and distributed in purses at the next meeting covered by this
Agreement. Any underpayment of purse money under the last two preceding
Agreements between Dover Downs and Cloverleaf dated November 30, 1994, and
November 28, 1995, shall likewise be added to the purse money payable under
Paragraph 2.
(ii) If the purses actually paid at any meeting covered by
this Agreement exceed the amount due under Paragraph 2, the amount of the excess
payment shall be deducted from the purses otherwise payable at the next meeting
covered by this Agreement. Any overpayment of purses during the last meeting
conducted under the previous agreement between Dover Downs and Cloverleaf
entered into on November 28, 1995 shall likewise be deducted from the purse
money payable under Paragraph 2 of this Agreement.
4. Minimum and Maximum Purses
At all meetings conducted at Dover Downs, the minimum and
maximum purse payable by Dover Downs for any pari-mutuel betting race shall be
agreed upon by Cloverleaf representatives and Dover Downs.
4
<PAGE>
5. Arrangements with Cloverleaf
A. Dover Downs will pay to Cloverleaf, in diminution of and as
a credit against the percentages specified in Paragraph 2, a sum equal to two
percent (2%) of Dover Downs, commissions on that year's pari-mutuel handle and
breakage to compensate Cloverleaf for its expenses, provided that Cloverleaf's
representation of a majority of the horsemen racing at meetings conducted by
Dover Downs has been demonstrated by the horsemen's adherence to and recognition
of this Agreement. Such sum shall be paid in monthly installments no later than
seven (7) days after the conclusion of each month of each racing meeting covered
by this Agreement.
B. When this Agreement and any succeeding Agreement between
Cloverleaf and Dover Downs has expired and there is no agreement in effect
between them providing otherwise, any underpayment of purses due under this
Agreement shall be payable to horsemen who participated in the last Dover Downs'
meet covered by this Agreement and both parties shall take whatever action is
required to accomplish such payment.
In order to minimize any overpayment of purses under this
Agreement, Cloverleaf and Dover Downs will meet regularly to make adjustments to
the purse account if necessary. These adjustments will include lowering the
minimum purse if such action is warranted.
C. Dover Downs shall provide an office for the use of a
Cloverleaf representative on its racing grounds.
D. Representatives of Dover Downs will be available at
reasonable times to consult with Cloverleaf representatives concerning any
matters pertaining to the provisions of this Agreement and/or the conduct of
races, maintenance of the receiving stable area, the race track, paddock and
training areas.
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E. Dover Downs shall pay the incurred premiums of insurance
administered by Cloverleaf for grooms, second trainers, trainers, and drivers.
Insurance premiums shall be paid bimonthly upon presentation of a bill from
Cloverleaf. The premiums shall be in diminution of and as a credit against purse
money payable under this Agreement as specified in Paragraph 2.
F. Dover Downs agrees to cooperate with Cloverleaf in its
effort to provide education, promotional material and public relations regarding
harness racing, pari-mutuel betting, and horse ownership. It is understood by
both parties that Cloverleaf plans to staff a position to accomplish these
matters. Subject to mutual agreement on a budget, the parties will cooperate in
obtaining funds generated from the purses established in Chapter 48 Title 29 of
the Delaware Code Subsection (b)(3)(b)(iv).
G. Cloverleaf acknowledges that certain legislative effort
will be required in Delaware in order to amend the Horse Racing Redevelopment
Act. Cloverleaf's membership will fully support and help lobby for all
reasonable amendments insofar as they do not negatively impact horsemen's
issues.
6. Simulcast wagering
A. (i) Dover Downs agrees to distribute to Cloverleaf, via the
purse pool, the basic purse distribution in Paragraph 2 (A) and (B) above based
on the total wagering at Dover Downs on simulcast wagering revenue from
intrastate and interstate simulcasting of standardbred and thoroughbred races
from such tracks as mutually agreed. Dover Downs may deduct from the basic purse
distribution fifty percent (50%) of the cost of transmission (host commission,
satellite dish rental, decoder cost, and line costs only), provided that
Cloverleaf's share of the transmission costs does not exceed $1,000 per day
regardless of the number of simulcast signals received per day.
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(ii) Notwithstanding the simulcast purse distribution
and deductions in 6(A)(i), if Dover Downs races a minimum of 70 days in calendar
year 1996 with 13 races each day starting February 9, 1996, Dover-Downs shall
deduct from the basic purse distribution an additional 3% of all simulcast
handle from March 1, 1996 through February 28, 1997. This additional 3% may be
extended from March 1, 1997 through February 28, 1998 provided that Dover Downs
commits by December 31, 1996 that it will, and does, race a minimum of 70 days
in 1997.
(iii) Dover Downs agrees that if it conducts a
minimum of 70 days of racing in calendar years 1996 and/or 1997 with 13 races
each day starting February 9, 1996 that:
(a) All reasonable effort will be made to
conduct the racing in not less than a fourteen (14) week period.
(b) Any days lost to weather, acts of God,
technical problems, or human error, will not be rescheduled if such event also
causes Dover Downs Slots to cease operations at least two hours before scheduled
post time for the first race that day.
B. Dover Downs agrees to distribute to Cloverleaf, via the
purse pool and subject to the provisions of Paragraph 5, fifty percent (50%) of
any monies received from Delaware Park in consideration for Dover Downs
permitting Delaware Park to receive simulcasts of harness races during any of
Dover Downs' live race meets conducted during the term of this agreement.
C. Dover Downs shall furnish to Cloverleaf daily a summary of
handle and distribution of takeout and breakage report.
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D. Each Monday morning following the week of simulcast
wagering, Dover Downs shall send to Cloverleaf a summary report showing the
accumulation of the net wagering revenue that has been added to the purse pool
at Dover Downs.
E. A simulcasting contract with an out-of-state track is
subject to the approval of Cloverleaf which approval shall not be unreasonably
withheld. Without such approval, Dover Downs will not take the simulcast signal
of another track for the purpose of conducting wagering on that signal.
F. Approval of a simulcast agreement may be terminated by
either party by giving the other party fifteen (15) days prior written notice of
termination.
7. Stake and Early Closing Events
Not more than 8% of the total purse money payable to the
horsemen, during each race meet, shall be paid for Stake and Early Closing
events.
8. On-Track Driver Insurance
Dover Downs shall provide driver accident and disability
insurance with a minimum of $10,000 death benefit, $20,000 medical expenses, and
$200 a week disability income extending for 104 weeks subject to no more than a
seven-day waiting period. This coverage will be provided on race days, non-race
days during the race meet when the track is available for training and for three
(3) days prior to each race meeting covered under this Agreement.
9. Stall Assignments and Racing Privileges
Nothing in this Agreement shall be deemed to limit or restrict
in any manner the absolute discretion of Dover Downs to assign stalls and/or
grant racing privileges to owners and trainers whether or not members of
Cloverleaf, except that stall space and/or racing privileges shall not be denied
by reason of membership in, or activity on behalf of, Cloverleaf or a duly
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constituted horsemen's committee. Notwithstanding this paragraph, it is
understood that Dover Downs does not contemplate opening its barn area and
providing stabling facilities during the term of this Agreement.
10. Controlling Law and Regulation
The interpretation of the provisions of this Agreement shall
be governed by the law of Delaware. If and to the extent that any provision or
provisions of this Agreement is or are inconsistent with any Delaware Statute,
law or any regulation of the Delaware State Harness Racing Commission, such
provision or provisions shall be deemed to be superseded by such law or
regulation as the case may be.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on their behalf by their respective Officers as of the date first above
written.
Witness: DOVER DOWNS INC.
/s/ Pamela Hatfield By: /s/ Denis McGlynn
- ------------------- ---------------------------
Denis McGlynn
President
Witness: CLOVERLEAF STANDARDBRED OWNERS
ASSOCIATION, INC.
/s/ Charles B. Lockheart By: /s/ Gerald W. Brittingham
- ------------------------ ---------------------------
Gerald W. Brittingham
President
EXHIBIT 10.8
DOVER DOWNS ENTERTAINMENT, INC.
1996 Stock Option Plan
1. Purpose. The 1996 Stock Option Plan (the "Plan") is intended to
advance the best interests of Dover Downs Entertainment, Inc. (the "Company") by
providing its employees and the employees of its subsidiaries with additional
incentive and by increasing their proprietary interest in the success of the
Company and its subsidiary corporations.
2. Administration. The Plan shall be administered by the Stock Option
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall consist of two or more Directors of the Company, each of whom
shall be a disinterested person and shall not have been granted or awarded,
during the one year prior to service as an administrator of the Plan, any equity
securities pursuant to the Plan or any other plan of the Company or any of its
affiliates, except as permitted by Rule 16b-3 of the Securities Exchange Act of
1934. Meetings shall be held at such time and place as shall be determined by
the Committee. A majority of the members of the Committee shall constitute a
quorum for the transaction of business, and the vote of a majority of those
members present at any meeting shall decide any questions brought before that
meeting. In addition, the Committee may take any action otherwise proper under
the Plan by the unanimous written consent of its members. No member of the
Committee shall be liable for any act or omission of any other member of the
Committee or for any act or omission on his own part, including, but not limited
to, the exercise of any power or discretion given to him under the Plan, except
those resulting from his own gross negligence or willful misconduct. All
questions of interpretation and application of the Plan, or of options granted
hereunder (the "Options"), shall be subject to the determination, which shall be
final and binding, of a majority of the whole Committee.
3. Option Shares. The stock subject to the Options and other provisions
of the Plan shall be shares of the Company's Common Stock, $.10 par value (the
"Stock"). The total amount of the Stock with respect to which Options may be
granted shall not exceed in the aggregate 750,000 shares; provided, however,
that the class and aggregate number of shares which may be subject to Options
granted hereunder shall be subject to adjustment in accordance with the
provisions of Paragraph 16 hereof. Such shares may be treasury shares or
authorized but unissued shares. In the event that any outstanding Option for any
reason shall expire, the shares of Stock allocable to the unexercised portion of
such Option may again be subject to an Option under the Plan.
4. Termination of Plan. The Plan shall terminate on June 13, 1997,
unless prior to that time it has been approved by the vote or written consent of
the holders of not less than a majority of the then outstanding common stock of
the Company. If such approval is given, the Plan shall terminate on June 13,
2006; provided, however, that the Board of Directors of the Company within its
absolute discretion may terminate the Plan at any time. No such termination,
other than as provided for in Section 16 hereof, shall in any way affect any
Option then outstanding.
<PAGE>
5. Authority to Grant Options. The Committee may grant from time to
time to such eligible individuals as it shall from time to time determine an
Option, or Options, to buy a stated number of shares of Stock under the terms
and conditions of the Plan. Subject only to any applicable limitations set forth
in the Plan, the number of shares of Stock to be covered by any Option shall be
as determined by the Committee. The Committee shall determine whether an Option
shall be an "incentive stock option" qualified under Section 422A of the
Internal Revenue Code of 1986 as amended (the "Code"), or a "non-qualified stock
option" (that is, any Option which is not considered an incentive stock option).
The aggregate fair market value (determined as provided in Section 7 of the
Plan) of the Stock with respect to which incentive stock options are granted
hereunder which are exercisable for the first time by such employee during any
calendar year (under all the stock option plans maintained by the Company and
subsidiary corporations) shall not exceed $100,000 in accordance with Section
422A of the Code. No option shall be granted under the Plan after ten (10) years
from the date the Plan is adopted.
6. Eligibility. The individuals who shall be eligible to participate in
the Plan shall be employees of the Company, or of any subsidiary corporation, as
the Committee shall determine from time to time; provided, however, that no
employee owning more than ten percent (10%) of the stock of the Company at the
time an option is granted shall be eligible to participate in the Plan. For all
purposes of the Plan, the term "subsidiary corporation" shall mean any
corporation of which the Company is the "parent corporation" as that term is
defined in Section 425(e) of the Code.
7. Option Price. The price at which shares may be purchased pursuant to
an Option shall be not less than the fair market value of the shares of Stock on
the date the Option is granted, and the Committee in its discretion may provide
that the price at which shares may be purchased shall be more than such fair
market value. The "fair market value" of the Stock shall be the closing price of
the Stock on the New York Stock Exchange as reported in The Wall Street Journal
for the trading day on which the Option is granted, or if the Option is not
granted on a trading day, then such fair market value shall be determined on the
trading day before the Option is granted.
8. Duration of Options. No Option shall be exercisable after the
expiration of ten years from the date such Option is granted; and the Committee
in its discretion may provide that an Option shall be exercisable throughout
such ten-year period or during any lesser period of time commencing on or after
the date of grant of the Option and ending upon or before the expiration of such
ten-year period.
9. Amount Exercisable. Each Option may be exercised, so long as it is
valid and outstanding, from time to time in part or as a whole, subject to any
limitations with respect to the number of shares for which the Option may be
exercised at a particular time and to such other conditions as the Committee in
its discretion may specify upon granting the Option.
10. Exercise of Options. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with respect to
which the Option is to be
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exercised, together with cash, certified check, bank draft or postal or express
money order payable to the order of the Company for an amount equal to the
Option price of such shares, and specifying the address to which the
certificates for such shares are to be mailed. Such notice may be delivered in
person to a member of the Committee, or the Secretary of the Company, or may be
sent by registered mail, return receipt requested, to a member of the Committee,
or the Secretary of the Company, in which case delivery shall be deemed made on
the date such notice is deposited in the mail. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the optionee certificates for the number of shares with respect to which such
Option has been so exercised, issued in the optionee's name; provided, however,
that such delivery shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, addressed to the optionee, at the address specified pursuant
to this Paragraph 10.
11. Transferability of Options. Options shall not be transferrable by
the optionee other than by will or under the laws of descent and distribution,
and shall be exercisable, during his lifetime, only by him.
12. Termination of Employment by Optionee. Except as may be otherwise
expressly provided herein, Options shall terminate on such date as shall be
selected by the Committee in its discretion and specified in the Option
agreement not in excess of one day less than three months following severance of
the employment relationship between the Company or its subsidiary corporation
and the optionee for any reason, for or without cause. Whether authorized leave
of absence, or absence on military or government service, shall constitute
severance of the employment relationship between the Company or its subsidiary
corporation and the optionee shall be determined by the Committee at the time
thereof. If, before the date of expiration of the Option, the optionee shall be
retired in good standing from the employ of the Company for reasons of age or
disability under the then established rules of the Company, the Option shall
terminate on the earlier of such date of expiration or one day less than three
months after the date of such retirement. In the event of such retirement, the
optionee shall have the right prior to the termination of such Option to
exercise the Option to the extent to which he was entitled to exercise such
Option immediately prior to such retirement. After the death of the optionee,
his executors, administrators, or any person or persons to whom his Option may
be transferred by will or by the laws of descent and distribution, shall have
the right, at any time prior to the earlier of the date of expiration or one
year following the date of such death, to exercise the Option, in whole or in
part (without regard to any limitations set forth in or imposed pursuant to
Paragraph 9 hereof).
13. Requirements of Law. The Company shall not be required to sell or
issue any shares under an Option if the issuance of such shares constitute a
violation by the optionee or the Company of any provisions of any law or
regulation or any governmental authority. In addition, in connection with the
Securities Act of 1933 (as now in effect or hereafter amended), upon exercise of
any Option, the Company shall not be required to issue such shares unless the
Committee has received evidence satisfactory to it to the effect that the holder
of such Option will not transfer such shares except pursuant to a registration
statement in effect under such Act
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<PAGE>
or unless an opinion of counsel to the Company has been received by the Company
to the effect that such registration is not required. Any determination in this
connection by the Committee shall be final, binding and conclusive. In the event
the shares issuable on exercise of an Option are not registered under the
Securities Act of 1933, the Company may imprint the following legend or any
other legend which counsel for the Company considers necessary or advisable to
comply with the Securities Act of 1933:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Company of an opinion of counsel
satisfactory to the Company, in form and substance satisfactory to the
Company, that registration is not required for such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so registered
the Company may remove any legend on certificates representing such shares. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
14. No Rights as Shareholder. No optionee shall have rights as a
shareholder with respect to shares covered by his Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 16 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date thereof is prior to the date of issuance of
such certificate.
15. Employment Obligation. The granting of any Option shall not impose
upon the Company any obligation to employ or continue to employ any optionee;
and the right of the Company to terminate the employment of any employee shall
not be dismissed or affected by reason of the fact that an Option has been
granted to him.
16. Changes in the Company's Capital Structure. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation therefor in money, services or property, then (a) the number,
class, and per share price of shares of stock subject to outstanding
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Options hereunder shall be appropriately adjusted in such a manner as to entitle
an optionee to receive upon exercise of any Option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares then reserved
for issuance under the Plan shall be adjusted by substituting for the total
number and class of shares of Stock then reserved that number and class of
shares of stock that would have been received by the owner of an equal number of
outstanding shares of each class of Stock as the result of the event requiring
the adjustment.
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each holder of an outstanding Option shall,
at no additional cost, be entitled upon exercise of such Option to receive
(subject to any required action by shareholders) in lieu of the number and class
of shares as to which such Option would have been so exercisable in the absence
of such event, the number and class of shares of stock or other securities to
which such holder would have been entitled pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of the number and class
of shares of Stock equal to the number and class of shares as to which such
Option shall be so exercised.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
of its assets to another corporation while unexercised Options remain
outstanding under the Plan, (i) subject to the provisions of clause (iii) below,
after the effective date of such merger, consolidation or sale, as the case may
be, each holder of an outstanding Option shall be entitled, upon exercise of
such Option, to receive, in lieu of shares of the Stock, shares of such stock or
other securities as the holders of shares of such class of Stock received
pursuant to the terms of the merger, consolidation or sale; (ii) the Board of
Directors may waive any limitations set forth in or imposed pursuant to
Paragraph 9 hereof so that all Options, from and after a date prior to the
effective date of such merger, consolidation, liquidation or sale, as the case
may be, specified by the Board, shall be exercisable in full; and (iii) all
outstanding Options may be canceled by the Board of Directors as of the
effective date of any such merger, consolidation, liquidation or sale provided
that (x) notice of such cancellation shall be given to each holder of an Option
and (y) each holder of an Option shall have the right to exercise such Option in
full (without regard to any limitations set forth in or imposed pursuant to
Paragraph 9 hereof) during a 30-day period preceding the effective date of such
merger, consolidation, liquidation or sale.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number, class or price of shares of Stock then
subject to outstanding Options.
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17. Amendment or Termination of Plan. The Board of Directors may
modify, revise or terminate this Plan at any time and from time to time;
provided, however, that without the further approval of the holders of at least
a majority of the outstanding shares of Stock, the Board may not increase the
aggregate number of shares which may be issued under Options pursuant to the
provisions of the Plan and that any amendment, modification, revision or
termination shall not effect any outstanding options.
18. Written Agreement. Each Option granted hereunder shall be embodied
in a written option agreement, which shall be subject to the terms and
conditions prescribed above and shall be signed by the optionee and by the
President or any Executive Officer of the Company for and in the name and on
behalf of the Company. Such an option agreement shall contain such other
provisions as the Committee in its discretion shall deem advisable.
19. Indemnification of Committee. The Company shall indemnify each
present and future member of the Committee against, and each member of the
committee shall be entitled without further act on his part to indemnity from
the Company for, all expenses (including the amount of judgments and the amount
of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be such member of the Committee at the
time of incurring such expenses; provided, however, that such indemnity shall
not include any expenses incurred by any such member of the Committee (a) in
respect of matters as to which he shall be finally adjudged in any such action,
suit or proceeding to have been guilty of gross negligence or willful misconduct
in the performance of his duty as such member of the Committee, or (b) in
respect of any matter in which any settlement is effected, to any amount in
excess of the amount approved by the Company on the advice of its legal counsel;
and provided further, that no right of indemnification under the provisions set
forth herein shall be available to or enforceable by any such member of the
Committee unless, within sixty (60) days after institution of any such action,
suit or proceeding, he shall have offered the Company, in writing, the
opportunity to handle and defend same at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and shall be in addition to
all other rights to which such member of the Committee may be entitled as a
matter of law, contract, or otherwise.
20. Effective Date of Plan. The Plan shall become effective and shall
be deemed to have been adopted on June 14, 1996.
6
EXHIBIT 10.9
DOVER DOWNS, INC.
1991 INCENTIVE STOCK OPTION PLAN
1. Purpose. The 1991 Incentive Stock Option Plan (the "Plan") for the employees
of Dover Downs, Inc. (the "Company"), is intended to advance the best interests
of the Company by providing such employees with additional incentive and by
increasing their proprietary interest in the success of the Company and its
subsidiary corporations.
2. Administration. The Plan shall be administered by the Executive Committee of
the Board of Directors of the Company (the "Committee"). Meetings shall be held
at such time and place as shall be determined by the Committee. A majority of
the members of the Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of those members present at any meetings
shall decide any questions brought before that meeting. In addition, the
Committee may take any action otherwise proper under the Plan by the unanimous
written consent of its members. No member of the Committee shall be liable for
any act or omission of any other member of the Committee or for any act or
omission on his own part, including, but not limited to, the exercise of any
power or discretion given to him under the Plan, except those resulting from his
own gross negligence or willful misconduct. All questions of interpretation and
application of the Plan, or of options granted hereunder (the "Options"), shall
be subject to the determination, which shall be final and binding, of a majority
of the whole Committee.
3. Option Shares. The stock subject to the Options and other provisions of the
Plan shall be shares of the Company's Common Stock, $0.10 par value (the
"Stock"). The total amount of the Stock with respect to which Options may be
granted shall not exceed in the aggregate 200,000 shares; provided, that the
class and aggregate number of shares which may be subject to Options granted
hereunder shall be subject to adjustment in accordance with the provisions of
Paragraph 16 hereof. Such shares may be treasury shares or authorized but
unissued shares. In the event that any outstanding Options for any reason shall
expire, the shares of Stock allocable to the unexercised portion of such Option
may again be subject to an Option under the Plan.
4. Termination of Plan. The Plan shall terminate on July 29, 1992, unless prior
to that time it has been approved by the vote or written consent of the holders
of not less than a majority of the then outstanding common stock of the Company.
If such approval is given, the Plan shall terminate on July 29, 2001, provided,
however, that the Board of Directors of the Company may terminate the Plan at
any time within its absolute discretion. No such termination, other than as
provided for in Section 16 hereof, shall in any way affect any option then
outstanding.
5. Authority to Grant Options. The Committee may grant from time to time to such
eligible individuals as it shall from time to time determine an Option, or
Options, to buy a stated number of shares of Stock under the terms and
conditions of the Plan. Subject only to any applicable limitations set forth in
the Plan, the number of shares of Stock to be covered by any Option shall
<PAGE>
be as determined by the Committee. The aggregate fair market value (determined
as provided in Section 7 of the Plan) of the Stock for which any employee may be
granted incentive stock options (under all the incentive stock option plans
maintained by the Company and its parent and subsidiary corporations) in any
calendar year shall not exceed (a) $100,000 plus (b) any unused carryover limit
to such year, computed in accordance with Section 422A of the Internal Revenue
Code of 1954 as amended (the "Code"). No Option shall be granted under the Plan
after ten (10) years from the date the Plan is adopted.
6. Eligibility. The individuals who shall be eligible to participate in the Plan
shall be employees of the Company, or if any subsidiary corporation, as the
Committee shall determine from time to time, provided, however, that no employee
owning more than ten percent (10%) of the stock of the Company at the time an
option is granted shall be eligible to participate in the Plan. For all purposes
of the Plan, (a) the term "subsidiary corporation" shall mean any corporation of
which the Company is the "parent corporation" as that term is defined in Section
425(e) of the Code, and (b) the term "parent corporation" shall mean any
corporation of which the Company is a "subsidiary corporation" as that term is
defined in Section 425(f) of the Code.
7. Option Price. The price at which shares may be purchased pursuant to Option
shall be not less than the fair market value of the shares of Stock on the date
the Option is granted, and the Committee in its discretion may provide that the
price at which shares may be purchased shall be more than such fair market
value. The "fair market value" of the Stock shall be the closing price of the
Stock as reported in the Wall Street Journal for the trading day on which the
option is granted, or if the Option is not granted on a trading day, then such
"fair market value" shall be determined on the trading day before the Option is
granted.
8. Duration of Options. No Option shall be exercisable after the expiration of
ten years from the date such Option is granted; and the Committee in its
discretion may provide that an Option shall be exercisable throughout such
ten-year period or during any lesser period of time commencing on or after the
date of grant of the Option and ending upon or before the expiration of such
ten-year period.
9. Amount Exercisable. Each Option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the Option may be exercised at a
particular time and to such other conditions as the Committee in its discretion
may specify upon granting the Option.
10. Exercise of Options. Options shall be exercised by the delivery of written
notice to the Company setting forth the number of shares with respect to which
the Option is to be exercised, together with cash, certified check bank draft or
postal or express money order payable to the order of the Company for an amount
equal to the option price of such shares, and specifying the address to which
the certificates for such shares are to be mailed. Such notice may be delivered
in person to a member of the Committee, or the Secretary of the Company, or may
be sent by registered mail, return receipt requested, to a member of the
Committee, or the Secretary of the Company, in which case delivery shall be
deemed made on the date such payment, the Company shall deliver to the optionee
certificates for the number of shares with respect to which such Option has
been so exercised, issued in the optionee's name; provided, that such delivery
shall be deemed effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates in the United States mail,
addressed to the optionee, at the address specified pursuant to this Paragraph
10. No option shall be exercisable while there is outstanding any incentive
stock option which was granted before the granting of such Option. For this
purpose, an Option will be considered "outstanding" until such option is
exercised in full or expires by reason of lapse of time.
<PAGE>
11. Transferability of Options. Options shall not be transferable by the
optionee other than by will or under the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
12. Termination of Employment by Optionee. Except as may be otherwise expressly
provided herein, Options shall terminate on such date as shall be selected by
the Committee in its discretion and specified in the Option agreement not in
excess of one day less than three months following severance of the employment
relationship between the Company or its subsidiary corporation and the optionee
for any reason, for or without cause. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company or its subsidiary corporation and
the optionee shall be retired in good standing from the employ of the Company
for reasons of age or disability under the then established rules of the
Company, the Option shall terminate on the earlier of such date of expiration or
one day less than three months after the date of such retirement. In the event
of such retirement, the optionee shall have the right prior to the termination
of such Option to exercise the Option to the extent to which he was entitled to
exercise such Option immediately prior to such retirement. After the death of
the optionee, his executors, administrators, or any person or persons to whom
his Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the earlier of the date
of expiration or one year following the date of such death, to exercise the
Option, in whole or in part (without regard to any limitations set forth in or
imposed pursuant to Paragraph 9 hereof).
13. Requirements of Law. The Company shall not be required to sell or issue any
shares under an Option if the issuance of such shares constitute a violation by
the optionee or the Company of any provisions of any law or regulation or any
governmental authority. In addition, in connection with the Securities Act of
1933 (as not in effect or hereafter amended), upon exercise of any Option, the
Company shall not be required to issue such shares unless the Committee has
received evidence satisfactory to it to the effect that the holder of such
Option will not transfer such shares except pursuant to a registration statement
in effect under such Act or unless an opinion of counsel to the Company has been
received by the Company to the effect that such registration is not required.
Any determination in this connection by the Committee shall be final, binding
and conclusive. In the event the shares issuable on exercise of an Option are
not registered under the Securities Act of 1933, the Company may imprint the
following legend or any other legend which counsel for the Company considers
necessary or advisable to comply with the Securities Act of 1933.
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities laws of any
State and may not be sold or transferred except upon such registration or upon
receipt by the Company of an opinion of counsel satisfactory to the company, in
form and substance satisfactory to the company, that registration is not
required for such sale or transfer."
<PAGE>
The Company may, but shall in no event be obligated to register any
securities covered hereby pursuant to the Securities Act of 1933 (as now in
effect or as hereafter amended); and in the event any shares are so registered
the Company may remove any legend on certificates representing such shares. The
Company shall not be obligated to take any other affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
14. No Rights as Stockholder. No optionee shall have rights as a Stockholder
with respect to shares covered by his Option until the date of issuance of a
stock certificate for such shares; and, except as otherwise provided in
Paragraph 16, hereof, no adjustment for dividends, or otherwise, shall be made
if the record date thereof is prior to the date of issuance of such certificate.
15. Employment Obligation. The granting of any Option shall not impose upon the
Company any obligation to employ or continue to employ any optionee; and the
right of the Company to terminate the employment of any employee shall not be
diminished or affected by reason of the fact that an Option has been granted to
him.
16. Changes in the Company's Capital Structure. The existence of outstanding
Options shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Stock
or the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation therefor in money, services or property, then (a) the number,
class, and per share price of shares of stock subject to outstanding Options
hereunder shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of any Option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares then reserved
for issuance under the Plan shall be adjusted substituting for the total number
and class of shares of stock then reserved that number and class of shares of
stock that would have been received by the owner of an equal number of
outstanding shares of each class of stock as the result of the event requiring
the adjustment.
After a merger of one or more corporations into the Company, or after a
consolidation of the Company and one or more corporation in which the Company
shall be the surviving corporation, each holder of an outstanding Option shall,
at no additional cost, be entitled upon exercise of such Option to receive
(subject to any required action by stockholders) in lieu of the number and class
of shares of stock or other securities to which such holder would have ben
entitled pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of the number and class of shares of Stock equal to the number
and class of shares as to which such option shall be so exercised.
<PAGE>
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
of its assets to another corporation while unexercised Options remain
outstanding under the Plan (i) subject to the provisions of clause (iii) below,
after the effective date of such merger, consolidation or sale, as the case may
be, each holder of an outstanding Option shall be entitled, upon exercise of
such Option, to receive, in lieu of shares of the Stock, shares of such stock or
other securities as the holders of shares of such class of Stock received
pursuant to the terms of the merger, consolidation or sale; (ii) the Board of
Directors may waive any limitations set forth in or imposed pursuant to
Paragraph 9 hereof so that all Options, from and after a date prior to the
effective date of such merger, consolidation, liquidation or sale, as the case
may be specified by the Board, shall be exercisable in full; and (iii) all
outstanding Options may be cancelled by the Board of Directors as of the
effective date of any such merger, consolidation, liquidation or sale provided
that (x) notice of such cancellation shall be given to each holder of an Option
and (y) each holder of an Option shall have the right to exercise such Option in
full (without regard to any limitations set forth in or imposed pursuant to
Paragraph 9 hereof) during a 30-day period preceding the effective date of such
merger, consolidation, liquidation of sale.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities shall not affect and no adjustment by reason thereof shall
be made with respect to, the number, class or price of shares of Stock then
subject to outstanding Options.
17. Amendment or Termination of Plan. The Board of Directors may modify, revise
or terminate this Plan at any time and from time to time; provided, however,
that without the further approval of the holders of at least a majority of the
outstanding shares of Stock, the Board may not increase the aggregate number of
shares which may be issued under Options pursuant to the provisions of the Plan
and that any amendment, modification, revision or termination shall not effect
any outstanding options.
18. Written Agreement. Each Option granted hereunder shall be embodied in a
written option agreement, which shall be subject to the terms and conditions
prescribed above and shall be signed by the optionee and by the President or any
Vice President of the Company for and in the name and on behalf of the Company.
Such an option agreement shall contain such other provisions as the Committee in
its discretion shall deem advisable.
<PAGE>
19. Indemnification of Committee. The Company shall indemnify each present and
future member of the Committee against, and each member of the Committee shall
be entitled without further act on his part to indemnity from the Company for,
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action suit or proceeding in which he may
be involved by reason of his being or having been a member of the Committee,
whether or not he continues to be such member of the Committee at the time of
incurring such expenses; provided however, that such indemnity shall not include
any expenses incurred by any such member of the Committee (a) in respect of
matters as to which he shall be finally adjudged in any such action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in the
performance of his duty as such member of the Committee, or (b) in respect of
any matter in which any settlement is effected, to an amount in excess of
indemnification under the provisions set forth herein shall be available to or
enforceable by any such member of the Committee unless, within sixty (60) days
after institution of any such action, suit or proceeding, he shall have offered
the Company, in writing, the opportunity to handle and defend same at its own
expense. The foregoing right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each such member of the Committee and
shall be in addition to all other rights to which such membes of the Committee
may be entitled as a matter of law, contract, or otherwise.
20. Effective Date of Plan. The Plan shall become effective and shall be
deemed to have been adopted on July 29, 1991.
EX-10.10
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECRETARY OF THE COMMISSION PURSUANT TO REGISTRANT'S APPLICATION OBJECTING
TO DISCLOSURE AND REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 406. THE
OMITTED PORTIONS HAVE BEEN MARKED WITH BRACKETS.
SANCTION APPLICATION AND AGREEMENT FORM
NASCAR BUSCH SERIES. GRAND NATIONAL DIVISION
INSTRUCTIONS:
(1) All NASCAR Busch Series, Grand National Division Championship
Events for which PROMOTER seeks a NASCAR sanction must be listed in a single
application form. Please sign the original and forward to NASCAR; upon
acceptance and approval by NASCAR, a copy will be returned to the PROMOTER.
(2) "PROMOTER" means the individual, partnership, corporation, joint
venture or other entity that, in connection with the Event (as defined below),
is ultimately responsible (financially and otherwise) for the organization and
promotion of the Event and the facility at which the event is to be run. If two
or more entities are acting together in such capacity, both should be listed as
"PROMOTER" and the authorized officer of each should sign this form.
(3) This form when signed by the PROMOTER is only an application for a
NASCAR sanction. NASCAR is under no obligation to accept or approve the
application. Upon being accepted and approved in writing by NASCAR, this form
becomes an agreement binding on both parties.
(4) Application for a NASCAR Busch Series, Grand National Division
Championship Event must be received at NASCAR no later than ten business days
after the PROMOTER receives this form from NASCAR.
* * * * * * * * * * * * * *
The undersigned PROMOTER, designated below, applies to the National
Association for Stock Car Auto Racing, Inc. ("NASCAR") for a NASCAR sanction to
organize and promote a NASCAR-sanctioned NASCAR Busch Series, Grand National
Division Championship Event(s) in accordance with the terms and conditions set
forth hereafter, as follows:
<PAGE>
EVENT NUMBER 1
PROMOTER: Dover Downs International Speedway, Inc.
----------------------------------------
ADDRESS: P.O. Box 843 Dover DE 19903
----------------------------------------
(STREET) (CITY) (STATE) (ZIP)
NAME OF EVENT: GM GOODWRENCH/DELCO BATTERY "200"
----------------------------------------
TRACK: Dover Downs International Speedway
----------------------------------------
LOCATION: Dover, DE
-----------------------
(City & State)
TRACK LENGTH: 1 Mile, Paved
-----------------------
DATE OF EVENT: June 1, 1996
-----------------------
POSTPONED DATE: Next Raceable Day
-----------------------
TELEPHONE #: (302) 674-4600
-----------------------
EVENT DISTANCE: 200 Miles (200 Laps)
-----------------------
STARTING TIME: 1:10 p.m.
-----------------------
TIME TRIAL DATE(S) AND HOURS: PRACTICE DATE(S) AND HOURS:
Fri., May 31 - Per Entry Blank Fri., May 31 - Per Entry Blank
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
REGISTRATION & INSPECTION - Fri., May 31 - Per Entry Blank
- ------------------------------ ------------------------------
MINIMUM PROMOTER'S PURSE
AND POINT FUND TOTAL
(See Exhibit 2): $[ ]
-------------
PAYMENT DATE 12 Noon on
(See Exhibit 1, Para. 19): May 22, 1996
-------------
SANCTION REE: $[ ]
-------------
INSURANCE NOTIFICATION DATE
(See Exhibit 1, Para. 20): May 22, 1996
-------------
Sanction Application and Agreement Form
Page 2 of 4
<PAGE>
EVENT NUMBER 2
PROMOTER: Dover Downs International Speedway, Inc.
----------------------------------------
ADDRESS: P.O. Box 843 Dover DE 19903
----------------------------------------
(STREET) (CITY) (STATE) (ZIP)
NAME OF EVENT: MBNA "200"
----------------------------------------
TRACK: Dover Downs International Speedway
----------------------------------------
LOCATION: Dover, DE
-----------------------
(City & State)
TRACK LENGTH: 1 Mile, Paved
-----------------------
DATE OF EVENT: September 14, 1996
-----------------------
POSTPONED DATE: Next Raceable Day
-----------------------
TELEPHONE #: (302) 674-4600
-----------------------
EVENT DISTANCE: 200 Laps (200 Miles)
-----------------------
STARTING TIME: 1:10 p.m.
-----------------------
TIME TRIAL DATE(S) AND HOURS: PRACTICE DATE(S) AND HOURS:
Fri., September 13 - Per Entry Blank Fri., September 13 - Per Entry Blank
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
REGISTRATION & INSPECTION - Fri., September 13 - Per Entry Blank
- ------------------------------------ ------------------------------------
MINIMUM PROMOTER'S PURSE
AND POINT FUND TOTAL
(See Exhibit 2a): $[ ]
-----------------
PAYMENT DATE 12 Noon on
(See Exhibit 1, Para. 19): September 4, 1996
-----------------
SANCTION REE: $[ ]
-----------------
INSURANCE NOTIFICATION DATE
(See Exhibit 1, Para. 20): September 4, 1996
-----------------
Sanction Application and Agreement Form
Page 3 of 4
<PAGE>
Upon written acceptance and approval of the above application, in
consideration for the mutual promises set forth herein, NASCAR and the PROMOTER
agree as follows:
(1) NASCAR hereby grants its sanction to PROMOTER for the Event(s)
listed, and NASCAR agrees to conduct the Event(s), through its officers and
designated officials, in accordance with the NASCAR Busch Series, Grand National
Division Rule Book, as it may be amended from time to time, any special rules
that may be published by NASCAR specifically for the Event(s), and this
agreement. Interpretation and application of the NASCAR Busch Series, Grand
National Division Rule Book, as it may be amended from time to time, and any
special rules that may be published by NASCAR specifically for the Event(s), are
committed to NASCAR's sole discretion, and are final and unreviewable except as
provided in the NASCAR Busch Series, Grand National Division Rule Book.
(2) Exhibits 1, 2 and 2a, attached hereto, are incorporated herein and
made a part of this agreement.
(3) NASCAR will retain for its own account all inspection fees.
(4) Additional Provisions:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Submitted this _______________ day of ________________, 19____________.
- --------------------------------------------------------------------------------
(Promoter)
By: /s/ Denis McGlynn President
--------------------------------- ------------------------------------
(an authorized officer) (title)
Witnessed By: xxxxxxxx Gen. Manager
----------------------- ------------------------------------
(title)
Accepted and Approved this 8th, day of January , 1996.
----------- ------------------------- ---
National Association for Stock Car Auto Racing, Inc.
By: /s/ Michael G. Heltin Vice President of Competition
--------------------------------- ------------------------------------
(an authorized officer) (title)
Witnessed By: /s/ Dawn K. Brown Admin. Assistant
----------------------- ------------------------------------
(title)
Sanction Application and Agreement Form
Page 4 of 4
<PAGE>
EXHIBIT 1
To Sanction Application and Agreement Form
NASCAR and PROMOTER agree as follows:
DEFINITIONS
(1) "Event" means the Event(s) designated in the Sanction Application
and Agreement Form, as well as all periods for registration, inspections, time
trials, practice runs, post-race inspections and postponed dates related
thereto. Whenever the word "Event appears in the singular, it shall apply to all
Events designated on the Sanction Application and Agreement Form, unless the
context requires otherwise. All provisions in the Sanction Application and
Agreement Form and in Exhibits 1, 2 and 2a apply to the Event(s) designated in
the Sanction Application and Agreement Form, unless the context requires
otherwise.
(2) "Additional Award" as used herein includes any monetary or non-
monetary award by, or contracted through, the PROMOTER, for distribution based
upon the Event(s), other than (a) purse, (b) point fund, (c) Winner's Circle and
Plan awards, (d) television income and (e) the entry award for the current
NASCAR Busch Series, Grand National Division Champion. PROMOTER understands and
acknowledges that the above-listed awards may or may not be applicable to or
available in connection with the Event, and that NASCAR makes no representation
as to the availability or amounts of such awards.
(3) "Television Income", as used herein, means all monies and things of
value received by PROMOTER as a result of and in connection with any television
contract(s), including but not limited to payments received from networks,
stations, packages, brokers, advertisers, advertising agencies, and the like. In
computing all monies and things of value received, it is intended that the gross
amount set forth in all television contract(s) as payable by the other
contracting entity or entities shall be included and that any applicable
commissions, fees or expenses paid to or deducted by sales agents, consultants
and other parties shall not be deducted therefrom.
(4) "Television Contract", as used herein, means any contract,
agreement or understanding, whether oral or written, entered into between
PROMOTER and any other entity or entities, whether or not they are broadcasters,
for the sale, assignment or other transferral of the rights of PROMOTER in the
live or delayed televised broadcast of, rebroadcast of, tape or film production
of, and/or any other use of, the Event, whether by cable TV, pay TV, theater TV,
video tape cassettes, and/or satellite transmissions, worldwide.
PROMOTER'S GENERAL OBLIGATIONS
(5) PROMOTER warrants to NASCAR that in connection with the Event it
has sole control of the racetrack, the premises upon which the racetrack is
located and surrounding same, and all facilities thereon, that it has obtained
all necessary licenses, permits or other approvals required, and that it has
full authority to conduct the Event at the racetrack pursuant to the terms of
this agreement. PROMOTER further warrants that it will comply with all local,
state and federal laws and regulations in connection with the organization and
promotion of the Event. PROMOTER, at its expense, will make all appropriate
filings of forms or other documents as required by federal, state or local laws.
(6) PROMOTER at its expense assumes sole responsibility for furnishing
the racetrack, the premises upon which the racetrack is located and surrounding
same, and all facilities thereon in good repair, ready for use by competitors
and officials. PROMOTER is solely responsible and liable for the safety of such
competitors and officials while on, entering or leaving such racetrack, premises
and facilities. PROMOTER warrants that the racetrack, premises and facilities
are and will remain in a condition suitable for the conduct of the Event, and
that the racing surface of the track will not be altered, resurfaced or
otherwise substantially changed during the term of this Agreement without the
express written consent of NASCAR. PROMOTER will provide NASCAR or its
designated representative full access to the racetrack, premises and facilities
as requested by NASCAR during the term of this Agreement.
(7) If NASCAR in its sole discretion determines that the racetrack, the
premises or any facilities are in unsatisfactory condition, PROMOTER agrees to
repair or resurface the racetrack and to repair the premises or facilities, at
PROMOTER's expense and to the satisfaction of NASCAR prior to any
NASCAR-sanctioned Event. If NASCAR in its sole discretion determines that it is
necessary to resurface the racetrack, such resurfacing shall be completed by
PROMOTER with adequate time prior to the Event to allow for tire and private car
testing. If NASCAR in its sole discretion determines that there is insufficient
time to place the racetrack in a condition suitable for the conduct of the
Event, NASCAR in its sole discretion may postpone or cancel the Event.
(8) PROMOTER at its expense will furnish adequate facilities,
personnel, equipment and services for accommodating and controlling the public
during the Event. PROMOTER is solely responsible and liable for the safety of
the public during the Event. PROMOTER is solely responsible for the condition,
actions and operations of such facilities, personnel, equipment and services
before, during and after the Event.
(9) PROMOTER at its expense will furnish adequate facilities, support
personnel, equipment, and related security, for use by NASCAR in the performance
of NASCAR's duties, as they may be requested by NASCAR from time to time,
including but not limited to facilities for office administration, registration,
timing, scoring, car inspection, race direction, officiating and prize money
distribution. Without in any way limiting the foregoing, PROMOTER at its expense
will:
a. provide one or more television monitors, in locations to be
specified by NASCAR, with all related equipment necessary for such
monitors to be connected to video and audio equipment used by the
television producer under contract for the Event, in order to provide
to NASCAR Officials live video on such monitors and the ability to
switch instantaneously its view on the monitors among the different
camera locations used by the television producer, at all times during
the Event when all or a portion of the Event is being videotaped,
broadcast, monitored and/or recorded;
b. provide NASCAR with two (2) pace vehicles, each with the NASCAR logo
(as set forth under paragraph 21 below) displayed on the side in a
manner and size which is visible to all persons on the racetrack, in
the viewing area and in all locations where NASCAR Officials are
visually monitoring the Event;
c. provide NASCAR prior to the Event with a list of the track radio
frequencies to be used for the Event, including but not limited
frequencies to be used for maintenance, police and security personnel;
d. cooperate with NASCAR in pre-race and victory lane ceremonies,
awards presentations and photographs;
e. have readily available quantities of oil dry acceptable to NASCAR
when the track opens for practice and at all other times during the
Event, and adequate personnel to spread the oil dry at NASCAR's
direction;
f. certify and recertify the scales as requested by NASCAR upon arrival
for the first day of inspection and at all other times during the
Event, and provide written certifications to the NASCAR Busch Series,
Grand National Division Director as to the results of the
certifications;
g. provide personnel to secure the entry into the pits and garage areas
during competition periods;
h. provide personnel to secure the garage area on a continuous,
24-hour/day basis beginning the first day the track is open for
inspection and ending when released by NASCAR Busch Series, Grand
National Division Director;
i. deliver to the garage area before the morning of raceday twice the
number of chairs as cars starting in the race for use by drivers and
crew chiefs at pre-race meeting;
j. line and number each pit with appropriate paint, line and paint
traffic lanes in the garage and garage area when and where needed, and
repaint all start/finish, scoring, third turn and re-entry cutoff
lines;
k. place portable toilets along pit road and in the qarage area as
directed by NASCAR;
l. coordinate with NASCAR all tours of the garage areas, including the
times, number of participants and other arrangements;
m. provide adequate electricity (including without limitation 220 volts
50 amps service with female range outlet for the NASCAR trailer), air
conditioning, heat, telephone (including a track phone extension) and
water facilities as requested by NASCAR;
n. coordinate with NASCAR to ensure that it has a minimum of ten (10)
minutes immediately before, during or after driver introductions for
NASCAR awards presentations;
o. coordinate with NASCAR to ensure that it has a reasonable period of
time immediately following the Event for victory lane ceremonies,
awards presentations and sponsor recognitions;
p. provide a control tower of adequate size with electricity, air
conditioning, heat, telephone (including a track phone extension),
chairs with cushions, a television monitor (as set forth above), water
facilities and other utilities, supplies and equipment as requested by
NASCAR;
q. provide a registration facility of adequate size outside the track
and in the garage area, with electricity, air conditioning, heat,
telephone (including a track phone extension), chairs with cushions,
water facilities and other utilities, supplies and equipment as
requested by NASCAR;
r. provide adequate trash receptacles in the garage and pit area and
coordinate with the NASCAR Busch Series, Grand National Division
Director the times for trash pick up by track personnel;
s. provide adequate personnel to sweep and clean-up the garage and pit
areas on a daily basis;
t. provide adequate parking areas for all competitors (including car
owners, drivers and crew members) and NASCAR Officials adjacent to or
near garage area;
Exhibit 1 to Sanction Application and Agreement Form
Page 2 of 7
<PAGE>
u. provide NASCAR with a track suite, including the customary number of
admission tickets for admission to said suite, and 100 grandstand
general admission tickets, such tickets to be delivered to NASCAR no
later than thirty (30) days prior to the Event.
(10) PROMOTER at its expense will provide adequate facilities,
personnel, equipment and services for, and assumes sole responsibility to
provide, fire protection equipment and on-site medical services for competitors,
officials, the public and others, including without limitation cleanup crews,
towing and flatbed wreckers. PROMOTER at its expense will make advance
arrangements with local hospitals and physicians for the prompt and efficient
treatment of any and all injuries occurring during the Event.
(11) PROMOTER at its expense will furnish adequate security personnel
(in addition to the requirements of paragraph 9) in the pit and garage area, and
will limit access to such areas before, during and after the Event to authorized
individuals and equipment. PROMOTER is solely responsible and liable for the
actions of security personnel.
(12) PROMOTER at its expense assumes and will perform all business
responsibilities in connection with the Event (except as otherwise provided by
this Agreement), including but not limited to business organization, promotional
activities, management, general business affairs, ticket sales, track operation
and press accommodations. NASCAR does not warrant, either expressly or by
implication, nor is it responsible for, the financial or other success of the
Event or the number or identity of vehicles or competitors participating in the
Event.
(13) PROMOTER will not schedule or permit any private race car practice
or test runs for the seven days immediately preceding the first day of official
practice for the Event without prior written approval by NASCAR. PROMOTER will
not schedule any ancillary events or activities on the same day as registration
or inspection, or on any days during the Event, without prior written approval
by NASCAR. The ancillary events or activities covered by this paragraph include
without limitation other motorsports events, thrill shows, live performances
and/or helicopter rides. PROMOTER further agrees to notify NASCAR of any private
race car testing and/or practice done at the racetrack pursuant to and in
accordance with the 1996 NASCAR Busch Series, Grand National Division Private
Race Car Testing Policy.
OFFICIAL ENTRY BLANK
(14) An Official Entry Blank for the Event will be composed, printed,
published and distributed by NASCAR, and will constitute the sole official
statement as to the date, place, schedule and length of the Event, eligibility
requirements for competitors, and monetary and non-monetary awards.
(15) PROMOTER will notify NASCAR prior to contracting for any
Additional Award. NASCAR may reject a proposed Additional Award in its entirety,
require different terms for the proposed Additional Award, or require a
reallocation of the distribution of such an award among competitors, if in
NASCAR's sole judgement the proposed award will not advance the nature of the
competition, will have an adverse impact on the Event, or will be detrimental to
the sport of automobile racing, NASCAR, any sponsors of the Event, or any
sponsors of the NASCAR Busch Series, Grand National Division. NASCAR's
determination in that regard will be binding on PROMOTER. PROMOTER assumes full
responsibility for, and will indemnify NASCAR against, any liability or costs
incurred as a result of NASCAR's determination with respect to any proposed
award arranged by or through PROMOTER. All Additional Awards are subject to
independent verification by NASCAR.
(16) PROMOTER will submit to NASCAR, no later than sixty (60) calendar
days before the date of the Event, a list of any and all proposed Additional
Awards (as defined above) for the Event not previously included in Exhibit 2 and
Exhibit 2a of this Agreement. If either PROMOTER or NASCAR contracts for
Additional Awards after publication of the Official Entry Blank, NASCAR in its
sole discretion may publish and distribute a supplement to the Official Entry
Blank posting the Additional Awards.
(17) PROMOTER will not publish an official or unofficial entry blank or
supplement, or any other form setting forth monetary or non-monetary awards,
without prior written approval from NASCAR. PROMOTER will not advertise or
otherwise disseminate any information as to monetary or non-monetary awards for
the Event other than those specified in the Official Entry Blank or
NASCAR-approved supplement.
(18) NASCAR will use its best efforts to consult with the PROMOTER
regarding postponement of an Event, but the decision to postpone an Event and
the selection of the postponed date will be made by NASCAR in its sole
Exhibit 1 to Sanction Application and Agreement Form
Page 3 of 7
<PAGE>
discretion and will be binding on NASCAR. Publication by Promoter of a
postponement and/or postponed date that has not been approved by NASCAR is not
binding upon NASCAR.
PROMOTER'S FINANCIAL AND INSURANCE OBLIGATIONS
(19) PROMOTER will pay to NASCAR at Daytona Beach, Florida, not later
than the Payment Date set forth in the Sanction Application and Agreement Form,
by wire transfer of funds, an amount equal to the sum of the PROMOTER's Purse
and Point Fund and the Sanction Fee, plus any other monies due NASCAR for the
Event pursuant to this agreement, unless otherwise directed by NASCAR in
writing. Time is of the essence. If said monies and fees are not paid to NASCAR
in the manner and by the Payment Date, NASCAR at its option may (a) cancel and
rescind this Agreement, or (b) enforce collection of said monies and fees by
suit or action, in which case PROMOTER will pay all costs incurred by NASCAR in
connection therewith, including reasonable attorney's fees.
(20) PROMOTER at its expense will obtain and maintain public liability
insurance for the Event that is acceptable to NASCAR, with a minimum combined
single limit of $10,000,000.00 per occurrence, for (i) spectator injury and
property damage and (ii) PROMOTER's legal, pit, track and product liability. In
the event that PROMOTER cannot obtain such insurance with $10,000,000.00 per
occurrence limits, PROMOTER shall obtain and maintain such insurance at the
highest available per occurrence limit, but in no event shell PROMOTER obtain
such insurance with a per occurrence limit (for all categories of liability
specified above) less then $5,000,000.00. PROMOTER will deliver to NASCAR at
Daytona Beach, Florida no later than the Notification Date set forth in the
Sanction Application and Agreement Form, a certified true copy of all public
liability insurance policies in force for the Event, regardless of the total
amount of coverage. In all such policies and in all other public liability
policies obtained and maintained by the PROMOTER or PROMOTER'S parent, the
following will be named as insured or additional insured: National Association
for Stock Car Auto Racing, Inc., its shareholders, directors, officers,
employees, agents, officials, and members; all drivers, car owners, car
sponsors, mechanics, and all sponsors for the Event or the series of which the
Event is a part. All policies shall also contein a cross liability endorsement
acceptable to NASCAR. If PROMOTER fails to deliver such policies to NASCAR by
the date provided, or if PROMOTER fails to maintain such policies with the
required minimum coverage throughout the Event, NASCAR may cancel and rescind
this Agreement immediately and without notice to the PROMOTER. If the policy or
policies are not acceptable to NASCAR, then NASCAR may obtain the required
insurance from an acceptable insurance company, with acceptable terms, at the
PROMOTER's expense.
ADVERTISING AND USE OF REGISTERED MARK
(21) Each party authorizes the use of its name and registered mark by
the other for the publicizing, promoting or advertising the Event. The NASCAR
name and registered mark will only be used as follows:
[NASCAR logo]
The symbol(R) will appear as indicated with the NASCAR logo. In all
advertising and promotion relating to the Event, including, but not limited to
news releases, advertisements and brochures, PROMOTER will display the
registered trademark and the phrase "NASCAR-sanctioned NASCAR Busch Series,
Grand National Division Championship Event".
(22) To the extent that any and all Car Owners and Drivers, either
collectively or individually and pursuant to the NASCAR Official Entry Blank
executed by them, releese to NASCAR rights to their name(s), picture(s),
likeness(es) or performance(s), NASCAR hereby assigns to PROMOTER the
non-exclusive use of each and every Car Owner's and Driver's name(s),
picture(s), likeness(es) or performance(s) for the purpose of publicizing,
promoting or advertising the Event.
(23) PROMOTER will make no misrepresentations of fact in connection
with publicizing, promoting or advertising the Event. If such a
misrepresentation is made (a) the PROMOTER promptly will correct the
misrepresentation through a subsequent PROMOTER publication, (b) NASCAR may
correct the misrepresentation itself through NASCAR publication ot PROMOTER's
expense and/or (c) NASCAR may cancel and rescind this Agreement.
(24) PROMOTER acknowledges that the Event is part of the NASCAR Busch
Series, Grand National Division. PROMOTER will cooperate fully with NASCAR, with
the series sponsor(s), and with any other company that has
Exhibit 1 to Senction Applicetion and Agreement Form
Page 4 of 7
<PAGE>
contracted with NASCAR to sponsor awards or programs (including without
limitation the Busch Beer Pole Award or the Rookie-of-the-Year Award) that are
based in whole or in part on a competitor's performance in the Event or over a
number of NASCAR Busch Series, Grand National Division events, in connection
with those sponsors' activities, if any, during the Event. PROMOTER will take no
action that, in NASCAR's sole judgement, will jeopardize the maintenance or
continuation of such sponsorships.
(25) PROMOTER acknowledges that the sale or use, for advertising
purposes, of space at the racetrack, the premises upon which the racetrack is
located and surrounding same, the facilities thereon, or in any publications
distributed in connection with the Event, is an action that could have an impact
upon the existing sponsorships described in paragraph 24 above. Such sale to or
use by competitors of such sponsors shall be subject to prior written approval
by NASCAR, which NASCAR may provide or withhold in its sole discretion.
(26) NASCAR reserves the right to approve or disapprove any
advertising, sponsorship or similar agreement in connection with any Event.
(27) PROMOTER will use the NASCAR NATIONAL PROGRAM PACKAGE, if provided
by NASCAR.
TELEVISION AND SIMILAR RIGHTS
(28) PROMOTER will pay to NASCAR at Daytona Beach, Florida not later
than the Payment Date set forth in the Sanction Application and Agreement Form,
or within twenty-four (24) hours of the consummation or execution of the
television contract (whichever occurs later), by wire transfer, ten percent
(10%) of all television income received or contracted to be received (whichever
is greater) by the PROMOTER in connection with the Event.
(29) In addition to the sum to be paid in accordance with paragraph 28,
PROMOTER will pay into the NASCAR event purse trust account, not later than the
Payment Date set forth in the Sanction Application and Agreement Form, or within
twenty-four (24) hours of the consummation or execution of the television
contract (whichever occurs later), by wire transfer, twenty-five percent (25%)
of all television income received or contracted to be received (whichever is
greater) by the PROMOTER in connection with the Event.
(30) PROMOTER will maintain for a period of six years from the date of
the Event (1) true and complete copies of any written television contract, any
document evidencing such contract, and any document relating to such contract,
and (2) accurate and complete records of all receipts and disbursements of
television income received in connection with the Event. PROMOTER will permit
NASCAR or its authorized agent at all reasonable times to request, receive,
inspect and audit any or all such records and documents, wherever they may be
located or any mutually agreeable location. PROMOTER will forward to NASCAR upon
its execution true and complete copies of any written television contract.
(31) PROMOTER will require, in any new or renewed television contract,
the following language (or language having the same legal and practical effect):
"The parties hereto agree to defer to the requests of NASCAR or its
authorized agent in the placement and use of television cameras, crews,
supporting equipment and personnel, and in the establishment of the
starting time, for the Event."
"Parties hereto agree to permit NASCAR or its authorized agent at all
reasonable times, to request, and receive, true and complete copies of
any written television contract, any document evidencing such contract,
and any document relating to such contract."
(32) PROMOTER, at no expense to NASCAR, will provide NASCAR in any new
or renewed television contract, for NASCAR's exclusive use, two (2)
thirty-second (30) commercial advertising segments, not to be resold by NASCAR.
(33) If the television contract, after its publication in any form,
becomes or is found to be unenforceable or is not performed by one or all
parties thereto for any reason other than those mentioned in paragraph 34 below,
the PROMOTER will perform its obligations as set forth herein as if the
television contract were fully enforceable and in fact fully performed.
(34) If the Event or the performance of the television contract is
prevented or postponed due to an act of God, force majeure, inevitable accident,
strike or other labor dispute, fire, riot or civil commotion, government action
or
Exhibit 1 to Sanction Application and Agreement Form
Page 5 of 7
<PAGE>
decree, inclement weather, failure of technical facilities beyond the control of
the broadcaster, the recapture of any time period scheduled for the live
broadcast of the Event for an event of national importance or emergency, or for
any similar reason beyond the control of the parties to this Agreement or to the
television contract the PROMOTER will perform its obligations as set forth
herein, except that the monies due under paragraphs 28 and 29 shall be the
respective percentages of television income actually received. If any monies in
excess of those due under this paragraph have been paid before the prevention or
postponement of the Event as set forth in this paragraph, NASCAR will refund the
excess to the PROMOTER within thirty (30) days of the prevention or the delayed
staging of the Event.
(35) NASCAR is granted the rights to use Event audio, video,
information and other digital data for purposes of news related distribution via
the Internet or other private and public online services authorized by NASCAR.
GENERAL PROVISIONS
(36) The Event will be conducted in accordance with the NASCAR Busch
Series, Grand National Division Rule Book, as it may be amended from time to
time, any special rules that may be published by NASCAR specifically for the
Event, and this Agreement. NASCAR may cancel or rescind this Agreement if NASCAR
determines in its sole discretion that PROMOTER has failed to abide by the
provisions of this Agreement, the NASCAR Busch Series, Grand National Division
Rule Book, amendments thereto, or any special rules as set forth herein. Notice
to PROMOTER is effective as set forth in paragraph 44.
(37) PROMOTER's rights and obligations under this Agreement, and the
sanction given pursuant to it, are not transferable or assignable.
(38) This Agreement and the sanction granted herein relate solely to
the Event(s) and the date or dates set forth on the Sanction Application and
Agreement Form. Nothing in this Agreement, or in the course of dealing between
the parties, will be construed to require the PROMOTER or NASCAR to enter into a
sanction agreement or to issue a sanction for this or any other Event in the
future.
(39) Nothing in this Agreement will be construed to place NASCAR in the
relationship of a partner or joint venturer with the PROMOTER. The PROMOTER will
not, and has no power to, obligate or bind NASCAR in any manner other than as
provided expressly in this Agreement.
(40) If an Event is postponed or cancelled for any reason (other than a
strike, war, declaration of a state of national emergency, act of God or the
public enemy, or any other cause beyond the control of the PROMOTER) without
either (1) the prior written approval of NASCAR, or (2) during the Event, the
prior oral approval of the NASCAR Official in charge of the Event, or if NASCAR
cancels and rescinds this Agreement pursuant to paragraphs 19, 20, 23 or 36,
NASCAR may elect to retain all or any part of the PROMOTER's Purse and Point
Fund, and other fees and monies received by NASCAR pursuant to this Agreement,
and to utilize the same to reimburse, in whole or in part, NASCAR as well as the
drivers and car owners, and each of them, in connection with the Event, which
include but are not limited to salaries, transportation, lodging, and payments
to the pit crew. NASCAR's determination as to what is or is not a proper expense
or as to the manner or the amount of disbursement or as to whom disbursement is
made in this regard is binding on the PROMOTER, as well as on all drivers and
car owners entered in the Event. Nothing in this paragraph or in paragraphs 19,
20, 23 or 36 shall be construed to limit or otherwise affect any right of action
by NASCAR for damages, or any other available remedy, for breach of this
Agreement.
(41) NASCAR may modify, alter, change or replace the name of the series
of which the Event is a part, at any time. In that event, PROMOTER shall use the
new name in all communications, advertising, marketing and promotion relating to
the Event.
(42) In the event of litigation arising out of the enforcement of this
Agreement, its terms and conditions, attorney's fees and costs shall be awarded
to the prevailing party.
(43) PROMOTER shall indemnify and hold NASCAR harmless from any and all
claims, allegations, demands, obligations, suits, actions, causes of action,
proceedings, rights, damages, and costs of any nature arising out of the Event,
unless such claim, allegation, demand, obligation, suit, action, cause of
action, proceeding, right, damage or cost arises solely out of the act or
omission of NASCAR. With respect to any matter falling within the scope of the
PROMOTER's obligation to defend and hold NASCAR harmless, NASCAR shall be
entitled to select counsel to represent it in such matter at PROMOTER's expense,
and that counsel's duties and obligations in all respects shall be to NASCAR.
Exhibit 1 to Sanction Application and Agreement Form
Page 6 of 7
<PAGE>
(44) Unless otherwise permitted herein, notice required by the
Agreement shall be given by overnight mail or by registered mail, postage
prepaid, addressed as follows:
TO NASCAR: National Association for Stock Car Auto Racing, Inc.
P.O. Box 2875
Daytona Beach, Florida 32120-2875
TO PROMOTER: The Address set forth immediately below the name of
the PROMOTER first listed in the Sanction Application
and Agreement Form.
(45) This agreement shall be construed according to the laws of Florida
and may not be amended except in writing and signed by both parties. Venue shall
lie solely in Volusia County, Florida, and all parties hereto consent to service
of process by, and the personal and subject matter jurisdiction of, the courts
in and for Volusia County, Florida.
(46) The Sanction Application and Agreement Form, including Exhibits 1,
2 and 2a thereto, constitutes the entire agreement between NASCAR and the
PROMOTER. All previous communications and negotiations between NASCAR and the
PROMOTER, whether oral or written, not contained herein are hereby withdrawn and
annulled.
End of Exhibit 1
*********
Exhibit 1 to Sanction Application and Agreement Form
Page 7 of 7
<PAGE>
EXHIBIT 2
TO SANCTION APPLICATION AND AGREEMENT FORM FOR THE
GM GOODWRENCH/DELCO BATTERY "200"
NASCAR and PROMOTER agree as follows:
RACING PURSE ............................................... $[ ]
NASCAR POINT FUND .......................................... [ ]
NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION CHAMPION ...... [ ]
NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION PLAN .......... [ ]
WINNERS' CIRCLE AWARDS ..................................... [ ]
TELEVISION AWARDS .......................................... [ ]
-----------
MINIMUM PROMOTER'S PURSE AND POINT FUND .................... $[ ]
NASCAR TELEVISION FEE ...................................... [ ]
-----------
TOTAL ...................................................... $[ ]
<PAGE>
EXHIBIT 2a
TO SANCTION APPLICATION AND AGREEMENT FORM FOR THE
MBNA "200"
NASCAR and PROMOTER agree as follows:
RACING PURSE ............................................... $[ ]
NASCAR POINT FUND .......................................... [ ]
NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION CHAMPION ...... [ ]
NASCAR BUSCH SERIES, GRAND NATIONAL DIVISION PLAN .......... [ ]
WINNERS' CIRCLE AWARDS ..................................... [ ]
TELEVISION AWARDS .......................................... [ ]
-----------
MINIMUM PROMOTER'S PURSE AND POINT FUND .................... $[ ]
NASCAR TELEVISION FEE ...................................... [ ]
-----------
TOTAL ...................................................... $[ ]
EX-10.11
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECRETARY OF THE COMMISSION PURSUANT TO REGISTRANT'S APPLICATION OBJECTING
TO DISCLOSURE AND REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 406. THE
OMITTED PORTIONS HAVE BEEN MARKED WITH BRACKETS.
SANCTION APPLICATION AND AGREEMENT FORM
NASCAR WINSTON CUP SERIES
INSTRUCTIONS:
(1) All NASCAR Winston Cup Series Championship Events for which
PROMOTER seeks a NASCAR sanction must be listed in a single application
form. Please sign the original and forward to NASCAR; upon acceptance and
approval by NASCAR, a copy will be returned to the PROMOTER.
(2) PROMOTER" means the individual, partnership, corporation, joint
venture or other entity that, in connection with the Event (as defined
below), is ultimately responsible (financially and otherwise) for the
organization and promotion of the Event and the facility at which the event
is to be run. If two or more entities are acting together in such
capacity, both should be listed as "PROMOTER" and the authorized officer of
each should sign this form.
(3) This form when signed by the PROMOTER is only an application
for a NASCAR sanction. NASCAR is under no obligation to accept or approve
the application. Upon being accepted and approved in writing by NASCAR,
this form becomes an agreement binding on both parties.
(4) Application for a NASCAR Winston Cup Series Championship Event
must be received at NASCAR no later than ten business days after the
PROMOTER receives this form from NASCAR.
***************
The undersigned PROMOTER, designated below, applies to the National
Association for Stock Car Auto Racing, Inc. ("NASCAR") for a NASCAR
sanction to organize and promote a NASCAR-sanctioned NASCAR Winston Cup
Series Championship Event(s) in accordance with the terms and conditions
set forth hereafter, as follows:
<PAGE>
EVENT NUMBER 1
PROMOTER: Dover Downs International Speedway, Inc.
----------------------------------------
ADDRESS: P.O. Box 843 Dover DE 19903
----------------------------------------
(STREET) (CITY) (STATE) (ZIP)
NAME OF EVENT: MILLER GENUINE DRAFT "5OO"
----------------------------------------
TRACK: Dover Downs International Speedway
----------------------------------------
LOCATION: Dover, DE
-----------------------
(City & State)
TRACK LENGTH: 1 Mile, Paved
-----------------------
DATE OF EVENT: June 2, 1996
-----------------------
POSTPONED DATE: Next Raceable Day
-----------------------
TELEPHONE #: (302) 674-4600
-----------------------
EVENT DISTANCE: 500 Miles (500 Laps)
-----------------------
STARTING TIME: 12:10 p.m.
-----------------------
TIME TRIAL DATE(S) AND HOURS: PRACTICE DATE(S) AND HOURS:
Fri., May 31 - Per Entry Blank Fri., May 31 - Per Entry Blank
- ------------------------------ ------------------------------
Sat., June 1 - Per Entry Blank Sat., June 1 - Per Entry Blank
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
REGISTRATION & INSPECTION - Fri., May 31 - Per Entry Blank
- ------------------------------ ------------------------------
MINIMUM PROMOTER'S PURSE
AND POINT FUND TOTAL
(See Exhibit 2): $[ ]
-------------
PAYMENT DATE 12 Noon on
(See Exhibit 1, Para. 19): May 22, 1996
-------------
SANCTION REE: $[ ]
-------------
INSURANCE NOTIFICATION DATE
(See Exhibit 1, Para. 20): May 22, 1996
-------------
Sanction Application and Agreement Form
Page 2 of 4
<PAGE>
EVENT NUMBER 2
PROMOTER: Dover Downs International Speedway, Inc.
----------------------------------------
ADDRESS: P.O. Box 843 Dover DE 19903
----------------------------------------
(STREET) (CITY) (STATE) (ZIP)
NAME OF EVENT: MBNA "500"
----------------------------------------
TRACK: Dover Downs International Speedway
----------------------------------------
LOCATION: Dover, DE
-----------------------
(City & State)
TRACK LENGTH: 1 Mile, Paved
-----------------------
DATE OF EVENT: September 15, 1996
-----------------------
POSTPONED DATE: Next Raceable Day
-----------------------
TELEPHONE #: (302) 674-4600
-----------------------
EVENT DISTANCE: 500 Miles (500 Laps)
-----------------------
STARTING TIME: 12:10 p.m.
-----------------------
TIME TRIAL DATE(S) AND HOURS: PRACTICE DATE(S) AND HOURS:
Fri., September 13 - Per Entry Blank Fri., September 13 - Per Entry Blank
- ------------------------------------ ------------------------------------
Sat., September 14 - Per Entry Blank Sat., September 14 - Per Entry Blank
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
REGISTRATION & INSPECTION - Fri., September 13 - Per Entry Blank
- ------------------------------------ ------------------------------------
MINIMUM PROMOTER'S PURSE
AND POINT FUND TOTAL
(See Exhibit 2a): $[ ]
-----------------
PAYMENT DATE 12 Noon on
(See Exhibit 1, Para. 19): September 4, 1996
-----------------
SANCTION REE: $[ ]
-----------------
INSURANCE NOTIFICATION DATE
(Exhibit 1, Para. 20): September 4, 1996
-----------------
Sanction Application and Agreement Form
Page 3 of 4
<PAGE>
Upon written acceptance and approval of the above application, in
consideration for the mutual promises set forth herein, NASCAR and the PROMOTER
agree as follows:
(1) NASCAR hereby grants its sanction to PROMOTER for the Event(s)
listed, and NASCAR agrees to conduct the Event(s), through its officers and
designated officials, in accordance with the NASCAR Winston Cup Series Rule
Book, as it may be amended from time to time, any special rules that may be
published by NASCAR specifically for the Event(s), and this agreement.
Interpretation and application of the NASCAR Winston Cup Series Rule Book, as it
may be amended from time to time, and any special rules that may be published by
NASCAR specifically for the Event(s), are committed to NASCAR's sole discretion,
and are final and unreviewable except as provided in the NASCAR Winston Cup
Series Rule Book.
(2) Exhibits 1, 2 and 2a, attached hereto, are incorporated herein and
made a part of this agreement.
(3) NASCAR will retain for its own account all inspection fees.
(4) Additional Provisions:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Submitted this _______________ day of ________________, 19____________.
- --------------------------------------------------------------------------------
(Promoter)
By: /s/ Denis McGlynn President
--------------------------------- ------------------------------------
(an authorized officer) (title)
Witnessed By: Gen. Manager
----------------------- ------------------------------------
(title)
Accepted and Approved this 8th day of January , 1996.
----------- ------------------------- ---
National Association for Stock Car Auto Racing, Inc.
By: /s/ Michael G. Helton Vice President of Competition
--------------------------------- ------------------------------------
(an authorized officer) (title)
Witnessed By: Dawn K. Brown Admin. Assistant
----------------------- ------------------------------------
(title)
Sanction Application and Agreement Form
Page 4 of 4
<PAGE>
EXHIBIT 1
To Sanction Application and Agreement Form
NASCAR and PROMOTER agree as follows:
DEFINITIONS
(1) "Event" means the Event(s) designated in the Sanction Application
and Agreement Form, as well as all periods for registration, inspections, time
trials, practice runs, post-race inspections and postponed dates related
thereto. Whenever the word "Event" appears in the singular, it shall apply to
all Events designated on the Sanction Application and Agreement Form, unless the
context requires otherwise. All provisions in the Sanction Application and
Agreement Form and in Exhibits 1, 2 and 2a apply to the Event(s) designated in
the Sanction Application and Agreement Form, unless the context requires
otherwise.
(2) "Additional Award" as used herein includes any monetary or non-
monetary award by, or contracted through, the PROMOTER, for distribution based
upon the Event(s), other than (a) purse, (b) point fund, (c) Winner's Circle and
Plan awards, (d) television income and (e) the entry award for the current
NASCAR Winston Cup Series Champion. PROMOTER understands and acknowledges that
the above-listed awards may or may not be applicable to or available in
connection with the Event, and that NASCAR makes no representation as to the
availability or amounts of such awards.
(3) "Television Income" as used herein, means all monies and things of
value received by PROMOTER as a result of and in connection with any television
contract(s), including but not limited to payments received from networks,
stations, packages, brokers, advertisers, advertising agencies, and the like. In
computing all monies and things of value received, it is intended that the gross
amount set forth in all television contract(s) as payable by the other
contracting entity or entities shall be included and that any applicable
commissions, fees or expenses paid to or deducted by sales agents, consultants
and other parties shall not be deducted therefrom.
(4) "Television Contract", as used herein, means any contract,
agreement or understanding, whether oral or written, entered into between
PROMOTER and any other entity or entities, whether or not they are broadcasters,
for the sale, assignment or other transferral of the rights of PROMOTER in the
live or delayed televised broadcast of, rebroadcast of, tape or film production
of, and/or any other use of, the Event, whether by cable TV, pay TV, theater TV,
video tape cassettes, and/or satellite transmissions, worldwide.
PROMOTER'S GENERAL OBLIGATIONS
(5) PROMOTER warrants to NASCAR that in connection with the Event it
has sole control of the racetrack, the premises upon which the racetrack is
located and surrounding same, and all facilities thereon, that it has obtained
all necessary licenses, permits or other approvals required, and that it has
full authority to conduct the Event at the racetrack pursuant to the terms of
this agreement. PROMOTER further warrants that it will comply with all local,
state and federal laws and regulations in connection with the organization and
promotion of the Event. PROMOTER, at its expense, will make all appropriate
filings of forms or other documents as required by federal, state or local laws.
(6) PROMOTER at its expense assumes sole responsibility for furnishing
the racetrack, the premises upon which the racetrack is located and surrounding
same, and all facilities thereon in good repair, ready for use by competitors
and officials. PROMOTER is solely responsible and liable for the safety of such
competitors and officials which on, entering or leaving such racetrack, premises
and facilities. PROMOTER warrants that the racetrack, premises and facilities
are and will remain in a condition suitable for the conduct of the Event, and
that the racing surface of the track will not be altered, resurfaced or
otherwise substantially changed during the term of this Agreement without the
express written consent of NASCAR. PROMOTER will provide NASCAR or its
designated representative full access to the racetrack, premises and facilities
as requested by NASCAR during the term of this Agreement.
{7) If NASCAR in its sole discretion determines that the racetrack, the
premises or any facilities are in unsatisfactory condition, PROMOTER agrees to
repair or resurface the racetrack and to repair the premises or facilities, at
PROMOTER's expense and to the satisfaction of NASCAR prior to any
NASCAR-sanctioned Event. If NASCAR in its sole discretion determines that it is
necessary to resurface the racetrack, such resurfacing shall be completed by
PROMOTER with adequate time prior to the Event to allow for tire and private car
testing. If NASCAR in its sole discretion determines that there is insufficient
time to place the racetrack in a condition suitable for the conduct of the
Event, NASCAR in its sole discretion may postpone or cancel the Event.
<PAGE>
(8) PROMOTER at its expense will furnish adequate facilities,
personnel, equipment and services for accommodating and controlling the public
during the Event. PROMOTER is solely responsible and liable for the safety of
the public during the Event. PROMOTER is solely responsible for the condition,
actions and operations of such facilities, personnel, equipment and services
before, during and after the Event.
(9) PROMOTER at its expense will furnish adequate facilities, support
personnel, equipment, and related security, for use by NASCAR in the performance
of NASCAR's duties, as they may be requested by NASCAR from time to time,
including but not limited to facilities for office administration, registration,
timing, scoring, car inspection, race direction, officiating and prize money
distribution. Without in any way limiting the foregoinq, PROMOTER at its expense
will:
a. provide one or more television monitors, in locations to be
specified by NASCAR, with all related equipment necessary for such monitors to
be connected to video and audio equipment used by the television producer under
contract for the Event, in order to provide to NASCAR Officials live video on
such monitors and the ability to switch instantaneously its view on the monitors
among the different camera locations used by the television producer, at all
times during the Event when all or a portion of the Event is being videotaped,
broadcast, monitored and/or recorded;
b. provide NASCAR with two (2) pace vehicles, each with the NASCAR logo
(as set forth under paragraph 21 below) displayed on the side in a manner and
size which is visible to all persons on the racetrack, in the viewing area and
in all locations where NASCAR Officials are visually monitoring the Event;
c. provide NASCAR prior to the Event with a list of the track radio
frequencies to be used for the Event, including but not limited frequencies to
be used for maintenance, police and security personnel;
d. cooperate with NASCAR in pre-race and victory lane ceremonies,
awards presentations and photographs;
e. have readily available quantities of oil dry acceptable to NASCAR
when the track opens for practice and at all other times during the Event, and
adequate personnel to spread the oil dry at NASCAR's direction;
f. certify and recertify the scales as requested by NASCAR upon arrival
for the first day of inspection and at all other times during the Event, and
provide written certifications to the NASCAR Winston Cup Series Director as to
the results of the certifications;
g. provide personnel to secure the entry into the pits and garage areas
during competition periods;
h. provide personnel to secure the garage area on a continuous,
24-hour/day basis beginning the first day the track is open for inspection and
ending when released by NASCAR Winston Cup Series Director;
i. deliver to the garage area before the morning of raceday twice the
number of chairs as cars starting in the race for use by drivers and crew chiefs
at pre-race meeting;
j. line and number each pit with appropriate paint, line and paint
traffic lanes in the garage and qarage area when and where needed, and repaint
all start/finish, scoring, third turn and re-entry cutoff lines;
k. place portable toilets along pit road and in the garage area as
directed by NASCAR;
l. coordinate with NASCAR all tours of the garage areas, including the
times, number of participants and other arrangements;
m. provide adequate electricity (including without limitation 220 volts
50 amps services with female range outlets for the NASCAR trailers), air
conditioning, heat, telephone (including a track phone extension) and water
facilities as requested by NASCAR;
n. coordinate with NASCAR to ensure that it has a minimum of ten (10)
minutes immediately before, during or after driver introductions for NASCAR
awards presentations;
o. coordinate with NASCAR to ensure that it has a reasonable period of
time immediately following the Event for victory lane ceremonies, awards
presentations and sponsor recognitions;
p. provide a control tower of adequate size with electricity, air
conditioning, heat, telephone (including a track phone extension), chairs with
cushions, a television monitor (as set forth above), water facilities and other
utilities, supplies and equipment as requested by NASCAR;
q. provide a registration facility of adequate size outside the track
and in the garage area, with electricity, air conditioning, heat, telephone
(including a track phone extension), chairs with cushions, water facilities and
other utilities, supplies and equipment as requested by NASCAR;
r. provide adequate trash receptacles in the qarage and pit area and
coordinate with the NASCAR Winston Cup Series Director the times for trash pick
up by track personnel;
s. provide adequate personnel to sweep and clean-up the garage and pit
areas on a daily basis;
t. provide adequate parking areas for all competitors (including car
owners, drivers and crew members) and NASCAR Officials adjacent to or near
garage area;
Exhibit 1 to Sanction Application and Agreement Form
Page 2 of 7
<PAGE>
u. provide NASCAR with a track suite, including the customary number of
admission tickets for admission to said suite, and 100 grandstand general
admission tickets, such tickets to be delivered to NASCAR no later than thirty
(30) days prior to the Event.
(10) PROMOTER at its expense will provide adequate facilities,
personnel, equipment and services for, and assumes sole responsibility to
provide, fire protection equipment and on-site medical services for competitors,
officials, the public and others, including without limitation cleanup crews,
towing and flatbed wreckers. PROMOTER at its expense will make advance
arrangements with local hospitals and physicians for the prompt and efficient
treatment of any and all injuries occurring during the Event.
(11) PROMOTER at its expense will furnish adequate security personnel
(in addition to the requirements of paragraph 9) in the pit and garage area, and
will limit access to such areas before, during and after the Event to authorized
individuals and equipment. PROMOTER is solely responsible and liable for the
actions of security personnel.
(12) PROMOTER at its expense assumes and will perform all business
responsibilities in connection with the Event (except as otherwise provided by
this Agreement), including, but not limited to business organization,
promotional activities, management, general business affairs, ticket sales,
track operation and press accommodations. NASCAR does not warrant, either
expressly or by implication, nor is it responsible for, the financial or other
success of the Event or the number or identity of vehicles or competitors
participating in the Event.
(13) PROMOTER will not schedule or permit any private race car practice
or test runs for the seven days immediately preceding the first day of official
practice for the Event without prior written approval by NASCAR. PROMOTER will
not schedule any ancillary events or activities on the same day as registration
or inspection, or on any days during the Event, without prior written approval
by NASCAR. The ancillary events or activities covered by this paragraph include
without limitation other motorsports events, thrill shows, live performances
and/or helicopter rides. PROMOTER further agrees to notify NASCAR of any private
race car testing and/or practice done at the racetrack pursuant to and in
accordance with the 1996 NASCAR Winston Cup Series Private Race Car Testing
Policy.
OFFICIAL ENTRY BLANK
(14) An Official Entry Blank for the Event will be composed, printed,
published and distributed by NASCAR, and will constitute the sole official
statement as to the date, place, schedule and length of the Event, eligibility
requirements for competitors, and monetary and non-monetary awards.
(15) PROMOTER will notify NASCAR prior to contracting for any
Additional Award. NASCAR may reject a proposed Additional Award in its entirety,
require different terms for the proposed Additional Award, or require a
reallocation of the distribution of such an award among competitors, if in
NASCAR's sole judgment the proposed award will not advance the nature of the
competition, will have an adverse impact on the Event, or will be detrimental to
the sport of automobile racing, NASCAR, any sponsors of the Event, or any
sponsors of the NASCAR Winston Cup Series. NASCAR's determination in that regard
will be binding on PROMOTER. PROMOTER assumes full responsibility for, and will
indemnify NASCAR against, any liability or costs incurred as a result of
NASCAR's determination with respect to any proposed award arranged by or through
PROMOTER. All Additional Awards are subject to independent verification by
NASCAR.
(16) PROMOTER will aubmit to NASCAR, no later than sixty (60) calendar
days before the date of the Event, a list of any and all proposed Additional
Awards (as defined above) for the Event not previously included in Exhibit 2 and
Exhibit 2a of this Agreement. If either PROMOTER or NASCAR contracts tor
Additional Awards after publication of the Official Entry Blank, NASCAR in its
sole discretion may publiah and distribute a supplement to the Official Entry
Blank posting the Additional Awards.
(17) PROMOTER will not publish an official or unofficial entry blank or
supplement, or any other form setting forth monetary or non-monetary awards,
without prior written approval from NASCAR. PROMOTER will not advertise or
otherwise disseminate any information as to monetary or non-monetary awards for
the Event other than those specified in the Official Entry Blank or
NASCAR-approved supplement.
(18) NASCAR will use its best efforts to consult with the PROMOTER
regarding postponement of an Event, but the decision to postpone an Event and
the selection of the postponed date will be made by NASCAR in its sole
Exhibit 1 to Sanction Application and Agreement Form
Page 3 of 7
<PAGE>
discretion and will be binding on NASCAR. Publication by Promoter of a
postponement and/or postponed date that has not been approved by NASCAR is not
binding upon NASCAR.
PROMOTER'S FINANCIAL AND INSURANCE OBLIGATIONS
(19) PROMOTER will pay to NASCAR at Daytona Beach, Florida, not later
than the Payment Date set forth in the Sanction Application and Agreement Form,
by wire transfer of funds, an amount equal to the sum of the PROMOTER's Purse
and Point Fund and the Sanction Fee, plus any other monies due NASCAR for the
Event pursuant to this agreement, unless otherwise directed by NASCAR in
writing. Time is of the essence. If said monies and fees are not paid to NASCAR
in the manner and by the Payment Date, NASCAR at its option may (a) cancel and
rescind this Agreement, or (b) enforce collection of said monies and fees by
suit or action, in which case PROMOTER will pay all costs incurred by NASCAR in
connection therewith, including reasonable attorney's fees.
(20) PROMOTER at its expense will obtain and maintain public
liability insurance for the Event that is acceptable to NASCAR, with a
minimum combined single limit of $10,000,000.00 per occurrence, for (i)
spectator injury and property damage and (ii) PROMOTER's legal, pit, track
and product liability. In the event that PROMOTER cannot obtain such
insurance with $10,000,000.00 per occurrence limits, PROMOTER shall obtain
and maintain such insurance at the highest available per occurrence limit,
but in no event shall PROMOTER obtain such insurance with a per occurrence
limit (for all categories of liability specified above) less than
$5,000,000.00. PROMOTER will deliver to NASCAR at Daytona Beach, Florida no
later than the Notification Date set forth in the Sanction Application and
Agreement Form, a certified true copy of all public liability insurance
policies in force for the Event, regardless of the total amount of
coverage. In all such policies and in all other public liability policies
obtained and maintained by the PROMOTER or PROMOTER'S parent, the following
will be named as insured or additional insured: National Association for
Stock Car Auto Racing, Inc., its shareholders, directors, officers,
employees, agents, officials, and members; all drivers, car owners, car
sponsors, mechanics, and all sponsors for the Event or the series of which
the Event is a part. All policies shall also contain a cross liability
endorsement acceptable to NASCAR. If PROMOTER fails to deliver such
policies to NASCAR by the date provided, or if PROMOTER fails to maintain
such policies with the required minimum coverage throughout the Event,
NASCAR may cancel and rescind this Agreement immediately and without notice
to the PROMOTER. If the policy or policies are not acceptable to NASCAR,
then NASCAR may obtain the required insurance from an acceptable insurance
company, with acceptable terms, at the PROMOTER's expense.
ADVERTISING AND USE OF REGISTERED MARK
(21) Each party authorizes the use of its name and registered mark by
the other for the publicizing, promoting or advertising of the Event. The NASCAR
name and registered mark will only be used as follows:
[NASCAR logo]
The symbol(R) will appear as indicated with the NASCAR logo. In all
advertising and promotion relating to the Event, including, but not limited to
news releases, advertisements and brochures, PROMOTER will display the
registered trademark and the phrase "NASCAR-sanctioned NASCAR Winston Cup Series
Championship Event".
(22) To the extent that any and all Car Owners and Drivers, either
collectively or individually and pursuant to the NASCAR Official Entry Blank
executed by them, release to NASCAR rights to their name(s), picture(s),
likeness(es) or performance(s), NASCAR hereby assiqns to PROMOTER the
non-exclusive use of each and every Car Owner's and Driver's name(s),
picture(s), likeness(es) or performance(s) for the purpose of publicizing,
promotinq or advertising the Event.
(23) PROMOTER will make no misrepresentations of fact in connection
with publicizing, promoting or advertising the Event. If such a
misrepresentation is made (a) the PROMOTER promptly will correct the
misrepresentation through a subsequent PROMOTER publication, (b) NASCAR may
correct the misrepresentation itself through NASCAR publication at PROMOTER's
expense and/or (c) NASCAR may cancel and rescind this Agreement.
(24) PROMOTER acknowledges that the Event is part of the NASCAR Winston
Cup Series. PROMOTER will cooperate fully with NASCAR, with the series
sponsor(s), and with any other company that has contracted with
Exhibit 1 to Sanction Application and Agreement Form
Page 4 of 7
<PAGE>
NASCAR to sponsor awards or programs (including without limitation the
Busch Beer Pole Award or the Rookie-of-the-Year Award) that are based in
whole or in part on a competitor's performance in the Event or over a
number of NASCAR Winston Cup Series events, in connection with those
sponsors' activities, if any, during the Event. PROMOTER will take no
action that, in NASCAR's sole judgement, will jeopardize the maintenance or
continuation of such sponsorships.
(25) PROMOTER acknowledges that the sale or use, for advertising
purposes, of space at the racetrack, the premises upon which the racetrack is
located and surrounding same, the facilities thereon, or in any publications
distributed in connection with the Event, is an action that could have an impact
upon the existing sponsorships described in paragraph 24 above. Such sale to or
use by competitors of such sponsors shall be subject to prior written approval
by NASCAR, which NASCAR may provide or withhold in its sole discretion.
(26) NASCAR reserves the right to approve or disapprove any
advertising, sponsorship or similar agreement in connection with any Event.
(27) PROMOTER will use the NASCAR NATIONAL PROGRAM PACKAGE, if provided
by NASCAR.
TELEVISION AND SIMILAR RIGHTS
(28) PROMOTER will pay to NASCAR at Daytona Beach, Florida not later
than the Payment Date set forth in the Sanction Application and Agreement Form,
or within twenty-four (24) hours of the consummation or execution of the
television contract (whichever occurs later), by wire transfer, ten percent
(10%) of all television income received or contracted to be received (whichever
is greater) by the PROMOTER in connection with the Event.
(29) In addition to the sum to be paid in accordance with paragraph 28,
PROMOTER will pay into the NASCAR event purse trust account, not later than the
Payment Date set forth in the Sanction Application and Agreement Form, or within
twenty-four (24) hours of the consummation or execution of the television
contract (whichever occurs later), by wire transfer, twenty-five percent (25%)
of all' television income received or contracted to be received (whichever is
greater) by the PROMOTER in connection with the Event.
(30) PROMOTER will maintain for a period of six years from the date of
the Event (1) true and complete copies of any written television contract, any
document evidencing such contract, and any document relating to such contract,
and (2) accurate and complete records of all receipts and disbursements of
television income received in connection with the Event. PROMOTER will permit
NASCAR or its authorized agent at all reasonable times to request, receive,
inspect and audit any or all such records and documents, wherever they may be
located or any mutually agreeable location. PROMOTER will forward to NASCAR upon
its execution true and complete copies of any written television contract.
(31) PROMOTER will require, in any new or renewed television contract,
the following language (or language having the same legal and practical effect):
"The parties hereto agree to defer to the requests of NASCAR or its
authorized agent in the placement and use of television cameras, crews,
supporting equipment and personnel, and in the establishment of the
starting time, for the Event."
"Parties hereto agree to permit NASCAR or its authorized agent at all
reasonable times, to request, and receive, true and complete copies of
any written television contract, any document evidencing much contract,
and any document relating to such contract."
(32) PROMOTER, at no expense to NASCAR, will provide NASCAR in any new
or renewed television contract, for NASCAR's exclusive use, two (2)
thirty-second (30) commercial advertising segments, not to be resold by NASCAR.
(33) If the television contract, after its publication in any form,
becomes or is found to be unenforceable or is not performed by one or all
parties thereto for any reason other than those mentioned in paragraph 34 below,
the PROMOTER will perform its obligations as set forth herein as if the
television contract were fully enforceable and in fact fully performed.
(34) If the Event or the performance of the television contract is
prevented or postponed due to an act of God, force majeure, inevitable accident,
strike or other labor dispute, fire, riot or civil commotion, government action
or
Exhibit 1 to Sanction Application and Agreement Form
Page 5 of 7
<PAGE>
decree, inclement weather, failure of technical facilities beyond the control of
the broadcaster, the recapture of any time period scheduled for the live
broadcast of the Event for an event of national importance or emergency, or for
any similar reason beyond the control of the parties to this Agreement or to the
television contract the PROMOTER will perform its obligations as set forth
herein, except that the monies due under paragraphs 28 and 29 shall be the
respective percentages of television income actually received. If any monies in
excess of those due under this paragraph have been paid before the prevention or
postponement of the Event as set forth in this paragraph, NASCAR will refund the
excess to the PROMOTER within thirty (30) days of the prevention or the delayed
staging of the Event.
(35) NASCAR is granted the rights to use Event audio, video,
information and other digital data for purposes of news related distribution via
the Internet or other private and public online services authorized by NASCAR.
GENERAL PROVISIONS
(36) The Event will be conducted in accordance with the NASCAR Winston
Cup Series Rule Book, as it may be amended from time to time, any special rules
that may be published by NASCAR specifically for the Event, and this Agreement.
NASCAR may cancel or rescind this Agreement if NASCAR determines in its sole
discretion that PROMOTER has failed to abide by the provisions of this
Agreement, the NASCAR Winston Cup Series Rule Book, amendments thereto, or any
special rules as set forth herein. Notice to PROMOTER is effective as set forth
in paragraph 44.
(37) PROMOTER's rights and obligations under this Agreement, and the
sanction given pursuant to it, are not transferable or assignable.
(38) This Agreement and the sanction granted herein relate solely to
the Event(s) and the date or dates set forth on the Sanction Application and
Agreement Form. Nothing in this Agreement, or in the course of dealing between
the parties, will be construed to require the PROMOTER or NASCAR to enter into a
sanction agreement or to issue a sanction for this or any other Event in the
future.
(39) Nothing in this Agreement will be construed to place NASCAR in the
relationship of a partner or joint venturer with the PROMOTER. The PROMOTER will
not, and has no power to, obligate or bind NASCAR in any manner other than as
provided expressly in this Agreement.
(40) If an Event is postponed or cancelled for any reason (other than a
strike, war, declaration of a state of national emergency, act of God or the
public enemy, or any other cause beyond the control of the PROMOTER) without
either (1) the prior written approval of NASCAR, or (2) during the Event, the
prior oral approval of the NASCAR Official in charge of the Event, or if NASCAR
cancels and rescinds this Agreement pursuant to paragraphs 19, 20, 23 or 36,
NASCAR may elect to retain all or any part of the PROMOTER's Purse and Point
Fund, and other fees and monies received by NASCAR pursuant to this Agreement,
and to utilize the same to reimburse, in whole or in part, NASCAR as well as the
drivers and car owners, and each of them, in connection with the Event, which
include but are not limited to salaries, transportation, lodging, and payments
to the pit crew. NASCAR's determination as to what is or is not a proper expense
or as to the manner or the amount of disbursement or as to whom disbursement is
made in this regard is binding on the PROMOTER, as well as on all drivers and
car owners entered in the Event. Nothing in this paragraph or in paragraphs 19,
20, 23 or 36 shall be construed to limit or otherwise affect any right of action
by NASCAR for damages, or any other available remedy, for breach of this
Agreement.
(41) NASCAR may modify, alter, change or replace the name of the
series of which the Event is a part, at any time. In that event, PROMOTER shall
use the new name in all communications, advertising, marketing and promotion
relating to the Event.
(42) In the event of litigation arising out of the enforcement of this
Agreement, its terms and conditions, attorney's fees and costs shall be awarded
to the prevailing party.
(43) PROMOTER shall indemnify and hold NASCAR harmless from any and all
claims, allegations, demands, obligations, suits, actions, causes of action,
proceedings, rights, damages, and costs of any nature arising out of the Event,
unless such claim, allegation, demand, obligation, suit, action, cause of
action, proceeding, right, damage or cost arises solely out of the act or
omission of NASCAR. With respect to any matter falling within the scope of the
PROMOTER's obligation to defend and hold NASCAR harmless, NASCAR shall be
entitled to select counsel to represent it in such matter at PROMOTER's expense,
and that counsel's duties and obligations in all respects shall be to NASCAR.
Exhibit 1 to Sanction Application and Agreement Form
Page 6 of 7
<PAGE>
(44) Unless otherwise permitted herein, notice required by the
Agreement shall be given by overnight mail or by registered mail, postage
prepaid, addressed as follows:
TO NASCAR: National Association for Stock Car Auto Racing, Inc.
P.O. Box 2875
Daytona Beach, Florida 32120-2875
TO PROMOTER: The Address set forth immediately below the name of
the PROMOTER first listed in the Sanction Application
and Agreement Form.
(45) This agreement shall be construed according to the laws of Florida
and may not be amended except in writinq and signed by both parties. Venue shall
lie solely in Volusia County, Florida, and all parties hereto consent to service
of process by, and the personal and subject matter jurisdiction of, the courts
in and for Volusia County, Florida.
(46) The Sanction Application and Agreement Form, including Exhibits 1,
2 and 2a thereto, constitutes the entire agreement between NASCAR and the
PROMOTER. All previous communications and negotiations between NASCAR and the
PROMOTER, whether oral or written, not contained herein are hereby withdrawn and
annulled.
End of Exhibit 1
* * *
Exhibit 1 to Sanction Application and Agreement Form
Page 7 of 7
<PAGE>
EXHIBIT 2
TO SANCTION APPLICATION AND AGREEMENT FORM FOR THE
MILLER GENUINE DRAFT "500"
NASCAR and PROMOTER agree as follows:
RACING PURSE ............................................. $[ ]
TIME TRIALS .............................................. [ ]
NASCAR POINT FUND ........................................ [ ]
NASCAR WINSTON CUP SERIES CHAMPION ....................... [ ]
NASCAR WINSTON CUP SERIES PLAN 1 ......................... [ ]
NASCAR WINSTON CUP SERIES PLAN 1c ........................ [ ]
WINNERS' CIRCLE AWARDS ................................... [ ]
TELEVISION AWARDS ........................................ [ ]
-------------
MINIMUM PROMOTER'S PURSE AND POINT FUND .................. $[ ]
NASCAR TELEVISION FEE .................................... [ ]
-------------
TOTAL .................................................... $[ ]
<PAGE>
EXHIBIT 2a
TO SANCTION APPLICATION AND AGREEMENT FORM FOR THE
MBNA "500"
NASCAR and PROMOTER agree as follows:
RACING PURSE ............................................. $[ ]
TIME TRIALS .............................................. [ ]
NASCAR POINT FUND ........................................ [ ]
NASCAR WINSTON CUP SERIES CHAMPION ....................... [ ]
NASCAR WINSTON CUP SERIES PLAN 1 ......................... [ ]
NASCAR WINSTON CUP SERIES PLAN 1c ........................ [ ]
WINNERS' CIRCLE AWARDS ................................... [ ]
TELEVISION AWARDS ........................................ [ ]
------------
MINIMUM PROMOTER'S PURSE AND POINT FUND .................. [ ]
NASCAR TELEVISION FEE .................................... [ ]
------------
TOTAL .................................................... [ ]
EXHIBIT 21.1
SUBSIDIARIES OF
DOVER DOWNS ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
Other States
Qualified To Do
Name of Subsidiary State of Incorporation Business
------------------ ---------------------- -------------
<S> <C> <C>
Dover Downs, Inc. Delaware None
Dover Downs International Speedway, Inc. Delaware None
Dover Downs Properties, Inc. Delaware None
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of our report dated July 10, 1996 relating
to the financial statements of Dover Downs Entertainment, Inc., which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Siegfried Schieffer & Seitz has not prepared
or certified such "Selected Consolidated Financial Data."
/s/Siegfried Schieffer & Seitz
- ------------------------------
SIEGFRIED SCHIEFFER & SEITZ
Wilmington, DE
July 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 98
<SECURITIES> 3,300
<RECEIVABLES> 1,066
<ALLOWANCES> 0
<INVENTORY> 115
<CURRENT-ASSETS> 4,942
<PP&E> 31,493
<DEPRECIATION> 12,393
<TOTAL-ASSETS> 24,042
<CURRENT-LIABILITIES> 8,924
<BONDS> 675
0
0
<COMMON> 1,372
<OTHER-SE> 12,748
<TOTAL-LIABILITY-AND-EQUITY> 24,042
<SALES> 17,408
<TOTAL-REVENUES> 17,408
<CGS> 0
<TOTAL-COSTS> 8,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 7,090
<INCOME-TAX> 2,847
<INCOME-CONTINUING> 4,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,243
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,521
<SECURITIES> 0
<RECEIVABLES> 2,145
<ALLOWANCES> 0
<INVENTORY> 356
<CURRENT-ASSETS> 7,542
<PP&E> 49,340
<DEPRECIATION> 13,743
<TOTAL-ASSETS> 43,139
<CURRENT-LIABILITIES> 18,422
<BONDS> 771
0
0
<COMMON> 1,393
<OTHER-SE> 22,230
<TOTAL-LIABILITY-AND-EQUITY> 43,139
<SALES> 49,721
<TOTAL-REVENUES> 49,721
<CGS> 0
<TOTAL-COSTS> 31,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 15,493
<INCOME-TAX> 6,182
<INCOME-CONTINUING> 9,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,311
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
