SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1998 or
/___/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission file number 1-11929
DOVER DOWNS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0357525
(State of Incorporation) (I.R.S. Employer Identification Number)
1131 North DuPont Highway, Dover, Delaware 19901
(Address of principal executive offices)
Registrant's telephone number including area code (302) 674-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which registered
Common Stock, $.10 Par Value NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /___/
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $162,220,350.00 as of July 31, 1998.
As of July 31, 1998, the number of shares of each class of the
Registrant's common stock outstanding is as follows:
Common Stock - 5,517,179 shares
Class A Common Stock - 12,249,380 shares
The following documents are incorporated by reference:
Document Part of this form
into which incorporated
Proxy Statement in connection with
Annual Meeting of Shareholders to be
held October 30, 1998 III
ITEM 1. BUSINESS
Dover Downs Entertainment, Inc. (Dover Downs or the Company) owns and
operates Dover Downs International Speedway, 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 825 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- and IRL-sanctioned auto
racing events. Dover Downs Raceway offers traditional pari-mutuel
harness horse racing and year-round satellite-linked pari-mutuel
wagering on simulcast harness and thoroughbred horse racing from
regional and national tracks. The Company also simulcasts live races
at Dover Downs to tracks and other off-track betting locations across
North America. The Company expanded into video lottery (slot) machine
gaming in December of 1995. The video lottery operations are managed
by Caesars World Gaming Development Corporation (Caesars).
Dover Downs offers a unique gaming and entertainment experience at its
Dover, Delaware facility. Management believes it to be the only
facility in the country that combines in one location NASCAR Winston
Cup/Busch Series stock car racing, Indy car racing, harness horse
racing, pari-mutuel wagering on both live and simulcast horse races,
and video lottery (slot) machine gaming.
The Company also operates Nashville Speedway USA, the motorsports
facility at the Tennessee State Fairgrounds in Nashville, Tennessee.
Effective July 1, 1998, the Company also operates the Toyota Grand Prix
of Long Beach, the second largest Indy race in the country, run in the
streets of Long Beach, California, and owns and operates permanent
motorsports facilities in Madison, Illinois (near St. Louis) and
Millington, Tennessee (near Memphis). NASCAR-sanctioned events, as
well as events from many other sanctioning bodies (including CART and
NHRA), are held at these facilities.
(a) General Development of Business
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of Nashville Speedway USA, Inc. for $3,000,000. Nashville
Speedway USA, Inc. operates and promotes several NASCAR-sanctioned
events at the motorsports facility at the Tennessee State Fairgrounds
in Nashville, Tennessee.
The Company and Grand Prix Association of Long Beach, Inc. ("Grand
Prix") entered into an Agreement and Plan of Merger on March 26, 1998,
pursuant to which Grand Prix became a wholly owned subsidiary of the
Company as of July 1, 1998.
The merger was structured as a tax-free exchange and was accounted for
using the purchase method of accounting for business combinations
whereby each shareholder of Grand Prix received .63 shares of common
stock of Dover Downs Entertainment, Inc. for each share of common stock
of Grand Prix owned by such shareholder.
The Company purchased 680,000 shares of common stock of Grand Prix from
two non-management shareholders in March of 1998 for $10,540,000.
On March 26, 1998, legislation permitting a maximum of 2,000 video
lottery (slot) machines at any of the currently licensed facilities and
eliminating the sunset provision for the video lottery operation was
passed by the Delaware Senate and subsequently signed into law by the
Governor.
(b) Financial Information About Industry Segments.
The Company's principal operations are grouped into two segments:
motorsports and gaming. Financial information concerning these
businesses is included on pages 8 through 12 and page 30 of this 1998
Annual Report on Form 10-K.
(c) Narrative Description of Business
Motorsports
Dover Downs has presented NASCAR-sanctioned racing events for 30
consecutive years. The Company currently conducts four major NASCAR-
sanctioned events annually at Dover Downs International Speedway. 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.
Each of the Busch Series events at the Company's tracks is conducted on
the day before a Winston Cup event. Dover Downs is one of only six
speedways in the country that presents two 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 is
approximately 109,000 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 concrete racing surface makes the auto racing track the
only concrete superspeedway (one mile or greater in length) that
conducts NASCAR-sanctioned events.
In recent years, television coverage and corporate sponsorship have
increased for NASCAR-sanctioned events. The Company's NASCAR-
sanctioned events are currently televised live by TNN to a nationwide
audience and broadcast nationally to a network of over 450 radio
stations affiliated with the Motor Racing Network (over 250 stations
for Busch Series events).
Nashville Speedway USA, which was acquired by the Company on January 2,
1998, currently conducts a NASCAR Busch Series event, a NASCAR
Craftsman Truck Series event, a NASCAR Slim Jim All-Pro Series event
and weekly shows in the NASCAR Winston Racing Series. The Company
plans to build a new racing facility at a site to be determined in the
greater Nashville metropolitan area.
Gaming
Dover Downs has presented pari-mutuel harness racing events for 30
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 Las Vegas-style, air-conditioned "video
lottery casino" housing the gaming operations was designed and built
using expertise from Caesars.
On June 16, 1998, the Dover Planning Commission approved the Company's
plans for expansion of the casino gaming facility and improvements to
the Company's Garden Cafe and simulcasting parlor.
Dover Downs is a "Licensed Agent" authorized to conduct video lottery
operations under the Delaware State Lottery Code. Pursuant to
Delaware's Horse Racing Redevelopment Act enacted in 1994, the Delaware
State Lottery Office administers and controls the operation of the
video lottery operations.
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 90.1%.
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.
The harness horse racing track is a five-eighths mile track and is
lighted for nighttime operations. The track is located inside the one-
mile auto racing superspeedway. The configuration offers turns with a
wider than normal turning radius and 6 degree banking. This allows
trotting and pacing horses to remain in full stride through the turns.
The result has been higher than normal speeds attained by horses in
competition. With the start of the race season beginning November
1996, live harness races conducted at Dover Downs were simulcast to
tracks and other off-track betting locations across North America, and
during 1998, were transmitted to more than 330 tracks and off-track
betting locations nationwide.
The Company has facilities for pari-mutuel wagering on both live
harness horse racing and on simulcast thoroughbred and harness horse
racing 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 betting windows are tied into a
central computer allowing bets to be received on all races from all
tracks.
With the recent expansion of its simulcasting operations, pari-mutuel
wagering is now on a year-round basis. For the fiscal years ended June
30, 1996, 1997, and 1998, the Company had 201, 363 and 363 simulcast
racing dates, respectively.
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. 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.
Competition
Motorsports
The Company's racing events compete with other racing events sanctioned
by various racing bodies, such as CART (Championship Auto Racing
Teams), IRL (Indy Racing League) and the NHRA (National Hot Rod
Association), 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-sanctioned event dates. In addition,
motorsports facilities compete with one another for the patronage of
motor racing spectators, and with other sports and entertainment
businesses. 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 speedways closest to Dover Downs International Speedway 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 CART 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 events have all sold
out well in advance of the race.
The speedways closest to the Nashville Speedway are the Atlanta Motor
Speedway (approximately three hours to the southeast) and Talladega
Superspeedway (approximately three and one-half hours to the south).
Atlanta Motor Speedway hosts two Winston Cup races, two Busch Series
races and one IRL race. Talladega Superspeedway hosts two Winston Cup
races and one Busch Series race. Based on historical data, management
does not believe that any of these facilities significantly impacts
operations at the Nashville Speedway, although they may impact the
Company's ability to secure additional events in the future.
Gaming
The legalization of additional 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, including video lottery
(slot) machines at horse-tracks.
At present, video lottery (slot) machines are only permitted at two
other locations in Delaware: Delaware Park and Harrington Raceway.
Delaware Park and Harrington Raceway presently have in operation 1,000
and 702 machines, respectively. 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 portion of the existing
Atlantic City slot market in the Dover area, due to the facility's
proximity, convenience and multiple attractions.
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.
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 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 track simulcasting activities. With respect to the
Company simulcasting its live harness races to tracks and other
locations, its simulcast signals are 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
periodically between May and November. There is no overlap presently
with Dover Downs' live race season. Delaware Park, a northern Delaware
track, conducts thoroughbred horse racing from April through mid-
November. Its race season only overlaps with Dover Downs for
approximately five to six 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.
Seasonality
The Company derives a substantial portion of its total revenues from
admissions and event-related revenue attributable to its motorsports
events which are currently held in June and September. As a result,
the Company's business has been, and is expected to remain, highly
seasonal. The seasonality was offset to some degree by the year-round
video lottery (slot) machine gaming operations and year-round
simulcasting.
At June 30, 1998, the Company had a total of 401 full-time employees
and 134 part-time employees. The Company hires temporary employees to
assist during its auto racing events and its live harness racing
season.
ITEM 2. PROPERTIES
The Company maintains its headquarters, motorsports superspeedway,
harness racetrack, and video lottery casino all on approximately 825
acres of land owned by the Company in Dover, Delaware. The Nashville
racing facility is located on approximately 12 acres and is leased from
the Metropolitan Board of Fair Commissioners. Subsequent to the
completion of the merger with Grand Prix Association of Long Beach, the
Company owns permanent motorsports facilities in Madison, Illinois
(near St. Louis, Missouri) and in Millington, Tennessee (near Memphis,
Tennessee). The racing facility in Madison, Illinois is located on 269
acres owned by the Company. The Company also leases 145 acres of land
surrounding the speedway. The Millington, Tennessee racing facility is
located on 375 acres of land owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any
material legal proceedings. The Company and its subsidiaries are
engaged in ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of Shareholders of Dover Downs Entertainment, Inc.
was held on June 30, 1998. The purpose of the meeting was to consider
and vote upon the following:
(i) the Merger with Grand Prix Association of Long Beach, (ii) the
issuance of up to an aggregate of 2,793,946 shares of Dover Common
Stock in order to effect the Merger, (iii) the assumption by Dover of
the Grand Prix Options outstanding immediately prior to the effective
date of the Merger, (iv) the amendment of the Dover Certificate of
Incorporation to (a) increase the number of directors serving on the
Board of Directors to ten (10) consisting of three (3) classes of
directors each with three (3) year staggered terms, Class I to have
four (4) members, Class II to have three (3) members and Class III to
have three (3) members, (b) increase the number of shares of Dover
Common Stock authorized for issuance from 35,000,000 shares to
75,000,000 shares and (c) increase the number of shares of Dover Class
A Common Stock authorized for issuance from 30,000,000 shares to
55,000,000 shares and (v) election of one (1) additional Class I
Director to the Dover Board of Directors for the remainder of a three-
year term expiring in 2000.
The results of the votes of security holders are as follows:
Votes Cast Broker
For Against Abstentions Non-Votes
i) 12,837,942 8,921 1,953 683,704
ii) 12,831,802 10,998 6,016 683,704
iii) 12,814,487 18,353 15,976 683,704
iv) 12,895,865 628,945 7,710 -
v) 13,507,714 14,790 10,017 -
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Common Stock of Dover Downs Entertainment, Inc. has traded on the
New York Stock Exchange under the symbol "DVD" since the Company's
initial public offering on October 3, 1996. There is no established
public trading market for the Company's Class A Common Stock. As of
July 31, 1998, there were 5,517,179 shares of Common Stock and
12,249,380 shares of Class A Common Stock outstanding. There were 636
record holders of Common Stock and 13 record holders of Class A Common
Stock at July 31, 1998.
The range of share prices for the Common Stock on the New York Stock
Exchange and per share dividends paid on Common Stock for the fiscal
years ended June 30, 1998 and 1997 are as follows:
Prices Dividends
1998 1997 1998 1997
High Low High Low
Fiscal Quarter
First ...... $21 1/8 $16 3/4 $ - $ - $.08 $ -
Second ..... 23 9/16 19 7/16 26 7/8 17 1/4 .08 -
Third ...... 30 21 3/8 20 1/2 16 5/8 .08 .08
Fourth ..... 33 5/8 28 3/8 19 7/8 16 1/8 .08 .08
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Five Year Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
Year Ended June 30, 1998 1997 1996 1995 1994
Revenues:
Motorsports $ 25,874 $ 20,516 $18,110 $16,282 $13,561
Gaming (1) 115,071 81,162 31,980 1,250 796
140,945 101,678 50,090 17,532 14,357
Earnings before
income taxes 37,655 28,239 15,593 7,239 5,791
Net earnings 21,913 16,472 9,196 4,284 3,562
Earnings per
common share-basic 1.44 1.11 .67 .31 .26
-diluted 1.40 1.08 .63 .30 .26
Dividends per
common share .32 .16 - - -
At June 30,
Total assets $ 95,777 $ 71,261 $42,311 $25,422 $19,776
Long-term debt, less
current portion 741 760 766 698 776
Shareholders' equity $ 71,365 $ 54,300 $23,715 $14,225 $ 9,923
(1) Gaming revenues from the Company's video lottery (slot) machine
gaming operations include the total win from such operations. The
Delaware State Lottery Office collects the win and remits a portion
thereof to the Company as its commission for acting as a Licensed
Agent. The difference between total win and the amount remitted
to the Company is reflected in operating expenses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year 1998 Compared With Fiscal Year 1997
Revenues increased by $39,267,000 to $140,945,000 primarily as a result
of expanding the casino facility and increasing the number of video
lottery (slot) machines from an average of 869 in fiscal 1997 to 1,000
machines during the entire fiscal year ended June 30, 1998. More
significant marketing efforts also led to the increase in revenue in
fiscal 1998. Motorsports revenues increased by $5,358,000 or 26.1% to
$25,874,000. Approximately $1,791,000 of the revenue increase resulted
from increased attendance, $295,000 from increased ticket prices, and
$1,692,000 from the inclusion of the operating results of Nashville
Speedway USA in the consolidated results of Dover Downs Entertainment,
Inc. for six months in fiscal 1998. The remainder of the increase was
from increased sponsorship, concessions and marketing related revenues.
Operating expenses increased by $28,316,000 reflecting the higher
revenues. Amounts retained by the State of Delaware, fees to the
manager who operates the video lottery (slot) machine operation, and
the amount collected by the State of Delaware for payment to the
vendors under contract with the State who provide the video lottery
machines and associated computer systems increased by $14,902,000 in
1998. Amounts allocated from the video lottery operation for harness
horse racing purses were $12,721,000 in 1998 compared with $9,157,000
in 1997. Advertising, promotional and customer complimentary cost
increases of $2,534,000 were the other significant cost increases.
Motorsports' operating expenses increased principally due to a $358,000
increase in purse and sanction fee expenses and increased advertising
costs of $626,000 as a result of the addition of motorsports events
during the 1998 fiscal year. The inclusion of the operating results of
Nashville Speedway USA in the consolidated results of Dover Downs
Entertainment, Inc. for six months in fiscal 1998 is the other
significant operating cost increase.
Depreciation increased by $623,000 or 29.9% to $2,707,000 from
$2,084,000 as a result of a full year of depreciation expense related
to the Company's video lottery casino expansion being recognized in
1998 compared with the eight months in 1997. Capital expenditures for
the expansion of the Company's motorsports facilities also contributed
to the increase in depreciation.
General and administrative expenses increased by $1,345,000 to
$4,410,000 from $3,065,000. Wage and benefit costs increased by
$469,000 and consulting and professional services increased by $223,000
principally due to the Company's expansion of video lottery (slot)
machine operations and the acquisition of Nashville Speedway USA.
The Company's effective income tax rates for fiscal 1998 and fiscal
1997 were 41.8% and 41.7%, respectively.
Net earnings increased by $5,441,000 due to the expansion of the video
lottery (slot) machine operation and increased marketing efforts in the
casino. The net earnings increase is also due to higher attendance and
related revenues at the Company's NASCAR-sanctioned events in September
1997 and June 1998.
Fiscal Year 1997 Compared With Fiscal Year 1996
Revenues increased by $51,588,000 to $101,678,000 from $50,090,000 in
the prior year. The significant increase in revenues was principally
due to the introduction of video lottery (slot) machines which were in
operation for the entire fiscal year 1997 compared with six months in
fiscal 1996. Video lottery revenues also increased as a result of
expanding the casino facility and increasing the number of video
lottery (slot) machines from 572 to 1,000 in October of 1996.
Motorsports revenues increased by $2,406,000 or 13.3%. Approximately
$999,000 of the total motorsports revenue increase resulted from
increased attendance and $663,000 resulted from increased ticket
prices. The remainder of the revenue increase of $744,000 was
principally due to increased marketing and sponsorship revenues.
Operating expenses increased by $37,860,000 of which $34,695,000 was
due to the video lottery (slot) machines in operation for the entire
fiscal year 1997 compared with six months in fiscal 1996. 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 (slot) machines were $32,674,000 in fiscal
1997 and $12,188,000 in fiscal 1996. Amounts allocated from the video
lottery operation for harness horse racing purses were $9,157,000 in
fiscal 1997 and $3,550,000 in fiscal 1996. Wages and benefits for
employees of the video lottery (slot) machine operation were $4,035,000
in fiscal 1997 and $2,277,000 in fiscal 1996. Advertising, promotional
and customer complimentary costs of $4,251,000 and costs associated
with casino food and beverage sales of $1,923,000 were the other
significant operating costs of the video lottery (slot) machine
operation.
For the horse racing and simulcasting operations, wage and benefit cost
increases of $467,000, simulcasting cost increases of $537,000 and
purse increases of $155,000 (exclusive of the $9,157,000 of harness
horse racing purses allocated from video lottery operations in fiscal
1997) accounted for the most significant operating cost increases. The
cost increases were primarily the result of increasing the number of
live harness racing days to 97 from 67 in 1996 and from increasing the
number of simulcasting days to 363 from 201 in 1996.
Motorsports' operating expenses increased principally due to a $394,000
increase in purse obligation expenses. Sanction fees increased by
$80,000 and advertising increased by $145,000 during the 1997 fiscal
year.
Depreciation increased by $615,000 or 41.9% to $2,084,000 from
$1,469,000 as a result of a full year of depreciation expense related
to the Company's video lottery casino being recognized in 1997 compared
with six months of depreciation in 1996. Capital expenditures for the
expansion of the Company's motorsports facilities also contributed to
the increase in depreciation.
General and administrative expenses increased by $992,000 to $3,065,000
from $2,073,000. Wage and benefit costs increased by $363,000 and
contracted services increased by $205,000, principally due to the
Company's expansion of video lottery (slot) machine and simulcasting
operations.
The Company's effective income tax rates for fiscal 1997 and fiscal
1996 were 41.7% and 41.0%, respectively.
Net earnings increased by $7,276,000 due to the inclusion of video
lottery (slot) machine operations for the entire fiscal year 1997
compared with six months in fiscal 1996 and also due to higher
attendance and related revenues at the Company's NASCAR-sanctioned
events in September 1996 and June 1997.
Liquidity and Capital Resources
Cash flow from operations for the three years ended June 30, 1998,
1997, and 1996 was $28,991,000, $18,600,000, and $15,317,000
respectively. The significant increase in fiscal 1998 reflected the
Company's higher net earnings and increased non-cash charges.
Capital expenditures for the year ended June 30, 1998 were $7,504,000
and related primarily to the expansion of and improvements to the
racing facility as well to expansion of the administrative facilities.
The 1998 expenditures were less than in 1997 and 1996 as the Company
was constructing or expanding the casino facility in those years.
Capital expenditures for the year ended June 30, 1997 of $16,841,000
related primarily to the purchase of land for $1,060,000, the expansion
of the casino for $5,124,000, and the construction of additional
permanent motorsports seating for $8,061,000. The capital expenditures
were primarily funded with the proceeds from the Company's initial
public stock offering.
Capital expenditures for the year ended June 30, 1996 of $18,936,000
related to the construction of the casino facility for $1,790,000, the
acquisition and improvement of land and construction of additional
permanent motorsports grandstand seating and luxury skyboxes, as well
as a resurfacing of the raceway.
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of Nashville Speedway USA, Inc. for $3,000,000 in cash
from available funds.
The Company and Grand Prix Association of Long Beach, Inc. ("Grand
Prix") entered into an Agreement and Plan of Merger on March 26, 1998,
pursuant to which Grand Prix would become a wholly owned subsidiary of
the Company. The merger, which closed on July 1, 1998, was structured
as a tax-free exchange whereby each shareholder of Grand Prix received
.63 shares of common stock of Dover Downs Entertainment, Inc. ("Dover")
for each share of common stock of Grand Prix owned by such shareholder.
The Company purchased 680,000 shares of common stock of Grand Prix from
two non-management shareholders in March of 1998 for $10,540,000.
The Company has an annually renewable, $20,000,000 committed revolving
line of credit from a bank to provide seasonal funding needs and to
finance capital improvements. The Company was in compliance with all
terms of the facility and there were no amounts outstanding at June 30,
1998.
Impact of Recent Accounting Pronouncements
In June 1997, The Financial Accounting Standards Board (FASB)issued
SFAS No. 130, Reporting Comprehensive Income. This statement requires
that comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The
Company plans to adopt this standard on July 1, 1998, as required. The
adoption of this standard will not impact results of operations or
financial condition.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement established
standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and
major customers. The Company plans to adopt this standard on July 1,
1998, as required. The adoption of this standard will not impact
results of operations or financial condition.
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits, which is effective
for financial statements issued for periods beginning after December
15, 1997. This statement standardizes the disclosure requirements of
previous standards. The adoption of this standard will not impact
results of operations or financial condition.
Year 2000 Issues
The Company is aware of the issues related to the approach of the year
2000 and has assessed and investigated what steps must be taken to
ensure that its critical systems and equipment will function
appropriately after the turn of the century. The assessments include
a review of what systems and equipment need to be changed or replaced
in order to function correctly. The Company believes its accounting
and ticketing hardware and software are year 2000 compliant and no
corrections will be needed to those systems as a result of the year
2000. The Delaware State Lottery has advised Dover that the systems
employed in Dover's lottery operations will be made year 2000
compliant. The Company does not place substantial reliance on any
other systems, and no systems have been found to need substantial
correction.
Forward-Looking Statements
The Company may make forward-looking statements relating to anticipated
financial performance, business prospects, acquisitions or
divestitures, new products, market forces, commitments and other
matters. The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. Forward-looking
statements typically contain such words as "anticipates", "believes",
"estimates", "expects", "forecasts", "predicts", or "projects", or
variations of these words, suggesting that future outcomes are
uncertain.
Various risks and uncertainties may affect the operation, performance,
development and results of the Company's business and could cause
future outcomes to differ materially from those set forth in
forward-looking statements, including the following factors: general
economic conditions, the Company's ability to finance its future
business requirements through outside sources or internally generated
funds, the availability of adequate levels of insurance, success or
timing of completion of ongoing or anticipated capital or maintenance
projects, the ability to successfully integrate recently acquired
companies, management retention and development, changes in Federal,
State, and local laws and regulations, including environmental
regulations, weather, relationships with sponsors, broadcast media and
sanctioning bodies as well as the risks, uncertainties and other
factors described from time to time in the Company's SEC filings and
reports.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company and the
Independent Auditors' Report included in this report are shown on the
Index to the Consolidated Financial Statements on page 18.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10
is incorporated by reference from the Company's Proxy Statement to be
filed pursuant to Regulation 14A for the Annual Meeting of Shareholders
to be held on October 30, 1998.
Executive Officers of the Registrant. As of June 30, 1998, the
Executive Officers of the registrant were:
Name Position Age Term of Office
Robert M. Comollo Treasurer 50 11/81 to date
Timothy R. Horne Vice President-Finance 32 11/96 to date
Michael B. Kinnard Vice President- 40 6/94 to date
General Counsel and
Secretary
Denis McGlynn President and 52 11/79 to date
Chief Executive Officer
John W. Rollins, Sr. Chairman of the Board 82 10/96 to date
Eugene W. Weaver Senior Vice President- 65 10/96 to date
Administration
Vice President-Finance 1970 to 10/96
Robert M. Comollo has been employed by the Company for 18 years, of
which 17 years have been in the capacity of Treasurer.
Timothy R. Horne became Vice President-Finance in November of 1996.
From 1988 until 1996, Mr. Horne was employed by KPMG Peat Marwick LLP,
where he most recently served as an assurance senior manager.
Michael B. Kinnard has been Vice President-General Counsel to the
Company since 1994. Mr. Kinnard also serves as Vice President-General
Counsel and Secretary to Matlack Systems, Inc. and Vice President-
General Counsel and Secretary to Rollins Truck Leasing Corp. 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).
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item 11 is incorporated by reference
from the Company's Proxy Statement to be filed pursuant to Regulation
14A for the Annual Meeting of Shareholders to be held on October 30,
1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this Item 12 is incorporated by reference
from the Company's Proxy Statement filed pursuant to Regulation 14A for
the Annual Meeting of Shareholders to be held on October 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 1998, the following officers and/or
directors of the Company were also officers and/or directors of Rollins
Truck Leasing Corp.; Patrick J. Bagley, Michael B. Kinnard, John W.
Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following
officers and/or directors of the Company were also officers and/or
directors of Matlack Systems, Inc.; Patrick J. Bagley, Michael B.
Kinnard, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie.
John W. Rollins owns directly and of record 12.1% and 11.4% of the
outstanding shares of common stock of Rollins Truck Leasing Corp. and
Matlack Systems, Inc., respectively, at June 30, 1998. The description
of transactions between the Company and Rollins Truck Leasing Corp.
appears under the caption "Related Party Transactions" on page 33 of
this 1998 Annual Report on Form 10-K.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements - See accompanying Index to Consolidated
Financial Statements on page 16.
(2) Financial Statement Schedules - None.
(3) Exhibits:
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. as filed with the
Company's Registration Statement Number 333-8147 on Form
S-1 dated July 15, 1996, which was declared effective on
October 3, 1996, is incorporated herein by reference.
2.2 Agreement and Plan of Merger, dated as of March 26, 1998,
by and among Dover Downs Entertainment, Inc. FOG
Acquisition Corp., and Grand Prix Association of Long Beach
as filed with the Company's Registration Statement Number
333-53077 on Form S-4 on May 19, 1998 is incorporated
herein by reference.
3.1 Certificate of Incorporation of Dover Downs Entertainment,
Inc., amended June 14, 1996, and further amended on June
28, 1996 as filed with the Company's Registration Statement
Number 333-8147 on Form S-1 dated July 15, 1996, which was
declared effective on October 3, 1996, is incorporated
herein by reference.
3.2 Amended and Restated Bylaws of Dover Downs Entertainment,
Inc. incorporated by reference to the Annual Report on Form
10-K for the year ended June 30, 1997.
3.3 Amendment to Certificate of Incorporation of Dover Downs
Entertainment, Inc. dated June 30, 1998.
3.4 Amendment to Bylaws of Dover Downs Entertainment, Inc.
dated June 30, 1998.
4.2 Rights Agreement dated as of June 14, 1996 between Dover
Downs Entertainment, Inc. and ChaseMellon Shareholder
Services, L.L.C. as filed with the Company's Registration
Statement Number 333-8147 on Form S-1 dated July 15, 1996,
which was declared effective on October 3, 1996, is
incorporated herein by reference.
10.1 Credit Agreement between PNC Bank and Dover Downs
Entertainment, Inc. dated January 31, 1997 incorporated by
reference to the Annual Report on Form 10-K for the year
ended June 30, 1997.
10.2 Dover Downs Entertainment, Inc. $20 Million Dollar
Committed Line of Credit Note in favor of PNC Bank dated
January 31, 1997 incorporated by reference to the Annual
Report on Form 10-K for the year ended June 30, 1997.
10.5 Guaranty and Suretyship Agreement dated January 30, 1998
in favor of PNC Bank.
10.6 Amendment to Loan Documents dated January 30, 1998.
10.7 Project Consulting and Management Agreement between Dover
Downs, Inc. and Caesars World Gaming Development
Corporation dated May 10, 1995 as filed with the Company's
Registration Statement Number 333-8147 on Form S-1 dated
July 15, 1996, which was declared effective on October 3,
1996, is incorporated herein by reference.
10.9 Dover Downs Entertainment, Inc. 1996 Stock Option Plan as
filed with the Company's Registration Statement Number 333-
8147 on Form S-1 dated July 15, 1996, which was declared
effective on October 3, 1996, is incorporated herein by
reference.
10.10 Dover Downs Entertainment, Inc. 1991 Stock Option Plan as
filed with the Company's Registration Statement Number 333-
8147 on Form S-1 dated July 15, 1996, which was declared
effective on October 3, 1996, is incorporated herein by
reference.
21.1 Subsidiaries
23.1 Consent of Independent Accountants
27 Financial Data Schedule for current Fiscal Year ended June
30, 1998
27.1 Restated Financial Data Schedule for Quarter ended
September 30, 1997
27.2 Restated Financial Data Schedule for Fiscal Year ended June
30, 1997
27.3 Restated Financial Data Schedule for Quarter ended April
30, 1997
27.4 Restated Financial Data Schedule for Quarter ended January
31, 1997
27.5 Restated Financial Data Schedule for Quarter ended October
31, 1996
(b) Reports on Form 8-K
A Form 8-K was filed by Dover Downs Entertainment, Inc. on April 13,
1998 to disclose that the Company, FOG Acquisition Corporation and
Grand Prix Association of Long Beach, Inc. entered into an agreement
and Plan of Merger dated March 26, 1998. Also disclosed was the
passage of legislation permitting an additional 1,000 slot machines at
any of the currently licensed facilities in the State of Delaware and
eliminating the existing sunset provision for the state's video lottery
operations.
A Form 8-K was filed by Dover Downs Entertainment, Inc. on July 15,
1998 to disclose that the Company had completed its acquisition of
Grand Prix Association of Long Beach.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DATED: August 31, 1998 DOVER DOWNS ENTERTAINMENT, INC.
Registrant
BY:/s/ Denis McGlynn
Denis McGlynn
President and Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
/s/ Timothy R. Horne Vice President-Finance August 31, 1998
Timothy R. Horne
/s/ John W. Rollins Chairman of the Board August 31, 1998
John W. Rollins
/s/ Henry B. Tippie Vice Chairman of the Board August 31, 1998
Henry B. Tippie
/s/ Eugene W. Weaver Senior Vice President- August 31, 1998
Eugene W. Weaver Administration
and Director
/s/ John W. Rollins, Jr. Director August 31, 1998
John W. Rollins, Jr.
/s/ Patrick J. Bagley Director August 31, 1998
Patrick J. Bagley
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Reports on Financial Statements 19
Consolidated Statement of Earnings for the years
ended June 30, 1998, 1997 and 1996 20
Consolidated Balance Sheet at June 30, 1998 and 1997 21
Consolidated Statement of Cash Flows for the years
ended June 30, 1998, 1997 and 1996 22
Notes to Consolidated Financial Statements 23-30
Independent Auditors' Report
The Shareholders and Board of Directors,
Dover Downs Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Dover
Downs Entertainment, Inc. and subsidiaries as of June 30, 1998 and
1997, and the related consolidated statements of earnings and of cash
flows for each of the years in the three year period ended June 30,
1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 1998
and 1997, and the results of their operations and their cash flows for
each of the years in the three-year period ended June 30, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
July 17, 1998
CONSOLIDATED STATEMENT OF EARNINGS
Year ended June 30,
1998 1997 1996
Revenues:
Motorsports $ 25,874,000 $ 20,516,000 $18,110,000
Gaming 115,071,000 81,162,000 31,980,000
Total revenues 140,945,000 101,678,000 50,090,000
Expenses:
Operating 96,875,000 68,559,000 30,699,000
Depreciation 2,707,000 2,084,000 1,469,000
General and
administrative 4,410,000 3,065,000 2,073,000
103,992,000 73,708,000 34,241,000
Operating earnings 36,953,000 27,970,000 15,849,000
Interest (income) expense (702,000) (269,000) 256,000
Earnings before
income taxes 37,655,000 28,239,000 15,593,000
Income taxes 15,742,000 11,767,000 6,397,000
Net earnings $ 21,913,000 $ 16,472,000 $ 9,196,000
Earnings per common share:
Basic $ 1.44 $ 1.11 $ .67
Diluted $ 1.40 $ 1.08 $ .63
Average shares
outstanding (000):
Basic 15,246 14,856 13,723
Diluted 15,603 15,275 14,511
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED BALANCE SHEET
June 30
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 18,694,000 $ 15,503,000
Accounts receivable 2,818,000 1,613,000
Due from State of Delaware 2,099,000 1,983,000
Inventories 310,000 402,000
Prepaid expenses 2,319,000 775,000
Deferred income taxes 328,000 124,000
Total current assets 26,568,000 20,400,000
Property, plant and equipment, at cost
Land 10,563,000 10,563,000
Casino facility 11,548,000 11,566,000
Racing facilities 44,877,000 38,546,000
Machinery and equipment 5,785,000 5,357,000
Furniture and fixtures 659,000 573,000
Construction in progress 799,000 83,000
74,231,000 66,688,000
Less accumulated depreciation (18,456,000) (15,827,000)
55,775,000 50,861,000
Investments 10,540,000 -
Goodwill, net 2,894,000 -
Total assets $ 95,777,000 $ 71,261,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,343,000 $ 1,860,000
Purses due horsemen 1,885,000 1,387,000
Accrued liabilities 5,006,000 2,280,000
Income taxes payable 3,951,000 2,507,000
Current portion of long-term debt 19,000 19,000
Deferred revenue 9,755,000 7,542,000
Total current liabilities 22,959,000 15,595,000
Long-term debt 741,000 760,000
Deferred income taxes 712,000 606,000
Commitments (see Notes to the
Consolidated Financial Statements)
Shareholders' equity:
Preferred stock, $.10 par value;
1,000,000 shares authorized;
issued and outstanding: none
Common stock, $.10 par value;
75,000,000 shares authorized;
issued and outstanding:
1998-2,998,950; 1997-2,939,000 300,000 294,000
Class A common stock, $.10 par value;
55,000,000 shares authorized;
issued and outstanding:
1998-12,249,380 shares;
1997-12,286,830 shares 1,225,000 1,229,000
Additional paid-in capital 21,109,000 21,081,000
Retained earnings 48,731,000 31,696,000
Total shareholders' equity 71,365,000 54,300,000
Total liabilities and
shareholders' equity $ 95,777,000 $ 71,261,000
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended June 30,
1998 1997 1996
Cash flows from operating activities:
Net earnings $21,913,000 $16,472,000 $ 9,196,000
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation 2,707,000 2,084,000 1,469,000
Loss on disposition of
property 3,000 - -
(Increase) decrease in assets:
Accounts receivable (1,180,000) (392,000) 48,000
Due from affiliate - - 333,000
Due from State of Delaware (116,000) (1,082,000) (901,000)
Inventories 92,000 (46,000) (250,000)
Prepaid expenses (1,539,000) (242,000) (39,000)
Increase (decrease)
in liabilities:
Accounts payable 335,000 671,000 152,000
Purses due horsemen 498,000 (49,000) 1,436,000
Accrued liabilities 2,719,000 (88,000) 1,497,000
Current and deferred
income taxes 1,346,000 (267,000) 1,927,000
Deferred revenue 2,213,000 1,539,000 449,000
Net cash provided by
operating activities 28,991,000 18,600,000 15,317,000
Cash flows from investing
activities:
Sale of short-term
investments - - 3,200,000
Investment in Grand Prix
Association of Long Beach (10,540,000) - -
Acquisition of business,
net of cash acquired (2,889,000) - -
Capital expenditures (7,504,000) (16,841,000) (18,936,000)
Net cash used in investing
activities (20,933,000) (16,841,000) (15,736,000)
Cash flows from financing
activities:
Short-term borrowings
(repayments) - (3,500,000) 3,500,000
Repayment of long-term
debt (19,000) (9,000) (786,000)
Repayment to shareholder - - (200,000)
Net proceeds from initial
public offering - 16,360,000 -
Dividends paid (4,878,000) (2,429,000) -
Proceeds from stock options
exercised, including related
tax benefit 30,000 182,000 294,000
Net cash (used in)
provided by financing
activities (4,867,000) 10,604,000 2,808,000
Net increase in cash and
cash equivalents 3,191,000 12,363,000 2,389,000
Cash and cash equivalents,
beginning of year 15,503,000 3,140,000 751,000
Cash and cash equivalents,
end of year $18,694,000 $15,503,000 $ 3,140,000
Supplemental disclosures of
cash flow information:
Interest paid $ 61,000 $ 168,000 $ 373,000
Income taxes paid $14,395,000 $12,034,000 $ 4,413,000
Non-cash investing and
financing activities:
Land acquired $ - $ - $ 1,300,000
Cash paid $ - $ - $ (500,000)
Mortgage incurred $ - $ - $ 800,000
The Notes to the Consolidated Financial Statements are an integral part
of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-Business Operations
Dover Downs Entertainment, Inc. (the Company or Dover Downs) owns and
operates the Dover Downs International Speedway and the Dover Downs
Raceway at a multi-purpose gaming and entertainment complex located on
approximately 825 acres owned by the Company in Dover, Delaware. The
Company hosts a variety of NASCAR and Indy Racing League (IRL)
sanctioned 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.
Dover Downs also operates the historic NASCAR racing facility at the
Tennessee State Fairgrounds in Nashville, Tennessee ("Nashville
Speedway"). Nashville Speedway's current racing schedule includes
events in several NASCAR Series.
Dover Downs, Inc. is authorized to conduct video lottery operations as
a "Licensed Agent" under the Delaware State Lottery Code. Pursuant to
Delaware's Horse Racing Redevelopment Act, enacted in 1994, the
Delaware State Lottery Office administers and controls the operation of
the video lottery.
For the video lottery operations, the difference between the amount
wagered by bettors and the amount paid out to bettors is referred to as
the win. The win is included in the amount recorded in the Company's
financial statements as gaming revenue. The Delaware State Lottery
Office sweeps the winnings from the video lottery operations, collects
the State's share of the winnings and the amount due to the vendors
under contract with the State who provide 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 as its commission for acting as a Licensed Agent. Operating
expenses include the amounts collected by the State (i) for the State's
share of the winnings, (ii) for remittance to the providers of the
video lottery machines and associated computer systems, and (iii) for
harness horse racing purses.
The Company's license from the Delaware Harness Racing Commission must
be renewed on an annual basis. In order to maintain its license to
conduct video lottery operations, the Company is required to maintain
its harness horse racing license.
Due to the nature of the Company's business activities, it is subject
to various federal, state and local regulations.
NOTE 2-Reorganization
On June 14, 1996, Dover Downs Entertainment, Inc. effected a tax-free
restructuring pursuant to which all former shareholders 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 shareholders 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. was 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
June 30, 1995. Results of operations for all prior years were not
affected by the reorganization.
On July 14, 1997, the Company changed its fiscal year-end from July 31
to June 30 and has accordingly presented restated results for the two
years ended June 30, 1997. Certain amounts in the 1996 consolidated
financial statements have been reclassified to conform to the 1997
presentation. The change in year-end did not have a significant effect
upon previously reported earnings.
NOTE 3-Summary of Significant Accounting Policies
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-Subsequent to the opening of the Company's casino
facility in December of 1995, all advertising costs are expensed as
incurred.
Earnings per share-The number of weighted average shares used in
computing basic and diluted earnings per share (EPS) are as follows:
1998 1997 1996
Basic EPS 15,246 14,856 13,723
Effect of options 357 419 788
Diluted EPS 15,603 15,275 14,511
Cash and cash equivalents-The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or
less.
Inventories-Inventories, primarily food, beverage and novelty items,
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 - 40 years
Machinery and equipment 5 - 10 years
Furniture and fixtures 5 years
Goodwill-Goodwill represents the excess of the purchase price over the
fair value of net assets acquired and is being amortized over a period
of 40 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 carrying amount reported in
the balance sheet for current assets and current liabilities
approximates their fair value at June 30, 1998.
Accounting for Stock Options-The Company adopted the provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, on July 1, 1996. SFAS
No. 123 defines a fair-value based method of accounting for stock-based
compensation plans, however, it allows the continued use of the
intrinsic value method under Accounting Principles Board Opinion, No.
25, Accounting for Stock Issued to Employees. The Company has elected
to continue to use the intrinsic value method.
NOTE 4-Indebtedness
The Company has an annually renewable, $20,000,000 committed revolving
line of credit from a bank to satisfy seasonal funding needs and to
finance capital improvements. The Company must pay an annual commitment
fee of 7.5 basis points on the average unused portion of the commitment
and interest monthly on amounts outstanding at the bank's prime minus
three-quarters of one percent. There were no amounts outstanding at
June 30, 1998 or 1997.
Long-term debt consists of an 8% mortgage note payable in quarterly
principal and interest installments through January 2006, and
collateralized by land with a carrying value of $1,300,000. The
mortgage note matures as follows: 1999-$19,000; 2000-$22,000;
2001-$24,000; 2002-$26,000; 2003-28,000 and thereafter $641,000.
NOTE 5-Income Taxes
The current and deferred income tax provisions (benefit) are as
follows:
Years ended June 30,
1998 1997 1996
Current:
Federal $12,544,000 $ 9,207,000 $ 4,971,000
State 3,296,000 2,498,000 1,329,000
15,840,000 11,705,000 6,300,000
Deferred:
Federal (78,000) 49,000 81,000
State (20,000) 13,000 16,000
(98,000) 62,000 97,000
Total income taxes $15,742,000 $11,767,000 $ 6,397,000
Deferred income taxes relate to the temporary differences between
financial accounting income and taxable income and are primarily
attributable to 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:
Years ended June 30,
1998 1997 1996
Federal tax at statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 5.7% 5.7% 5.7%
Other 1.1% 1.0% .3%
Effective income tax rate 41.8% 41.7% 41.0%
NOTE 6-Pension Plan
Prior to August 1, 1996, the Company participated in a multiple
employer defined-benefit pension plan covering substantially all
full-time employees. On August 1, 1996, the Dover Downs Entertainment,
Inc. Pension Plan was established and the related assets were
transferred from the multiple employer pension plan to the new Dover
Downs Entertainment, Inc. Trust.
The provisions of the Dover Downs Entertainment, Inc. Pension Plan are
identical to those of the aforementioned multiple employer
defined-benefit pension 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.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at June 30,
1998:
Actuarial present value of accumulated benefit obligation:
Vested $413,216
Non-vested 139,693
$552,909
Projected benefit obligation $924,846
Plan assets at market value 687,431
Funded status (237,415)
Unrecognized net loss 110,925
Unrecognized prior service cost 173,476
Prepaid pension cost $ 46,986
At June 30, 1998, the assets of the plan were invested 60% in equity
funds, 39% in intermediate bond funds and the balance in other
short-term interest-bearing accounts. The discount rate in 1998 and
1997, was 7.5% and 8%, respectively. The assumed rate of compensation
increase was 5% in both years. The expected long-term rate of return on
assets was 9% for 1998 and 1997.
The components of net periodic pension cost for 1998 are
as follows:
Service cost $131,829
Interest cost 52,864
Return on plan assets (104,185)
Net amortization 32,775
Deferral of net gain 62,893
$176,176
Net periodic pension costs for 1997 and 1996 were $77,007 and $24,000,
respectively.
The Company also maintains a nonqualified, noncontributory defined
benefit pension plan for certain employees to restore pension benefits
reduced by federal income tax regulations. The cost associated with the
plan is determined using the same actuarial methods and assumptions as
those used for the Company's qualified pension plan.
The Company also maintains a defined contribution 401(k) plan which
permits participation by substantially all employees.
<TABLE>
NOTE 7-Shareholders' Equity
Changes in the components of shareholder's equity are
as follows:
<CAPTION>
$.10 Par
$.10 Par Value
Value Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
<S> <C> <C> <C> <C>
Balance at June 30, 1995 $ - $1,372,000 $ 4,396,000 $ 8,457,000
Net earnings 9,196,000
Exercise of stock options 21,000 171,000
Tax benefit related to stock
option plans 102,000
Balance at June 30, 1996 - 1,393,000 4,669,000 17,653,000
Net earnings 16,472,000
Issuance of common stock, net 288,000 (180,000) 16,252,000
Dividends on common stock,
$.16 per share (2,429,000)
Exercise of stock options 22,000 160,000
Conversion of Class A shares 6,000 (6,000)
Balance at June 30, 1997 294,000 1,229,000 21,081,000 31,696,000
Net earnings 21,913,000
Dividends on common stock,
$.32 per share (4,878,000)
Exercise of stock options 2,000 28,000
Conversion of Class A shares 6,000 (6,000)
Balance at June 30, 1998 $ 300,000 $1,225,000 $21,109,000 $48,731,000
Holders of Common Stock have one vote per share and 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 at the option of the holder thereof. Dividends on Class A Common
Stock cannot exceed dividends on Common Stock on a per share basis. Dividends on Common Stock may
be paid at a higher rate than dividends on Class A Common Stock. The terms and conditions of each
issue of Preferred Stock are determined by the Board of Directors. No Preferred shares have been
issued.
</TABLE>
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 combined equity 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.
On October 3, 1996, the Company completed its initial public offering.
The Company issued 1,075,000 shares of the Company's Common Stock and
received proceeds of approximately $16,360,000, net of issuance costs
of approximately $1,913,000.
The Company has two stock option plans pursuant to which the Company's
Board of Directors may grant stock options to officers and key
employees at not less than 100% of the fair market value at the date of
the grant. Options granted under the 1991 Stock Option Plan are
exercisable for Class A Common Stock while options granted under the
1996 Stock Option Plan are exercisable for Common Stock. The 1991 Stock
Option Plan has been amended so that no additional options may be
granted thereunder. The 1991 and 1996 stock options have 7 and 8 year
terms, respectively, and generally vest equally over a period of 5 and
6 years from the date of grant, respectively. In all other material
respects, the 1991 Stock Option Plan is structured the same as the 1996
Stock Option Plan. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for its stock option plans.
For disclosure purposes, the Company determined compensation cost for
its stock options based upon the fair value at the grant date using the
Black Scholes option-pricing model with the following assumptions:
expected dividend yield - .46%, risk-free interest rate - 5.3%, an
expected life of six years and volatility of 26%. Had compensation cost
been recognized in accordance with SFAS No. 123, the Company's diluted
earnings per share disclosed in the accompanying financial statements
would be reduced by less than $.03 and $.01 per share in 1998 and 1997
respectively.
Option activity was as follows:
June 30
1998 1997 1996
Number of options:
Outstanding at beginning of year 472,764 585,000 787,500
Granted 67,500 112,764 -
Exercised (22,500) (225,000) (202,500)
Outstanding at June 30 517,764 472,764 585,000
At June 30:
Options available for grant 569,736 637,236 750,000
Options exercisable 131,000 22,500 90,000
Weighted Average
Exercise Price
Options granted $ 23.16 $ 17.13 -
Options exercised $ 1.33 $ .81 $ .95
Options outstanding $ 6.75 $ 5.10 $ 1.13
Options exercisable $ 3.56 $ 1.33 $ .46
NOTE 8-Related Party Transactions
In prior years, management services were provided to a company
principally-owned by the majority shareholder. Management fees for the
year ended June 30, 1996 were $122,000. 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
shareholder. The purchase price was determined on the basis of an
independent appraisal performed in 1996. During the years ended June
30, 1998, 1997 and 1996, the Company purchased certain paving, site
work and construction services involving total payments of $374,971,
$584,000 and $586,000 from a company wholly-owned by an
employee/director. The Company purchased administrative services from
Rollins Truck Leasing Corp. and affiliated companies in 1998, 1997 and
1996. The total cost of these services, which have been included in
general and administrative expenses in the Consolidated Statement of
Earnings, was $283,000, $178,000 and $36,000 in 1998, 1997 and 1996,
respectively.
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 9-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:
Motorsports Gaming Consolidated
Year ended June 30, 1998
Revenue $25,874,000 $115,071,000 $140,945,000
Operating earnings 12,506,000 24,447,000 36,953,000
Identifiable assets
at year-end 57,739,000 38,038,000 95,777,000
Capital expenditures 6,085,000 1,419,000 7,504,000
Depreciation $ 1,237,000 $ 1,470,000 $ 2,707,000
Year ended June 30, 1997
Revenue $20,516,000 $ 81,162,000 $101,678,000
Operating earnings 11,079,000 16,891,000 27,970,000
Identifiable assets
at year-end 34,801,000 36,460,000 71,261,000
Capital expenditures 9,496,000 7,345,000 16,841,000
Depreciation $ 981,000 $ 1,103,000 $ 2,084,000
Year ended June 30, 1996
Revenue $18,110,000 $ 31,980,000 $ 50,090,000
Operating earnings 10,040,000 5,809,000 15,849,000
Identifiable assets
at year-end 26,489,000 15,822,000 42,311,000
Capital expenditures 10,119,000 8,817,000 18,936,000
Depreciation $ 952,000 $ 517,000 $ 1,469,000
NOTE 10-Commitments
The Company leases the racetrack at the Tennessee State Fairgrounds
pursuant to a lease expiring in 2007. Total rental expense charged to
the Company is a function of the profitability of the Nashville
operation and was $66,000 for the six months ended June 30, 1998.
In May 1995, Dover Downs, Inc., a subsidiary of the Company, entered
into a long-term management agreement with Caesars World Gaming
Development Corporation (Caesars). The initial term of the agreement
expires in December 1998 and Caesars has two additional three-year
renewal options which Dover Downs may void if certain financial results
are not achieved. Caesars acts as the exclusive agent to supervise,
market, manage and operate the Company's video lottery operations.
Caesars has been properly licensed by the Delaware State Lottery Office
to perform these functions. Caesars' performance-based fee for such
services was $7,093,882 in fiscal 1998, $5,184,908 in fiscal 1997 and
$2,260,909 in fiscal 1996. Amounts due to Caesars at June 30, 1998 and
1997 totaled $1,246,064 and $431,464, respectively and are included in
accrued liabilities.
The Company has entered into several sanctioning agreements to conduct
various motorsports events at Dover Downs International Speedway and
Nashville Speedway, as well as newly acquired venues in Long Beach,
California; Madison, Illinois and Millington, Tennessee. The Company
has held NASCAR-sanctioned events for 30 consecutive years. Nonrenewal
of a NASCAR event license would have a material adverse effect on the
Company's financial condition and results of operations.
NOTE 11-Subsequent Events - Grand Prix Association of Long Beach
Acquisition
On July 1, 1998, the Company completed its acquisition of Grand Prix
Association of Long Beach (Grand Prix) through the merger of a wholly
owned subsidiary of the Company with and into Grand Prix with Grand
Prix surviving as a wholly owned subsidiary of the Company. Grand Prix
developed and operates the Grand Prix of Long Beach, an annual
temporary circuit event which has been run in the streets of Long
Beach, California for 25 years, and owns permanent motorsports
facilities in Madison, Illinois (near St. Louis, Missouri) and in
Millington, Tennessee (near Memphis, Tennessee). The purchase price
was comprised of the conversion of the outstanding Grand Prix common
stock into 2,510,700 shares of the Company's stock and assumption by
the Company of the outstanding stock options of Grand Prix. On March
27, 1998, the Company acquired 680,000 shares of Grand Prix common
stock at $15.50 per share in cash pursuant to two separate stock
purchase agreements, at which time the Company owned approximately 14.6
% of the outstanding Grand Prix common stock. The cost of these
purchases was recorded as a long-term investment at June 30, 1998. The
acquisition qualified as a tax free exchange and was accounted for
using the purchase method of accounting for business combinations.
NOTE 12-Quarterly Results (unaudited)
September 30 December 31 March 31 June 30
1998
Revenues $38,821 $25,962 $31,735 $44,427
Gross profit 14,301 5,236 6,649 15,177
Net earnings 7,833 2,518 3,295 8,267
Earnings per
common share (diluted) $ .50 $ .16 $ .21 $ .53
1997
Revenues $27,226 $17,246 $21,684 $35,522
Gross profit 10,624 2,836 4,548 13,027
Net earnings 5,659 1,291 2,322 7,200
Earnings per
common share (diluted) $ .39 $ .08 $ .15 $ .46
Exhibit 21.1
DOVER DOWNS ENTERTAINMENT, INC.
Subsidiaries of Registrant at June 30, 1998
Dover Downs, Inc.
Dover Downs International Speedway, Inc.
Dover Downs Properties, Inc.
Nashville Speedway USA, Inc.
Exhibit 23
The Board of Directors and Shareholders
Dover Downs Entertainment, Inc.
We consent to the incorporation by reference in the registration
statement (No. 333-8147) on Form S-3 of Dover Downs Entertainment, Inc.
of our report dated July 17, 1998 relating to the consolidated balance
sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June
30, 1998 and 1997, and the related consolidated statements of earnings
and cash flows for each of the years in the three-year period ended
June 30, 1998, which report appears in the June 30, 1998 annual report
on Form 10-K of Dover Downs Entertainment, Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
August 28, 1998
CERTIFICATE OF AMENDMENT Exhibit 3.3
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 131,000,000 shares, consisting of: 75,000,000 shares of Common
Stock, which shares shall have a par value of $.10 per share;
55,000,000 shares of Class A Common Stock, which shares shall have a
par value of $.10 per share; and 1,000,000 shares of Preferred Stock,
which shares shall have a par value of $.10 per share."
3. The Certificate of Incorporation of the Corporation is hereby
further amended by striking out Article SEVENTH in its entirety and
substituting in lieu of said Article SEVENTH, the following new Article
SEVENTH:
"SEVENTH: The property and business of this corporation shall be
managed by a Board of up to ten directors. The directors shall be
divided into three classes. The first class (Class I) shall consist of
four (4) directors and the term of office of such class shall expire at
the Annual Meeting of Stockholders in 2000. 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 office of such class shall expire at the Annual Meeting of
Stockholders in 1999. At each annual election, commencing at the next
Annual Meeting of Stockholders in 1998, 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.
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.
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."
4. 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.
5. 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 30th day of June, 1998.
Dover Downs Entertainment, Inc.
BY: /s/ Denis McGlynn
Denis McGlynn, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,694
<SECURITIES> 10,540
<RECEIVABLES> 4,917
<ALLOWANCES> 0
<INVENTORY> 310
<CURRENT-ASSETS> 26,568
<PP&E> 74,231
<DEPRECIATION> 18,456
<TOTAL-ASSETS> 95,777
<CURRENT-LIABILITIES> 22,959
<BONDS> 741
0
0
<COMMON> 1,525
<OTHER-SE> 69,840
<TOTAL-LIABILITY-AND-EQUITY> 95,777
<SALES> 140,945
<TOTAL-REVENUES> 140,945
<CGS> 0
<TOTAL-COSTS> 99,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (702)
<INCOME-PRETAX> 37,655
<INCOME-TAX> 15,742
<INCOME-CONTINUING> 21,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,913
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.40
</TABLE>
Exhibit 10.6
Amendment to Loan Documents PNC Bank
THIS AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is made as of
January 30, 1998, by and between DOVER DOWNS ENTERTAINMENT, INC., a
Delaware corporation (the "Borrower"), and PNC BANK, DELAWARE (the
"Bank").
WITNESSETH:
WHEREAS, the Borrower has executed and delivered to the Bank, a
$20,000,000.00 committed line of credit promissory note dated January
31, 1997 (the "Note") which is governed by a credit agreement dated
January 31, 1997 (the "Credit Agreement"), and irrevocable and
unconditional guaranty and suretyship agreements dated January 31,
1997, under which Dover Downs, Inc., a Delaware corporation; Dover
Downs International Speedway, Inc., a Delaware corporation; and Dover
Downs Properties, Inc., a Delaware corporation (together, the
"Guarantys") guaranty the payment and performance of all indebtedness
of the Borrower (collectively, the "Loan Documents") which evidence or
secure the $20,000,000.00 committed line of credit to the Borrower from
the Bank, as the Loan Documents may be amended, modified or extended
from time to time (the "Obligation"); and
WHEREAS, the Borrower has acquired Nashville Speedway USA, Inc.,
a Tennessee corporation, and such corporation has agreed to guaranty
the Obligation of the Borrower; and
WHEREAS, Nashville Speedway USA, Inc.; Dover Downs, Inc.; Dover
Downs International Speedway, Inc.; and Dover Downs Properties, Inc.
(together, the "Guarantors") have agreed to execute and deliver to the
Bank a new guaranty and suretyship agreement in form and content
satisfactory to the Bank under which the Guarantors shall guaranty the
due and punctual payment of all indebtedness of the Borrower, including
without limitation the Obligation; and
WHEREAS, the Borrower has requested the Bank to extend the
Expiration Date of the Obligation; and
WHEREAS, the Borrower and the Bank desire to amend the Loan
Documents as provided for below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Each of the Loan Documents is amended as set forth in Exhibit
A. Any and all references to any Loan Document in any other Loan
Document shall be deemed to refer to such Loan Document as amended
hereby. Any initially capitalized terms used in this Amendment without
definition shall have the meanings assigned to those terms in the Loan
Documents.
2. This Amendment is deemed incorporated into each of the Loan
Documents. To the extent that any term or provision of this Amendment
is or may be deemed expressly inconsistent with any term or provision
in any Loan Document, the terms and provisions hereof shall control.
3. The Borrower hereby represents and warrants that (a) all of
its representations and warranties in the Loan Documents are true and
correct, (b) no default or Event of Default exists under any Loan
Document, and (c) this Amendment has been duly authorized, executed and
delivered and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms.
4. This Amendment may be signed in any number of counterpart
copies and by the parties hereto on separate counterparts, but all such
copies shall constitute one and the same instrument.
5. This Amendment will be binding upon and inure to the benefit
of the Borrower and the Bank and their respective heirs, executors,
administrators, successors and assigns.
6. Except as amended hereby, the terms and provisions of the Loan
Documents remain unchanged and in full force and effect. Except as
expressly provided herein, this Amendment shall not constitute an
amendment, waiver, consent or release with respect to any provision of
any Loan Document, a waiver of any default or Event of Default
thereunder, or a waiver or release of any of the Bank's rights and
remedies (all of which are hereby reserved). The Borrower expressly
ratifies and confirms the confession of judgment and waiver of jury
trial provisions.
WITNESS the due execution hereof as a document under seal, as of the
date first written above.
WITNESS / ATTEST: DOVER DOWNS ENTERTAINMENT, INC.
_______________________________ By:____________________________
(SEAL)
Denis McGlynn
President
_______________________________ By:____________________________
(SEAL)
Robert M. Comollo
Treasurer
PNC BANK, DELAWARE
By:_____________________________
(SEAL)
Print Name: Paul L. Frick
Title: Assistant Vice President
EXHIBIT A
The Loan Documents are hereby amended as follows:
1. Section 2 of the Note titled "Advances" is hereby amended by
changing the Expiration Date from January 29, 1998, to January 29,
1999.
2. The Credit Agreement is hereby amended as follows:
A. Recital 2 on the first page of the Credit Agreement is amended
by inserting "Nashville Speedway USA, Inc., a Tennessee corporation"
into the list of operating companies referred to as the "Affiliated
Companies" in the Credit Agreement.
B. Recital 3 on the first page of the Credit Agreement is amended
by adding the following subsection (iv):
"(iv) Nashville Speedway USA, Inc., a Tennessee corporation, is a
fully-owned subsidiary of the Borrower located in Nashville,
Tennessee."
C. Section A subsection 1 titled "Type of Facility and Use of
Proceeds" on the first page of the Credit Agreement is amended by
changing the Expiration Date from January 29, 1998, to January 29,
1999.
D. The Addendum to Credit Agreement is hereby amended by adding
"Nashville Speedway USA, Inc." to the list of Affiliated Companies
under the section titled "Directors, Executive Officers, and other
Senior Officers:".
GUARANTY AND SURETYSHIP AGREEMENT Exhibit 10.5
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 19801 to DOVER DOWNS ENTERTAINMENT, INC., (the "Borrower"),
and other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, DOVER DOWNS, INC., DOVER DOWNS
INTERNATIONAL SPEEDWAY, INC., DOVER DOWNS PROPERTIES, INC., and
NASHVILLE SPEEDWAY U.S.A., INC. (individually and collectively, the
"Guarantor"), with an address at 1131 N. duPont Highway, Dover,
Delaware 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 Section 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 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 following 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) any default under any of the Obligations
that does not have a defined set of "Events of Default" and the lapse
of any notice or cure period provided in such Obligations with respect
to such default; (iii) [omitted intentionally]; (iv) the failure by the
Guarantor to perform any of its obligations hereunder; (v) the falsity,
inaccuracy or material breach by the Guarantor of any written warranty,
representation or statement made or furnished to the Bank by or on
behalf of the Guarantor; or (vi) the termination or attempted
termination of this Guaranty, then 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 repay 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, 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.
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 effective as of , 1998.
ATTEST/WITNESS: DOVER DOWNS, INC.
______________________________ By:__________________________(SEAL)
Denis McGlynn
President
______________________________ By:__________________________(SEAL)
Robert M. Comollo
Treasurer
DOVER DOWNS INTERNATIONAL SPEEDWAY,
INC.
______________________________ By:__________________________(SEAL)
Denis McGlynn
President
______________________________ By:__________________________(SEAL)
Robert M. Comollo
Treasurer
DOVER DOWNS PROPERTIES, INC.
______________________________ By:__________________________(SEAL)
Denis McGlynn
President
______________________________ By:__________________________(SEAL)
Robert M. Comollo
Treasurer
NASHVILLE SPEEDWAY U.S.A., INC.
______________________________ By:__________________________(SEAL)
Denis McGlynn
President
______________________________ By:__________________________(SEAL)
Robert M. Comollo
Treasurer
BY-LAWS Exhibit 3.4
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".
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 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 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 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 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.
ARTICLE III
Board of Directors
Section 3.1 Number; Qualifications. The Board of Directors
shall consist up to ten 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' 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.
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.
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
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 to the fullest extent
permitted by law (as presently allowed under Section 141 (c) to the
Delaware General Corporation Law as revised effective July 1, 1996, and
as may be allowed in the future pursuant to amendments or revisions to
applicable law).
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.
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 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 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.
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.
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 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.
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.
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.
(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.
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.
(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.
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 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
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
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:
(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, 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 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.
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