AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
REGISTRATION NO. 333-53077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO.1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DOVER DOWNS ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7993 51-0357525
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
------------------------
1131 NORTH DUPONT HIGHWAY, DOVER, DE 19901 (302) 674-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KLAUS M. BELOHOUBEK, ESQ.
DOVER DOWNS ENTERTAINMENT, INC.
2200 CONCORD PIKE, WILMINGTON, DE 19803 (302) 426-2806
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
JOSEPH L. SEILER III, ESQ. BARRY L. DASTIN, ESQ.
LEBOEUF, LAMB, GREENE & KAYE, SCHOLER, FIERMAN,
MACRAE, L.L.P. HAYS & HANDLER, LLP
125 WEST 55TH STREET 1999 AVENUE OF THE STARS
NEW YORK, NY 10019 LOS ANGELES, CA 90067
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: A soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
1131 N. DUPONT HIGHWAY
DOVER, DELAWARE 19901
Dear Holders of Common Stock and Class A Common Stock
of Dover Downs Entertainment, Inc.:
You are cordially invited to attend the Special Meeting (the "Dover Special
Meeting") of the stockholders of Dover Downs Entertainment, Inc., a Delaware
corporation ("Dover"), which will be held at 1209 Orange Street, First Floor,
Wilmington, Delaware, on June 30, 1998 at 9:00 A.M. (Eastern Daylight Savings
Time).
At the Dover Special Meeting, you will be asked to consider and vote upon
(i) the approval of the Agreement and Plan of Merger, dated as of March 26, 1998
(the "Merger Agreement"), by and among Dover, FOG Acquisition Corp., a
California corporation and a wholly-owned subsidiary of Dover ("Merger Sub"),
and Grand Prix Association of Long Beach, Inc., a California corporation ("Grand
Prix"), (ii) the merger proposed in the Merger Agreement and (iii) certain
transactions relating to the Merger Agreement. The foregoing proposals are
described more fully in the accompanying Joint Proxy Statement/Prospectus, and a
copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, it is contemplated that Merger Sub will
be merged with and into Grand Prix (the "Merger"), whereupon Grand Prix will
become a wholly-owned subsidiary of Dover. At the effective time of the Merger
(the "Effective Time"), each share of common stock, no par value per share, of
Grand Prix ("Grand Prix Common Stock"), issued and outstanding immediately prior
to the Effective Time (except for any such shares held by Grand Prix or any
subsidiary of Grand Prix, any such shares held by Dover or any subsidiary of
Dover and any Dissenting Shares, as defined below) will be converted into the
right to receive 0.63 fully paid and non-assessable shares (the "Exchange
Ratio") of common stock, par value $.10 per share, of Dover ("Dover Common
Stock") and 0.63 of a common stock purchase right (as further discussed in the
Joint Proxy Statement/Prospectus), subject to certain adjustments if the average
closing sales price of Dover Common Stock during the fifteen (15) consecutive
business days prior to the Effective Time is greater than $32.00 per share or
less than $21.00 per share, provided that the Exchange Ratio shall not be
greater than 0.6963 nor less than 0.5929. Holders of Grand Prix Common Stock
will receive cash in lieu of any fractional shares of Dover Common Stock to
which such shareholders would otherwise be entitled. Each option to purchase
Grand Prix Common Stock outstanding immediately prior to the Effective Time
shall become, at the Effective Time, an option to purchase, on the same terms
and conditions as were applicable under Grand Prix's stock option plans (each a
"Grand Prix Option"), that number of shares of Dover Common Stock determined by
multiplying the number of shares of Grand Prix Common Stock subject to such
Grand Prix Option by the Exchange Ratio, rounded up to the nearest whole share,
at an exercise price equal to the exercise price of such option at the Effective
Time divided by the Exchange Ratio, rounded up to the nearest full cent.
Under Chapter 13 of the California General Corporation Code any holder of
Grand Prix Common Stock who objects to the Merger may, under certain
circumstances and by following prescribed statutory procedures, have the right
to dissent from the Merger and seek a determination of, and receive payment for,
the "fair market value" of such shareholder's shares ("Dissenting Shares").
However, no Grand Prix shareholder will have dissenters' rights unless
Dissenting Shares represent at least 5% of the outstanding shares of Grand Prix
Common Stock.
Consummation of the proposed Merger is subject to, among other things, (a)
approval of the Merger by the holders of a majority of the outstanding shares of
Grand Prix Common Stock, (b) the affirmative vote of a majority of the voting
power of Dover Common Stock and the Class A Common Stock, par value $.10 per
share, of Dover present in person or represented by proxy at the Dover Special
Meeting, in favor of the issuance of additional Dover Common Stock in connection
with the
<PAGE>
Merger, and (c) the approval for listing on the New York Stock Exchange of the
shares of Dover Common Stock to be issued pursuant to the Merger. The Merger
will be consummated shortly after such stockholder and other approvals are
obtained and the other conditions to the Merger are satisfied or waived. If the
requisite approvals of the stockholders of Grand Prix and Dover are received,
the Merger is expected to be consummated on or about July 1, 1998.
Stockholders are urged to review carefully the information contained in the
Joint Proxy Statement/Prospectus prior to deciding how to vote their shares at
the Dover Special Meeting.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, DOVER AND DOVER'S
STOCKHOLDERS. ACCORDINGLY, THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER, THE MERGER AGREEMENT AND THE ISSUANCE OF SHARES OF DOVER COMMON
STOCK IN CONNECTION WITH THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF DOVER VOTE FOR APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND
THE ISSUANCE OF DOVER COMMON STOCK IN CONNECTION WITH THE MERGER.
Whether or not you expect to attend the Dover Special Meeting in person,
please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the Dover Special Meeting you may vote in person, even if you previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ John W. Rollins, Sr.
-----------------------------------
John W. Rollins, Sr.
Chairman of the Board of Directors
Wilmington, Delaware
May 21, 1998
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 1998
TO THE HOLDERS OF COMMON STOCK AND CLASS A COMMON STOCK
OF DOVER DOWNS ENTERTAINMENT, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
Stockholders of Dover Downs Entertainment, Inc. ("Dover"), a Delaware
corporation, will be held on June 30, 1998 on the First Floor, 1209 Orange
Street, Wilmington, Delaware, starting at 9:00 A.M. (Eastern Daylight Savings
Time), for the purpose of considering and voting upon the following matters:
1. To approve the Agreement and Plan of Merger, dated as of March 26,
1998 (the "Merger Agreement"), by and among Dover, FOG Acquisition Corp., a
California corporation and a wholly-owned subsidiary of Dover ("Merger
Sub"), and Grand Prix Association of Long Beach, Inc., a California
corporation ("Grand Prix") and the merger proposed in the Merger Agreement.
Pursuant to the Merger Agreement, it is contemplated that Merger Sub will
be merged with and into Grand Prix with Grand Prix surviving as a
wholly-owned subsidiary of Dover (the "Merger"). At the effective time of
the Merger (the "Effective Time"), each share of common stock, no par value
per share, of Grand Prix ("Grand Prix Common Stock") issued and outstanding
immediately prior to the Effective Time, (except for any such shares held
by Grand Prix or any subsidiary of Grand Prix, any such shares held by
Dover or any subsidiary of Dover and any Dissenting Shares, as defined in
the Joint Proxy Statement/Prospectus) shall be converted into the right to
receive 0.63 fully paid and non-assessable shares (the "Exchange Ratio") of
common stock, $.10 par value per share, of Dover ("Dover Common Stock") and
0.63 of a common stock purchase right (as further discussed in the Joint
Proxy Statement/Prospectus), subject to certain adjustments if the average
closing sales price of Dover Common Stock during the fifteen (15)
consecutive business days prior to the Effective Time is greater than
$32.00 or less than $21.00 per share, provided that the Exchange Ratio
shall not be greater than 0.6963 nor less than 0.5929. Holders of Grand
Prix Common Stock will receive cash in lieu of any fractional shares of
Dover Common Stock to which such shareholder would otherwise be entitled.
2. To approve the issuance of up to 2,793,946 shares of Dover Common
Stock in order to effect the Merger.
3. To approve the assumption of the stock options issued by Grand Prix
under Grand Prix's stock option plans that are outstanding immediately
prior to the Effective Time.
4. To amend and restate the Certificate of Incorporation of Dover to
(a) increase the number of directors to serve on the Board 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) to increase the
number of shares of Dover Common Stock authorized for issuance from
35,000,000 shares to 75,000,000 shares, and (c) to increase the number of
shares of Class A Common Stock, par value $.10 per share, of Dover
authorized for issuance from 30,000,000 shares to 55,000,000 shares.
5. To elect one additional Class I Director to the Board of Directors
of Dover for the remainder of a three (3) year term expiring in 2000.
6. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Detailed information concerning the Merger Agreement, the Merger and other
important matters are set forth in the accompanying Joint Proxy
Statement/Prospectus, which you are urged to read carefully.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTEREST OF, DOVER AND DOVER
STOCKHOLDERS. ACCORDINGLY, THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER, THE MERGER AGREEMENT, THE ISSUANCE
<PAGE>
OF SHARES OF DOVER COMMON STOCK IN CONNECTION WITH THE MERGER, THE ASSUMPTION OF
THE GRAND PRIX OPTIONS, THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND
THE ELECTION OF ONE ADDITIONAL CLASS I DIRECTOR TO THE BOARD OF DIRECTORS, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AFOREMENTIONED
PROPOSALS.
ONLY STOCKHOLDERS OF RECORD OF COMMON STOCK OR CLASS A COMMON STOCK OF
DOVER AT THE CLOSE OF BUSINESS ON MAY 18, 1998 WILL BE ENTITLED TO RECEIVE
NOTICE OF AND TO VOTE AT THE DOVER SPECIAL MEETING.
Whether or not you expect to attend the Dover Special Meeting, WE URGE YOU
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-paid envelope. You may revoke your proxy at any time before it
is voted by giving written notice of revocation to Dover, by subsequently filing
another proxy or by attending the Dover Special Meeting and voting in person.
By Order of the Board of Directors,
Michael B. Kinnard
Vice President -- General Counsel
May 21, 1998
Wilmington, Delaware
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE,
SIGN AND PROMPTLY RETURN YOUR PROXY CARD.
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
3000 PACIFIC AVENUE
LONG BEACH, CALIFORNIA 90806
Dear Holders of Common Stock of
Grand Prix Association of Long Beach, Inc.:
You are cordially invited to attend the Special Meeting (the "Grand Prix
Special Meeting") of the shareholders of Grand Prix Association of Long Beach,
Inc., a California corporation ("Grand Prix"), which will be held at the Long
Beach Hilton Hotel, Two World Trade Center, Long Beach, California on June 30,
1998, at 4:00 PM, Pacific Daylight Savings Time.
At the Grand Prix Special Meeting, you will be asked to consider and vote
upon the approval of the Agreement and Plan of Merger, dated as of March 26,
1998 (the "Merger Agreement"), by and among Dover Downs Entertainment, Inc., a
Delaware corporation ("Dover"), FOG Acquisition Corp., a California corporation
and a wholly-owned subsidiary of Dover ("Merger Sub"), and Grand Prix and the
merger proposed in the Merger Agreement. The foregoing proposal is described
more fully in the accompanying Joint Proxy Statement/Prospectus and a copy of
the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus.
Pursuant to the Merger Agreement, it is contemplated that Merger Sub will
be merged with and into Grand Prix (the "Merger"), whereupon Grand Prix will
become a wholly-owned subsidiary of Dover. At the effective time of the Merger
(the "Effective Time"), each share of Common Stock, no par value per share, of
Grand Prix ("Grand Prix Common Stock"), issued and outstanding immediately prior
to the Effective Time (except for any such shares held by Grand Prix or any
subsidiary of Grand Prix, any such shares held by Dover or any subsidiary of
Dover and any Dissenting Shares, as defined below) will be converted into the
right to receive 0.63 fully paid and non-assessable shares (the "Exchange
Ratio") of common stock, par value $.10 per share, of Dover ("Dover Common
Stock") and 0.63 of a common stock purchase right (as further discussed in the
Joint Proxy Statement/Prospectus), subject to certain adjustments if the average
closing sales price of Dover Common Stock during the fifteen (15) consecutive
business days prior to the Effective Time is greater than $32.00 or less than
$21.00 per share, provided that the Exchange Ratio shall not be greater than
0.6963 nor less than 0.5929. Holders of Grand Prix Common Stock will receive
cash in lieu of any fractional shares of Dover Common Stock to which such
shareholders would otherwise be entitled. Each option to purchase Grand Prix
Common Stock outstanding immediately prior to the Effective Time shall become,
at the Effective Time, an option to purchase, on the same terms and conditions
as were applicable under Grand Prix's stock option plans (each a "Grand Prix
Option"), that number of shares of Dover Common Stock determined by multiplying
the number of shares of Grand Prix Common Stock subject to such Grand Prix
Option by the Exchange Ratio, rounded up to the nearest whole share, at an
exercise price equal to the exercise price of such option at the Effective Time
divided by the Exchange Ratio, rounded up to the nearest full cent.
Under Chapter 13 of the California General Corporation Code, holders of
Grand Prix Common Stock who object to the Merger may, under certain
circumstances and by following prescribed statutory procedures, have the right
to dissent from the Merger and seek a determination of, and receive payment for,
the "fair market value" of such shareholder's shares ("Dissenting Shares").
However, no Grand Prix shareholder will have dissenters' rights unless
Dissenting Shares represent at least 5% of the outstanding shares of Grand Prix
Common Stock.
Consummation of the proposed Merger is subject to, among other things, (a)
the approval of the Merger by the holders of a majority of the outstanding
shares of Grand Prix Common Stock, (b) the approval by holders of a majority of
the shares of Dover capital stock entitled to vote, present and voting at the
meeting of holders of Dover capital stock of the issuance of additional Dover
Common Stock in connection with the Merger and (c) the approval for listing on
the New York Stock Exchange of the shares of Dover Common Stock to be issued
pursuant to the Merger. The Merger will be
<PAGE>
consummated shortly after such shareholder approvals are obtained and the other
conditions to the Merger are satisfied or waived. If the requisite approvals of
the shareholders of Grand Prix and Dover are received, the Merger is expected to
be consummated on or about July 1, 1998.
Shareholders are urged to review carefully the information contained in the
Joint Proxy Statement/Prospectus prior to deciding how to vote their shares at
the Grand Prix Special Meeting.
THE GRAND PRIX BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, GRAND PRIX AND GRAND PRIX'S
SHAREHOLDERS. ACCORDINGLY, THE GRAND PRIX BOARD OF DIRECTORS HAS APPROVED THE
MERGER AND THE MERGER AGREEMENT, AND RECOMMENDS THAT THE SHAREHOLDERS OF GRAND
PRIX VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Whether or not you expect to attend the Grand Prix Special Meeting in
person, please complete, sign and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope to assure representation of your shares. You
may revoke your proxy at any time before it has been voted, and if you attend
the Grand Prix Special Meeting you may vote in person, even if you previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ Christoper R. Pook
------------------------------------
Christopher R. Pook
Chairman and Chief Executive Officer
May 21, 1998
Long Beach, California
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 30, 1998
TO THE HOLDERS OF COMMON STOCK OF
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Grand
Prix Special Meeting") of Grand Prix Association of Long Beach, Inc., a
California corporation ("Grand Prix"), will be held on June 30, 1998 at 4:00 PM,
Pacific Daylight Savings Time, at the Long Beach Hilton Hotel, Two World Trade
Center, Long Beach, CA for the purpose of considering and voting upon the
following matters:
1. To approve the Agreement and Plan of Merger, dated as of March 26,
1998 (the "Merger Agreement"), by and among Dover Downs Entertainment,
Inc., a Delaware corporation ("Dover"), FOG Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Dover ("Merger Sub"), and
Grand Prix and the merger proposed in the Merger Agreement. Pursuant to the
Merger Agreement, it is contemplated that Merger Sub will be merged with
and into Grand Prix with Grand Prix surviving as a wholly-owned subsidiary
of Dover (the "Merger"). At the effective time of the Merger (the
"Effective Time"), each share of common stock, no par value, of Grand Prix
("Grand Prix Common Stock") issued and outstanding immediately prior to the
Effective Time (except for any such shares held by Grand Prix or any
subsidiary of Grand Prix, any such shares held by Dover or any subsidiary
of Dover and any Dissenting Shares, as defined in the Joint Proxy
Statement/Prospectus) shall be converted into the right to receive 0.63
fully paid and non-assessable shares (the "Exchange Ratio") of common
stock, $.10 par value per share, of Dover ("Dover Common Stock") and 0.63
of a common stock purchase right (as further discussed in the Joint Proxy
Statement/Prospectus), subject to certain adjustments if the average
closing sales price of Dover Common Stock during the fifteen (15)
consecutive business days prior to the Effective Time is greater than
$32.00 or less than $21.00 per share, provided that the Exchange Ratio
shall not be greater than 0.6963 nor less than 0.5929. Holders of Grand
Prix Common Stock will receive cash in lieu of any fractional shares of
Dover Common Stock to which such shareholder would otherwise be entitled.
2. Such other business as may properly come before the Grand Prix
Special Meeting or any adjournments or postponements thereof.
Detailed information concerning the Merger Agreement, the Merger and other
important matters are set forth in the accompanying Joint Proxy
Statement/Prospectus and the Annexes thereto, which you are urged to read
carefully.
THE GRAND PRIX BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTEREST OF, GRAND PRIX AND GRAND PRIX
SHAREHOLDERS. ACCORDINGLY, THE GRAND PRIX BOARD OF DIRECTORS HAS APPROVED THE
MERGER AND THE MERGER AGREEMENT, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE AFOREMENTIONED PROPOSAL.
ONLY SHAREHOLDERS WHO WERE HOLDERS OF RECORD OF COMMON STOCK OF GRAND PRIX
AT THE CLOSE OF BUSINESS ON MAY 18, 1998 WILL BE ENTITLED TO RECEIVE NOTICE OF
AND TO VOTE AT THE GRAND PRIX SPECIAL MEETING.
<PAGE>
Whether or not you expect to attend the Grand Prix Special Meeting, WE URGE
YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY in the
enclosed postage-paid envelope. You may revoke your proxy at any time before it
is voted by giving written notice of revocation to Grand Prix, by subsequently
filing another proxy or by attending the Grand Prix Special Meeting and voting
in person.
By Order of the Board of Directors,
Gemma A. Bannon
Secretary
May 21, 1998
Long Beach, California
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE,
SIGN AND PROMPTLY RETURN YOUR PROXY CARD.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
<PAGE>
TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION....................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 3
FORWARD-LOOKING STATEMENTS.................................. 5
SUMMARY..................................................... 6
The Parties to the Merger................................. 7
The Stockholder Meetings.................................. 8
The Merger................................................ 11
Effective Time............................................ 13
Transactions in Connection with the Merger................ 13
Nominations to the Grand Prix Board of Directors.......... 14
Nominations to the Dover Board of Directors............... 14
Employment Agreements..................................... 14
Exchange of Stock Certificates............................ 14
Conditions to the Merger.................................. 15
Termination............................................... 15
Termination Fees; Expenses................................ 15
Opinions of Financial Advisors............................ 16
Treatment of Grand Prix Options........................... 17
Interests of Certain Persons in the Merger................ 17
Regulatory Approvals...................................... 18
Dissenters' Rights........................................ 18
Accounting Treatment...................................... 18
Federal Income Tax Consequences........................... 18
Comparative Rights of Stockholders........................ 18
Risk Factors.............................................. 19
Markets and Market Prices................................. 19
RISK FACTORS................................................ 21
Risks Common to Both Companies............................ 21
Risks Related to Dover.................................... 24
Risks Related to Grand Prix............................... 27
THE STOCKHOLDER MEETINGS.................................... 30
Introduction.............................................. 30
Dover Sppecial Meeting.................................... 30
Principal Stockholders of Dover........................... 34
Grand Prix Special Meeting................................ 35
Principal Shareholders of Grand Prix...................... 37
COMPARATIVE PER SHARE DATA.................................. 40
DOVER SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION............................................... 41
GRAND PRIX SELECTED HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION............................................... 42
Pro Forma Condensed Combined Consolidated
Balance Sheet as of March 31, 1998....................... 43
Pro Forma Condensed Combined Statement of
Earnings for the Year Ended June 30, 1997 ............... 44
Pro Forma Condensed Combined Statement of Earnings for the
Nine Month Periods Ended March 31, 1998 ................. 45
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 46
Accounting Treatment of the Merger........................ 46
Basis of Presentation of Pro Forma Financials............. 46
Pro Forma Adjustments..................................... 47
INFORMATION CONCERNING THE COMPANIES........................ 49
Dover..................................................... 49
i
<PAGE>
PAGE
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Directors and Executive Officers of Dover................. 51
Committees of Dover's Board of Directors.................. 53
Dover Director Compensation............................... 53
Dover Executive Officer Compensation...................... 54
Grand Prix................................................ 55
Directors and Executive Officers of Grand Prix............ 57
Directors and Officers of Merger Sub...................... 58
DESCRIPTION OF DOVER CAPITAL STOCK.......................... 60
Dover Common Stock and Dover Class A Common Stock......... 60
Dover Preferred Stock..................................... 61
Possible Limitations on Transferability of Shares......... 61
Stock Purchase Rights..................................... 62
Anti-takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law................. 64
Transfer Agent............................................ 66
DESCRIPTION OF GRAND PRIX CAPITAL STOCK..................... 67
Grand Prix Common Stock................................... 67
Grand Prix Preferred Stock................................ 67
Dividend Policy........................................... 67
Bonds..................................................... 67
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 68
Background of the Merger.................................. 68
Joint Reasons for the Merger.............................. 72
Recommendations of the Dover Board of Directors........... 72
Recommendations of the Grand Prix Board of Directors...... 72
Opinion of Financial Advisor to Dover..................... 74
Opinion of Financial Advisor to Grand Prix................ 80
Interests of Certain Persons in the Merger................ 84
Dissenters' Rights........................................ 85
THE MERGER AGREEMENT........................................ 86
Effective Time............................................ 86
Conversion of Shares...................................... 86
Fractional Shares......................................... 86
Effect on Stock Options................................... 86
Effect on Warrant......................................... 87
Exchange of Certificates.................................. 87
Corporate Matters......................................... 88
Stock Exchange Listing of Dover Common Stock.............. 88
Representations and Warranties............................ 88
Conduct of Business Pending the Merger.................... 89
Indemnification; Directors' and Officers' Insurance....... 91
Conditions to Consummation of the Merger.................. 92
Termination; Termination Fees and Expenses................ 93
Amendment of the Merger Agreement......................... 94
Expenses and Fees......................................... 95
STOCK PURCHASE AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT................................................. 95
DISSENTERS' RIGHTS.......................................... 96
ACCOUNTING TREATMENT OF THE MERGER.......................... 97
FEDERAL SECURITIES LAW CONSEQUENCES OF THE MERGER........... 97
ii
<PAGE>
PAGE
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....... 98
General................................................... 98
Exchange of Grand Prix Common Stock for Dover Common
Stock.................................................. 98
Cash Received in Lieu of Fractional Shares of Dover Common
Stock.................................................. 99
Grand Prix Shareholders Who Exercise Dissenters' Rights... 99
Grand Prix, Dover and Merger Sub.......................... 99
Capital Gain or Loss...................................... 99
Backup Withholding........................................ 99
Filing with the IRS....................................... 99
COMPARISON OF RIGHTS OF HOLDERS OF DOVER COMMON STOCK AND
HOLDERS OF GRAND PRIX COMMON STOCK........................ 100
Mergers and Consolidations................................ 100
Anti-Takeover Provisions.................................. 101
Appraisal Rights.......................................... 102
Special Meetings.......................................... 102
Actions Without A Meeting................................. 103
Proxy Requirements........................................ 103
Derivative Actions........................................ 103
Dividends................................................. 104
Indemnification........................................... 104
Fiduciary Duties of Directors............................. 105
Limitation of Liability................................... 105
Cumulative Voting for Directors........................... 106
Filling Vacancies on the Board of Directors............... 106
Removal of Directors...................................... 106
Inspection of Books and Records........................... 107
AMENDMENTS TO DOVER'S CERTIFICATE OF INCORPORATION.......... 107
Increase in Authorized Dover Capital Stock................ 107
Required Vote............................................. 108
ELECTION OF DIRECTOR........................................ 108
DOVER BENEFIT PLANS......................................... 109
Pension Plans............................................. 109
401(k) Retirement Plan.................................... 109
DOVER MANAGEMENT'S DISCUSSION AND ANALYSIS.................. 110
GRAND PRIX MANAGEMENT'S DISCUSSION AND ANALYSIS............. 115
EXPERTS..................................................... 121
LEGAL MATTERS............................................... 121
STOCKHOLDER PROPOSALS....................................... 121
OTHER MATTERS............................................... 121
FINANCIAL STATEMENTS........................................ F-1
ANNEXES
Annex A Agreement and Plan of Merger
Annex B Opinion of Gerard Klauer Mattison & Co., Inc.
Annex C Opinion of L.H. Friend, Weinress, Frankson & Presson, Inc.
Annex D Pertinent Statutory Provisions of the California General
Corporation Code
iii
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JOINT PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF STOCKHOLDERS OF
DOVER DOWNS ENTERTAINMENT, INC.
SPECIAL MEETING OF SHAREHOLDERS OF
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
DOVER DOWNS ENTERTAINMENT, INC. PROSPECTUS
COMMON STOCK, PAR VALUE $.10 PER SHARE
This Joint Proxy Statement/Prospectus is being furnished to (i) holders of
Common Stock, par value $.10 per share, of Dover ("Dover Common Stock") and
Class A Common Stock, par value $.10 per share, of Dover ("Dover Class A Common
Stock") in connection with the solicitation of proxies by the Board of Directors
of Dover Downs Entertainment, Inc., a Delaware corporation ("Dover"), for the
Special Meeting of Stockholders to be held on June 30, 1998 and any adjournment
or postponement thereof (the "Dover Special Meeting") and (ii) holders of Grand
Prix Common Stock (as defined below) in connection with the solicitation of
proxies by the Board of Directors of Grand Prix Association of Long Beach, Inc.,
a California corporation ("Grand Prix"), for the Special Meeting of Grand Prix
Shareholders to be held on June 30, 1998 and any adjournment or postponement
thereof (the "Grand Prix Special Meeting," and together with the Dover Special
Meeting, the "Stockholder Meetings").
The Agreement and Plan of Merger, dated as of March 26, 1998 (the "Merger
Agreement"), by and among Dover, FOG Acquisition Corp., a California corporation
and a wholly-owned subsidiary of Dover ("Merger Sub"), and Grand Prix
contemplates that, upon the satisfaction or waiver of certain conditions to the
closing set forth therein, Merger Sub will be merged with and into Grand Prix
(the "Merger"), with Grand Prix surviving as a wholly-owned subsidiary of Dover
(the "Surviving Corporation"). At the effective time of the Merger (the
"Effective Time"), each outstanding share of Common Stock, no par value, of
Grand Prix ("Grand Prix Common Stock") issued and outstanding immediately prior
to the Effective Time (except for any such shares held by Grand Prix or any
subsidiary of Grand Prix, any such shares held by Dover or any subsidiary of
Dover and any Dissenting Shares, as defined below), will be converted into the
right to receive 0.63 (the "Exchange Ratio") fully paid and non-assessable
shares of Dover Common Stock and 0.63 of a purchase right issued with each share
of Dover Common Stock (each, a "Right"), subject to appropriate adjustment in
the event of any dividend other than regular quarterly cash dividends on the
Dover Common Stock (which do not differ materially from prior dividends), stock
split, stock dividend, reclassification, subdivision, recapitalization,
combination or exchange of shares or similar transaction with respect to Dover
Common Stock or Grand Prix Common Stock and subject to certain adjustments if
the average closing sales price of Dover Common Stock, as reported on the New
York Stock Exchange, during the fifteen (15) consecutive business days prior to
the date of the Effective Time is greater than $32.00 or less than $21.00 per
share, provided that the Exchange Ratio shall not be greater than 0.6963 nor
less than 0.5929. References to the shares of Dover Common Stock issuable in the
Merger shall be deemed to include the associated Rights.
(Continued on next page)
------------------
THE SHARES OF DOVER COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SEE "RISK FACTORS" COMMENCING ON PAGE 21 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF DOVER AND GRAND PRIX
WITH RESPECT TO THE MERGER.
DOVER DOWNS GRAND PRIX ASSOCIATION
ENTERTAINMENT, INC. OF LONG BEACH, INC.
1131 N. DUPONT HIGHWAY 3000 PACIFIC AVENUE
DOVER, DELAWARE 19901 LONG BEACH, CALIFORNIA 90806
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY 21, 1998.
<PAGE>
(Continued from previous page)
Holders of Grand Prix Common Stock will receive cash in lieu of any
fractional shares of Dover Common Stock to which such shareholders would
otherwise have been entitled. At the Effective Time, each outstanding option to
purchase Grand Prix Common Stock (a "Grand Prix Option") shall be assumed by
Dover and shall become an option to purchase, on the same terms and conditions
as were applicable under Grand Prix's stock option plans (the "Stock Option
Plans"), that number of shares of Dover Common Stock determined by multiplying
the number of shares of Grand Prix Common Stock subject to such Grand Prix
Option by the Exchange Ratio, rounded up to the nearest whole share, at an
exercise price equal to the exercise price of such Grand Prix Option at the
Effective Time divided by the Exchange Ratio, rounded up to the nearest full
cent.
The respective obligations of Dover, Grand Prix and Merger Sub to
consummate the Merger are subject to the fulfillment or waiver (where
permissible) of certain conditions set forth in the Merger Agreement. These
conditions include, but are not limited to, the approval by Dover stockholders
of the Issuance Proposal (as defined below), and the approval for listing on the
New York Stock Exchange of the shares of Dover Common Stock to be issued in the
Merger.
At the Dover Special Meeting, holders of Dover Capital Stock (as defined
below) will vote on proposals (i) to approve the Merger Agreement and the Merger
(the "Merger Proposal"), (ii) to issue up to an aggregate of 2,793,946 shares of
Dover Common Stock in order to effect the Merger (the "Issuance Proposal"),
(iii) to approve the assumption by Dover of the Grand Prix Options outstanding
immediately prior to the Effective Time, (iv) to amend 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) to elect one (1) additional Class I Director to the Dover Board
of Directors for the remainder of a three year term expiring in 2000.
At the Grand Prix Special Meeting, holders of Grand Prix Common Stock will
vote on a proposal to approve the Merger Agreement and to approve the Merger
Proposal.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Dover under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the issuance of Dover Common Stock in connection with the Merger.
Dover Common Stock is traded on the New York Stock Exchange under the symbol
"DVD." All information in this Joint Proxy Statement/Prospectus relating to
Dover has been furnished by Dover, and all information in this Joint Proxy
Statement/Prospectus relating to Grand Prix has been furnished by Grand Prix.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to Dover and Grand Prix stockholders on or about May 21,
1998.
Under Chapter 13 of the California General Corporation Law (the "California
Code"), a Grand Prix shareholder who objects to the Merger can assert statutory
dissenters' rights to dissent from and obtain payment of the "fair market value"
of his, her or its Grand Prix Common Stock by strict compliance with the
requirements of the California Code. See "DISSENTERS' RIGHTS" in this Joint
Proxy Statement/Prospectus for a more detailed description of dissenters' rights
with respect to the Merger. The entire text of Sections 1300-1312 of the
California Code is attached as Annex D to this Joint Proxy Statement/Prospectus.
2
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AVAILABLE INFORMATION
Both Dover and Grand Prix are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "SEC" or the
"Commission"). Such reports, proxy and information statements and other
information filed by Dover and Grand Prix can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission and the address of such site is http://www.sec.gov. Dover
Common Stock is listed on the New York Stock Exchange and such reports, proxy
and information statements and other information concerning Dover referred to
above are also available for inspection at the offices of the New York Stock
Exchange at 20 Broad Street, New York, N.Y. 10005. Grand Prix Common Stock is
traded on the NASDAQ National Market, and the reports, proxy and information
statements and other information concerning Grand Prix referred to above can
also be inspected at the offices of NASDAQ Operations, 1753 K Street, N.W.
Washington, D.C. 20006. After consummation of the Merger, Grand Prix will no
longer file reports, proxy and information statements or other information with
the SEC or the NASDAQ National Market. Instead, such information will be
provided, to the extent required, in filings made by Dover.
Dover has filed a registration statement on Form S-4, of which this Joint
Proxy Statement/Prospectus is a part (herein, together with all amendments and
exhibits, referred to as the "Registration Statement"), under the Securities Act
with the Commission covering a maximum of 2,793,946 shares of Dover Common Stock
to be issued in connection with the Merger. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Such additional information may be
obtained from the Commission's principal office in Washington, D.C. Statements
contained in this Joint Proxy Statement/Prospectus, as to the contents of any
contract or other document referred to herein or therein, are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents and reports filed by Dover or Grand Prix with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date hereof and prior to the Stockholder Meetings shall be deemed to be
incorporated by reference into this Joint Proxy Statement/Prospectus and to be a
part hereof from the respective dates of filing of such Joint Proxy
Statement/Prospectus and such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in a
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
3
<PAGE>
THIS JOINT PROXY STATEMENT/PROSPECTUS MAY INCORPORATE DOCUMENTS BY
REFERENCE WHICH MAY BE FILED BY DOVER OR GRAND PRIX WITH THE COMMISSION
SUBSEQUENT TO THE DATE HEREOF OR WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. DOVER HEREBY UNDERTAKES TO PROVIDE, BY FIRST CLASS MAIL OR OTHER
EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, WITHOUT
CHARGE, TO EACH PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF
THE INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS (NOT INCLUDING EXHIBITS TO SUCH INFORMATION UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH INFORMATION). SUCH
REQUESTS FOR INFORMATION SHOULD BE DIRECTED TO DOVER DOWNS ENTERTAINMENT, INC.,
1131 N. DUPONT HIGHWAY, DOVER, DE 19901, ATTENTION: TIMOTHY R. HORNE; TELEPHONE
NUMBER (302) 674-4600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS BEFORE THE STOCKHOLDER
SPECIAL MEETINGS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY DOVER, GRAND PRIX OR ANY OF THEIR AFFILIATES. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A PROXY IN
ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR THE
DISTRIBUTION OF ANY SECURITIES HEREUNDER UNDER ANY CIRCUMSTANCES IS INTENDED TO
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EITHER
DOVER OR GRAND PRIX OR THE INFORMATION CONTAINED HEREIN OR INCORPORATED HEREIN
BY REFERENCE SINCE THE DATE HEREOF.
This Joint Proxy Statement/Prospectus contains trademarks of Dover and
Grand Prix as well as trademarks of other companies. "Dover Downs" and "Monster
Mile" are registered trademarks of Dover. "NASCAR," "Grand National," and
"Winston Cup" are registered trademarks of the National Association for Stock
Car Auto Racing, Inc. ("NASCAR"). "Caesars" is a registered trademark of Caesars
World, Inc. "CART" is a registered trademark and service mark of Championship
Auto Racing Teams, Inc. "NHRA" is the registered trademark and service mark of
National Hot Rod Association. "Sears" and "Craftsman" are the registered
trademarks of Sears, Roebuck & Co.. "Motorola" is the registered trademark of
Motorola, Inc. "Pennzoil" is the registered trademark of Pennzoil Company.
"CARQUEST" is the registered trademark of CARQUEST Corp. "Busch" is the
registered trademark and service mark of Anheuser Busch, Inc. "Winston" is the
registered trademark of R.J. Reynolds Tobacco Company. "AutoZone" is the
registered trademark of Autozone Corp. "FedEx" is the registered trademark and
service mark of Federal Expess Corporation.
4
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FORWARD-LOOKING STATEMENTS
THIS JOINT STATEMENT/PROSPECTUS CONTAINS AND MAY INCORPORATE BY REFERENCE
CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 WITH RESPECT TO, AMONG OTHER THINGS, THE RESULTS
OF OPERATIONS, BUSINESSES AND PROSPECTS OF DOVER AND GRAND PRIX, THE REASONS FOR
THE MERGER, STATEMENTS ABOUT THE EXPECTED IMPACT OF THE MERGER ON DOVER'S AND
GRAND PRIX'S BUSINESSES AND FINANCIAL PERFORMANCE AND CONDITION
("FORWARD-LOOKING STATEMENTS"). CERTAIN RISKS AND UNCERTAINTIES MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED OR PROJECTED, FORECAST,
ESTIMATED OR BUDGETED IN SUCH FORWARD-LOOKING STATEMENTS INCLUDING, AMONG
OTHERS, THE FOLLOWING POSSIBILITIES: (i) FAILURE TO ACHIEVE THE BENEFITS THAT
DOVER AND GRAND PRIX BELIEVE MAY RESULT FROM THE MERGER; (ii) HEIGHTENED
COMPETITION AND THE ENTRY OF NEW COMPETITORS; (iii) FAILURE TO OBTAIN NEW
SPONSORS OR CUSTOMERS OR RETAIN EXISTING SPONSORS OR CUSTOMERS; (iv) INABILITY
TO CARRY OUT MARKETING AND/OR EXPANSION PLANS; (v) LOSS OF KEY EXECUTIVES; (vi)
GENERAL ECONOMIC AND BUSINESS CONDITIONS WHICH ARE LESS FAVORABLE THAN EXPECTED;
(vii) UNANTICIPATED CHANGES IN INDUSTRY TRENDS; (viii) GREATER THAN EXPECTED
COSTS OR DIFFICULTIES RELATING TO THE INTEGRATION OF DOVER AND GRAND PRIX; (ix)
GREATER THAN EXPECTED COSTS OR DIFFICULTIES IN DEVELOPING AND MAINTAINING
PROPRIETARY RIGHTS; AND (x) THE FACTORS DISCUSSED UNDER THE HEADING "RISK
FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER DOVER
NOR GRAND PRIX UNDERTAKES ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING
STATEMENTS.
5
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. This summary is not intended to be a
complete description of the matters covered in this Joint Proxy
Statement/Prospectus and is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, including the Annexes hereto, and in the documents
incorporated by reference in this Joint Proxy Statement/Prospectus. A copy of
the Merger Agreement is set forth as Annex A to this Joint Proxy
Statement/Prospectus, and reference is made thereto for a complete description
of the Merger, as hereinafter defined. Shareholders are urged to read carefully
the entire Joint Proxy Statement/Prospectus, including the Annexes.
This Joint Proxy Statement/Prospectus relates to the proposed transaction
between Dover Downs Entertainment, Inc. a Delaware corporation ("Dover") and
Grand Prix Association of Long Beach, Inc., a California corporation ("Grand
Prix"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of March 26, 1998, by and among Dover, FOG Acquisition Corp., a
California corporation and a wholly-owned subsidiary of Dover ("Merger Sub"),
and Grand Prix. Pursuant to the Merger Agreement, it is contemplated that Merger
Sub will be merged with and into Grand Prix, as a result of which the separate
corporate existence of Merger Sub shall cease and Grand Prix shall continue as a
wholly-owned subsidiary of Dover (the "Surviving Corporation"). Upon the
effectiveness of the Merger (the "Effective Time"), each share of Common Stock,
no par value, of Grand Prix ("Grand Prix Common Stock") issued and outstanding
immediately prior to the Effective Time (except for any such shares held by
Grand Prix or any subsidiary of Grand Prix, any such shares held by Dover or any
subsidiary of Dover and any Dissenting Shares, as defined below) will be
converted into the right to receive 0.63 fully paid and non-assessable shares
(the "Exchange Ratio") of Common Stock, par value $.10 per share, of Dover
("Dover Common Stock") and 0.63 of a Right. In the event that the average of the
closing sale prices of the Dover Common Stock during the fifteen (15)
consecutive business days prior to the Effective Time, as reported on the New
York Stock Exchange ("the Average Closing Price"), is greater than $32.00 per
share or less than $21.00 per share, the Exchange Ratio shall be adjusted as
follows: (a) if the Average Closing Price is greater than $32.00 per share, the
Exchange Ratio shall equal $20.16 divided by the Average Closing Price, rounded
to the nearest four (4) decimal places; or (b) if the Average Closing Price is
less than $21.00 per share, the Exchange Ratio shall equal $13.23 divided by the
Average Closing Price, rounded to the nearest four (4) decimal places; and (c)
provided that the Exchange Ratio shall not be greater than 0.6963 nor less than
0.5929. References to the shares of Dover Common Stock issuable in the Merger
shall be deemed to include the associated Rights.
Holders of Grand Prix Common Stock will receive cash in lieu of any
fractional shares of Dover Common Stock to which such shareholders would have
been entitled. At the Effective Time, each option to purchase Grand Prix Common
Stock (a "Grand Prix Option") outstanding immediately prior to the Effective
Time shall be assumed by Dover and shall become an option to purchase that
number of shares of Dover Common Stock determined by multiplying the number of
shares of Grand Prix Common Stock subject to such Grand Prix Option immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole share, at an exercise price equal to the exercise price of such Grand Prix
Option at the Effective Time, divided by the Exchange Ratio, rounded up to the
nearest full cent.
The respective obligations of Dover, Grand Prix and Merger Sub to
consummate the Merger are subject to the fulfillment or waiver (where
permissible) of certain conditions set forth in the Merger Agreement. These
conditions include, but are not limited to, the approval by holders of Dover
Capital Stock (as defined below) of the Issuance Proposal, the approval by
holders of Grand Prix Common Stock of the Merger Proposal and the approval for
listing on the New York Stock Exchange of the shares of Dover Common Stock to be
issued pursuant to the Merger. See "THE MERGER AGREEMENT -- Conditions to
Consummation of the Merger."
A copy of the Merger Agreement is attached hereto as Annex A, and the terms
of the Merger Agreement are summarized herein. See "THE MERGER AGREEMENT."
6
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THE PARTIES TO THE MERGER
Dover. Dover 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 Dover in Dover, Delaware.
Dover Downs International Speedway offers a modern, state-of-the-art,
concrete super speedway for top-rated National Association for Stock Car Auto
Racing, Inc. ("NASCAR") and Indy Racing League ("IRL") events. Dover Downs
Raceway offers traditional harness horse racing -- horse races in which the
horses are harnessed to a carriage or other vehicle and not mounted by a jockey
- -- and year-round satellite-linked pari-mutuel wagering on simulcast harness and
thoroughbred horse racing from regional and national tracks. Dover also
simulcasts live races at Dover Downs Raceway to tracks and other off-track
betting locations across North America. Dover expanded into video lottery (slot)
machine gaming in December of 1995. Video lottery (slot) machines use spinning
reels or video displays, or both, where customers deposit bills, coins or tokens
to play a game of chance in which the results are randomly and immediately
determined by the machine. The video lottery operations are managed by Caesars
World Gaming Development Corporation ("Caesars").
The Dover facility offers a unique gaming and entertainment experience.
Management believes it to be the only facility in the country that combines in
one location NASCAR Winston Cup/Busch Series (NASCAR's premier racing circuits)
stock car racing, harness horse racing, pari-mutuel wagering on both live and
simulcast horse races, and video lottery (slot) machine gaming.
Dover also owns and operates the historic NASCAR racing facility at the
Tennessee State Fairgrounds in Nashville, Tennessee ("Nashville Speedway").
Nashville Speedway, which hosted its first race in 1904, is one of the oldest
tracks in the country. Nashville Speedway's current racing schedule includes
events in the NASCAR Busch Grand National Series, NASCAR Craftsman Truck Series,
NASCAR Slim Jim All-Pro Series and weekly NASCAR Winston Racing Series.
Dover was organized in 1996 under the laws of the State of Delaware.
Dover's executive offices are located at 1131 N. DuPont Highway, Dover, Delaware
19901, telephone (302) 674-4600.
Grand Prix. Grand Prix organizes and promotes automobile racing events.
Grand Prix developed and operates the Grand Prix of Long Beach (the "Grand Prix
Event"), an annual temporary circuit professional motorsports event which has
been run in the streets of Long Beach, California for 24 years. The Grand Prix
Event has the second highest paid attendance of any Indy car race, second only
to the Indianapolis 500, attracting in excess of 200,000 paid spectators in each
of the past six (6) years.
Grand Prix also owns two permanent motorsports facilities, Gateway
International Raceway ("Gateway"), in Madison, Illinois (near St. Louis,
Missouri), and Memphis Motorsports Park ("Memphis"), in Millington, Tennessee
(near Memphis, Tennessee). Since it acquired the Gateway facility, Grand Prix
has put in place a new infrastructure, including electrical service, a
sanitation system, a ground water drainage system, ingress and egress roads for
new parking facilities, a new drag strip, a 1 1/4 mile oval track and road
course, a drag strip tower, an oval suite tower, walkways, concession stands and
grandstands capable of presently hosting 55,000 spectators per event and
eventually 85,000 per event at the oval and 30,000 at the drag strip. The
Memphis facility currently has a regulation National Hot Rod Association
("NHRA") drag strip, a road course, a 1/4-mile dirt track, ten corporate suites,
and is capable of seating approximately 16,000 people at the drag strip
utilizing permanent grandstands, supplemented by Grand Prix's portable
grandstands. In addition, work continues on the completion of the 3/4 mile paved
oval which will seat up to 35,000 people in permanent and portable grandstands.
Both Gateway International Raceway and Memphis Motorsports Park have the
capability of hosting major stock car and Indy car races. Both facilities have
national caliber NHRA 1/4 mile drag strips. Gateway will host the NHRA Sears
Craftsman Nationals, the Motorola 300 FedEx Championship Series race sanctioned
by Championship Auto Racing Teams, Inc. ("CART"), the CARQUEST Auto Parts 250
NASCAR Busch Series Grand National Division race, and a NASCAR Craftsman Series
Truck race. In 1998, Memphis will host the NHRA Pennzoil Nationals, presented by
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AutoZone, a NASCAR Craftsman Series Truck race, and a combined Automobile Racing
Club of America ("ARCA") and United States Auto Club ("USAC") Silver Crown
event.
Grand Prix's main business strategy, which is expected to continue after
the Merger, is to maintain the Grand Prix Event as one of the motorsports
industry's premier events and to maximize its return on assets while using the
experience and expertise of its senior management team to locate and develop
other motorsports venues. In furtherance of this strategy, Grand Prix seeks to
locate, acquire, develop and operate venues which it believes are underdeveloped
or underutilized; are located in major metropolitan areas; can be acquired,
improved and developed at a reasonable cost; and can be operated as
multi-purpose motorsports facilities.
Grand Prix was formed in 1974 as a California corporation. Grand Prix's
executive offices are located at 3000 Pacific Avenue, Long Beach, California
90806, telephone (562) 981-2600.
FOG Acquisition Corp. FOG Acquisition Corp., a wholly-owned subsidiary of
Dover, was incorporated in California in March, 1998 solely for the purpose of
effecting the Merger. FOG Acquisition Corp. has not conducted any business to
date.
THE STOCKHOLDER MEETINGS
Dover. The Special Meeting of Stockholders of Dover will be held on June
30, 1998 on the First Floor, 1209 Orange Street, Wilmington, Delaware starting
at 9:00 A.M. (Eastern Daylight Savings Time). At the Dover Special Meeting,
holders of Dover Capital Stock will be asked to consider and vote upon (i) the
Merger Proposal, (ii) a proposal to issue up to an aggregate of 2,793,946 shares
of Dover Common Stock in order to effect the Merger (the "Issuance Proposal"),
(iii) a proposal to approve the assumption of the Grand Prix Options outstanding
immediately prior to the Effective Time (the "Option Proposal"), (iv) a proposal
to amend and restate the 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 Dover Class A Common Stock authorized for issuance from
30,000,000 shares to 55,000,000 shares, (v) a proposal to elect one (1) Class I
Director to the Board of Directors for a term expiring in 2000, and (vi) such
other business as may properly come before the Dover Special Meeting or any
adjournment or postponement thereof.
The five proposals being considered at the Dover Special Meeting are:
Proposal 1 -- The Merger Proposal
This proposal contemplates that, upon satisfaction or waiver (where
permissible) of certain conditions set forth in the Merger Agreement, Merger Sub
will be merged with and into Grand Prix pursuant to the Merger Agreement, with
Grand Prix surviving as a wholly-owned subsidiary of Dover. The Board of
Directors of Dover has considered this proposal and concluded by a unanimous
vote that the Merger is fair to, and in the best interest of, Dover and its
stockholders and recommends that Dover's stockholders vote in favor of the
Merger Proposal.
Proposal 2 -- The Issuance Proposal
The Issuance Proposal authorizes the Board of Directors of Dover to issue
up to a maximum of 2,793,946 shares of Dover Common Stock to shareholders of
Grand Prix pursuant to the terms of the Merger Agreement. The Board of Directors
of Dover has considered this proposal and concluded by a unanimous vote that the
Issuance Proposal is fair to, and in the best interest of, Dover and its
stockholders and recommends that Dover's stockholders vote in favor of the
Issuance Proposal.
Proposal 3 -- Option Proposal
This is a proposal to approve the assumption by Dover of the Grand Prix
Options outstanding immediately prior to the Effective Time. At the Effective
Time, each Grand Prix Option will be converted, without any further action on
the part of the holder of such Grand Prix Option, into an
8
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option to purchase that number of shares of Dover Common Stock determined by
multiplying the number of shares of Grand Prix Common Stock subject to such
Grand Prix Option by the Exchange Ratio, rounded up to the nearest whole share,
at an exercise price equal to the exercise price of such Grand Prix option at
the Effective Time, divided by the Exchange Ratio, rounded up to the nearest
full cent.
The Board of Directors of Dover has considered this proposal and concluded
by a unanimous vote that it is fair to, and in the best interest of, Dover and
its stockholders and recommends that Dover stockholders vote in favor of the
Option Proposal.
Proposal 4 -- Proposal to Amend Dover's Certificate of Incorporation
Dover stockholders will be asked to approve the following amendments to
Dover's Certificate of Incorporation:
(a) an increase of the number of directors serving on the Dover 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) an increase of the number of shares of Dover Common Stock
authorized for issuance from 35,000,000 shares to 75,000,000 shares; and
(c) an increase of the number of shares of Dover Class A Common Stock
from 30,000,000 shares to 55,000,000 shares.
This proposal will expand the Board of Directors so as to allow for an
opening on the Board of Directors to which Christopher R. Pook, Chairman and
Chief Executive Officer of Grand Prix, can be nominated, as contemplated by the
Merger Agreement. See Proposal 5 below. In connection with the Merger, Dover
anticipates issuing a substantial portion of its currently authorized, but
unissued Dover Common Stock. Accordingly, Dover proposes to amend its
Certificate of Incorporation to increase the amount of authorized Dover Common
Stock from 35,000,000 shares to 75,000,000 shares in order to continue to have
in the future the flexibility it now has to issue Dover Common Stock. In
addition, Dover proposes to increase the amount of authorized Dover Class A
Common Stock to provide similar flexibility in the future with respect to that
class of stock. See "AMENDMENTS TO DOVER'S CERTIFICATE OF INCORPORATION --
Increase in Authorized Dover Capital Stock."
The Board of Directors of Dover has considered this proposal and concluded
by a unanimous vote that it is fair to, and in the best interest of, Dover and
its stockholders and recommends that Dover's stockholders vote in favor of the
proposal to amend the Certificate of Incorporation as detailed above.
Proposal 5 -- The Nomination Proposal
The Board of Directors has nominated Christopher R. Pook for election as a
Class I Director of Dover for the remainder of a three-year term, as
contemplated by the Merger Agreement.
The Board of Directors of Dover has considered this proposal and concluded
by a unanimous vote that the election of Mr. Pook to the Dover Board of
Directors is fair to, and in the best interest of, Dover and its stockholders
and recommends that Dover's stockholders vote in favor of the proposal to elect
Mr. Pook to the Dover Board of Directors.
See "THE STOCKHOLDER MEETINGS -- Dover Special Meeting" for a more complete
description of the proposals to be considered, the votes necessary for approval
and the voting and proxy requirements and procedures.
Only holders of record of Dover Common Stock and Dover Class A Common Stock
(collectively, the "Dover Capital Stock") at the close of business on May 18,
1998 (the "Dover Record Date") are entitled to notice of and to vote at the
Dover Special Meeting or any adjournment or postponement thereof. At the close
of business on the Dover Record Date, there were outstanding and entitled to
vote 2,998,950 shares of Dover Common Stock and 12,249,380 shares of Dover Class
A Common Stock. Each holder of record of Dover Common Stock is entitled to cast
one (1) vote per share, and each holder of record of Dover Class A Common Stock
is entitled to cast ten (10) votes per share, on any
9
<PAGE>
matter that may properly come before the Dover Special Meeting. A majority of
the issued and outstanding shares of Dover Capital Stock entitled to vote at the
Dover Special Meeting must be represented at the Dover Special Meeting, in
person or by proxy, to constitute a quorum for the transaction of business at
the Dover Special Meeting. The affirmative vote of a majority of the voting
power of Dover Capital Stock present in person or represented by proxy is
required to approve the Merger Proposal, the Issuance Proposal and the Option
Proposal. The election of Christopher R. Pook, the Class I nominee to the Dover
Board of Directors, will be determined by a plurality of the votes cast by the
shares entitled to vote at the election. The amendments to Dover's Certificate
of Incorporation require (i) the approval of a majority of the holders of Dover
Common Stock, voting as a class and (ii) the approval of a majority of the
holders of Dover Class A Common Stock, voting as a class, as outstanding on the
Dover Record Date.
As of the Dover Record Date, the directors and executive officers of Dover
owned or had voting control over an immaterial amount of shares of Dover Common
Stock, and owned or had voting control over an aggregate of 10,891,680 shares of
Dover Class A Common Stock, representing approximately 88.9% of the total amount
of Dover Class A Common Stock issued and outstanding as of such date,
collectively representing, in the aggregate, approximately 86.8% of the votes
entitled to be cast at the Dover Special Meeting. Each of the directors and
executive officers of Dover has advised Dover that such director intends to vote
or direct the vote of all outstanding shares of Dover Capital Stock over which
such director has voting control in favor of the approval of the Merger
Proposal, the Issuance Proposal, the Option Proposal, and the amendments to the
Certificate of Incorporation and in favor of the election of Christopher R. Pook
as a Class I Director. Moreover, two (2) stockholders of Dover owning a majority
of the outstanding Dover Class A Common Stock, John W. Rollins, Sr., beneficial
owner of 5,983,930 shares of Dover Class A Common Stock, representing
approximately 48.9% of the outstanding Dover Class A Common Stock, and Henry B.
Tippie, beneficial owner of 1,600,000 shares of Dover Class A Common Stock,
representing approximately 13.1% of the outstanding Dover Class A Common Stock,
and collectively representing in the aggregate approximately 60.4% of the vote
to be cast at the Dover Special Meeting, entered into a Support Agreement on
March 26, 1998 with Grand Prix pursuant to which each such stockholder, among
other things, agreed to vote their shares of Dover Capital Stock in favor of the
Merger Proposal, the Issuance Proposal, the Option Proposal, the amendments to
the Certificate of Incorporation in connection with the increase of the size of
the Dover Board of Directors and the election of Christopher R. Pook as a
director of Dover and against certain transactions, and to appoint a person to
be designated by Grand Prix as his proxy to vote in such manner (the "Dover
Support Agreement").
Grand Prix. A Special Meeting of the shareholders of Grand Prix will be
held at the Long Beach Hilton Hotel, Two World Trade Center, Long Beach,
California, on June 30, 1998, at 4:00 p.m., (Pacific Daylight Savings Time). At
the Grand Prix Special Meeting, holders of Grand Prix Common Stock will be asked
to consider and vote upon (i) the Merger Proposal and (ii) such other matters as
may properly come before the Grand Prix Special Meeting or any adjournment or
postponement thereof. This proposal contemplates that, upon satisfaction or
waiver (where permissible) of certain conditions set forth in the Merger
Agreement, Merger Sub will be merged with and into Grand Prix, with Grand Prix
surviving as a wholly-owned subsidiary of Dover. At the Effective Time, each
share of Grand Prix Common Stock (except for any such shares held by Grand Prix
or any subsidiary of Grand Prix, any such shares held by Dover or any subsidiary
of Dover and any Dissenting Shares) will be converted into the right to receive
Dover Common Stock based on the Exchange Ratio, as adjusted for certain
conditions, as discussed more fully in other sections of this Joint Proxy
Statement/Prospectus.
The Board of Directors of Grand Prix has considered this proposal and
concluded by a unanimous vote (with two abstentions) that the Merger is fair to,
and in the best interest of, Grand Prix and its shareholders and recommends that
Grand Prix's shareholders vote in favor of the Merger Agreement and the Merger
Proposal.
Only holders of record of Grand Prix Common Stock at the close of business
on May 18, 1998 (the "Grand Prix Record Date") will be entitled to receive
notice of and to vote at the Grand Prix Special Meeting or any adjournment or
postponement thereof. As of the close of business on the Grand
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<PAGE>
Prix Record Date, there were 222 shareholders of record holding an aggregate of
approximately 4,677,187 shares of Grand Prix Common Stock and there were no
shareholders holding Grand Prix Preferred Stock, no par value ("Grand Prix
Preferred Stock"). Each share of Grand Prix Common Stock entitles the holder
thereof to one vote on any matter that may properly come before the Grand Prix
Special Meeting. A majority of the issued and outstanding shares of Grand Prix
Common Stock must be present in person or represented by proxy to constitute a
quorum for the transaction of business at the Grand Prix Special Meeting. The
approval of the Merger Proposal requires the affirmative vote of a majority of
the issued and outstanding shares of Grand Prix Common Stock.
As of the Grand Prix Record Date, the directors and executive officers of
Grand Prix owned or had voting control of over an aggregate of 892,915 shares of
Grand Prix Common Stock, representing approximately 19.1% of the votes entitled
to be cast at the Grand Prix Special Meeting. Each of the directors and
executive officers of Grand Prix has advised Grand Prix that such director
intends to vote or direct the vote of all outstanding shares of Grand Prix
Common Stock over which such director has voting control in favor of the
approval of the Merger Proposal. Certain shareholders of Grand Prix, including
various directors and executive officers of Grand Prix, representing
approximately 38% of outstanding Grand Prix Common Stock on a fully-diluted
basis (which when combined with the shares of Grand Prix Common Stock owned by
Dover constitutes in the aggregate more than 50% of the fully-diluted shares of
Grand Prix Common Stock), have entered into Support Agreements on March 26, 1998
with Dover and Merger Sub pursuant to which such shareholders, among other
things, agreed to vote their respective shares of Grand Prix Common Stock in
favor of the Merger Proposal, in favor of the election of up to three nominees
of Dover to the Board of Directors of Grand Prix, and against certain
transactions, and appointed an individual designated by Dover as their proxy, to
vote in such manner (the "Grand Prix Support Agreements", and together with the
Dover Support Agreement, the "Support Agreements"). Moreover, under the Grand
Prix Support Agreement, each shareholder who is a party thereto, granted to
Dover an irrevocable option (the "Irrevocable Option") to purchase the Grand
Prix Common Stock owned by each such shareholder under certain circumstances
specified in the agreement. The Irrevocable Option may be exercised by Dover at
any time commencing upon the termination of the Merger Agreement in certain
situations for a period terminating in accordance with the terms of the Grand
Prix Support Agreement. See "THE MERGER AGREEMENT -- Termination." Thus, in
certain circumstances, including the withdrawal of the approval of the Grand
Prix Board of Directors, if the Merger Agreement is terminated, Dover has the
Irrevocable Option to acquire approximately 38% of the outstanding Grand Prix
Common Stock on a fully diluted basis, which purchase would be in addition to
Dover's current approximately 14.5% ownership of Grand Prix Common Stock.
THE MERGER
General. Pursuant to the Merger Agreement, it is contemplated that Merger
Sub will be merged with and into Grand Prix. As a result of the Merger, the
separate corporate existence of Merger Sub will cease and Grand Prix will
continue as the Surviving Corporation. Each then outstanding share of Grand Prix
Common Stock, except for any such shares held by Grand Prix or any subsidiary of
Grand Prix, any such shares held by Dover or any subsidiary of Dover and any
Dissenting Shares will be converted into the right to receive shares of Dover
Common Stock and the associated Common Stock Purchase Rights based on the
Exchange Ratio, subject to appropriate adjustment in the event of any dividend
other than regular quarterly cash dividends on the Dover Common Stock (which
shall not differ materially from prior dividends), stock split, stock dividend,
reclassification, subdivision, recapitalization, combination or exchange of
shares or similar transaction with respect to Grand Prix Common Stock or Dover
Common Stock and subject to further adjustments if the Average Closing Price is
greater than $32.00 or less than $21.00 per share, provided that the Exchange
Ratio shall not be greater than 0.6963 nor less than 0.5929. Holders of Grand
Prix Common Stock will receive cash in lieu of any fractional shares of Dover
Common Stock to which such shareholder would otherwise be entitled. Each
outstanding Grand Prix Option will be converted into an option to purchase Dover
Common Stock based on the Exchange Ratio. The terms of the Merger Agreement are
more fully described in "THE MERGER AGREEMENT." The terms of the conversion of
shares of Grand Prix Common Stock into Dover Common Stock and the assumption of
Grand Prix Options by Dover are
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<PAGE>
more fully described in "THE MERGER AGREEMENT -- Conversion of Shares of Grand
Prix Common Stock Pursuant to the Merger; Treatment of Options."
Exchange Ratio. The Merger Agreement provides for the Grand Prix Common
Stock at the Effective Time to be converted into the right to receive 0.63 fully
paid and non-assessable shares of Dover Common Stock, except for Grand Prix
Common Stock as to which dissenters' rights are perfected and Grand Prix Common
Stock held by Grand Prix or any subsidiary of Grand Prix or any Grand Prix
Common Stock held by Dover or any subsidiary of Dover. Each share of Dover
Common Stock issued to holders of Grand Prix Common Stock shall be issued
together with one associated Common Stock Purchase Right. In the event that the
Average Closing Price is greater than $32.00 per share or less than $21.00 per
share, the Exchange Ratio shall be adjusted as follows: (i) if the Average
Closing Price is greater than $32.00 per share, the Exchange Ratio shall equal
$20.16 divided by the Average Closing Price, rounded to the nearest four (4)
decimal places; or (ii) if the Average Closing Price is less than $21.00 per
share, the Exchange Ratio shall equal $13.23 divided by the Average Closing
Price, rounded to the nearest four (4) decimal places; provided that the
Exchange Ratio shall not be greater than 0.6963 nor less than 0.5929. Thus the
Exchange Ratio varies inversely with the Dover trading price within two $2.00
ranges between $32.00 and $34.00 and between $19.00 and $21.00. Accordingly, the
value of the consideration received by Grand Prix shareholders in the Merger
will vary depending on the market price per share of Dover Common Stock on the
New York Stock Exchange during the price measurement period.
No Termination Right. The Merger is not subject to termination in the
event that the Average Closing Price increases above or decreases below any
level. In the event that the Average Closing Price declines to a point below
$19.00 per share, the dollar value of the consideration to be received by Grand
Prix shareholders would decline because the Exchange Ratio would not be adjusted
beyond 0.6963. Similarly, if the Average Closing Price reaches a level above
$34.00, at which point the Exchange Ratio, without the limitations contained
therein, would dip below 0.5929, the Grand Prix shareholders will receive a
higher dollar value of Dover Common Stock per share of Grand Prix Common Stock
because the Exchange Ratio will not be adjusted below 0.5929. The table below
illustrates the Exchange Ratio determined at various illustrative Average
Closing Prices and the value per share of Grand Prix Common Stock at each such
illustrative price.
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR TOTAL NUMBER
VALUE OF EACH OF SHARES OF
ILLUSTRATIVE SHARE OF DOVER
AVERAGE DOVER GRAND PRIX COMMON
NYSE PER EXCHANGE COMMON STOCK ISSUED
SHARE PRICE RATIO STOCK IN THE MERGER
------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Exchange Ratio fixed at minimum.......... $35 .5929 $20.75 2,362,848
$34 .5929 $20.16 2,362,848
$33 .6109 $20.16 2,434,582
$32 .6300 $20.16 2,510,700
$31 .6300 $19.53 2,510,700
$30 .6300 $18.90 2,510,700
$29 .6300 $18.27 2,510,700
$28 .6300 $17.64 2,510,700
$27 .6300 $17.01 2,510,700
$26 .6300 $16.38 2,510,700
$25 .6300 $15.75 2,510,700
$24 .6300 $15.12 2,510,700
$23 .6300 $14.49 2,510,700
$22 .6300 $13.86 2,510,700
$21 .6300 $13.23 2,510,700
$20 .6615 $13.23 2,636,235
$19 .6963 $13.23 2,774,921
$18 .6963 $12.53 2,774,921
</TABLE>
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<PAGE>
EFFECTIVE TIME
The Merger will become effective at the time and on the date that an
Agreement of Merger is filed with the Secretary of State of the State of
California. It is presently contemplated that the Effective Time will occur as
soon as practicable after the requisite approvals of the stockholders of Dover
and Grand Prix are obtained and other conditions to the Merger set forth in the
Merger Agreement are satisfied or, where permissible, waived. See "THE MERGER
AGREEMENT -- Conditions to Consummation of the Merger."
TRANSACTIONS IN CONNECTION WITH THE MERGER
Stock Purchase Agreements. On March 27, 1998, pursuant to stock purchase
agreements (collectively, the "Stock Purchase Agreements") entered into with
Penske Motorsports, Inc. ("Penske") and Midwest Facility Investments, Inc.
("Midwest"), respectively, Dover acquired an aggregate of 680,000 shares of
Grand Prix Common Stock at $15.50 per share in cash (the "Grand Prix Acquired
Shares"). Penske and Midwest each sold Dover all of their respective holdings,
340,000 shares of Grand Prix Common Stock each, at $15.50 per share in cash for
an aggregate purchase price of $10,540,000. As a result of these purchases,
Dover owns approximately 14.6% of the currently outstanding Grand Prix Common
Stock.
The Stock Purchase Agreements also contain a standstill provision (the
"Standstill Provision") which prohibits Penske and Midwest and Midwest's
affiliates, including International Speedway Corporation ("International
Speedway"), from (a) purchasing or offering to purchase any of Grand Prix's
Common Stock or (b) conducting a proxy contest to obtain control of Grand Prix's
Board of Directors. This Standstill Provision shall remain in effect with
respect to Penske and Midwest, respectively, until the Merger Agreement is
consummated, provided that Dover retains ownership of at least eighty percent
(80%) of the Grand Prix Acquired Shares.
In addition, the Stock Purchase Agreements provided that upon Dover's
acquisition of the Grand Prix Acquired Shares, H. Lee Combs and Gregory W.
Penske, members of the Grand Prix Board of Directors nominated by Midwest and
Penske respectively, would resign as directors of Grand Prix, which resignations
were submitted effective March 27, 1998.
Effectuation of Dover's purchase of the Grand Prix Acquired Shares required
the consent of Christopher R. Pook and James P. Michaelian, as representatives
of the Grand Prix shareholders who were parties to the Right of First Refusal
Agreement, dated as of August 8, 1997, with Penske and Midwest (the "ROFR"). As
a condition to such consents, Penske and Midwest agreed that upon the sale of
the Grand Prix Acquired Shares to Dover, the ROFR Agreement would terminate and
that Dover's purchase of such shares would not be an event terminating the
standstill provision of the stock purchase agreements, dated August 8, 1997,
pursuant to which Penske and Midwest acquired their Grand Prix Common Stock from
Grand Prix.
Registration Rights Agreement. In connection with Dover's acquisition of
the Grand Prix Acquired Shares, a Registration Rights Agreement (the
"Registration Rights Agreement") was entered into between Dover and Grand Prix.
The Registration Rights Agreement provides that Dover shall have certain rights
(the "Registration Rights") to cause the Grand Prix Acquired Shares, and any
additional shares of Grand Prix Common Stock acquired by Dover, to be registered
under the Securities Act. Not later than sixty (60) days after the termination
of the Merger Agreement, pursuant to certain specified provisions, Dover has the
right, subject to certain limitations, to cause Grand Prix to file a shelf
registration statement under the Securities Act to register such securities and
to maintain the effectiveness of such registration statement for up to three (3)
years. Grand Prix has the right to prohibit sales pursuant to such shelf
registration in certain circumstances. Pursuant to the Registration Rights
Agreement, Dover also has the right, within three (3) years from the date of the
Registration Rights Agreement, to cause registrable securities to be included in
any registration statement under the Securities Act filed by Grand Prix, other
than a Registration Statement on Forms S-4 or S-8.
See "STOCK PURCHASE AGREEMENTS AND REGISTRATION RIGHTS AGREEMENT."
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<PAGE>
NOMINATIONS TO THE GRAND PRIX BOARD OF DIRECTORS
The Merger Agreement provides that Grand Prix shall use its reasonable
efforts to appoint three (3) nominees of Dover to the Board of Directors of
Grand Prix and shall use all reasonable efforts to nominate for election such
three (3) nominees to the Board of Directors of Grand Prix for the period
commencing upon the execution of the Agreement and terminating upon the earlier
of one (1) year after the date of the Merger Agreement or the date upon which
Dover ceases to beneficially own at least eighty (80%) of the Grand Prix
Acquired Shares.
H. Lee Combs and Gregory W. Penske resigned, effective March 27, 1998, from
the Grand Prix Board of Directors, as required by the Stock Purchase Agreements
and on April 13, 1998, the Grand Prix Board of Directors decreased the size of
the Board to nine (9) members. In addition, on such date it elected Denis
McGlynn, President and Chief Executive Officer of Dover, Eugene W. Weaver,
Senior Vice President -- Administration of Dover, and Timothy R. Horne, Vice
President -- Finance of Dover to the Grand Prix Board of Directors. Messrs.
McGlynn, Weaver and Horne replace three (3) resigning directors of Grand Prix,
Neil Matlins, John R. Queen III and James Sullivan, who had previously notified
the Board of Directors that they would not stand for re-election at the Annual
Meeting of Shareholders of Grand Prix, which meeting has been postponed
indefinitely in light of the proposed Merger.
NOMINATIONS TO THE DOVER BOARD OF DIRECTORS
The Merger Agreement provides that Dover will increase its Board of
Directors to ten (10) members and that Dover will use its best efforts to
nominate Christopher R. Pook, the Chairman and Chief Executive Officer of Grand
Prix, for election as a Class I Director of Dover for the remainder of a three
(3) year term, all subject to the approval of Dover's stockholders. If Mr. Pook
is employed at the end of such three (3) year term, Dover has agreed to use its
best efforts to nominate Mr. Pook for re-election as a director for an
additional three-year term, again subject to the approval of the Dover
stockholders. Mr. Pook's election to the Dover Board of Directors will be voted
on at the Dover Special Meeting. See "THE STOCKHOLDER MEETINGS -- Dover Special
Meeting."
EMPLOYMENT AGREEMENTS
Christopher R. Pook and James P. Michaelian, the Chief Operating Officer of
Grand Prix, each entered into five (5) year employment agreements, dated as of
March 26, 1998, with Dover (the "Pook Employment Agreement" and the "Michaelian
Employment Agreement" respectively, and collectively the "Employment
Agreements") effective as of the Effective Time. The Pook Employment Agreement
provides that Mr. Pook will be employed as Chairman and Chief Executive Officer
of Grand Prix and the Michaelian Employment Agreement provides that Mr.
Michaelian will be employed as the Chief Operating Officer of Grand Prix. The
Employment Agreements include covenants not to compete and restrictions on the
amount of Dover Common Stock Messrs. Pook and Michaelian may sell in any
calendar year. See "EMPLOYMENT AGREEMENTS."
EXCHANGE OF STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, instructions
with regard to the surrender of Grand Prix stock certificates, together with a
letter of transmittal to be used for this purpose, will be furnished to Grand
Prix shareholders for use in exchanging their Grand Prix stock certificates for
the shares of Dover Common Stock and cash for fractional shares they will be
entitled to receive as a result of the Merger. GRAND PRIX SHAREHOLDERS SHOULD
NOT SURRENDER THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL SUCH INSTRUCTIONS AND
LETTER OF TRANSMITTAL ARE RECEIVED. See "THE MERGER -- Exchange of
Certificates."
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<PAGE>
CONDITIONS TO THE MERGER
The respective obligations of Dover, Grand Prix and Merger Sub to
consummate the Merger are subject to the fulfillment or waiver (where
permissible) of certain conditions set forth in the Merger Agreement. These
conditions include, but are not limited to, the approval by holders of Dover
Capital Stock of the Issuance Proposal, the approval by holders of Grand Prix
Capital Stock of the Merger Proposal, and the approval for listing on the New
York Stock Exchange of the shares of Dover Common Stock to be issued in the
Merger. See "THE MERGER AGREEMENT -- Conditions to Consummation of the Merger."
TERMINATION
The Merger Agreement may be terminated (i) at any time prior to the
Effective Time by the mutual consent of Dover and Grand Prix, (ii) by either
Dover or Grand Prix if the Merger shall not have been consummated by August 30,
1998 or if the Effective Time shall not have occurred because of the failure of
certain conditions set forth in the Merger Agreement to occur by September 30,
1998, (iii) by either Dover or Grand Prix if Grand Prix's shareholders have not
approved the Merger Agreement and the transactions contemplated thereby at the
applicable Stockholders' Meeting, (iv) by Grand Prix if Dover's stockholders
have not approved the Issuance Proposal at the applicable Stockholders' Meeting,
(v) by either Dover or Grand Prix if a court of competent jurisdiction or other
governmental body shall have issued a final and non-appealable order prohibiting
the Merger, (vi) by Dover if the Grand Prix Support Agreement shall fail to
continue in full force and effect or if the Grand Prix Support Agreement shall,
when aggregated with the Grand Prix Common Stock owned or acquired by Dover,
fail to represent a majority of the voting power of Grand Prix on a
fully-diluted basis and such failure has not been cured within fourteen (14)
days of Grand Prix's receipt of written notice from Dover of such failure, (vii)
by either Dover or Grand Prix, if the other shall have breached any material
representation, warranty or covenant set forth in the Merger Agreement which
would have a Material Adverse Effect on such entity and such breach shall not
have been cured within thirty (30) days of notification to the breaching party
of such breach, (viii) by Dover, if Grand Prix's Board of Directors withdraws or
adversely modifies its approval of the Merger Agreement or the Merger or shall
recommend an Alternative Proposal (as defined below) to its shareholders, and
(ix) by Grand Prix, if it receives an Alternative Proposal (as defined below)
which its Board believes to be superior from a financial point of view to the
Merger and reasonably likely to be consummated and the Board believes that
terminating the Merger Agreement is necessary to comply with its fiduciary
duties. See "THE MERGER AGREEMENT -- Termination; Termination Fees and
Expenses."
TERMINATION FEES; EXPENSES
Grand Prix may be required to pay Dover, subject to certain conditions,
three million dollars ($3,000,000) (the "Termination Fee") upon termination of
the Merger Agreement, and in no event later than the day of consummation of the
Alternative Proposal (as defined below), in the following circumstances: (i) an
Alternative Proposal is made, Grand Prix's shareholders fail to approve the
Merger Agreement or the transactions contemplated thereby, either party
terminates the Merger Agreement and within 12 months thereafter such Alternative
Proposal is consummated; (ii) an Alternative Proposal is made, the Board of
Directors of Grand Prix withdraws or modifies its recommendation of the Merger
Agreement to the Grand Prix shareholders in a manner adverse to Dover, Dover
terminates the Merger Agreement and within 12 months thereafter any Alternative
Proposal is consummated; (iii) the Board of Directors of Grand Prix receives an
Alternative Proposal and recommends it to the Grand Prix shareholders, Dover
terminates the Merger Agreement and within 12 months thereafter any Alternative
Proposal is consummated; or (iv) Grand Prix receives an Alternative Proposal
that its Board of Directors believes is superior from a financial point of view
to the Merger and is reasonably likely to be consummated, the Board of Directors
of Grand Prix believes termination is necessary to comply with its fiduciary
duties, Grand Prix terminates the Merger and within 12 months thereafter any
Alternative Proposal is consummated. The Termination Fee shall be payable only
if the Alternative Proposal is superior from a financial point of view to the
Merger. An
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<PAGE>
"Alternative Proposal" shall mean any proposal or offer (including without
limitation, any proposal or offer to shareholders) with respect to a merger,
sale, consolidation or similar transaction involving the purchase of all or any
significant portion of the assets or equity securities of Grand Prix and its
subsidiaries, taken as a whole. In addition, if the Merger Agreement is
terminated because of an uncured breach of a representation, warranty or
covenant, then the non-breaching party is entitled to pursue any remedy at law
or in equity, including costs and expenses and damages incurred in connection
with the Merger Agreement, from the breaching party. See "THE MERGER AGREEMENT
- -- Termination; Termination Fees and Expenses.
OPINIONS OF FINANCIAL ADVISORS
Opinion of Dover's Financial Advisor. Dover selected Gerard Klauer
Mattison & Co., Inc. ("Gerard Klauer"), as its financial advisor with respect to
the Merger because Gerard Klauer is a recognized investment banking firm that
has significant experience in the motorsports, gaming and entertainment industry
and is familiar with Dover and Grand Prix and their respective businesses. As
part of its investment banking business, Gerard Klauer is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, divestitures, restructuring, recapitalization, underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
As part of its role as financial advisor to Dover, Gerard Klauer was asked
to render an opinion to the Board of Directors of Dover as to the fairness to
holders of Dover Common Stock of the Exchange Ratio. On March 26, 1998 Gerard
Klauer delivered to the Board of Directors of Dover its written opinion (the
"Gerard Klauer Opinion") to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, (i) the cash
consideration paid to Penske and Midwest for the Grand Prix Acquired Shares and
(ii) the consideration to be paid by Dover to holders of Grand Prix Common
Stock, based on the Exchange Ratio, was fair to the holders of Dover Common
Stock from a financial point of view.
The full text of the Gerard Klauer Opinion is attached to this Joint Proxy
Statement/Prospectus as Annex B and is incorporated herein by reference.
Holders of Dover Common Stock are urged to read the Gerard Klauer Opinion in its
entirety for the assumptions made, the matters considered and the limits of the
review undertaken by Gerard Klauer in connection with such opinion.
The opinion of Gerard Klauer is directed to the Dover Board of Directors,
addresses only the fairness to the holders of Dover Common Stock (i) of the
consideration paid for the Grand Prix Acquired Shares, from a financial point of
view, and (ii) of the consideration to be paid to holders of Grand Prix
Common Stock, based on the Exchange Ratio, from a financial point of view, and
does not constitute a recommendation to any stockholder to vote in favor of the
Merger at the Dover Special Meeting.
Gerard Klauer received a fee upon the delivery of the Gerard Klauer
Opinion. Gerard Klauer may, from time to time, in the future perform certain
financial advisory services for Dover for which it may receive a fee. In the
ordinary course of business, Gerard Klauer may actively trade the securities of
Dover for its own account and for the accounts of its customers and,
accordingly, may at any time hold a short or long position in such securities.
Dover has agreed to indemnify Gerard Klauer for certain liabilities that may
arise out of the rendering of, or in connection with, the services rendered by
Gerard Klauer to Dover. See "APPROVAL OF THE MERGER AND RELATED TRANSACTIONS --
Opinion of Dover's Financial Advisor."
Opinion of Grand Prix's Financial Advisor. L.H. Friend, Weinress, Frankson
& Presson, Inc. ("L.H. Friend") was selected by Grand Prix to act as its
financial advisor in connection with the Merger. In connection with such
engagement, Grand Prix requested that L.H. Friend evaluate the fairness, from a
financial point of view, to the holders of Grand Prix Common Stock with the
exception of Midwest, Penske, Dover or Merger Sub (the "Non-Participating
Shareholders"), of the consideration to be received by such holders in the
Merger. On March 26, 1998, L.H. Friend delivered its written opinion to the
Board of Directors of Grand Prix to the effect that, as of the date of such
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opinion and based upon and subject to certain matters stated therein, the
Transaction (as defined in the L.H. Friend opinion), was fair, from a financial
point of view, to the holders of Grand Prix Common Stock, other than the
Non-Participating Shareholders (the "L.H. Friend Opinion").
Grand Prix retained L.H. Friend because of its qualifications, experience,
expertise and reputation as an investment banking and advisory firm. L.H.
Friend, as part of its investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection with mergers,
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. In the
course of its trading activities, L.H. Friend may, from time to time, have a
long or short position in, and buy and sell, securities of Dover or Grand Prix.
In addition, on June 24, 1996, in connection with the placement of Grand Prix
Series A Convertible Preferred Stock, Grand Prix granted to L.H. Friend a
warrant to purchase an aggregate of 31,250 shares of Series A Convertible
Preferred Stock, which, upon the initial public offering of Grand Prix Common
Stock converted into the right to purchase 31,250 shares of Grand Prix Common
Stock at an exercise price of $10.00 per share (the "Warrant"). As of the
Effective Time, the Warrant will be converted into a right to purchase, upon
exercise of the new warrant, on the same terms and conditions as were applicable
under the Warrant, that numbers of shares of Dover Common Stock determined by
multiplying the number of shares of Grand Prix Common Stock to be purchased
under the Warrant by the Exchange Ratio, rounded up to the nearest whole share,
at an exercise price of $10.00 divided by the Exchange Ratio, rounded up, to the
nearest full cent. The Warrant is exercisable until June 24, 2001. Grand Prix
paid L.H. Friend a fee for its services, including rendering the L.H. Friend
Opinion and has agreed to indemnify L.H. Friend for certain liabilities that may
arise out of the rendering of the L.H. Friend Opinion.
The full text of the L.H. Friend Opinion, which sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Annex C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference and should be read
carefully in its entirety. Grand Prix shareholders are urged to, and should,
read the L.H. Friend Opinion carefully and in its entirety. The L.H. Friend
Opinion is directed only to the fairness of the Transactions (as defined in the
L.H. Friend Opinion attached hereto as Annex C) from a financial point of view
to the holders of Grand Prix Common Stock, other than Dover, Midwest and Penske,
and it does not constitute a recommendation as to how any holder of Grand Prix
Common Stock should vote with respect to the Merger at the Grand Prix Special
Meeting. In addition, L.H. Friend has not expressed any opinion as to the prices
at which Dover Common Stock may trade in the future. See "APPROVAL OF THE MERGER
AND RELATED TRANSACTIONS -- Opinion of Grand Prix's Financial Advisor."
TREATMENT OF GRAND PRIX OPTIONS
All options to purchase Grand Prix Common Stock issued pursuant to Grand
Prix's Stock Option Plans and outstanding immediately prior to the Effective
Time shall be assumed by Dover and shall become an option to purchase, on the
same terms and conditions as were applicable under Grand Prix's Stock Option
Plans, that number of shares of Dover Common Stock determined by multiplying the
number of shares of Grand Prix Common Stock subject to such Grand Prix Option by
the Exchange Ratio rounded up to the nearest whole share, at an exercise price
equal to the exercise price of such Grand Prix Option at the Effective Time,
divided by the Exchange Ratio, rounded up to the nearest full cent. See "THE
MERGER AGREEMENT -- Treatment of Grand Prix Options."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Dover Board of Directors and the
Grand Prix Board of Directors, stockholders of Dover and Grand Prix should be
aware that certain directors and members of management of Grand Prix may be
deemed to have interests in the Merger that are in addition to or different from
the interests of Grand Prix shareholders generally. See "APPROVAL OF THE MERGER
AND RELATED TRANSACTIONS -- Interests of Certain Persons in the Merger."
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REGULATORY APPROVALS
Dover and Grand Prix are not aware of any governmental or regulatory
requirements relating to the consummation of the Merger, other than compliance
with applicable federal and state securities laws. In accordance with the
Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), Dover filed notification on April 1, 1998 and Grand Prix filed
notification on April 7, 1998. On April 20, 1998, Dover and Grand Prix received
notice of early termination of the waiting period under the HSR Act. See "THE
MERGER -- Regulatory Approvals."
DISSENTERS' RIGHTS
Under Chapter 13 of the California Code, holders of Grand Prix Common Stock
who object to the Merger may, under certain circumstances and by following
prescribed statutory procedures, have the right to dissent from the Merger and
seek a determination of, and receive payment for, the "fair market value" of
their shares. A complete copy of Chapter 13 of the California Code is attached
hereto as Annex D and incorporated herein by this reference. The failure of such
a dissenting shareholder to follow such procedures, described more fully
elsewhere in this Joint Proxy Statement/Prospectus, may result in termination or
waiver of such dissenters' rights. However, no Grand Prix shareholder will have
dissenters' rights unless Dissenting Shares represent at least five percent (5%)
of the outstanding shares of Grand Prix Common Stock. Stockholders of Dover are
not entitled to any statutory appraisal rights in connection with the Merger.
See "DISSENTERS' RIGHTS" and Annex D to this Joint Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a purchase for financial
reporting purposes in accordance with generally accepted accounting principles
("GAAP"). See "ACCOUNTING TREATMENT OF THE MERGER."
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). Assuming the Merger qualifies, in general, no
gain or loss will be recognized for United States federal income tax purposes in
connection with the exchange of Grand Prix Common Stock for Dover Common Stock
except with respect to (i) holders of Grand Prix Common Stock exercising
dissenters' rights or (ii) holders who receive cash in lieu of a fractional
share of Dover Common Stock (to the extent of such cash received). See "CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES" for a more complete discussion of
the federal income tax consequences of the Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the Merger, holders of Grand Prix Common Stock will be
exchanging their shares of a California corporation, which is governed by the
California Code and Grand Prix Articles of Incorporation and By-Laws, as amended
and restated from time to time, for shares of Dover Common Stock issued by a
Delaware corporation, which is governed by the Delaware General Corporation Law
("DGCL") and Dover's Certificate of Incorporation and By-Laws, as amended and
restated from time to time. Holders of Grand Prix Common Stock should be aware
that certain significant differences exist between the rights of a shareholder
of a California corporation and those of a stockholder of a Delaware
corporation. There are certain differences between California corporate law and
Delaware corporate law, as well as between Grand Prix's By-Laws and Articles of
Incorporation and Dover's Bylaws and Certificate of Incorporation. See
"COMPARISON OF RIGHTS OF HOLDERS OF DOVER COMMON STOCK AND HOLDERS OF GRAND PRIX
COMMON STOCK." In particular, because holders of Dover Class A Common Stock are
entitled to 10 votes per share on any matter submitted to a vote of Dover's
stockholders, the directors and executive officers of Dover, who
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as of the Dover Record Date owned or had voting control over an aggregate of
10,891,680 shares of Dover Class A Common Stock, collectively held shares
representing in the aggregate approximately 86.8% of the combined voting power
of all Dover Capital Stock. Assuming that Dover issues 2,793,946
shares of Common Stock in connection with the Merger, the shares held by these
directors and executive officers will, immediately after the Effective Time,
represent in the aggregate approximately 84.9% of the combined voting power of
all Dover Capital Stock.
RISK FACTORS
Certain factors should be considered in evaluating the Merger Proposal and
the Issuance Proposal and the ownership of Dover Common Stock to be issued in
the Merger. See "RISK FACTORS."
MARKETS AND MARKET PRICES
Dover Common Stock has been traded on the New York Stock Exchange under the
symbol "DVD" since October 3, 1996. Grand Prix Common Stock has been traded on
the NASDAQ National Market under the symbol "GPLB" since June 25, 1996. The
following tables set forth the average high and low closing prices per share,
calculated on a quarterly basis, of (a) Dover Common Stock as reported on the
New York Stock Exchange and (b) Grand Prix Common Stock as reported on the
NASDAQ National Market during the respective periods set forth below. In
addition, quarterly dividends declared on Dover Common Stock are also set forth.
The equivalent Grand Prix price per share at each specified date represents the
high and low price of a share of Dover Common Stock during the prescribed period
multiplied by 0.63 which is assumed to be the Exchange Ratio. See "THE MERGER
AGREEMENT -- Conversion of Shares of Grand Prix Common Stock Pursuant to the
Merger; Treatment of Options."
Because the market price of both Dover Common Stock and Grand Prix Common
Stock are subject to fluctuation and the Exchange Ratio is fixed within a
certain range, the market value of the shares of Dover Common Stock that holders
of Grand Prix Common Stock will receive in the Merger may increase or decrease
prior to the Merger. Stockholders of Dover and Grand Prix are urged to obtain
current market prices for each stock.
Apart from the publicly disclosed information concerning Dover which is
included in this Joint Proxy Statement/Prospectus, Dover cannot state with
certainty what factors account for changes in the stock price of the Dover
Common Stock.
Dover.
Prior to Dover's initial public offering on October 3, 1996 there was no
public market for Dover Common Stock. The following table sets forth the high
and low closing sale prices of Dover Common Stock for the periods indicated.
DOVER COMMON STOCK CLOSING PRICES
<TABLE>
<CAPTION>
EQUIVALENT
GRAND PRIX
PRICE PER SHARE
---------------
HIGH LOW DIVIDEND HIGH LOW
------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended June 30, 1997
Second Quarter (ended
12/31/96).................... $26.87 $17.25 $ -- $16.93 $10.87
Third Quarter (ended 3/31/97)... $20.50 $16.62 $.08 $12.92 $10.47
Fourth Quarter (ended
6/30/97)..................... $19.87 $16.13 $.08 $12.52 $10.16
Fiscal Year Ending June 30, 1998
First Quarter (ended 9/30/97)... $21.13 $16.75 $.08 $13.31 $10.55
Second Quarter (ended
12/31/97).................... $23.56 $19.44 $.08 $14.84 $12.25
Third Quarter (ended 3/31/98)... $30.00 $21.31 $.08 $18.90 $13.43
Fourth Quarter (through
5/18/98)..................... $33.44 $28.75 $.08 $21.07 $18.11
</TABLE>
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<PAGE>
On March 25, 1998, the last full trading day before the announcement of the
execution of the Merger Agreement, the closing sale price of Dover Common Stock
as reported by the New York Stock Exchange was $29.00 per share. On May 18,
1998, the last practicable trading day prior to the date of printing this Joint
Proxy Statement/Prospectus, the closing sale price of Dover Common Stock as
reported by the New York Stock Exchange was $31.44 per share.
Dover declared a quarterly dividend of $.08 per share on all classes of
Dover Capital Stock in the third and fourth quarters of fiscal 1997 as well as
in the first three quarters of fiscal 1998. However, any future declaration and
payment of dividends will be (i) dependent upon Dover's results of operations,
financial condition, capital requirements and other factors considered relevant
by the Dover Board of Directors, (ii) subject to the discretion of the Board of
Directors of Dover and (iii) payable only out of Dover's surplus or current net
profits in accordance with the DGCL. See "DESCRIPTION OF DOVER CAPITAL STOCK."
Grand Prix.
Prior to Grand Prix's initial public offering on June 25, 1996, there was
no public market for Grand Prix's Common Stock. The following table sets forth
the high and low closing sale prices on Grand Prix's Common Stock for the
periods indicated.
GRAND PRIX COMMON STOCK CLOSING PRICES
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1996(1)
Fourth Quarter (ended 6/30/96).................... $ 9.50 $ 9.38
Fiscal Year Ended November 30, 1996(1)
First Quarter (ended 9/30/96)..................... $ 9.63 $ 8.13
Second Quarter (ended 11/30/96)................... $10.13 $ 8.00
Fiscal Year Ended November 30, 1997
First Quarter..................................... $10.75 $ 9.13
Second Quarter.................................... $13.63 $10.00
Third Quarter..................................... $15.50 $11.50
Fourth Quarter.................................... $17.75 $13.25
Fiscal Year Ending November 30, 1998
First Quarter..................................... $16.00 $13.00
Second Quarter (through 5/18/98).................. $19.25 $16.63
</TABLE>
- ------------------
(1) In December 1996 Grand Prix changed its fiscal year from June 30 to
November 30.
On March 25, 1998, the last full trading day before the announcement of the
execution of the Merger Agreement, the closing sale price of Grand Prix Common
Stock as reported by the NASDAQ National Market was $15.88 per share. On May 18,
1998, the last practicable trading day prior to the date of printing this Joint
Proxy Statement/Prospectus, the closing sale price of Grand Prix Common Stock as
reported by the NASDAQ National Market was $19.00 per share.
Historically, Grand Prix had sporadically paid dividends on its Grand Prix
Common Stock. However, no dividends have been paid since 1992 and Grand Prix
does not contemplate the payment of cash dividends in the foreseeable future.
See "DESCRIPTION OF GRAND PRIX CAPITAL STOCK -- Dividend Policy."
20
<PAGE>
RISK FACTORS
Approval of the Merger and the resulting investment in Dover Common Stock
by Grand Prix shareholders entails the consideration of a number of factors. In
addition to the other information in this Joint Proxy Statement/Prospectus, the
following factors should be considered carefully (i) by Grand Prix shareholders
in evaluating an investment in the shares of Dover Common Stock offered by this
Joint Proxy Statement/Prospectus that would result from approval of the Merger
Proposal and consummation of the Merger and (ii) by Dover stockholders in
considering the Merger Proposal and the Issuance Proposal.
RISKS COMMON TO BOTH COMPANIES
Uncertainties Relating to Operations as a Combined Company. The Merger is
not being undertaken on the basis of savings from elimination of duplicative
costs or the benefits of synergies, and Grand Prix and Dover are expected to
initially operate and manage their events separately. Combining Grand Prix and
Dover into a single group, however, could produce unanticipated expenses or
reductions in income that could have an adverse impact on Dover's business,
financial condition and results of operations.
Financial Impact of Bad Weather. Both Dover and Grand Prix sponsor and
promote outdoor motorsports events. Weather conditions affect sales of tickets,
concessions and souvenirs, among other things, at these events. Although Dover
and Grand Prix sell tickets well in advance of their respective outdoor events
and such tickets are non-refundable, poor weather conditions may adversely
affect ticket sales, which could have an adverse effect on the business,
financial condition and results of operations of both companies.
Competition. Motorsports, harness horse racing, pari-mutuel wagering,
simulcasting, and video lottery (slot) machine gaming are all competitive
industries, as discussed more fully below:
Motorsports Competition. Both Dover and Grand Prix compete with other
auto speedways for the patronage of motor racing spectators as well as for
promotions and sponsorships. Moreover, racing events sanctioned by different
organizations are often held on the same dates at different tracks. All of
Dover's and Grand Prix's events compete with other sports and recreational
events scheduled on the same dates. 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. With regard to Dover, the two closest speedways that currently
sponsor Winston Cup races are in Richmond, Virginia (approximately four hours to
the South) and Pocono International Raceway in Long Pond, Pennsylvania
(approximately three and a half hours to the North). Nazareth Speedway in
Nazareth, Pennsylvania (approximately two hours to the North) currently conducts
Busch Series, NASCAR Craftsman Truck and CART races. Based on historical data,
management does not believe that any of these facilities significantly impact
operations at Dover or Grand Prix. In recent years, Dover's NASCAR-sanctioned
Winston Cup events have all sold out well in advance of the race.
Grand Prix's agreement with CART grants it the exclusive right to conduct a
CART-sanctioned FedEx Championship Series race in Southern California; however,
the agreement allows CART to grant a sanctioned event to California Speedway,
which was recently constructed approximately 60 miles from Long Beach in
Fontana, California, as long as such race is not held within a specific period
before or after the Grand Prix Event, which is traditionally held in April. The
California Speedway has scheduled a CART-sanctioned race for November 1, 1998,
and is scheduled to host several NASCAR events in 1998. These events could have
a material adverse impact on attendance at, sponsorships of and revenues from
the Grand Prix Event. Other developments could affect Grand Prix's Gateway and
Memphis facilities. It was recently announced that the Route 66 Raceway, a new
track under construction 23 miles southwest of Chicago, Illinois will host a
NHRA national event in late May, and an AMA Superbike Tour event in August,
1998. International Speedway recently announced that it is building a track in
Kansas City capable of hosting oval track events including Winston Cup and Busch
Grand National races which it expects will be completed in two years. It was
also recently announced that a one mile oval speedway is being built ten (10)
miles west of Chicago which will host a CART
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sanctioned Championship car race in late 1999. Furthermore, NASCAR President
Bill France and IRL President Tony George, are in the process of seeking permits
to construct a 1.5 mile, 70,000 seat oval track to host NASCAR and IRL races in
Plano, IL, 30 miles west of Chicago. The conduct of such competing events could
have a material adverse impact on attendance at, sponsorships of and revenues
from events held at Gateway International Raceway and Memphis Motorsports Park.
Gaming. Dover competes in local and regional markets with horse
tracks, off-track betting parlors, state run lotteries, casinos, and other
gaming facilities. Many of these competitors have resources that exceed those of
Dover. Dover also competes locally with other sports and entertainment
businesses, many of which have resources that exceed those of Dover. There can
be no assurances that Dover will maintain or improve its position in light of
such competition.
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 Dover'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. Approval
of such legislation could increase competition for Dover in the future and could
have a material adverse effect on Dover's business, financial condition and
results of operations.
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 580 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, located approximately 100 miles
from Dover, is not a direct competitor of Dover given that Dover does not offer
the same range of casino gaming products.
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. 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 Dover 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. Although within the State of
Delaware, Dover faces little direct live competition from the State's other two
tracks. The neighboring states of Pennsylvania, Maryland and New Jersey all have
harness and thoroughbred racing and simulcasting. Dover 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.
Dependence on Key Personnel. The success of each of Dover and Grand Prix
depends upon the availability and performance of its senior management,
particularly John W. Rollins, Sr., the Chairman of the Board of Dover, Denis
McGlynn, Dover's President and Chief Executive Officer, and Christopher R. Pook,
Grand Prix's Chairman and Chief Executive Officer. Their reputation, experience
and contacts within the gaming, motorsports and entertainment industry will
continue to be of considerable importance to Dover and Grand Prix. The loss of
any of Dover's key personnel or its inability to attract and retain key
employees in the future could have a material adverse effect on Dover's
operations and business plans. In addition, Grand Prix's agreement with Toyota
Motor Sales USA, Inc. ("Toyota") for title sponsorship of the Grand Prix Event
is cancelable at the option of Toyota should Mr. Pook cease to be Chairman or
Chief Executive Officer of Grand Prix.
Year 2000 Issues. Both Dover and Grand Prix are aware of the issues related
to the approach of the year 2000 and have assessed and investigated what steps
must be taken to ensure that their critical systems and equipment will function
appropriately after the turn of the century. The assessments included a review
of what systems and equipment need to be changed or replaced in order to
function correctly within Dover and Grand Prix and with other entities. Both
Dover and Grand Prix believe their 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
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<PAGE>
has advised Dover that the systems employed in Dover's lottery operations will
be made year 2000 compliant. Neither Dover nor Grand Prix places substantial
reliance on any other systems, and no systems have been found to need
substantial correction. However, Dover and Grand Prix rely heavily on computer
technology and any unforeseen year 2000 problems could have a material adverse
impact on the business, financial conditions or results of operations of Dover
and/or Grand Prix.
Seasonality. The businesses of both Dover and Grand Prix have been, and
are expected to remain, seasonal given that Grand Prix depends on a limited
number of outdoor events for the majority of its revenue while Dover depends on
its outdoor events for a substantial portion of its revenues.
Dover derives a substantial portion of its total revenues from admissions
and event-related revenue attributable to four NASCAR-sanctioned events which
are currently held in May and September, and from live harness horse racing.
This has been offset to some degree by the year-round video lottery (slot)
machine gaming operations and year-round simulcasting and by Grand Prix's
events, but quarterly earnings may vary. The Grand Prix Event is held one
weekend each year. Although Grand Prix sells most tickets well in advance of the
Grand Prix Event and does not have a "raincheck policy" for the Grand Prix
Event, poor weather conditions on the weekend of the Grand Prix Event could
adversely affect walk-up ticket sales, concessions and merchandising, among
other things, which could have a material adverse effect on Grand Prix's results
of operations.
Neither Dover nor Grand Prix maintains weather-related insurance for their
major events. In addition, both Dover and Grand Prix's permanent circuit
facilities could be impacted by bad weather conditions which tend to keep
attendance down at outdoor events. Grand Prix has instituted a "raincheck
policy" at nationally sanctioned events hosted by Gateway International Raceway
and Memphis Motorsports Park. Due to the importance of clear visibility and safe
driving conditions to motorsports racing events, outdoor racing events may be
significantly affected by weather patterns and seasonal weather changes. Any
unanticipated weather changes could impact Dover's and Grand Prix's ability to
stage events and could have a material adverse effect on the business, financial
condition and result of operations of both entities.
Importance of Sanctioned Events. The success of both Dover and Grand Prix
in motorsports has been and will continue to be dependent upon attracting and
retaining national racing events sanctioned by the principal governing bodies of
motorsports such as NASCAR, CART, IRL and NHRA ("Sanctioned Events"). The
Sanctioned Events are issued regularly and awards depend, in large part, on
maintaining good working relationships with the sanctioning bodies. By awarding
a Sanctioned Event or a series of Sanctioned Events, the sanctioning bodies do
not warrant, either expressly or by implication, nor are they responsible for,
the financial success of any Sanctioned Event. Moreover, no existing sanction
agreement, unless expressly provided, can be construed to require the
sanctioning body to enter into a sanction agreement or to issue a sanction for
any other event in the future.
As of May 11, 1998, Grand Prix has been able to secure four (4) Sanctioned
Events for Gateway and three (3) for Memphis. For Gateway, Grand Prix entered
into a four (4) year agreement with CART for annual events starting in 1997, a
three (3) year lease with NHRA for an annual national event starting in 1997
with options for an additional ten (10) years, and a one (1) year agreement with
NASCAR for a 1998 Craftsman Truck Series and a Busch Series, Grand National
Division event. With respect to Memphis, Grand Prix has one (1) year remaining
on its agreement with the NHRA for an annual event (1998) and a one year
agreement with NASCAR for a 1998 Craftsman Truck Series event. Memphis has a one
(1) year agreement with ARCA for a national championship stock car event, and it
also has two (2) years remaining on its agreement with USAC for a Silver Crown
Championship series annual event. Grand Prix has options through the year 2000
on its sanction agreement with CART for the Grand Prix Event.
Although NASCAR does not grant multi-year sanctions, Dover has held NASCAR
Sanctioned Events, Winston Cup and Busch Series races, for thirty (30)
consecutive years. Management believes that its relationship with NASCAR remains
good. Dover currently holds sanctions to conduct two (2) Winston Cup races and
two (2) Busch Series races in 1998. Dover is currently sanctioned by IRL to
conduct its inaugural Indy-car Series race in July 1998. In addition, as a
result of its recent purchase of
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the Nashville Speedway, Dover holds a one year agreement to conduct a NASCAR
Busch Series race and a NASCAR Craftsman Truck Series race.
The inability of either Dover or Grand Prix to obtain Sanctioned Events in
the future and to maintain sanction agreements at current levels would likely
result in lower than anticipated revenues from admissions, sponsorships,
hospitality, concessions, and merchandise, which could have a material adverse
effect on the business, financial condition and results of operations of Dover
and Grand Prix.
Sponsorship Contracts. Grand Prix derives a substantial portion of its
annual revenues from sponsorship agreements, including the sponsorship of its
various events, sponsorship of its permanent venues, and "official product"
sponsorships. Grand Prix's title sponsorship agreements include a contract with
Toyota Motor Sales U.S.A. for title sponsorship of the Grand Prix through the
year 2000; a three year agreement with Motorola for title sponsorship of
Gateway's CART FedEx Championship Series race; a three year agreement with
CARQUEST to act as the title sponsor of the Busch Series Grand National NASCAR
event at Gateway; a two year agreement with NHRA for Sears Craftsman to be the
sponsor of the NHRA event at Gateway; and an agreement with the NHRA for
Pennzoil to be the sponsor of the NHRA event at Memphis through the 1998 event.
Similarly, Dover derives a substantial portion of its motorsports revenues from
sponsorship agreements. Loss of these title sponsors or other major sponsorship
agreements or failure to secure such sponsorship agreements in the future could
have a material adverse effect on Grand Prix's or Dover's revenues.
Government Regulation of Sponsors. Grand Prix and Dover derive a
significant portion of their revenues from sponsorship and advertising by
various companies. Tobacco and liquor companies have traditionally sponsored
motorsports events. In June 1997, major tobacco companies entered into an
agreement with federal negotiators and various states attorneys general whereby
the tobacco companies agreed to give up certain advertising and promotional
activity in exchange for liability limits in pending and future lawsuits. New
laws passed as a result of this or other agreements or settlements entered into
by tobacco and/or liquor companies could have a material adverse effect on the
tobacco or liquor industry's, as applicable, motorsports sponsorship and
advertising expenditures, potentially eliminating an estimated $200 million in
annual racing sponsorships. Government regulations and restrictions on
advertising by tobacco companies, liquor companies and other potential sponsors
could adversely impact Grand Prix's or Dover's revenues, as well as that of the
motorsports industry as a whole, and there is no assurance that alternate
sponsors could be obtained.
Insurance. Grand Prix and Dover maintain insurance policies that provide
coverage within limits that are sufficient, in the opinion of their respective
managements, to protect them from material financial loss incurred in the
ordinary course of business. Grand Prix and Dover also purchase special event
insurance for motorsports events to protect against race related liability.
Grand Prix maintains "key man" insurance on its key corporate executives.
However, there can be no assurance that such insurance will be adequate at all
times and in all circumstances. If Grand Prix or Dover is held liable for
damages beyond the scope of its insurance coverage, including punitive damages,
its business, financial condition and results of operations could be materially
and adversely affected.
RISKS RELATED TO DOVER
Government Regulation and Taxation
General. Dover is a "Licensed Agent" authorized to conduct video
lottery operations under the Delaware State Lottery Code. Dover also holds a
license from the Delaware Harness Racing Commission by which it is authorized to
hold harness race meetings on its premises and to conduct pari-mutuel wagering.
Dover's video lottery and pari-mutuel wagering operations are contingent upon
the continued governmental acceptance of such operations as forms of legalized
gambling. As forms of gambling, video lottery machines and pari-mutuel wagering
are subject to extensive regulation and could be subjected at any time to
additional or more restrictive regulations, or be banned entirely.
Control Over Video Lottery Equipment and Technology. Dover does not
own or lease the video lottery machines or computer systems used in connection
with its video lottery gaming
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operations. The Director of the Delaware State Lottery Office enters into
contracts directly with the providers of the video lottery machines and computer
systems (the "Technology Providers"). Equipment is provided to the State by sale
or lease and all Technology Providers must be licensed by the Director. There
are also limitations on the number of video lottery machines that may be used at
any one facility that are supplied by the same Technology Provider. The
operations of Dover could be disrupted in the event that a licensed Technology
Provider in any way breaches its agreement with the State or ceases to be
properly licensed for any reason. Such an event would be outside of the control
of Dover and could have a material adverse effect on revenues from gaming.
Yearly Harness Racing Licensing Requirement. Dover's license from the
Delaware Harness Racing Commission must be renewed on a yearly basis. The
Commission has broad discretion to reject any application for a license. In
order to maintain its license for video lottery (slot) machine gaming, Dover is
required to maintain its license for harness horse racing with the Delaware
Harness Racing Commission and, pursuant to legislation enacted in January 1998,
must conduct a minimum of eighty (80) live race days each racing season, subject
to the availability of racing stock. Dover also has an on-going contract with
the Delaware Standardbred Owners Association, Inc. to conduct an additional
forty (40) days of live racing over and above the legislatively mandated days,
subject to certain conditions. Dover has received an annual license from the
Delaware Harness Racing Commission for the past twenty-nine (29) consecutive
years and management believes that its relationship with the Commission remains
good. However, there can be no assurances that Dover will continue to be
licensed in the future.
Revocation, Suspension or Modification of Licenses. The Director of
the Delaware State Lottery Office may revoke or suspend the license of a
Licensed Agent, such as Dover, for "cause." "Cause" is broadly defined and could
potentially include an unintentional violation of any federal, state or local
law. All existing or new officers, directors, key employees and owners of a
Licensed Agent are subject to extensive background investigations. Failure to
satisfy the background investigation may constitute cause for suspension or
revocation of the license. The Director also has broad discretion to modify the
terms of a license already granted. The Delaware Harness Racing Commission also
has broad discretion to suspend or revoke a license once issued.
Any modification or termination of existing legislation or any revocation,
suspension or modification of Dover's licenses could have a material adverse
effect on Dover's business, financial condition and results of operations.
Various operational aspects of the video lottery operations are subject to
regulation by the Director of the Delaware State Lottery Office. Various
operational aspects of harness racing are subject to regulation by the Delaware
Harness Racing Commission and the United States Trotting Association, each
outside Dover's control.
Taxation. Dover believes that the prospect of significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are typically subject to significant taxes
and fees in addition to normal federal and state income taxes, and such taxes
and fees are subject to increase at any time. Dover pays substantial taxes and
fees with respect to its gaming operations. From time to time, federal
legislators and officials have proposed changes in tax laws, or in the
administration of such laws, affecting the gaming industry. Recent proposals
have included a federal gaming tax and limitations on the federal income tax
deductibility of the cost of furnishing complimentary promotional items. It is
not possible to determine with certainty the likelihood of possible changes in
tax laws or in the administration of such laws. Such changes, if adopted, could
have a material adverse effect on Dover's financial condition and results of
operations.
Compliance with Other Laws. The sale of alcoholic beverages at
Dover's facilities is subject to licensing, control and regulation by applicable
local authorities. All licenses are revocable and are not transferable. Dover's
facilities are subject to various federal, state and local regulatory
requirements, such as state and local fire and safety requirements. Failure to
comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. Dover
believes that its facilities are currently in substantial compliance with all
such regulatory requirements. However, there can be no assurance that these
requirements will not be
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changed or that new requirements will not be imposed which could have a material
adverse effect upon Dover's business, financial condition and results of
operations.
Dependence on Relationship with Caesars. The success of Dover's video
lottery operations has been and will remain dependent to a significant extent
upon maintaining a good working relationship with Caesars. Dover and Caesars are
parties to a management agreement under which Caesars is Dover's exclusive agent
to supervise, manage and operate Dover's video lottery operations. Caesars has
been properly licensed by the Delaware State Lottery Office in order to perform
these functions. Management believes that its relationship with Caesars is good.
However, should Caesars cease to be licensed by the Delaware State Lottery
Office or should Dover be unable to continue its present relationship with
Caesars, such events could have a material adverse effect on Dover's business,
financial condition and results of operations.
Losses from Harness Racetrack Operations; Declining On-track Betting
Handle. Since the 1970s, and through the 1994-1995 racing season, Dover's
harness horse racing operations experienced regular declines in daily average
on-track attendance and in the total amount bet on live events at the track
("on-track betting handle"). However, over the past three (3) racing seasons,
Dover has enjoyed improvement in on-track betting handle and has increased the
purses -- the amount distributed to the owners, trainers and harness horse
drivers for any particular race -- for its live races, both from pari-mutuel and
proceeds from simulcasting -- 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 -- and
from a dedicated percentage of the revenues from its video lottery operations.
Dover began transmission of live horse racing from Dover to other race tracks
and off-track betting facilities in November of 1996. This action has increased
harness horse racing revenues. However, there can be no assurance that Dover
will be able to keep its purses at a competitive level or that higher purses
will translate into long term increases in on-track attendance and handle.
Possible Limitations on Transferability of Shares. Dover is a Licensed
Agent authorized to conduct licensed video lottery operations under the Delaware
State Lottery Code. Under Delaware law, a change of ownership of a Licensed
Agent will automatically terminate its license ninety (90) days after the change
of ownership occurs, unless the Director of the Delaware State Lottery Office
determines after application to issue a new license to the new owners. Change of
ownership may occur if any new individual or entity acquires, directly or
indirectly, ten percent (10%) or more of the Licensed Agent or if more than
twenty percent (20%) of the legal or beneficial interest in the Licensed Agent
is transferred, whether by direct or indirect means. The Delaware State Lottery
Commission may require extensive background investigations of any new owner
acquiring a ten percent (10%) or greater interest in a Licensed Agent, including
criminal background checks. These investigations and checks could severely limit
transferability of Dover's Capital Stock including shares held by former Grand
Prix shareholders and could have an adverse effect on the market for Dover's
securities.
Pursuant to Dover's Bylaws, (a) any holders of Dover Capital Stock
including former Grand Prix shareholders, found to be disqualified or unsuitable
or not possessing the qualifications required by the appropriate gaming
authority could be required to dispose of such stock and (b) any holder of Dover
Capital Stock intending to acquire ten percent (10%) or more of the outstanding
Dover Capital Stock must first obtain prior written approval from the Delaware
State Lottery Office. All certificates issued for shares of Dover Capital Stock
are legend to reflect these requirements.
Anti-takeover Provisions. Certain provisions of Dover's Certificate of
Incorporation and Bylaws establish a dual class structure with super majority
voting provisions in Dover Class A Common Stock, authorize the issuance of
"blank check" preferred stock, stagger the election of directors, establish
advance notice requirements for director nominations and actions to be taken at
stockholder meetings, and require special approvals for certain business
combinations involving Dover and any person owning twenty (20%) or more of
Dover's voting stock. Dover has adopted rights plans, as discussed further
herein, relative to the Dover Common Stock and the Dover Class A Common Stock
which could act to dilute the ownership and control of certain persons that seek
to acquire ten percent (10%)
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or more of the outstanding Dover Common Stock and Dover Class A Common Stock or
engage in a tender offer. Dover also is subject to the provisions of Section 203
of the DGCL. These provisions could discourage or impede a tender offer, proxy
contest or other similar transaction involving control of Dover, which
transaction might be viewed favorably by minority stockholders. In addition, if
the proposed amendment to Dover's Certificate of Incorporation to increase the
number of shares of Dover Capital Stock authorized for issuance is adopted by
the stockholders of Dover, the Board of Directors could, in the future,
authorize the issuance of any authorized but unissued shares of Dover Common
Stock and Dover Class A Common Stock on terms determined by it without further
action by the stockholders, unless the shares were issued in a transaction such
as a merger or consolidation, which action would require stockholder approval.
This means that Dover could sell the majority interest in Dover Common Stock and
Dover Class A Common Stock to any party it deems appropriate and by doing so
significantly dilute the rights of holders of outstanding shares of Dover
Capital Stock. (See "DESCRIPTION OF DOVER CAPITAL STOCK.")
RISKS RELATED TO GRAND PRIX
Reliance on Single Racing Event. Grand Prix derives a substantial portion
of its revenues from the Grand Prix Event. Until 1996, Grand Prix had obtained
in excess of eighty percent (80%) of its annual revenues from the Grand Prix
Event. This reliance diminished in 1997 and should further diminish as
additional races are added at Gateway and Memphis. However, the reliance is
still significant with approximately thirty-nine percent (39%) of its revenues
in 1997 and seventy-two percent (72%) of its revenues in 1996 being derived from
the Grand Prix Event. Although Grand Prix has operated a racing event on the
streets of Long Beach for twenty-three (23) years, there can be no assurance
that the Grand Prix Event will continue to be successful. Although Grand Prix
has an agreement with the City of Long Beach to operate the Grand Prix Event
through 2010, and with CART to sanction the Grand Prix Indy Car race through
1998, which agreement may be extended to 2000 at the option of Grand Prix, the
loss or cancellation of either of these agreements would have a material adverse
effect on the financial viability of Grand Prix. In addition, the loss of public
interest in the Grand Prix Event, and corresponding losses in revenues that
would ensue from losses in ticket sales, rentals of suites and tents,
merchandising and concessions, would have a material adverse effect on the
business, financial condition and results of operations of Grand Prix.
Ability to Meet Payment Obligations on SWIDA Loan. In order to finance the
redevelopment of Gateway, Grand Prix entered into a loan agreement with
Southwest Illinois Development Authority ("SWIDA"), which agreed to fund a loan
to Grand Prix by issuing municipal bonds in the aggregate principal amount of
$21,500,000 designated as the "Taxable Sports Facility Revenue Bonds, Series
1996 (Gateway International Motorsports Corporation Project)" (the "Bonds"). The
Bonds are unconditionally guaranteed by Grand Prix. The closing of the sale of
the Bonds occurred on June 21, 1996. The Bonds were offered by SWIDA on a
private placement basis in reliance upon an exemption from registration
contained in Section 4(2) of the Securities Act.
SWIDA has loaned all of the proceeds from the Bond offering to Grand Prix
for the purpose of the development, construction and expansion of Gateway, and
the funds so obtained were irrevocably committed to complete all planned
construction of Gateway.
The Bonds are enhanced by the moral obligation of the State of Illinois and
have a 20-year maturity. Grand Prix issued a 20-year $21,500,000 promissory note
to SWIDA which bears interest at an effective rate of approximately 9.1% per
annum (the "SWIDA Loan"). Payments of interest are made semi-annually, and began
in February 1997, with interest payments through February 1998 derived from an
interest reserve fund described below, and principal payments will begin in
February 2000. All proceeds from the SWIDA Loan are required to be dedicated by
Grand Prix to the redevelopment of Gateway and debt service obligations with
respect to the SWIDA Loan.
As required pursuant to the financing arrangement, Grand Prix established a
$2,550,000 interest reserve fund (from the proceeds of the SWIDA Loan). In
addition, Grand Prix established a $2,300,000 debt service reserve fund from the
net proceeds of its $2,500,000 private placement of its Series A
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Convertible Preferred Stock. In January, 1998, Grand Prix substituted an
irrevocable standby letter of credit from First Tennessee Bank National
Association for the cash on deposit in the debt service reserve fund. (See
"Encumbrance of Assets.")
Additionally, Grand Prix is required to impose a 5% ticket surcharge on all
nationally sanctioned motorsports events at Gateway to establish an additional
debt service reserve fund for the Bonds. Once $2,000,000 has been accumulated in
this fund, excess funds then accumulating will be used to redeem Bonds annually
commencing February 1, 2002.
Although Grand Prix's obligations for interest payments on the SWIDA Loan
through February 1998, were reserved out of the proceeds of the SWIDA Loan and
were held in an interest reserve fund for the purpose of making those payments,
future payments on the SWIDA Loan are intended to be made primarily from the
revenues from the operations of Gateway. Although Grand Prix is current on its
obligation and expects to meet its future debt payment obligations out of the
revenues from Gateway, and although Grand Prix will receive certain assistance
from the City of Madison, Illinois in the form of a tax increment finance fund
which should assist it in meeting its debt burdens, there can be no assurance
that earnings from the future operations of Gateway will be sufficient to meet
Grand Prix's debt service obligations. If Grand Prix is unable to meet these
obligations, the resulting default could result in the foreclosure on the assets
of Gateway, and the acceleration of Grand Prix's obligation to make payment of
the full principal amount and all interest due on the SWIDA Loan. If Grand Prix
is unable to meet these obligations from its available cash, it would be forced
to either borrow funds to repay such obligations or sell assets. Any such event
will have a material adverse effect on the business, financial conditions and
results of operations of Grand Prix.
Encumbrance of Assets. In January, 1998, Grand Prix and each of its
subsidiaries, signed Guaranty Agreements, co-obligating themselves for the
$2,501,825 contingent liability of Gateway International Motorsports Corporation
("Gateway Motorsports"), to First Tennessee Bank National Association under a
Reimbursement Agreement pursuant to which First Tennessee Bank National
Association issued an irrevocable standby Letter of Credit to secure Gateway
Motorsports' obligation to maintain the debt service reserve fund referred to
above in connection with its agreement with SWIDA (see "Ability to Meet Payment
Obligations on SWIDA Loan"). As further security for the standby letter of
credit, Grand Prix's subsidiary, Memphis signed a deed of trust covering the
Memphis facility. The Guaranty Agreements, Reimbursement Agreement and Deed of
Trust contain various covenants limiting the signatory's financial, debt and
financing ratios, which could have the effect of limiting Grand Prix's ability
to raise capital by asset financing. Grand Prix's default under its agreement to
maintain the debt reserve fund, would result in a draw on the letter of credit
and could result in foreclosure on Memphis and trigger Grand Prix's and each
subsidiary's obligation to pay all obligations of Gateway Motorsports under the
Letter of Credit. If Grand Prix is unable to meet the obligations from its
available cash, it would be forced to either borrow funds to repay such
obligations or sell assets. Any such event will have a material adverse effect
on the business, financial conditions and results of operations to Grand Prix.
Government Approvals. Operation of the Grand Prix Event is dependent upon
obtaining a permit from the City of Long Beach allowing Grand Prix to hold the
race on city streets. Grand Prix has such a permit through the year 2010.
Traditionally, the city has been cooperative in working with Grand Prix with
respect to the terms of the permit and in extending the term thereof. There is
no assurance, however, that the City of Long Beach will extend the permit after
the year 2010.
Interest of Certain Persons in the Merger. Certain members of the
management of Grand Prix have certain interest in the Merger that are different
from or in addition to, the interests of Grand Prix shareholders generally.
These certain interests include the likely appointment of Christopher R. Pook to
the Dover Board of Directors, the Pook Employment Agreement and the Michaelian
Employment Agreement. See "APPROVAL OF THE MERGER AGREEMENT AND RELATED
TRANSACTIONS -- Interests of Certain Persons in the Merger."
Possible Adverse Tax Effects to Grand Prix Shareholders Resulting from the
Merger. The Merger has been structured to qualify as a tax-free
"reorganization" under the applicable provisions of the Code, and if the Merger
so qualifies, no gain or loss would be recognized for federal income tax
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purposes by Grand Prix shareholders who receive Dover Common Stock in the Merger
(except with respect to cash received in lieu of a fractional share of Dover
Common Stock). Irrespective of whether the merger qualifies as a
"reorganization," Grand Prix shareholders who exercise dissenters' rights and
receive cash as payment of "fair market value" for their Grand Prix Common Stock
will recognize gain or loss for income tax purposes. See "DISSENTERS' RIGHTS."
If, however, the parties determine for whatever reason prior to the Merger
that the Merger would not qualify as a tax-free "reorganization," then, at any
time prior to the Merger, the parties could either (a) agree to restructure the
Merger, as currently contemplated, in a manner which would qualify as a tax-free
Reorganization or (b) permit the Merger to result in Grand Prix shareholders
recognizing gain or loss with respect to each share of Grand Prix Common Stock
surrendered. Such gain or loss would be equal to the difference between such
shareholder's basis in its share(s) of Grand Prix Common Stock and the fair
market value, as of the Effective Time, of the Dover Common Stock received in
exchange thereof. See "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES."
Based on the information available as of the date of this Joint Proxy
Statement/Prospectus and current stock prices, Dover and Grand Prix currently
intend to report the Merger as a tax-free "reorganization" on their respective
federal income tax returns. However, because no ruling has been requested from
the IRS, no assurance can be given that the IRS will not take a contrary
position. Finally, characterization of the Merger as a tax-free "reorganization"
under the Code is not certain because it depends upon the satisfaction of both
several legal and factual requirements, some of which cannot be established
until the Effective Time and some of which require subjective characterization
of complex legal situations. No opinion of counsel has been obtained concerning
any federal, state, local or foreign tax consequences of the Merger.
Accordingly, each Grand Prix shareholder is strongly advised to seek and rely
upon independent, professional tax advice with respect to the specific federal,
state, local or foreign tax consequences to such shareholder resulting from the
Merger, the ownership and disposition of Dover Common Stock, and the possible
effects of changes in federal or other tax laws. See "CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES."
Rights of Shareholders of Grand Prix under California and Delaware Law. If
the Merger is consummated, the shareholders of Grand Prix, a California
corporation, will become stockholders of Dover, a Delaware corporation. The
rights of shareholders of California corporations and Delaware corporations
differ with respect to, among other things, (i) voting rights, (ii) calling
special stockholders meetings, (iii) amending corporate articles and bylaws,
(iv) approving certain corporate transactions, (v) receiving dividends, (vi)
electing and removing directors and (vii) the ability to bring stockholder
derivative suits. Grand Prix shareholders should keep in mind that in certain
respects, Delaware law may be more restrictive than California law and,
accordingly, their stockholder rights with respect to Dover Common Stock may be
more limited than their rights with respect to Grand Prix Common Stock. Grand
Prix shareholders should read and consider carefully the disclosure regarding
the material differences in California and Delaware law set forth in "COMPARISON
OF RIGHTS OF HOLDERS OF DOVER COMMON STOCK AND HOLDERS OF GRAND PRIX COMMON
STOCK." However, neither the summary outlined in this risk factor or the section
referenced above are intended to be a complete description of the significant
provisions of California and Delaware law pertaining to stockholders' rights
and, accordingly, all such disclosure is qualified in its entirety by the
corporation laws of California and Delaware, to which Grand Prix shareholders
are referred.
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THE STOCKHOLDER MEETINGS
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Dover and Grand Prix in connection with the Merger and for the
purposes set forth below. The Merger will be effected on the terms and
conditions described elsewhere in this Joint Proxy Statement/Prospectus pursuant
to the Merger Agreement, a copy of which is attached hereto as Annex A and
incorporated herein by reference. See "APPROVAL OF THE MERGER AND RELATED
TRANSACTIONS" and "THE MERGER AGREEMENT."
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
will first be mailed to stockholders of Dover and Grand Prix on or about May 21,
1998.
THE MATTERS TO BE CONSIDERED AT THE STOCKHOLDER MEETINGS ARE OF GREAT
IMPORTANCE. STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE
PRE-PAID ENVELOPE.
GRAND PRIX SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH
THEIR PROXIES. See "THE MERGER -- Exchange of Certificates" for more information
regarding such exchange.
DOVER SPECIAL MEETING
This Joint Proxy Statement/Prospectus is being furnished to holders of
Dover Capital Stock as of the Dover Record Date in connection with the
solicitation of proxies by the Dover Board of Directors for use at the Dover
Special Meeting to be held on June 30, 1998 on the First Floor, 1209 Orange
Street, Wilmington, Delaware, starting at 9:00 A.M. (Eastern Daylight Savings
Time), and at any meeting held upon adjournment or postponement thereof, in
connection with each of the proposals set forth below.
At the Dover Special Meeting, holders of Dover Capital Stock will be asked
to consider and vote upon (i) the Merger Proposal, (ii) the Issuance Proposal,
(iii) the Option Proposal, (iv) a proposal to amend and restate 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, (v) a proposal to elect Christopher R. Pook to serve as a
Class I director to the Board of Directors for the remainder of a three (3) year
term expiring in the Year 2000, and (vi) such other business as may properly
come before the Dover Special Meeting or any adjournment or postponement
thereof.
Merger Proposal. Although not required by either the DGCL or the New York
Stock Exchange Listing Requirements (the "Listing Requirements"), the Board of
Directors has opted to seek the approval of the Merger and the Merger Agreement
from holders of Dover's Capital Stock. The Board of Directors, however, has
concluded by a unanimous vote that the Merger is fair to, and in the best
interests of, Dover and its stockholders and recommends that stockholders vote
in favor of the Merger Proposal. See "APPROVAL OF THE MERGER -- Recommendations
of the Dover Board of Directors."
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND
RECOMMENDS THAT THE DOVER STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL.
Issuance Proposal. The Issuance Proposal is being submitted to the
stockholders of Dover for approval in accordance with the Listing Requirements.
Among other things, such Listing Requirements
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generally require that Dover's stockholders approve an acquisition of the stock
of another company in exchange for Dover Common Stock if the number of shares of
Dover Common Stock to be issued is or will be equal to or in excess of twenty
percent (20%) of the number of shares of Dover Common Stock outstanding before
the issuance of Dover Common Stock in such transaction. Because the number of
shares of Dover Common Stock to be issued pursuant to the Merger Agreement would
exceed twenty percent (20%) of the number of shares of Dover Common Stock
currently outstanding, the Issuance Proposal is being submitted to Dover
stockholders for approval. It is a condition to consummating the Merger that
Dover obtain the approval of the New York Stock Exchange to list the Dover
Common Stock to be issued pursuant to the Merger. The New York Stock Exchange
has granted approval subject to shareholder vote and notice of issuance.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ISSUANCE PROPOSAL
AND RECOMMENDS THAT THE STOCKHOLDERS OF DOVER VOTE FOR THE ISSUANCE PROPOSAL.
Option Proposal. In connection with the Merger, Dover has agreed to assume
the Grand Prix Options outstanding immediately prior to the Effective Time
issued under the 1993 Stock Option Plan. The assumption of the Grand Prix
Options is being submitted to Dover stockholders for their approval. At the
Effective Time, each outstanding option to purchase Grand Prix Common Stock
shall be assumed by Dover and shall become an option to purchase that number of
shares of Dover Common Stock determined by multiplying the number of shares of
Grand Prix Common Stock subject to such Grand Prix Option immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole share,
at an exercise price equal to the exercise price of such Grand Prix Option at
the Effective Time, divided by the Exchange Ratio, rounded up to the nearest
full cent.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OPTION PROPOSAL
AND RECOMMENDS THAT THE DOVER STOCKHOLDERS VOTE FOR THE OPTION PROPOSAL.
Amendment and Restatement of Certificate of Incorporation. The Dover Board
of Directors has approved amendments to the Certificate of Incorporation that
would (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. This increase will allow
Christopher R. Pook, Chairman and Chief Executive Officer of Grand Prix to be
nominated as a Class I Director to the Dover Board of Directors, as agreed in
the Merger Agreement.
The Board of Directors has also approved an increase in the number of
shares of Dover Common Stock authorized for issuance from 35,000,000 shares to
75,000,000 shares and an increase in the number of shares of Dover Class A
Common Stock authorized for issuance from 30,000,000 shares to 55,000,000
shares. After consummation of the Merger, the authorized but unissued shares of
Dover Capital Stock will be available for issuance by Dover from time to time,
as determined by the Board of Directors, for any proper corporate purpose, which
could include raising capital, paying stock dividends, providing compensation or
benefits to employees or, among other things, acquiring other companies or
businesses.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING
PROPOSED AMENDMENTS AND RECOMMENDS THAT THE DOVER STOCKHOLDERS VOTE FOR THE
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION THAT WOULD INCREASE THE NUMBER OF
DIRECTORS AND INCREASE THE AMOUNT OF AUTHORIZED DOVER CAPITAL STOCK.
Election of Directors. The Dover Board of Directors is divided into three
(3) classes, with the term of office of one class expiring each year.
Christopher R. Pook has been nominated by the Dover Board of Directors for
election as a Class I director at the Dover Special Meeting for the remainder of
a three (3) year term expiring in the year 2000. The Merger Agreement requires
that the Dover Board of Directors submit to Dover stockholders for their
approval the increase of the Dover Board of Directors
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to ten (10) directors. In addition, the Merger Agreement provides that Dover
will use its best efforts to nominate Christopher R. Pook as a Class I Director
of Dover.
Christopher R. Pook, age 57, founded Grand Prix and has served as Chairman
of its Board of Directors, Chief Executive Officer and President since its
inception in 1974. Mr. Pook is a former member of the Board of Governors of
California State University, Long Beach; was a California delegate appointed by
President Clinton to the White House Conference on Travel and Tourism; was
Co-Chair, with Long Beach Mayor Beverly O'Neill, of Long Beach Strategic
Marketing, Inc.; is a Board Member of the Long Beach Area Convention and
Visitors Bureau; is past Chairman of the Great Los Angeles World Trade Center
Association; was four-time Fund Raising Chairman of California State University;
and is a Board Member of the Long Beach Symphony. He is a past recipient of the
Salesman of the Year award from Sales and Marketing Executives; he was recently
presented with the first annual Entrepreneur of the Year Award by the Long Beach
Chamber of Commerce. On two occasions he has been awarded a key to the City of
Long Beach for his efforts on behalf of the community and is a past Chairman of
the Board of Directors of the Greater Long Beach Area Chamber of Commerce. Mr.
Pook is one of the original developers of the concept of modern-day racing
through city streets in the United States.
Unless otherwise indicated, the proxy holders will vote the proxies
received by them for Christopher R. Pook. If Christopher R. Pook is unable or
declines to serve as a director at the time of the Dover Special Meeting, the
proxies will be voted for any nominee who is designated by the present Board of
Directors. It is not expected that Christopher R. Pook will be unable or will
decline to serve as a director.
THE DOVER BOARD OF DIRECTORS HAS UNANIMOUSLY NOMINATED MR. POOK AND
RECOMMENDS THAT THE DOVER STOCKHOLDERS VOTE FOR CHRISTOPHER R. POOK AS A CLASS I
DIRECTOR OF DOVER.
Quorum; Voting Rights. Only holders of record of Dover Common Stock and
Dover Class A Common Stock at the close of business on May 18, 1998 are entitled
to notice of and to vote at the Dover Special Meeting or any adjournment or
postponement thereof. At the close of business on the Dover Record Date, there
were outstanding and entitled to vote 2,998,950 shares of Dover Common Stock and
12,249,380 shares of Dover Class A Common Stock. Each holder of record of Dover
Common Stock is entitled to cast one vote per share, and each holder of record
of Dover Class A Common Stock is entitled to cast ten votes per share, on any
matter that may properly come before the Dover Special Meeting. The holders of
Dover Common Stock and Dover Capital Stock will vote together with regard to the
Merger Proposal, the Issuance Proposal, the Option Proposal and the election of
the Class I Director. However, as required by the DGCL, holders of the Dover
Common Stock and holders of Dover Class A Common Stock will vote separately on
the amendments to Dover's Certificate of Incorporation.
A majority of the issued and outstanding shares of Dover Capital Stock
entitled to vote at the Dover Special Meeting must be represented at the Dover
Special Meeting, in person or by proxy, to constitute a quorum for the
transaction of business. The affirmative vote of a majority of the voting power
of the issued and outstanding Dover Capital Stock is required to approve the
Merger Proposal, the Issuance Proposal and the Option Proposal. Any amendment to
Dover's Certificate of Incorporation requires the affirmative vote of the
majority of the shares of Dover Common Stock, voting as a class, and the
affirmative vote of the majority of the shares of Dover Class A Common Stock,
voting as a class, outstanding on the Dover Record Date. The election of the
Dover Class I nominee to the Dover Board of Directors named herein will be
determined by a plurality of the votes cast by the shares of Dover Capital Stock
entitled to vote at the election.
As of the Dover Record Date, the directors and executive officers of Dover
owned or had voting control over an aggregate of 10,894,730 shares of Dover
Capital Stock, representing approximately 86.8% of the voting power of the votes
entitled to be cast at the Dover Special Meeting. Each of the directors and
executive officers of Dover has advised Dover that he or she intends to vote or
direct the vote of all the outstanding shares of Dover Capital Stock over which
he or she has voting control in
32
<PAGE>
favor of the approval of the Merger Proposal, the Issuance Proposal, the Option
Proposal, the approval of the proposed amendments to the Certificate of
Incorporation, and the election of Christopher R. Pook to the Dover Board of
Directors. Moreover, pursuant to the Dover Support Agreement, more than a
majority of the Dover Capital Stock voting power will be voted by proxy by a
person designated by Grand Prix in favor of the Merger Proposal, the Issuance
Proposal, the Option Proposal and the proposed amendments to the Certificate of
Incorporation, in favor of the election of Christopher R. Pook as a director of
Dover and against certain transactions. (See "THE MERGER -- Transactions in
Connection with the Merger" and "APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
- -- Interests of Certain Persons in the Merger.")
Proxies. All proxies in the enclosed form that are properly executed and
returned to Dover will be voted at the Dover Special Meeting or any adjournments
or postponements thereof, in accordance with any instructions thereon, or, if no
instructions are made, will be voted FOR the approval of the Merger Proposal,
FOR approval of the Issuance Proposal, FOR the approval of the Option Proposal,
FOR the approval of the proposed amendments to the Certificate of Incorporation,
and FOR the election of Christopher R. Pook to the Dover Board of Directors.
Stockholders are urged to mark the boxes on the proxy to indicate how their
shares are to be voted. Any Dover stockholder may revoke a proxy at any time
before it is voted by submitting a later dated proxy, by appearing in person at
the Dover Special Meeting and voting thereat, or by delivering a written notice
to the Secretary of Dover stating that the proxy is revoked. If a stockholder is
not the registered holder of his, her or its shares, such stockholder must
obtain appropriate documentation from the registered holder in order to be able
to vote the shares in person.
If an executed proxy is returned by a broker holding shares of Dover Common
Stock in a street name and indicates that the broker does not have discretionary
authority as to certain shares to vote on a certain matter (a "broker
non-vote"), such shares will be counted for purposes of determining whether
there is a quorum but will not be considered as present and entitled to vote
with respect to that matter. If an executed proxy is returned by a stockholder
and the stockholder has abstained from voting on a matter listed in the proxy,
such shares will be counted for purposes of determining the presence or absence
of a quorum and for purposes of determining the aggregate voting power and
number of shares represented at the Dover Special Meeting. Accordingly, because
the Merger Proposal, the Issuance Proposal and the Option Proposal each require
the approval of a majority of the voting power of Dover Capital Stock issued and
outstanding as of the Dover Record Date, abstentions will have the same effect
as a no vote and broker non-votes will have no effect on the outcome of such
proposals, assuming a quorum otherwise exists. The proposed amendments to
Dover's Certificate of Incorporation, which proposal will be voted on by class,
requires the approval of a majority of the issued and outstanding shares of
Dover Common Stock and a majority of the issued and outstanding shares of Dover
Class A Common Stock, each as issued and outstanding on the Dover Record Date
and abstentions and broker non-votes will have the same effect as a no vote.
Because the election of the Class I Dover director will be determined by a
plurality of the vote, abstentions and broker non-votes will have no effect on
the outcome of such proposal, assuming a quorum otherwise exists.
The Dover Board of Directors does not know of any matters other than those
set forth in the Notice of Dover Special Meeting and in this Joint Proxy
Statement/Prospectus which may come before the Dover Special Meeting. If any
other matters are properly presented at the Dover Special Meeting for action,
including, among other things, consideration of a motion to adjourn the Dover
Special Meeting to another place and/or time (including, without limitation, for
the purpose of soliciting additional proxies), the persons named in the
applicable form of proxy and acting thereunder will have the discretion to vote
in accordance with their best judgment on such matters, unless such
authorization is withheld.
Solicitation of Proxies; Expenses. All expenses related to Dover's
solicitation of proxies, including the cost of preparing and mailing this Joint
Proxy Statement/Prospectus, will be split equally by Dover and Grand Prix. In
addition to solicitation by mail, proxies may be solicited by directors,
officers and regular employees of Dover by telephone or otherwise. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-
33
<PAGE>
pocket expenses incurred in connection therewith. Brokerage firms, fiduciaries
and other custodians who forward soliciting material to the beneficial owners of
shares of Dover Common Stock held of record by them will be reimbursed for their
reasonable expenses incurred in forwarding such material.
PRINCIPAL STOCKHOLDERS OF DOVER
As of May 18, 1998, only eight (8) persons were known to Dover to own
beneficially more than five percent (5%) of the outstanding shares of Dover
Common Stock or Dover Class A Common Stock. The following table sets forth the
name and address of each such person as well as information regarding such
person's ownership of Dover Capital Stock as well as the beneficial ownership of
all executive officers, directors and director nominees, individually and as a
group. Individuals have sole voting and investment power over the shares shown,
unless otherwise indicated in the footnotes. See "INFORMATION CONCERNING THE
COMPANIES" for a listing of executive officers, directors and director nominees
of Dover, a brief description of each individual so named, committees of Dover's
Board of Directors and compensation of Dover executive officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND
NAME AND ADDRESS TITLE OF NATURE OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNERS CLASS OWNERSHIP(1) CLASS
- -------------------- -------- -------------------- ----------
<S> <C> <C> <C>
John W. Rollins, Sr.(2) ....................... Common Stock -- --
One Rollins Plaza Class A Common Stock 5,983,930(3) 48.9%
Wilmington, DE 19803
Henry B. Tippie ................................ Common Stock -- --
P.O. Box 26557 Class A Common Stock 1,600,000 13.1%
Austin, TX 78755
Eugene W. Weaver ............................... Common Stock -- --
One Rollins Plaza Class A Common Stock 780,000(4) 6.4%
Wilmington, DE 19803
Gary W. Rollins ................................ Common Stock -- --
2170 Piedmont Street, NE Class A Common Stock 1,015,000 8.3%
Atlanta, GA 30301
R. Randall Rollins(2) .......................... Common Stock -- --
2170 Piedmont Street, NE Class A Common Stock 1,015,000 8.3%
Atlanta, GA 30301
Jeffrey W. Rollins(2) .......................... Common Stock -- --
One Rollins Plaza Class A Common Stock 658,750(5) 5.4%
Wilmington, DE 19803
Melvin L. Joseph ............................... Common Stock -- --
One Rollins Plaza Class A Common Stock 362,500 3.0%
Wilmington, DE 19803
Denis McGlynn .................................. Common Stock 100 --
1131 North DuPont Highway Class A Common Stock 254,500 2.1%
Dover, DE 19901
John W. Rollins, Jr.(2) ....................... Common Stock 450 --
One Rollins Plaza Class A Common Stock 237,000(6) 1.9%
Wilmington, DE 19803
Robert M. Comollo .............................. Common Stock 1,000 --
1131 North DuPont Highway Class A Common Stock -- --
Dover, DE 19901
Patrick J. Bagley .............................. Common Stock 500 --
One Rollins Plaza Class A Common Stock -- --
Wilmington, DE 19803
Michael B. Kinnard ............................. Common Stock 1,000(7) --
One Rollins Plaza Class A Common Stock -- --
Wilmington, DE 19803
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES AND
NAME AND ADDRESS TITLE OF NATURE OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNERS CLASS OWNERSHIP(1) CLASS
- -------------------- -------- -------------------- ----------
<S> <C> <C> <C>
Timothy R. Horne ............................... Common Stock -- --
One Rollins Plaza Class A Common Stock -- --
Wilmington, DE 19803
Christopher R. Pook ............................ Common Stock -- --
3000 Pacific Avenue Class A Common Stock -- --
Long Beach CA 90806
T. Rowe Price .................................. Common Stock 150,000(8) 5.0%
100 East Pratt Street Class A Common Stock -- --
Baltimore, MD 21202
PNC Bank Corp. ................................. Common Stock 174,125(9) 5.8%
One PNC Plaza Class A Common Stock -- --
249 Fifth Avenue
Pittsburgh, PA 15222-2707
All Directors and Officers as a Group (13 Common Stock 3,050 --
persons) ..................................... Class A Common Stock 10,891,680 88.9%
</TABLE>
- ------------------
(1) As to officers and directors, shares are owned directly and of record. Class
A Common Stock is convertible, at any time, on a share-for-share basis into
Dover Common Stock at the option of the holders thereof. As a result,
pursuant to Rule 13d of the Exchange Act, a stockholder is deemed to have
beneficial ownership of the shares of Dover Common Stock which such
stockholder may acquire upon conversion of the Class A Common Stock. In
order to avoid overstatement, the amount of Dover Common Stock beneficially
owned does not take into account such shares of Dover Common Stock which may
be acquired upon conversion (an amount which is equal to the number of
shares of Dover Class A Common Stock held by a stockholder). The above
numbers exclude the following shares of Dover Common Stock subject to
options granted under Dover's 1996 Stock Option Plan which the listed
beneficial owner has the right to acquire beneficial ownership as specified
in Rule 13d of the Exchange Act: Denis McGlynn, 5,000 shares; Eugene W.
Weaver, 2,500 shares; and all directors and officers as a group, 12,000
shares. The above numbers also exclude the following shares of Dover Class A
Common Stock subject to options granted under Dover's 1991 Stock Option Plan
which the listed beneficial owner has the right to acquire beneficial
ownership as specified in Rule 13d of the Exchange Act: Denis McGlynn,
90,000 shares and Melvin L. Joseph, 22,500 shares.
(2) John W. Rollins, Sr. is the uncle of R. Randall Rollins and the father of
John W. Rollins, Jr. and Jeffrey W. Rollins.
(3) Does not include 9,200 shares of Dover Class A Common Stock held by his wife
and 7,600 shares of Dover Common Stock held by his wife as Custodian for his
minor children, as to which Mr. Rollins disclaims any beneficial interest.
(4) Does not include 20,000 shares of Dover Class A Common Stock held by his
wife and 300,000 shares of Dover Class A Common Stock owned by a partnership
over which Mr. Weaver has sole voting power, as to which Mr. Weaver
disclaims any beneficial interest.
(5) Does not include 450 shares of Dover Class A Common Stock held by his wife
and 2,700 shares held by his wife as Custodian for his minor children, as to
which Mr. Rollins disclaims any beneficial interest.
(6) Does not include 450 shares of Dover Common Stock held by his wife and 950
shares of Dover Common Stock held as trustee, as to which Mr. Rollins
disclaims any beneficial interest.
(7) Does not include 1,000 shares of Dover Common Stock held by his wife and
1,000 shares of Dover Common Stock held by his wife as Custodian for his
minor children, as to which Mr. Kinnard disclaims any beneficial interest.
(8) Shares are owned by the T. Rowe Price New Horizons Fund for which T. Rowe
Price Associates, Inc. ("Price Associates") serves as investment adviser.
Price Associates has sole dispositive power for the entire holding of
150,000 shares. For purposes of the reporting requirements of the Exchange
Act, Price Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities. The information stated herein is based
solely upon the most recent Report of Beneficial Ownership on Schedule 13G
filed by T. Rowe Price.
(9) Based upon the most recent Report of Beneficial Ownership on Schedule 13G
filed by PNC Bank Corp.
GRAND PRIX SPECIAL MEETING
At the Grand Prix Special Meeting, the holders of Grand Prix Common Stock
will consider and vote upon (i) the approval of the Merger Proposal and (ii)
such other matters as may properly come before the Grand Prix Special Meeting or
any adjournments or postponements thereof.
35
<PAGE>
Merger Proposal. As required by the California Code, the Board of
Directors is hereby submitting the Merger Proposal to the holders of Grand Prix
Common Stock for their approval. In the event that a majority of Grand Prix's
shareholders do not approve the foregoing, the proposed transaction with Dover
will not be consummated as contemplated. The Grand Prix Board of Directors
however has concluded that the Merger is fair to, and in the best interests of,
Grand Prix and its shareholders and recommends that shareholders vote in favor
of the Merger Proposal. See "APPROVAL OF THE MERGER -- Recommendations of the
Grand Prix Board of Directors."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE GRAND PRIX SHAREHOLDERS VOTE FOR THE
MERGER PROPOSAL.
Quorum; Voting Rights. Holders of record of Grand Prix Common Stock at the
close of business on May 18, 1998 are entitled to notice of, and to vote at, the
Grand Prix Special Meeting or any adjournment or postponement thereof. As of the
Grand Prix Record Date, there were 222 shareholders of record holding an
aggregate of approximately 4,677,187 shares of Grand Prix Common Stock. The
holders of record on the Grand Prix Record Date of shares of Grand Prix Common
Stock are entitled to one vote per share of Grand Prix Common Stock on each
matter submitted to a vote at the Grand Prix Special Meeting. A majority of the
issued and outstanding shares of Grand Prix Common Stock entitled to vote at the
Grand Prix Special Meeting must be represented at the Grand Prix Special
Meeting, in person or by proxy, to constitute a quorum for the transaction of
business. The approval of the Merger Proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Grand Prix Common Stock.
As of the Grand Prix Record Date, the directors and executive officers of
Grand Prix owned or had voting control over an aggregate of 892,915 shares of
Grand Prix Common Stock. Each of the directors and executive officers of Grand
Prix has advised Grand Prix that he or she intends to vote or direct the vote of
all outstanding shares of Grand Prix Common Stock over which he or she has
voting control in favor of the approval of the Merger Proposal. Pursuant to the
Grand Prix Support Agreement, dated as of March 26, 1998, by and among Dover and
certain shareholders of Grand Prix, certain shareholders have agreed that all of
their shares of Grand Prix Common Stock will be voted in favor of the Merger
Proposal at the Grand Prix Special Meeting by a proxy appointed by Dover.
Approximately 38% of the shareholders of Grand Prix are parties to the Support
Agreement, constituting a majority of the voting power of Grand Prix on a fully
diluted basis when combined with the shares of Grand Prix owned by Dover. See
"APPROVAL OF THE MERGER AND RELATED TRANSACTIONS -- Interests of Certain Persons
in the Merger."
Proxies. All shares of Grand Prix Common Stock represented by properly
executed proxies received at or prior to the Grand Prix Special Meeting that
have not been revoked will be voted at the Grand Prix Special Meeting in
accordance with the instructions contained therein. If no instructions are
indicated, such shares of Grand Prix Common Stock will be voted in favor of the
Merger Proposal. Grand Prix does not know of any matters other than as described
in the accompanying Notice of Grand Prix Special Meeting and in this Joint Proxy
Statement/Prospectus that are to come before the Grand Prix Special Meeting. A
shareholder voting by proxy pursuant to this proxy solicitation may revoke a
proxy (i) by submitting at any time prior to the vote on the approval of the
applicable proposal a later dated proxy with respect to the same shares, (ii) by
delivering written notice of revocation to the Secretary of Grand Prix at any
time prior to such vote or (iii) by attending the Grand Prix Special Meeting and
voting in person. Mere attendance at the Grand Prix Special Meeting will not in
and of itself revoke a proxy. If a Grand Prix shareholder is not the registered
direct holder of his or her shares, such shareholder must obtain appropriate
documentation from the registered holder in order to be able to vote the shares
in person.
If an executed proxy is returned by a broker holding shares of Grand Prix
Common Stock in a street name and indicates that the broker does not have
discretionary authority as to certain shares to vote on a certain matter, such
shares will be counted for purposes of determining whether there is a quorum but
will not be considered as present and entitled to vote with respect to that
matter. If an
36
<PAGE>
executed proxy is returned by a shareholder and the shareholder has abstained
from voting on a matter listed in the proxy, such shares will be counted for
purposes of determining the presence or absence of a quorum and for purposes of
determining the aggregate voting power and number of shares represented at the
Grand Prix Special Meeting. Accordingly, because the Merger Proposal requires
the affirmative vote of a majority of issued and outstanding shares of Grand
Prix Common Stock, abstentions and broker non-votes will have the same effect as
a vote against such proposals.
The Grand Prix Board of Directors does not know of any matters other than
those set forth herein which may come before the Grand Prix Special Meeting. If
any other matters are properly presented at the Grand Prix Special Meeting for
action, including, among other things, consideration of a motion to adjourn the
Grand Prix Special Meeting to another place and/or time (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the applicable form of proxy and acting thereunder will have the discretion
to vote in accordance with their best judgment on such matters, unless such
authorization is withheld.
Solicitation of Proxies; Expenses. All expenses related to Grand Prix's
solicitation of proxies will be borne by Grand Prix. In addition to solicitation
by mail, directors, officers and employees of Grand Prix may solicit proxies by
telephone or otherwise. Such directors, officers and employees of Grand Prix
will not be additionally compensated for such solicitation but may be reimbursed
for out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of Grand Prix Common Stock held of record by them
will be reimbursed for their reasonable expenses incurred in forwarding such
material.
PRINCIPAL SHAREHOLDERS OF GRAND PRIX
As of May 18, 1998, only six (6) persons were known to Grand Prix to own
beneficially more than five percent (5%) of the outstanding shares of Grand Prix
Common Stock. The table below sets forth the name of each such person as well as
information regarding the ownership of Grand Prix Common Stock by each executive
officer and director of Grand Prix and by all officers and directors as a group.
Individuals have sole voting power over the shares shown, unless otherwise
indicated in the footnotes.
On March 26, 1998 pursuant to separate Stock Purchase Agreements entered
into with Penske and Midwest, Dover acquired an aggregate of 680,000 shares of
Grand Prix Common Stock. Penske and Midwest each sold Dover all of their
respective holdings, 340,000 shares of Grand Prix Common Stock each. As a result
of these purchases, Dover owns 14.54% of the outstanding Grand Prix Common
Stock. However, according to the terms of the Merger Agreement, shares of Grand
Prix Common Stock held by Dover will not be exchanged for Dover Common Stock. As
a shareholder, Dover is entitled to and intends to vote its shares in favor of
the Merger Proposal.
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SHARES AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS BENEFICIAL OWNERSHIP(1) CLASS(2)
- ------------------------------------ ------------ ----------------------- --------------
<S> <C> <C> <C>
Christopher R. Pook(3)........................... Common Stock 515,558 10.70%
3000 Pacific Avenue
Long Beach, California 90806
James P. Michaelian(4)........................... Common Stock 263,459 5.53%
3000 Pacific Avenue
Long Beach, California 90806
Dwight R. Tanaka(5).............................. Common Stock 65,619 1.40%
3000 Pacific Avenue
Long Beach, California 90806
Ronald C. Shirley................................ Common Stock -- --
3000 Pacific Avenue
Long Beach, California 90806
Michael S. Clark(6).............................. Common Stock 38,535 0.82%
3000 Pacific Avenue
Long Beach, California 90806
Kevin O'Brien.................................... Common Stock -- --
3000 Pacific Avenue
Long Beach, California 90806
Joseph Ainge(7).................................. Common Stock 57,978 1.24%
3000 Pacific Avenue
Long Beach, California 90806
Daniel S. Gurney(8).............................. Common Stock 82,792 1.77%
3000 Pacific Avenue
Long Beach, California 90806
Wayne Kees(8).................................... Common Stock 57,978 1.24%
3000 Pacific Avenue
Long Beach, California 90806
George Pellin(7)................................. Common Stock 71,146 1.52%
3000 Pacific Avenue
Long Beach, California 90806
Denis McGlynn.................................... Common Stock -- --
1131 N. DuPont Highway
Dover, Delaware 19901
Timothy R. Horne................................. Common Stock -- --
1131 N. DuPont Highway
Dover, Delaware 19901
Eugene W. Weaver................................. Common Stock -- --
1131 N. DuPont Highway
Dover, Delaware 19901
Dover Downs Entertainment, Inc................... Common Stock 680,000 14.54%
1131 N. DuPont Highway
Dover, Delaware 19901
Nicholas Company Inc.(9)......................... Common Stock 251,000 5.37%
700 North Water Street
Suite 1010
Milwaukee, WI 53202
Wellington Management Company, LLP............... Common Stock 328,000 7.01%
75 State Street, 19th Floor
Boston, MA 02109
Laifer Capital Management, Inc.(10).............. Common Stock 264,041 5.65%
45 West 45th St., 9th Floor
New York, NY 10036
All executive officers and directors as a group
(16 persons)(11)............................... Common Stock 1,187,078 25.38%
(Footnotes on next page)
</TABLE>
38
<PAGE>
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Grand Prix Common Stock subject to options or warrants held by
that person that are currently exercisable, or will become exercisable
within 60 days from May 18, 1998, are deemed outstanding. Such shares,
however, are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) Based on 4,677,187 shares of Grand Prix Common Stock outstanding, subject
to the second sentence of footnote 1 above.
(3) Includes options to purchase 139,548 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998. Includes 65,805 shares of Grand
Prix Common Stock owned by Ellen Pook, the spouse of Mr. Pook.
(4) Includes options to purchase 86,961 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998.
(5) Includes options to purchase 10,415 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998.
(6) Includes options to purchase 6,345 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998.
(7) Includes options to purchase 11,951 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998.
(8) Includes options to purchase 8,964 shares of Grand Prix Common Stock
exercisable within 60 days of May 18, 1998.
(9) Said 251,000 shares of Grand Prix Common Stock are held by Nicholas
Company, Inc. an investment advisor which has dispositive power over the
shares invested in Nicholas Limited Edition, Inc. which has voting power
over the shares.
(10) Laifer Capital Management, Inc. is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940. It has shared voting
power over 90,341 shares and sole voting power over 173,700 shares.
(11) Includes all executive officers and current directors of Grand Prix.
See "INFORMATION CONCERNING THE COMPANIES" for a listing of Grand Prix's
executive officers and directors and a brief description of each individual
named.
39
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data of Dover and Grand
Prix on a historical and on an unaudited pro forma basis and unaudited
equivalent pro forma basis, after giving effect to the Merger. The pro forma
combined per share data give effect to the Merger at the estimated Exchange
Ratio of 0.63 shares of Dover Common Stock for each outstanding share of Grand
Prix Common Stock. The actual number of shares of Dover Common Stock to be
issued in the Merger will be determined at the Effective Time based on the
Exchange Ratio at the Effective Time. The unaudited pro forma combined per share
data do not purport to represent what Dover's financial position or results of
operations would actually have been had the Merger occurred at the beginning of
the earliest period presented or to project Dover's financial position or
results of operations for any future date or period.
This data should be read in conjunction with the historical consolidated
financial statements of Dover and the historical consolidated financial
statements of Grand Prix and the pro forma financial information included
elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
GRAND
PRIX
HISTORICAL DOVER ----------
------------- ----- EQUIVALENT
GRAND PRO PRO
DOVER PRIX FORMA FORMA
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Net earnings (loss) per common share for the:
Year ended June 30, 1997 (basic)..................... $1.11 .45 .96 .60
Year ended June 30, 1997 (diluted)................... 1.08 .42 .93 .59
Nine Months ended March 31, 1998 (basic)............. .90 (.48) .59 .37
Nine Months ended March 31, 1998 (diluted)........... .87 (.48) .57 .36
Book value per common share:
at June 30, 1997..................................... 3.57 5.45 7.71 4.86
at March 31, 1998.................................... 4.22 6.17 7.92 5.13
Cash dividends per common share:
for the year ended June 30, 1997..................... .16 -- .16 .10
for the nine months ended March 31, 1998............. .24 -- .24 .15
</TABLE>
40
<PAGE>
DOVER SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
FIVE-YEAR SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED YEAR ENDED JUNE 30
MARCH 31, MARCH 31, -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ------- ------ ------ ------ ------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Motorsports............................ $12,194 9,515 20,516 18,110 16,282 13,561 11,984
Gaming................................. 84,324 56,641 81,162 31,980 1,250 796 2,058
Total revenues....................... 96,518 66,156 101,678 50,090 17,532 14,357 14,042
Earnings before income taxes........... 23,437 15,892 28,239 15,593 7,239 5,791 4,791
Net earnings 13,646 9,272 16,472 9,196 4,284 3,562 2,908
Earnings per common share (basic)...... .90 .63 1.11 .66 .31 .26 .21
Earnings per common share (diluted).... .87 .61 1.08 .63 .30 .26 .21
<CAPTION>
AT AT
MARCH 31, MARCH 31,
1998 1997 AT JUNE 30
--------- --------- -------------------------------------------
Total assets........................... $87,776 65,410 71,261 42,311 25,422 19,776 17,208
Long-term debt......................... 746 761 760 766 698 776 878
Shareholders' equity................... 64,319 48,201 54,300 23,715 14,225 9,923 6,361
</TABLE>
41
<PAGE>
GRAND PRIX SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
FIVE-YEAR SELECTED FINANCIAL DATA
(000's Omitted, except for Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS FIVE
ENDED ENDED YEAR MONTHS YEARS ENDED
FEBRUARY 28, FEBRUARY 28, ENDED ENDED JUNE 30,
---------------- --------------- NOV. 30, NOV. 30, ---------------------------------
OPERATING RESULTS DATA 1998 1997 1998 1997 1997 1996(1) 1996 1995 1994 1993
- ---------------------- ------- ------ ------ ------ -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Motorsports............ $ 433 403 12,731 4,013 30,909 1,960 15,251 11,626 10,624 10,389
Gaming................. -- -- -- -- -- -- -- -- -- --
Total revenues....... 433 403 12,731 4,013 30,909 1,960 15,251 11,626 10,624 10,389
Earnings (loss) before
income taxes......... (2,366) (1,211) (3,508) (3,480) 3,032 (2,140) 2,275 1,777 1,145 626
Net earnings (loss).... (1,372) (764) (2,034) (2,180) 1,671 (1,387) 1,320 1,012 941 288
<CAPTION>
PER SHARE DATA
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per
common share (basic)... ($.29) (.22) (.48) (.60) .43 (.38) .66 .52 .52 .18
Earnings (loss) per
common share
(diluted)............ (.29) (.22) (.48) (.60) .42 (.38) .64 .52 .52 .18
<CAPTION>
BALANCE SHEET DATA
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets........... $62,116 53,271 62,116 53,271 58,156 46,886 48,087 6,632 5,372 4,673
Long-term debt......... 23,666 22,932 23,666 22,932 23,693 22,932 23,030 1,691 1,694 1,756
Shareholders' equity... 28,778 16,706 28,778 16,706 30,042 17,483 18,870 3,248 2,231 1,484
</TABLE>
- ------------------
(1) In December 1996 Grand Prix changed its fiscal year end from June 30 to
November 30.
42
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
($000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
HISTORICAL GRAND ---------------------- PRO FORMA
DOVER PRIX DEBIT CREDIT COMBINED
---------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $13,263 $5,594 $18,857
Accounts receivable........... 3,085 1,726 4,811
Due from State of Delaware.... 2,161 -- 2,161
Inventory..................... 305 366 671
Prepaid expenses and other.... 1,241 1,639 2,880
Prepaid income taxes.......... -- 2,064 2,064
Deferred income taxes......... 315 207 522
------- ------ ------ ------- -------
Total current assets..... 20,370 11,596 31,966
Property, plant & equipment,
net......................... 53,935 45,251 15,330(1) 114,516
Restricted cash............... -- 3,757 3,757
Intangibles, net.............. 2,931 -- 53,392(2) 56,323
Long term investments......... 10,540 -- 10,540(5) --
Other assets.................. -- 1,512 1,512
------- ------ ------ ------- -------
Total assets............. 87,776 62,116 68,722 10,540 208,074
======= ====== ====== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 2,425 $712 $ 3,137
Purses due horsemen........... 996 -- 996
Income taxes payable.......... 14 -- 14
Accrued liabilities........... 3,553 169 355(4) 4,077
Deferred revenue.............. 14,983 7,482 22,465
Notes payable current......... 19 194 213
------- ------ ------ ------- -------
Total current
liabilities........... 21,990 8,557 355 30,902
------- ------ ------ ------- -------
Notes payable long term....... 746 23,666 24,412
Other long term liabilities... -- 200 200
Deferred income taxes......... 721 915 6,285(3) 7,921
SHAREHOLDERS' EQUITY:
Common stock................ 300 26,644 26,644(7) 251(6) 551
Class A common stock........ 1,225 -- 1,225
Additional paid in
capital.................. 21,109 -- 80,069(6) 101,178
Retained earnings........... 41,685 2,492 2,492(7) 41,685
Shareholders' notes......... -- (358) 358(7) --
------- ------ ------ ------- -------
Total shareholders'
equity................ 64,319 28,778 29,136 80,678 144,639
------- ------ ------ ------- -------
Total liabilities and
shareholders'
equity................ 87,776 62,116 29,136 87,318 208,074
======= ====== ====== ======= =======
</TABLE>
43
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1997
($000'S OMITTED, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL GRAND PRIX ----------------------- PRO FORMA
DOVER (UNAUDITED) DEBIT CREDIT COMBINED
---------- ----------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Revenues
Motorsports...................... $20,516 $23,908 $ -- $ -- $44,424
Gaming........................... 81,162 -- -- -- 81,162
------- ------- ------ ---- -------
101,678 23,908 -- -- 125,586
------- ------- ------ ---- -------
Expenses
Operating........................ 68,559 14,013 -- -- 82,572
Depreciation and amortization.... 2,084 1,527 1,786(8)(9) -- 5,397
General and administrative....... 3,065 5,177 -- -- 8,242
------- ------- ------ ---- -------
Operating earnings................. 27,970 3,191 1,786 -- 29,375
Interest (income) expense.......... (269) 200 -- -- (69)
------- ------- ------ ---- -------
Earnings before income taxes....... 28,239 2,991 1,786 -- 29,444
Income taxes....................... 11,767 1,256 -- 185(11) 12,838
------- ------- ------ ---- -------
Net earnings....................... 16,472 1,735 1,786 185 16,606
Series B preferred dividends....... -- (104) -- 104(10) 0
------- ------- ------ ---- -------
Net earnings....................... $16,472 $ 1,631 $1,786 $289 $16,606
======= ======= ====== ==== =======
Earnings per common share
-basic..................... $ 1.11 $ .96
-diluted................... $ 1.08 $ .93
Weighted average shares
outstanding......................
-basic..................... 14,863 17,374
-diluted................... 15,275 17,941
</TABLE>
44
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
($000'S OMITTED, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
HISTORICAL GRAND ------------------------ PRO FORMA
DOVER PRIX(1) DEBIT CREDIT COMBINED
---------- ---------- ------- ------ ---------
<S> <C> <C> <C> <C> <C>
Revenues
Motorsports...................... $12,194 $12,731 $ -- $ -- $24,925
Gaming........................... 84,324 -- -- -- 84,324
------- ------- ------- ----- -------
96,518 12,731 -- -- 109,249
------- ------- ------- ----- -------
Expenses
Operating........................ 68,370 6,547 -- -- 74,917
Depreciation and amortization.... 1,962 1,238 1,340(12)(13) -- 4,540
General and administrative....... 3,239 6,975 -- -- 10,214
------- ------- ------- ----- -------
Operating earnings (loss).......... 22,947 (2,029) 1,340 -- 19,578
Interest (income) expense.......... (490) 1,357 -- -- 867
Other expense...................... -- 122 -- -- 122
------- ------- ------- ----- -------
Earnings (loss) before income
taxes............................ 23,437 (3,508) 1,340 -- 18,589
Income taxes....................... 9,791 (1,474) -- 139(15) 8,178
------- ------- ------- ----- -------
Net earnings (loss)................ 13,646 (2,034) 1,340 139 10,411
Series B preferred dividends....... -- (36) -- 36(14) --
------- ------- ------- ----- -------
Net earnings (loss) applicable to
common stock..................... $13,646 $(2,070) $ 1,340 $ 175 $10,411
======= ======= ======= ===== =======
Earnings per common share
basic...................... $ 0.90 $ .59
diluted.................... $ 0.87 $ .57
Weighted average shares outstanding
basic...................... 15,245 17,756
diluted.................... 15,597 18,263
</TABLE>
- ------------------
(1) The nine month period presented above excludes the three month period from
March 1, 1997 through May 31, 1997. Grand Prix's business is highly
seasonal, and therefore, the results of the nine month period are not
necessarily representative of a twelve month period. Net earnings for the
three month period ended May 31, 1997 were $3,159,000.
45
<PAGE>
UNAUDITED SELECTED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
ACCOUNTING TREATMENT OF THE MERGER
If the Merger is consummated, it will be accounted for using the purchase
method of accounting applied in accordance with GAAP. Consequently, the assets
and liabilities of Grand Prix will be recorded at their estimated fair value,
with any difference between the amount of such fair value and the Grand Prix
acquisition purchase price being recorded as goodwill. The operating results of
the combined company will include the results of operations of the Surviving
Corporation.
The Grand Prix pro forma acquisition purchase price of $91,215,000 was
determined by applying a price per share of $29.10 (being the average closing
market price on the NYSE-Composite Transactions for the five trading days
surrounding March 27, 1998, the date of the announcement of the Merger
Agreement) to the Grand Prix shares currently outstanding less the 680,000
shares of Grand Prix Common Stock previously acquired by Dover and adding an
amount equal to $15.50 multiplied by the 680,000 shares previously acquired by
Dover and an amount for the fair value of the Grand Prix options that will
convert to options to purchase Dover Common Stock. The purchase price has been
allocated to the assets acquired and liabilities assumed based on fair value at
February 28, 1998. The fair value of assets acquired and liabilities assumed is
summarized as follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................... $ 11,389
Property and equipment............................ 60,581
Other assets...................................... 5,269
Goodwill.......................................... 53,392
Current liabilities............................... (8,557)
Deferred income taxes............................. (6,993)
Notes and bonds payable........................... (23,666)
Other long-term liabilities....................... (200)
--------
Pro forma Purchase Price.......................... $ 91,215
========
</TABLE>
BASIS OF PRESENTATION OF PRO FORMA FINANCIALS
The preceding unaudited pro forma condensed combined balance sheet gives
effect to the Merger as if it had occurred on March 31, 1998. The unaudited pro
forma condensed combined statements of earnings for the nine months ended March
31, 1998 and the year ended June 30, 1997 give effect to the Merger as if it had
occurred as of July 1, 1997 and July 1, 1996, respectively.
The pro forma combined balance sheet at March 31, 1998 includes the balance
sheet of Dover at March 31, 1998 and the balance sheet of Grand Prix at February
28, 1998. The pro forma combined statements of earnings for the year ended June
30, 1997 and the nine months ended March 31, 1998 include for Dover the year
ended June 30, 1997 and the nine months ended March 31, 1998 and for Grand Prix
the twelve months ended June 30, 1997 and the nine months ended February 28,
1998. The period June 30, 1997 is therefore shown twice in the Grand Prix
amounts as it is included in the year ended June 30, 1997 and the nine months
ended February 28, 1998. The revenues and net income for the month of June of
1997 were $3,307,000 and $548,000, respectively.
The effects of the Merger have been presented using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon management's best preliminary
estimate of their fair value. The preliminary allocation of the purchase price
will be subject to further adjustments as Dover finalizes the allocation of the
purchase price in accordance with generally accepted accounting principles. The
excess of the purchase price over the estimated fair value of the net assets
acquired is being amortized over 40 years on a straight-line basis. The pro
forma adjustments related to the purchase price allocation of the Merger
represent management's best estimate of the effects of the Merger.
46
<PAGE>
The condensed combined financial statements do not purport to be indicative
of the combined financial position or combined results of operations of Dover
and Grand Prix that might have occurred, nor are they indicative of future
financial position or results of operation.
The condensed pro forma financial statements should be read in conjunction
with the historical consolidated financial statements of Dover and the notes
thereto and the historical consolidated financial statements of Grand Prix and
notes thereto included elsewhere herein.
PRO-FORMA ADJUSTMENTS ($000 OMITTED, EXCEPT PER SHARE AMOUNTS)
March 31, 1998 Combined Balance Sheet
<TABLE>
<S> <C>
1) To adjust Grand Prix property and equipment to fair
value based upon independent appraisals
Write up property and equipment having fair value
in excess of historical net book value $15,342
Write down of property and equipment having fair
value below historical net book value (12)
-------
Total Adjustment 15,330
2) To record goodwill resulting from the Merger 53,392
3) To record the incremental change in the deferred tax
liability which results from the adjustment of assets
and liabilities to fair value utilizing the federal
statutory rate of 35% and an effective state
rate of 6%. (6,285)
4) To record accrued expenses for direct costs of the
Merger and registration costs associated with the
issuance of securities (355)
5) To eliminate the investment in Grand Prix for shares
previously acquired by Dover (10,540)
6) To record the fair value of equity securities and
options issued in the merger transaction:
Issuance of 2,510,700 shares of Dover Common Stock (251)
Additional paid in capital (80,069)
7) To eliminate Grand Prix historical equity
Common stock 26,644
Shareholder notes (358)
Retained earnings 2,492
</TABLE>
Fiscal Year ended June 30, 1997 Combined Statement of Earnings
<TABLE>
<S> <C>
8) To reflect a full year of amortization of newly
created goodwill over 40 years 1,335
9) To reflect a full year of increased depreciation
related to the adjustment of Grand Prix assets to
their fair value utilizing a 28 year life 451
10) To eliminate the preferred dividends paid in the
twelve month period ended June 30, 1997 (104)
11) To record the tax effect of depreciation in the period
for adjustments made to reflect assets and liabilities
at their fair value (185)
</TABLE>
47
<PAGE>
Nine Months Ended March 31, 1998 Combined Statement of Earnings
<TABLE>
<S> <C>
12) To reflect nine months of amortization of newly
created goodwill over 40 years 1,001
13) To reflect nine months of increased depreciation
related to the adjustment of Grand Prix assets to
their fair value utilizing a 28 year life 339
14) To eliminate the preferred dividends paid in the nine
month period ended March 31, 1998 (36)
15) To record the tax effect of depreciation in the period
for adjustments made to reflect assets and liabilities
at their value (139)
</TABLE>
48
<PAGE>
INFORMATION CONCERNING THE COMPANIES
The discussion in this Joint Proxy Statement/Prospectus contains
forward-looking statements which involve risks and uncertainties. Both Dover's
and Grand Prix's actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, without limitation, those discussed in this section and in
the sections entitled "RISK FACTORS" and "DESCRIPTION OF GRAND PRIX CAPITAL
STOCK" and "DESCRIPTION OF DOVER CAPITAL STOCK" as well as those discussed
elsewhere in this Joint Proxy Statement/Prospectus.
DOVER
General. Dover 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 Dover 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 with one of the largest and most comfortable seating capacities in its
market. Dover Downs Raceway offers traditional harness horse racing and
year-round satellite-linked pari-mutuel wagering on simulcast harness and
thoroughbred horse races from regional and national tracks. Dover also transmits
its live harness races via satellite to other race tracks and off-track betting
parlors across North America. Dover has expanded into video lottery (slot)
machine gaming, which operations are managed by Caesars. Using Caesars'
expertise and marketing skills in the gaming industry, Dover has created a
stylish gaming facility with attractive decor, dining and nightly entertainment.
Dover offers a unique gaming and entertainment experience. Management
believes it to be the only facility in the country that combines in one location
NASCAR-sanctioned Winston Cup/Busch Series stock car racing, harness horse
racing, pari-mutuel wagering on both live and simulcast horse races, and video
lottery (slot) machine gaming.
Dover also operates the historic NASCAR racing facility, called Nashville
Speedway, at the Tennessee State Fairgrounds in Nashville, Tennessee. Nashville
Speedway, which hosted its first race in 1904, is one of the oldest tracks in
the country. Nashville Speedway's current racing schedule includes events in the
NASCAR Busch Grand National Series, NASCAR Craftsman Truck Series, NASCAR Slim
Jim All-Pro Series and weekly NASCAR Winston Racing Series.
Motorsports. Dover has presented NASCAR-sanctioned racing events for
thirty (30) consecutive years. Dover currently conducts four (4) major
NASCAR-sanctioned events per year at Dover Downs. Two (2) races are associated
with the Winston Cup professional stock car racing circuit and two (2) races are
associated with the Busch Series, Grand National Division racing circuit. Dover
has added an IRL event to be held in July 1998.
Each of the Busch Series events at Dover's tracks is conducted on the day
before a Winston Cup event. Dover is one of only six (6) speedways in the
country that presents two (2) Winston Cup events and also conducts two (2) Busch
Series events each year. The June and September dates have historically allowed
Dover to hold the first and last Winston Cup events in the Maryland to Maine
region each year.
All races are conducted on a recently resurfaced, high-banked, one mile
long, concrete superspeedway known by NASCAR race fans as the "Monster Mile".
The Dover track is currently the only superspeedway made of concrete that
conducts NASCAR-sanctioned events. The concrete surface provides several
advantages over the traditional asphalt paving employed by other tracks. It
offers a fast racing surface yet remains cooler than asphalt. It has a longer
useful life and is considered by management to be safer for the drivers. Current
seating capacity at Dover is approximately 107,000 seats. Unlike some speedways,
substantially all grandstand seats at Dover, including indoor, air-conditioned
grandstand and skybox seats, offer an unobstructed view of the entire track.
In recent years, attendance, television coverage and corporate sponsorship
have significantly increased for NASCAR-sanctioned events. Dover's
NASCAR-sanctioned events are currently
49
<PAGE>
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).
The increasing corporate presence in autosports has resulted in significant
demand for premier seating in skyboxes and for corporate hospitality services.
Dover has one of the largest corporate hospitality programs associated with
NASCAR-sanctioned events. Over six (6) acres of its facility are dedicated to
corporate hospitality villages consisting of temporary pavilions erected for
entertaining at race events. All pavilions are presently filled to capacity at
Winston Cup events.
Gaming. Dover has presented harness horse racing events for thirty (30)
consecutive years. On December 29, 1995, Dover introduced video lottery (slot)
machines to its entertainment mix.
Under an agreement with Dover, Caesars, a leader in the gaming industry,
supervises, manages, markets and operates Dover's video lottery operations. The
newly-expanded, air-conditioned "video lottery casino" housing the gaming
operations was designed and built using expertise from Caesars. The 41,000
square foot facility features a stylish video lottery casino area with a
hand-painted mural of the sky on its dome ceiling and murals of floral design
which adorn the surrounding walls. A total of 1,000 lottery machines are
currently in operation; 2,000 is the maximum presently permitted by law. The
casino is open every day of the year, except Christmas and Easter.
Dover 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 has maintained an average payout of 90%.
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 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. Dover and Delaware Park began video lottery operations in December 1995;
Harrington Raceway began video lottery operations in August 1996.
The harness horse racing track is a five-eighths mile track and is lighted
for nighttime harness horse racing. The track is located inside the one-mile
auto racing superspeedway. The configuration offers turns with a wider than
normal turning radius and 4 degree banking. This allows trotting and pacing
horses to remain in full stride through the turns. The result has been higher
than normal speeds attained by horses in competition and numerous track and
world records being set at the Raceway. For the harness horseracing season which
began in November and ends in April, Dover scheduled 120 live racing dates. Live
harness horse races are held on Wednesday, Thursday, Friday and Saturday and
Sunday afternoons. With the start of the race season beginning November 1996,
live harness races conducted at Dover were simulcast to tracks and other
off-track betting locations across North America.
Dover 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. 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 available on a year-round basis. For the fiscal years ended June
30, 1995, 1996, and 1997, Dover had 90,201 and 363 simulcast racing dates,
respectively. With a percentage of video lottery (slot) machine revenues and
simulcast revenues supplementing the purses, Dover has experienced a dramatic
increase in the size of its purses and has attracted higher quality horses.
Bettors are attracted to races with larger purses and typically wager more on
the higher quality and more predictable horses. Management believes that larger
purses and better horses should increase attendance and wagering and have also
had a positive impact on the number of markets that may wish to receive Dover's
racing signal for simulcasting. Dover began its live race season in November
1997 with a daily purse distribution of over $110,000, representing more than a
ten-fold increase over the daily purse distribution prior to the introduction of
video lottery (slot) machines.
50
<PAGE>
Harness racing in the State of Delaware is governed by the Delaware Harness
Racing Commission (the "Delaware Commission"). Dover 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.
DIRECTORS AND EXECUTIVE OFFICERS OF DOVER
The name and age of each of the directors, his principal occupation, the
period during which he has served as a director, together with the number of
shares of Dover Common Stock and Dover Class A Common Stock beneficially owned
by him, directly or indirectly, and the percentage of outstanding shares that
ownership represents, all as at the close of business May 18, 1998, are set
forth below.
DOVER DIRECTORS
<TABLE>
<CAPTION>
SERVICE PERCENT OF
NAME OF AS SHARES OF CAPITAL OUTSTANDING
DIRECTORS PRINCIPAL OCCUPATION(1) DIRECTOR AGE STOCK(2) SHARES
- --------- ----------------------- -------- --- ----------------- -----------
<S> <C> <C> <C> <C> <C>
CLASS I (TERM
EXPIRES 2000)
Henry B. Tippie Vice Chairman of the Board; Chairman of 1996 to 71 Dover Common
the Executive Committee and Vice date Stock: --
Chairman of the Board, Rollins Truck --
Leasing Corp.; Chairman of the Class A Common
Executive Committee and Director, Stock: 13.1%
Matlack Systems, Inc.; Chairman of the 1,600,000
Board and Chief Executive Officer,
Tippie Services, Inc.
R. Randall Rollins Chairman of the Board and Chief Executive 1996 to 66 Dover Common
Officer, Rollins, Inc.; Chairman of the date Stock: --
Board and Chief Executive Officer, RPC, --
Inc.(3) Class A Common
Stock: 8.3%
1,015,000
Patrick J. Bagley Vice President -- Finance, Treasurer and 1996 to 51 Dover Common
Director, Rollins Truck Leasing Corp.; date Stock: immaterial
Vice President -- Finance, Treasurer 500
and Director, Matlack Systems, Inc. Class A Common
Stock: --
--
CLASS II (TERM
EXPIRES 1998)
John W. Rollins, Jr. President, Chief Operating Officer and 1996 to 55 Dover Common
Director, Rollins Truck Leasing Corp.; date Stock: immaterial
Chairman of the Board, Matlack Systems, 450(4)
Inc.(3) Class A Common
Stock: 1.9%
237,000
Eugene W. Weaver Senior Vice President -- Administration; 1971 to 65 Dover Common
Financial Vice President, John W. date Stock: --
Rollins & Associates; Vice Chairman and --
Financial Vice President, Rollins Class A Common
Jamaica, Ltd.; Financial Vice President Stock: 6.4%
and Director, Brandywine Sports, Inc. 780,000(5)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
SERVICE PERCENT OF
NAME OF AS SHARES OF CAPITAL OUTSTANDING
DIRECTORS PRINCIPAL OCCUPATION(1) DIRECTOR AGE STOCK(2) SHARES
- --------- ----------------------- -------- --- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Melvin L. Joseph Vice President and Director of Auto 1969 to 76 Dover Common
Racing, Dover Down International date Stock: --
Speedway, Inc.; President, Melvin --
Joseph Construction Company Class A Common
Stock: 3.0%
362,500
CLASS III (TERM
EXPIRES 1999)
John W. Rollins, Sr. Chairman of the Board; Chairman of the 1967 to 81 Dover Common
Board and Chief Executive Officer, date Stock: --
Rollins Truck Leasing Corp.(3) --
Class A Common
Stock: 48.9%
5,983,930(6)
Denis McGlynn President and Chief Executive Officer 1979 to 52 Dover Common
date Stock: immaterial
100
Class A Common
Stock: 2.1%
254,500
Jeffrey W. Rollins Vice President -- Operations, Brandywine 1993 to 32 Dover Common
Center Management, L.L.C.(3) date Stock: --
--
Class A Common
Stock: 5.4%
658,750(7)
</TABLE>
- ------------------
(1) Except as noted, the directors have held the positions of responsibility set
out in the above column (but not necessarily their present titles) for more
than five years. In addition to the directorships listed in the above
column, the following individuals also serve on the board of directors of
the following companies: John W. Rollins, Rollins, Inc., Matlack Systems,
Inc., Laidlaw Environmental Services, Inc., RPC, Inc. and FPA Corp.; Henry
B. Tippie, Rollins, Inc., RPC, Inc., Laidlaw Environmental Services, Inc.;
R. Randall Rollins, SunTrust Banks Inc. and SunTrust Banks of Georgia; and
John W. Rollins, Jr., Laidlaw Environmental Services, Inc. and Safety-Kleen
Corp. Eugene B. Weaver is an advisor to the Board of Directors, WSFS
Financial Corp. Jeffrey W. Rollins has been Vice President -- Operations for
Brandywine Center Management, L.L.C. since 1997. Previously, he was Vice
President of the Eastern Region of Rollins Environmental, Inc., a subsidiary
of Laidlaw Environmental Services, Inc. John W. Rollins, Sr. has been a
director and major stockholder of Dover since 1967 and was appointed to the
newly created position of Chairman of the Board of Directors in 1996.
Rollins Truck Leasing Corp. is engaged in the business of truck leasing and
logistics. Matlack Systems, Inc. provides transportation services. Rollins,
Inc. is a consumer services company engaged in residential and commercial
termite and pest control and security systems. Laidlaw Environmental
Services, Inc. and Safety-Kleen Corp. are engaged in the business of
industrial waste disposal. RPC, Inc. is a diversified company engaged in oil
and gas field services and boat manufacturing. WSFS Financial Corp.,
SunTrust Banks Inc. and SunTrust Banks of Georgia are all financial
institutions. John W. Rollins & Associates and Tippie Services, Inc. provide
management services. Rollins Jamaica, Ltd., Brandywine Sports, Inc. and
Brandywine Center Management, L.L.C. are involved in real estate development
or management.
(2) All shares are owned directly and of record. Dover Class A Common Stock is
convertible, at any time, on a share-for-share basis into Dover Common Stock
at the option of the holders thereof. As a result, pursuant to Rule 13d of
the Exchange Act, a stockholder is deemed to have beneficial ownership of
the shares of Dover Common Stock which such stockholder may acquire upon
conversion of the Dover Class A Common Stock. In order to avoid
overstatement, the amount of Dover Common Stock beneficially owned does not
take into account such shares of Dover Common Stock which may be acquired
upon conversion (an amount which is equal to the number of shares of Dover
Class A Common Stock held by a stockholder). The above numbers exclude the
following shares of Dover Common Stock, which the listed beneficial owner
has the right to acquire beneficial ownership of, pursuant to Rule 13d of
the Exchange Act: Denis McGlynn, 5,000; Eugene W. Weaver, 2,500; and Melvin
L. Joseph, 22,500. The above numbers also exclude the following shares of
Dover Class A Common Stock subject to options granted under Dover's 1991
Stock Option Plan which the listed beneficial owner has the right to acquire
beneficial ownership, as specified in Rule 13d of the Exchange Act: Denis
McGlynn, 90,000 shares and Melvin L. Joseph, 2,500.
(3) John W. Rollins, Sr. is the uncle of R. Randall Rollins and the father of
John W. Rollins, Jr. and Jeffrey W. Rollins.
(4) Does not include 450 shares of Dover Common Stock held by his wife and 950
shares of Dover Common Stock held as trustee, as to which Mr. Rollins
disclaims any beneficial interest.
(5) Does not include 20,000 shares of Dover Class A Common Stock held by his
wife and 300,000 shares of Dover Class A Common Stock owned by a partnership
over which Mr. Weaver has sole voting power, as to which Mr. Weaver
disclaims any beneficial interest.
(6) Does not include 9,200 shares of Dover Class A Common Stock held by his wife
and 7,600 shares of Dover Common Stock held by his wife as Custodian for his
minor children, as to which Mr. Rollins disclaims any beneficial interest.
(7) Does not include 450 shares of Dover Common Stock held by his wife and 2,700
shares of Dover Common Stock held as Custodian for his minor children, as to
which Mr. Rollins disclaims any beneficial interest.
52
<PAGE>
As of May 18, 1998, the Executive Officers of Dover were:
DOVER EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME POSITION AGE TERM OF OFFICE
- ---- -------- --- --------------
<S> <C> <C> <C>
Robert M. Comollo Treasurer, Assistant Secretary and 50 11/81 to date
Chief Accounting Officer
Timothy R. Horne Vice President -- Finance and Chief 32 11/96 to date
Financial Officer
Michael B. Kinnard Vice President -- General Counsel and 40 6/94 to date
Secretary
Denis McGlynn President and Chief Executive Officer 52 11/79 to date
John W. Rollins, Sr. Chairman of the Board 81 10/96 to date
Eugene W. Weaver Senior Vice President -- Administration 65 10/96 to date
and Vice President -- Finance 1970 to 10/96
</TABLE>
Robert M. Comollo has been employed by Dover for 16 years, of which 15
years have been in the capacity of Treasurer.
Timothy Horne has been employed as Vice-President -- Finance of Dover since
1996. From 1988-1996, 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 Dover
since 1995 and Secretary since 1997. Mr. Kinnard also serves as Vice President
- -- General Counsel and Secretary to Matlack Systems, Inc., Vice President --
General Counsel and Secretary to Rollins Truck Leasing Corp. 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).
See "Dover Directors" for a description of Denis McGlynn, John W. Rollins,
Sr. and Eugene W. Weaver.
COMMITTEES OF DOVER'S BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of Patrick J. Bagley,
Chairman, and Henry B. Tippie. The Committee's functions include consulting with
Dover's independent public accountants concerning the scope and results of the
audit, reviewing the evaluation of internal accounting controls and inquiring
into special accounting-related matters.
Executive Committee. The Executive Committee consists of John W. Rollins,
Sr., Chairman, Denis McGlynn, and Eugene W. Weaver. The Executive Committee has
the power to exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of Dover in accordance with the
provisions of the Bylaws of Dover and the DGCL.
Compensation and Stock Option Committee. The Compensation and Stock Option
Committee consists of Henry B. Tippie, Chairman, and John W. Rollins, Sr. The
Compensation and Stock Option Committee performs all of the functions of a
compensation committee of the Board of Directors and administers Dover's
outstanding Stock Option Plans including the granting of options to various
employees of Dover and its subsidiaries.
Dover does not have a nominating committee of the Board of Directors.
DOVER DIRECTOR COMPENSATION
Directors who are not full-time employees of Dover or any of its
subsidiaries are each paid an annual retainer for Board service of $10,000 and
an attendance fee of $1,000 for each Board of Directors or committee meeting
attended.
53
<PAGE>
DOVER EXECUTIVE OFFICER COMPENSATION
Shown below is information concerning the annual compensation for services
in all capacities to Dover for the fiscal year ended June 30, 1997, of those
persons who were, at June 30, 1997, (i) the Chief Executive Officer and (ii) the
other most highly compensated executive officers of Dover whose total annual
salary and bonus exceeded $100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- --------------------- -------
OTHER RESTRICTED
ANNUAL STOCK STOCK
NAME AND PRINCIPAL SALARY INCENTIVE COMP. AWARDS OPTIONS/ LTIP ALL OTHER
POSITION YEAR ($) $ $ $ SARS PAYOUTS COMPENSATION
- ------------------ ---- ------- --------- --------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Denis McGlynn.......... 1997 320,000 289,659 -- -- 31,764 -- --
President and CEO 1996 350,000 314,351 -- -- -- -- --
Eugene W. Weaver....... 1997 91,667 37,958 -- -- 15,000 -- --
Senior Vice President
- -- Administration 1996 59,584 337,970 -- -- -- -- --
Robert M. Comollo...... 1997 114,583 47,447 -- -- 12,000 -- --
Treasurer and Secretary 1996 86,920 337,970 -- -- -- -- --
</TABLE>
OPTION AND STOCK APPRECIATION RIGHTS GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted in the fiscal year
ending June 30, 1997 to each of Dover's Named Executives. Employees of Dover and
its subsidiaries are eligible for stock option grants based on individual
performance. Dover did not issue any stock appreciation rights. The table also
sets forth the hypothetical gains that would exist for the options at the end of
their eight-year terms, assuming compound rates of stock appreciation of 0%, 5%
and 10%. The actual future value of the options will depend on the market value
of Dover's Common Stock. All option exercise prices are based on the market
price on the grant date.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS (1) FOR OPTION TERM (2)
---------------------------------------------- ----------------------------
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO EXERICSE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 0% 5% 10%
- ---- ------- ------------ -------- ---------- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Denis McGlynn.................. 31,764 28.2% $17.00 08/04/04 -- $257,823 $ 617,525
Eugene W. Weaver............... 15,000 13.3% $17.00 08/04/04 -- $121,752 $ 291,615
Robert M. Comollo.............. 12,000 10.6% $17.00 08/04/04 -- $ 97,402 $ 233,292
All employees as a group (3)... 112,764 100.0% $17.00 08/04/04 -- $922,447 $2,209,402
to to
$18.00 11/04/04
</TABLE>
- ------------------
(1) Options for the Named Executive were granted on August 5, 1996.
(2) These amounts, based on assumed appreciation rate of 0% and the 5% and 10%
rate prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of Dover's stock
price. These numbers do not take into account certain provisions of options
providing for termination of the option following termination of employment,
nontransferability or phased-in vesting.
(3) Based on 97,764 options granted on August 5, 1996 and 15,000 options granted
on November 4, 1996. All options relate to shares of Dover Common Stock and
have an exercise price ranging from $17.00 to $18.00.
54
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes option exercises during the eleven months
ended June 30, 1997(1) by Dover's Named Executive and the value of the option
held by such persons as of June 30, 1997. Dover has not granted and does not
have any Stock Appreciation Rights outstanding.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE FY-END (#) FY-END ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME(2) (#) ($)(3) UNEXERCISABLE UNEXERCISABLE
------- ----------- -------- ------------- --------------
<S> <C> <C> <C> <C>
Denis McGlynn......................... 112,500 $782,103 -0-/301,764 -0-/$4,531,773
Eugene W. Weaver...................... 22,000 $372,100 -0-/ 15,000 -0-/$ 15,000
Robert M. Comollo..................... -- -0- -0-/ 12,000 -0-/$ 12,000
</TABLE>
- ------------------
(1) In 1997, Dover changed its fiscal year end from July 31 to June 30.
Accordingly, the numbers for 1997 reflect option exercises for eleven
months.
(2) John W. Rollins Sr. and Henry B. Tippie did not acquire or have any
outstanding Incentive Stock Options.
(3) Fair market value of underlying security at exercise date less the exercise
price. Shares acquired were shares of Dover Class A Common Stock. Shares of
Dover Class A Common Stock are convertible at any time into shares of Dover
Common Stock on a share-for-share basis at the option of the holders
thereof. Dover Class A Common Stock does not trade on any securities
exchange and does not have a readily ascertainable market value. For
purposes of this table, the fair market value of Dover Common Stock was
used.
(4) The value of Dover's Common Stock on June 30, 1997 was $18.00 per share
based upon the closing price on that date on the New York Stock Exchange.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
There were no Long-Term Incentive Plan Awards to the Named Executives
during fiscal year 1997.
GRAND PRIX
Grand Prix is the developer, owner and operator of the Grand Prix Event, a
temporary circuit professional motorsports event which since 1975 has been run
on the streets of the City of Long Beach, California. Motorsports is among the
most popular and fastest growing spectator sports in the United States, and the
Grand Prix Event, which is currently part of the FedEx Championship Series
sanctioned by CART, is one of the motorsports industry's premier annual events.
The Grand Prix Event weekend has the second highest paid attendance of any Indy
car motorsports event, surpassed only by the Indianapolis 500.
The Grand Prix Event weekend has attracted in excess of 200,000 paid
spectators in each of the past six years, and is currently televised to over 125
countries throughout the world. A significant percentage (80% in each year
through 1995, 72% in 1996 and 39% in 1997) of the Grand Prix's annual revenues
have been derived from ticket sales, hospitality (including the rental of
corporate suites, tents and chalets), sponsorships, merchandising, concessions,
television production services and other related event revenues from the Grand
Prix Event. Major sponsors of the Grand Prix Event have included Toyota, Snap-On
Tools, Texaco Refining and Marketing, Inc., Philip Morris Incorporated,
Anheuser-Busch, Inc., Bridgestone/Firestone, MCI, and FedEx.
The Grand Prix Event weekend has become an "event" in Southern California,
offering spectators the opportunity to enjoy a major Indy car race as well as a
full weekend of entertainment, including four additional races, practice and
qualifying rounds for all races, an exposition at the Long Beach Convention and
Entertainment Center featuring automobile and general entertainment displays,
55
<PAGE>
and an opportunity for businesses to both entertain their customers and reward
their employees by use of the hospitality viewing areas and services offered by
Grand Prix. Grand Prix attempts to maximize its resources by applying its
operating, promotional and marketing capabilities which have been successful at
the Grand Prix Event to the other activities it engages in throughout the year.
Grand Prix's strategy is to continue to maintain the Grand Prix Event as
one of the motorsports industry's premier annual events, and to capitalize upon
the experience and expertise of its senior management team, which has been
actively involved in promoting and operating professional motorsports events for
more than 24 years through the development of other motorsports venues. To that
end, Grand Prix seeks to locate, acquire, develop and operate venues which Grand
Prix believes are underdeveloped or underutilized; are located in major
metropolitan areas; can be acquired, improved and developed at a reasonable
cost; and can be operated as multi-purpose motorsports facilities. Such a
multi-purpose facility might include an oval track for Indy car and stock car
events of the types sanctioned by CART, USAC and NASCAR; a drag strip for races
of the types sanctioned by the NHRA; and road courses for sports car races
sanctioned by the Sports Car Club of America ("SCCA") and Professional Sports
Car Racing ("PCSR").
In furtherance of this strategy, in November 1994, Grand Prix acquired
Gateway International Raceway, and in June 1996, Grand Prix acquired Memphis
Motorsports Park.
Gateway International Raceway is located on approximately 154 acres of land
in Madison, Illinois, five miles from the St. Louis Arch, of which Grand Prix
owns 9 acres and has three long term leases (expiring in 2025, 2026, and 2070)
for the remaining 145 acres, with purchase options. Grand Prix also owns 111
acres of the property adjacent to Gateway International Raceway. Grand Prix is
also a party to a ten year lease (with four five-year renewals) of twenty acres
for the purpose of providing overflow parking for major events on a neighboring
golf course, and a five year lease commencing March 1, 1997 of approximately 14
acres for major event parking. Grand Prix is in the process of negotiating
relationships with the City of Madison and neighboring land owners to fulfill
its major event parking needs. Grand Prix has granted a first mortgage lien on
all the real property owned and a security interest in all property leased by
Grand Prix at Gateway to SWIDA as security for the repayment of principal and
interest on its $21.5 million loan from SWIDA. Using the SWIDA loan proceeds and
certain proceeds from Grand Prix's initial public offering, Grand Prix
extensively reconfigured Gateway into a major regional multipurpose motorsports
facility capable of hosting top-tier events, as well as continuing to host a
variety of local and regional events. Since it acquired the Gateway facility
Grand Prix has put in place a new infrastructure, including electrical service;
a sanitation system; a ground water drainage system; ingress and egress roads
for new parking facilities; a new drag strip; 1.25 mile oval track and road
course; a drag strip tower; an oval suite tower; walkways; concession stands and
grandstands capable of presently hosting 55,000 spectators per event and
eventually 85,000 per event at the oval and 30,000 at the drag strip. Grand Prix
is in the process of adding restrooms and concessions and improving ingress,
egress and parking.
On June 28, 1996, Grand Prix acquired Memphis Motorsports Park, located on
374 acres of land approximately ten miles northeast of downtown Memphis,
Tennessee with part of the proceeds from its IPO. The facility is being
renovated to include a regulation NHRA drag strip, a road course, a 3/4 mile
paved oval track, a 1/4 mile dirt oval track, ten corporate suites, 5,500
permanent grandstand seats and the use of approximately 20,000 portable
grandstand seats. The facility is encumbered by a first trust deed to First
Tennessee Bank for purpose of securing the standby letter of credit issued by
First Tennessee Bank to Gateway Motorsports to secure its obligation to SWIDA in
connection with the Bonds to maintain a debt service reserve fund.
56
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF GRAND PRIX
The following table sets forth information as of May 18, 1998 regarding the
directors and officers of Grand Prix.
GRAND PRIX EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
Christopher R. Pook.................. Chairman of the Board, Chief Executive Officer and
President 57
James P. Michaelian.................. Chief Operating Officer and Director 55
Ronald C. Shirley.................... Chief Financial Officer 47
Dwight R. Tanaka..................... Vice President of Operations 49
Michael S. Clark..................... Vice President of Marketing 44
Kevin O'Brien........................ Vice President of Communications and Public
Relations 54
Joseph F. Ainge...................... Director 68
Daniel S. Gurney..................... Director 67
Wayne Kees........................... Director 75
George S. Pellin..................... Director 58
Denis McGlynn........................ Director 52
Timothy R. Horne..................... Director 32
Eugene W. Weaver..................... Director 65
</TABLE>
Christopher R. Pook founded Grand Prix in 1974 and since then has been the
Chairman of the Board, Chief Executive Officer and President of Grand Prix. In
addition, Mr. Pook currently serves as the Co-chair with Long Beach Mayor
Beverly O'Neill of Long Beach Strategic Marketing, Inc. and is a board member of
the Long Beach Area Convention and Visitors Bureau. Through the Grand Prix Event
and its predecessors, Mr. Pook was one of the original developers of the concept
of modern-day racing through city streets in the United States. For more
information on Mr. Pook, please see "Stockholders Meetings -- Dover Special
Meeting Election Proposal."
James P. Michaelian has been employed by Grand Prix since its inception in
1974 in various executive capacities and has been the Executive Vice President
of Grand Prix since 1988, Chief Operating Officer since May 1996 and a Director
since 1975. Mr. Michaelian also serves as the Executive Producer of Grand Prix
Teleproductions, a division of Grand Prix which is responsible for providing
television broadcast services for the Grand Prix Event on ABC and ESPN.
Ronald C. Shirley joined the Company in March 1997 as Chief Financial
Officer. Mr. Shirley served as Vice President, Treasurer and Chief Financial
Officer for the California Angels from December 1991 to May 1996. In addition,
prior to December 1991, he was with the accounting and consulting firm of Arthur
Andersen LLP for nine years. He received a Bachelor's degree in Business with a
major in accounting from California State University at Long Beach and has been
a certified public accountant since 1981.
Dwight R. Tanaka has been employed by Grand Prix for the past nineteen
years and has been the Vice President of Operations of Grand Prix since 1984. In
addition, Mr. Tanaka is the President of Grand Prix's subsidiary which is
responsible for the grandstand rental and installation business of Grand Prix.
Michael S. Clark has been employed by Grand Prix since 1988 and has served
as Vice President of Marketing for Grand Prix since 1991. Mr. Clark also serves
as the Vice President of Marketing for Competitive Promotional Solutions, a
division of Grand Prix responsible for providing promotion, marketing and public
relations services primarily for organizations involved in the motorsports
industry. Mr. Clark holds a B.S. degree in Communications from the University of
Texas.
Kevin O'Brien joined the Company on January 12, 1998 as Vice President of
Communications and Public Relations. From 1994 through 1997, Mr. O'Brien was
Vice President of Marketing for
57
<PAGE>
Sports Car Club of America ("SCCA") Pro Racing. In 1993 Mr. O'Brien served as
Vice President of Marketing and Communications for the International Motorsports
Association ("IMSA"). He spent 1991 and 1992 with the Quarton Group in Detroit
as working on publications for the National Basketball Association, Professional
Golfers Association and National Hockey League's Detroit Red Wings. From 1986 to
1990 he acted as Director of Marketing for Championship Auto Racing Teams, Inc.
(CART). Mr. O'Brien has a degree in Business Management from Western Michigan
University.
Joseph F. Ainge has been a Director of Grand Prix since 1975. Mr. Ainge has
been Vice President of the Prime Electro Products Company, a company which
supplies electrical parts, since 1990.
Daniel S. Gurney has been involved with Grand Prix since its inception and
has served as a Director of Grand Prix since 1975. Since 1964, Mr. Gurney has
been the owner and Chief Executive Officer of All American Racers Incorporated,
a company which designs race cars, located in Santa Ana, California. Mr. Gurney
is a former professional race car driver.
Wayne Kees has served as a Director of Grand Prix since 1975. Mr. Kees is
now retired.
George S. Pellin has been a Director of Grand Prix since 1988. Since 1984,
Mr. Pellin has been the owner and general manager of Pellin Automotive Products
Company, Inc. in Los Angeles, California. Mr. Pellin is also the owner of George
Pellin & Associates, a company involved in the sale of automotive equipment and
parts.
Timothy R. Horne became a Director of Grand Prix in March, 1998. Mr. Horne
has been employed by Dover as Vice President -- Finance since November 1996.
From 1988-1996, Mr. Horne was employed by KPMG Peat Marwick LLP, where he most
recently served as an assurance senior manager.
Denis McGlynn became a Director of Grand Prix in March, 1998. Mr. McGlynn
has been employed by Dover as President since 1979 and has served on the Dover
Board of Directors since 1979. He was elected to the position of Chief Executive
Officer of Dover in 1996.
Eugene W. Weaver became a Director of Grand Prix in March, 1998. Mr. Weaver
has been employed by Dover in various financial positions since 1970 and has
been a Director since 1971.
DIRECTORS AND OFFICERS OF MERGER SUB
The following table sets forth information as of May 18, 1998 regarding the
directors and officers of Merger Sub. None of the executive officers and
directors have any beneficial ownership of Merger Sub; Dover is the sole
shareholder.
MERGER SUB EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
CURRENT POSITION WITH DOVER
NAME POSITION AGE OR GRAND PRIX
- --------------------- ------------------------------------- ---- ---------------------------------------
<S> <C> <C> <C>
Denis McGlynn Director 52 Dover-President and Chief
Executive Officer
Christopher R. Pook Director & Chief Executive 57 Grand Prix-Director, President and
Officer Chief Executive Officer
Timothy R. Horne Director & Chief Financial 32 Dover-Vice President-Finance
Officer and Chief Financial Officer
Klaus M. Belohoubek Secretary 38 Dover-Assistant Secretary and
Assistant General Counsel
James P. Michaelian Chief Operating Officer 55 Grand Prix-Director and Chief
Operating Officer
</TABLE>
Denis McGlynn has been a director of Merger Sub since its formation in
1998. Mr. McGlynn has been employed by Dover since 1972, has been a Director
since 1979, and has been President since 1979. He was elected to the newly
created position of Chief Executive Officer in 1996.
Christopher R. Pook has been director and Chief Executive Officer of Merger
Sub since its formation in 1998. Mr. Pook founded Grand Prix in 1974 and since
then has been the Chairman of the
58
<PAGE>
Board, Chief Executive Officer and President of Grand Prix. In addition, Mr.
Pook currently serves as the Co-chair with Long Beach Mayor Beverly O'Neill of
Long Beach Strategic Marketing, Inc. and as a board member of the Long Beach
Area Convention and Visitors Bureau. Through the Grand Prix Event and its
predecessors, Mr. Pook was one of the original developers of the concept of
modern-day racing through city streets in the United States.
Timothy R. Horne has been a director and Chief Financial Officer of Merger
Sub since its formation in 1998. Mr. Horne has been employed as Vice-President
- -- Finance of Dover since 1996. From 1988-1996, Mr. Horne was employed by KPMG
Peat Marwick LLP, where he most recently served as an assurance senior manager.
Klaus M. Belohoubek has been Secretary of Merger Sub since its formation in
1998. He has been Assistant Secretary and Assistant General Counsel of Dover
since 1996. Mr. Belohoubek also serves as Vice President - General Counsel to
Matlack, Inc. and Assistant General Counsel to Rollins Truck Leasing Corp.,
positions he has held in excess of five (5) years.
James P. Michaelian has been Chief Operating Officer of Merger Sub since
its formation in 1998. Mr. Michaelian has been employed by Grand Prix since its
inception in 1974 in various executive capacities and has been the Executive
Vice President of Grand Prix since 1988, Chief Operating Officer since May 1996
and a Director since 1975. Mr. Michaelian also serves as the Executive Producer
of Grand Prix Teleproductions, a division of Grand Prix which is responsible for
providing television broadcast services for the Grand Prix on ABC and ESPN.
59
<PAGE>
DESCRIPTION OF DOVER CAPITAL STOCK
Dover's authorized capital stock consists of 35,000,000 shares of Dover
Common Stock, par value $.10 per share, 30,000,000 shares of Dover Class A
Common Stock, par value $.10 per share, and 1,000,000 shares of Dover Preferred
Stock, par value $.10 per share (the "Dover Preferred Stock"). The stockholders
of Dover are being asked to vote on a proposal to amend Dover's Certificate of
Incorporation to authorize 75,000,000 shares of Dover Common Stock and
55,000,000 shares of Dover Class A Common Stock. As of May 18, 1998, there were
2,998,950 shares of Dover Common Stock, 12,249,380 shares of Dover Class A
Common Stock, and no shares of Dover Preferred Stock issued and outstanding.
There are currently ten (10) holders of Dover Class A Common Stock. All of the
issued and outstanding shares of Dover Common Stock and Dover Class A Common
Stock are fully paid and nonassessable.
DOVER COMMON STOCK AND DOVER CLASS A COMMON STOCK
Voting. Each holder of Dover Common Stock is entitled to one vote for each
share of Dover Common Stock held and each holder of Dover Class A Common Stock
is entitled to ten votes for each share of Dover Class A Common Stock held,
except to the extent that voting by class is required by law. At a meeting of
stockholders at which a quorum is present, a majority of the votes cast decides
all questions, unless the matter is one upon which a different vote is required
by express provision of law or Dover's Certificate of Incorporation or Bylaws.
Under the DGCL, holders of Dover Common Stock and Dover Class A Common Stock are
entitled to vote as a class with respect to certain matters, including mergers
and amendments to the Certificate of Incorporation of Dover which would have
certain specified effects on the Dover Common Stock and Dover Class A Common
Stock, respectively. There is no cumulative voting with respect to the election
of directors (or any other matter). Because Dover's Board of Directors is
classified, the holders of a majority of the shares at a meeting at which a
quorum is present can elect all of the directors of the class then to be elected
if they choose to do so, and, in such event, the holders of the remaining shares
would not be able to elect any directors of that class.
Dividend Policy. Holders of Dover Common Stock and Dover Class A Common
Stock are entitled to receive ratably all such dividends, payable in cash or
otherwise, as may be declared by the Board of Directors out of assets or funds
legally available; provided that the Board of Directors may, in its discretion,
pay to the holders of Dover Common Stock a cash dividend greater than the
dividend, if any, paid to the holders of Dover Class A Common Stock; and
provided further that in the event of a stock dividend or stock split, only
shares of Dover Common Stock may be distributed with respect to Dover Common
Stock and only shares of Dover Class A Common Stock may be distributed with
respect to Dover Class A Common Stock. The payment by Dover of dividends, if
any, rests within the discretion of its Board of Directors and depends upon
Dover's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.
Liquidation Rights. Owners of Dover Common Stock and Dover Class A Common
Stock are equal and have the same rights with respect to distributions in
connection with a partial or complete liquidation of Dover.
Mergers and Consolidations. Each holder of Dover Common Stock and Dover
Class A Common Stock is entitled to receive the same per share consideration in
a merger or consolidation of Dover (whether or not Dover is the surviving
corporation).
Preemptive Rights. Neither the Dover Common Stock nor the Dover Class A
Common Stock carry any preemptive rights enabling a holder to subscribe for or
receive shares of any class of stock of Dover or any other securities
convertible into shares of any class of stock of Dover.
Convertibility. Shares of Dover Class A Common Stock are convertible at
any time into shares of Dover Common Stock on a share for share basis at the
option of the holders thereof.
Certain Dover Class A Common Stock Transfer Restrictions. Dover's Bylaws
restrict the sale, transfer or disposition of Dover Class A Common Stock except
to existing Dover Class A Common
60
<PAGE>
Stock stockholders and members of their families, or corporations, trusts or
general or limited partnerships owned by holders of Dover Class A Common Stock.
This restriction may be amended only by stockholders owning 75% or more of the
outstanding shares of Dover Class A Common Stock. All Dover Class A Common Stock
stockholders retain the ability to convert Dover Class A Common Stock to Dover
Common Stock. Dover Common Stock is not subject to this transfer restriction.
Exchange Listing. Shares of Dover Common Stock are listed on the New York
Stock Exchange. Dover Class A Common Stock has not been registered with the
Securities and Exchange Commission or listed on any national securities
exchange. Dover has no present intention to register or list the Dover Class A
Common Stock.
State Statutes. Due to the dual class voting structure, some state
securities statutes contain provisions which may restrict offerings of equity
securities by Dover or the secondary trading of its equity securities in such
states. Because of the availability of applicable exemptions from such
restrictions and because such restrictions would only apply to offers or sales
made in a limited number of states, Dover does not believe that such provisions
will materially adversely affect the aggregate amount of equity securities which
Dover will be able to offer, the price obtainable for its equity securities in
such offerings, or the secondary trading market for its equity securities.
Investments by Institutions. The holding of limited voting equity
securities such as the Dover Common Stock may not be permitted or may be
discouraged by the investment policies of certain institutional investors, but
Dover does not believe that such restrictions will materially adversely effect
the aggregate amount of equity securities which Dover will be able to offer, the
price obtainable for its equity securities in such offerings or the secondary
trading market for its equity securities.
DOVER PREFERRED STOCK
No shares of Dover Preferred Stock are outstanding. Dover's Certificate of
Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares
of Dover Preferred Stock in one or more series, or without series, and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the stockholders of Dover. The issuance of Dover Preferred Stock by the Board of
Directors could, among other things, adversely affect the voting power of the
holders of Dover Common Stock and, under certain circumstances, make it more
difficult for a person or group to gain control of Dover.
The issuance of any series of Dover Preferred Stock and the relative
powers, preferences, rights, qualifications, limitations and restrictions of
such series, if and when established, will depend upon, among other things, the
future capital needs of Dover, the then existing market conditions and other
factors that, in the judgment of the Board of Directors, might warrant the
issuance of Dover Preferred Stock. At the date of this Joint Proxy
Statement/Prospectus, there are no plans, agreements or understandings relative
to the issuance of any shares of Preferred Stock.
POSSIBLE LIMITATIONS ON TRANSFERABILITY OF SHARES
Dover Downs is a Licensed Agent authorized to conduct licensed video
lottery operations under the Delaware State Lottery Code. Under the Delaware
State Lottery Code, a change of ownership of a Licensed Agent will automatically
terminate its license ninety (90) days after the change of ownership occurs,
unless the Director of the Delaware State Lottery Office determines after an
application process to issue a new license to the new owners. Change of
ownership may occur if any new individual or entity acquires, directly or
indirectly, 10% or more of the Licensed Agent, or if more than 20% of the legal
or beneficial interest in the Licensed Agent is transferred, whether by direct
or indirect means. The Delaware State Lottery Commission may require extensive
background investigations of any new owner acquiring a 10% or greater interest
in a Licensed Agent, including criminal background checks. These investigations
and checks could severely limit transferability of Dover's Common Stock and
could have an adverse effect on the market for Dover's securities.
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Pursuant to Dover's Bylaws, (a) any holders of Dover Common Stock found to
be disqualified or unsuitable or not possessing the qualifications required by
the appropriate gaming authority could be required to dispose of such stock, and
(b) any holder of Dover Common Stock intending to acquire 10% or more of the
outstanding Dover Common Stock must first obtain prior written approval from the
Delaware State Lottery Office. All certificates issued for shares of Dover
Common Stock of Dover are legend and reflect these requirements with the
following legend:
"Any and all shares of Common Stock of the Corporation are held subject to
the condition that if (a) any regulatory authority should request, determine
or otherwise advise that the holder or owner is disqualified, or unsuitable,
must qualify for or obtain a license, or must submit an application and
satisfy a review process, including background checks, in order for the
Corporation or any subsidiary to obtain or retain a license or a relicense,
or otherwise avoid significant penalties or business disadvantage, and (b)
such holder or owner shall fail to submit to qualification within fifteen
(15) days following such request, determination or advice, or fail to be
found qualified or suitable, then (c) such holder or owner, at the request
of the Corporation or the appropriate regulatory authority, shall promptly
dispose of such holder's or owner's interest in the Corporation's Dover
Common Stock and shall be subject to any order of such regulatory body
limiting such holder's or owner's rights pending such disposition. Without
limiting the foregoing, any holder or owner that intends to acquire,
directly or indirectly, ten percent (10%) or more of the outstanding common
stock of the Corporation (regardless of class or series) shall first notify
the Corporation and obtain prior written approval from the Delaware State
Lottery Office. Since money damages are inadequate to protect the
Corporation, it shall be entitled to injunctive relief to enforce the
foregoing provision."
STOCK PURCHASE RIGHTS
Dover Common Stock. On June 14, 1996, the Board of Directors of Dover
authorized and declared the issuance of one Dover Common Stock Purchase Right
for each share of Dover Common Stock issued thereafter, subject to certain
limitations (each, a "Right"). Each Right entitles the registered holder to
purchase from Dover one share of Dover Common Stock at a Purchase Price of $250
per share subject to adjustment in certain circumstances as described below. The
description and terms of the Rights are set forth in the Dover Rights Agreement
dated as of June 14, 1996, as amended, between Dover and ChaseMellon Shareholder
Services, L.L.C. ("ChaseMellon"), Dover's transfer agent, as Rights Agent (the
"Rights Agreement"). Under the Rights Agreement each share of Dover Common Stock
issued pursuant to the Merger Agreement shall also include one Right until such
date as the Rights become exercisable.
Until the close of business on the Distribution Date (as defined below),
which will occur on the earlier of (i) the tenth day following a public
announcement that a person or group of affiliated or associated persons
("Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 10% or more of the outstanding combined equity of Dover Common
Stock and Dover Class A Common Stock (such public announcement date referred to
herein as the "Stock Acquisition Date") or (ii) a date fixed by the Board of
Directors of Dover which is not later than the nineteenth business day after the
commencement of a tender offer or exchange offer which would result in the
ownership of 10% or more of the outstanding combined equity of Dover Common
Stock and Dover Class A Common Stock (the "Distribution Date"), the Rights are
represented by and transferred with, and only with, the Dover Common Stock.
Certificates issued for Dover Common Stock contain a legend incorporating the
Dover Rights Agreement by reference, and the surrender for transfer of any of
Dover's Dover Common Stock certificates will also constitute the transfer of the
Rights associated with the Dover Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate Right
Certificates will be mailed to holders of record of Dover Common Stock as of the
close of business on the Distribution Date, and thereafter the separate
certificates alone will evidence the Rights.
The Rights are not exercisable until an event occurs which gives rise to a
Distribution Date. The Rights will expire at the close of business on June 13,
2006, unless earlier redeemed by Dover as
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described below. Dover Common Stock issued after the Distribution Date will be
issued with Rights, if such Dover Common Stock certificates are issued pursuant
to the exercise of stock options or under an employee benefit plan.
The Purchase Price payable, and the number of shares of Dover Common Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Dover Common Stock, (ii) upon the grant to holders of the Dover Common Stock of
certain rights or warrants to subscribe for Dover Common Stock or convertible
securities at less than the current market price thereof at the time of grant or
(iii) upon the distribution to holders of the Dover Common Stock of evidences of
indebtedness or assets (excluding regular cash dividends and dividends payable
in Dover Common Stock) or of subscription rights or warrants (other than those
referred to above).
Unless the Rights are earlier redeemed, in the event that, after the Stock
Acquisition Date, Dover were to be acquired in a Merger or other business
combination (in which any shares of Dover's Dover Common Stock are changed into
or exchanged for other securities or assets) or more than 50% of the assets or
earning power of Dover and its subsidiaries (taken as a whole) were to be sold
or transferred in one or a series of related transactions, the Rights Agreement
provides that proper provision shall be made so that each holder of record of a
Right will from and after such date have the right to receive, upon payment of
the Purchase Price, that number of shares of Dover Common Stock of the acquiring
company having a market value at the time of such transaction equal to
approximately two times the Purchase Price.
In the event (i) any Person becomes the beneficial owner of 10% or more of
the then outstanding combined equity of Dover Common Stock and Dover Class A
Common Stock, other than pursuant to an all-cash tender offer on the same terms
for all outstanding shares of Dover Common Stock and Dover Class A Common Stock
pursuant to which no purchases of Dover Common Stock or Dover Class A Common
Stock are made for at least 60 days from the date of commencement thereof and
which is accepted by holders of not less than the number of shares of Dover
Common Stock and Dover Class A Common Stock that, when aggregated with the
number of shares of Dover Common Stock and Dover Class A Common Stock owned by
the person making the offer (and its affiliates or associates), equals or
exceeds 75% of the outstanding Dover Common Stock and Dover Class A Common
Stock, (a "Permitted Tender Offer"), or (ii) any Acquiring Person or any of its
affiliates or associates engages in one or more "self-dealing" transactions as
described in the Dover Rights Agreement, then each holder of a Right, other than
the Acquiring Person, will have the right to receive, upon payment of the
Purchase Price, a number of shares of Dover Common Stock having a market value
equal to twice the Purchase Price. This same right will be available to each
holder of record of a Right, other than the Acquiring Person, if, while there is
an Acquiring Person, there occurs any reclassification of securities, any
recapitalization of Dover, or any Merger or consolidation or other transaction
involving Dover or any of its subsidiaries which has the effect of increasing by
more than 1% the proportionate ownership interest in Dover or any of its
subsidiaries which is owned or controlled by the Acquiring Person. To the extent
that insufficient shares of Dover Common Stock are available for the exercise in
full of the Rights, holders of Rights will receive upon exercise, shares of
Dover Common Stock to the extent available and then cash, property or other
securities of Dover (which may be accompanied by a reduction in the Purchase
Price), in proportions determined by Dover, so that the aggregate value received
is equal to twice the Purchase Price. Rights are not exercisable following the
occurrence of the events described in this paragraph until the expiration of the
period during which the Rights may be redeemed by the Board of Directors of
Dover, as described below. Notwithstanding the foregoing, following the
occurrence of the events described in this paragraph, Rights that are (or, under
certain circumstances, Rights that were) beneficially owned by an Acquiring
Person will be null and void.
Any Person that is the beneficial owner of 10% or more of the outstanding
combined equity of Dover Common Stock and Dover Class A Common Stock prior to
the adoption of the Rights Plan will not be deemed an Acquiring Person. John W.
Rollins, Sr. and Henry B. Tippie are, therefore, excluded from the definition of
Acquiring Person.
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No fractional shares of Dover Common Stock or other Dover securities will
be issued upon exercise of the Rights and, in lieu thereof, a payment in cash
will be made to the holder of such Rights equal to the same fraction of the
current market value of a share of Dover Common Stock or other Dover securities.
At any time until ten days following the Stock Acquisition Date (subject to
extension by the Board of Directors), the Board of Directors may cause Dover to
redeem the Rights in whole, but not in part, at a price of $.01 per Right,
subject to adjustment. Upon expiration of such ten day period, the Rights shall
no longer be exercisable. Immediately upon the action of the Board of Directors
authorizing redemption of the Rights, the right to exercise the Rights will
terminate, and the holders of Rights will only be entitled to receive the
Redemption Price without any interest thereon.
For as long as the Rights are then redeemable, Dover may, except with
respect to the redemption price or date of expiration of the Rights, amend the
Rights in any manner, including an amendment to extend the time period in which
the Rights may be redeemed. At any time when the Rights are not then redeemable,
Dover may amend the Rights in any manner that does not adversely affect the
interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of Dover, including, without limitation, the right to vote or to
receive dividends.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group who attempts to acquire Dover on terms
not approved by the Board of Directors of Dover. The Rights were not declared in
response to any specific effort to acquire control of Dover, and the Board of
Directors of Dover is not aware of any such effort. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors of Dover since they may be redeemed by Dover at $.01 per Right at any
time until the close of business on the tenth day after a person or group has
obtained beneficial ownership of 10% or more of the outstanding shares of Dover
Common Stock and Dover Class A Common Stock of Dover.
Dover Class A Common Stock. A separate Dover Rights Agreement applies to
all shares of Dover Class A Common Stock and has substantially the same terms as
the Dover Rights Agreement with respect to Dover Common Stock, except that the
Dover Class A Common Stock Purchase Right is for the purchase of one share of
Dover Class A Common Stock at the same $250 per share Purchase Price and
exercisable on the same triggering events for Dover Common Stock or Dover Class
A Common Stock. In both Rights Agreements, the triggering events are based on
calculations involving the combined equity of Dover Capital Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certain provisions of the DGCL and of Dover's Certificate of Incorporation
and Bylaws, summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest, removal of incumbent directors or management, takeover attempt or other
transactions involving control of Dover that a stockholder might consider to be
in such stockholder's best interest, including such an attempt as might result
in payment of a premium over the market price for shares held by stockholders.
The adoption of the Rights Plan also has certain anti-takeover effects.
The anti-takeover measures described below were proposed by the Board of
Directors and approved by the sole stockholder of Dover in 1996. At that time,
the Board expressed its confidence in the continued leadership of John W.
Rollins, Sr. and existing management, viewing that leadership as an important
factor in Dover's growth and success. Certain provisions contained in the
Certificate of Incorporation and Bylaws are an effective means of assuring John
W. Rollins, Sr. and existing management the opportunity to maintain majority
voting control of Dover. They are also an effective means of assuring companies
with which Dover has had long-term relationships, such as sponsors, and various
regulatory authorities, such as the Delaware Harness Racing Commission, that
deal with Dover
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on a day-to-day basis, that continuity of leadership and management is more
secure than it might be without such measures.
The dual class structure and super majority voting of Dover Class A Common
Stock should facilitate continued ownership of a substantial portion of the
voting securities of Dover by John W. Rollins, Sr. and existing management, even
if one or more of the members of management should find it necessary to sell a
significant block of stock for diversification, for tax obligations or for other
reasons. This should enable Dover to continue to be managed based on long-term
objectives, something which Dover's Board of Directors considers to be a
significant benefit to Dover and its stockholders.
Delaware Anti-takeover Law. Dover, a Delaware corporation, is subject to
the provisions of the DGCL, including Section 203. In general, Section 203
prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203 or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by holders of at
least 66 2/3% of the corporation's outstanding voting stock, excluding shares
owned by the interested stockholder. Under Section 203, the term "business
combination" includes mergers, asset sales and other similar transactions with
an "interested stockholder," and the term "interested stockholder" refers to a
person who, together with affiliates and associates, owns (or, within the prior
three years, did own) 15% or more of the corporation's voting stock. Although
Section 203 permits a corporation to elect not to be governed by its provisions,
Dover to date has not made this election.
Classified Board of Directors. Dover's Certificate of Incorporation
provides for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. The over-all effect of the
provision in the Certificate of Incorporation with respect to a classified Board
of Directors may be to render more difficult a change in control of Dover or the
removal of incumbent management.
Removal of Directors; Filling Vacancies. The Bylaws and Certificate of
Incorporation of Dover provide that directors may be removed by stockholders of
Dover only for cause by a vote of 75% or more of the shares entitled to vote for
the election of directors. The Bylaws provide that vacant directorships may be
filled by the Board of Directors acting by vote of a majority of the directors
then in office even if less than a quorum.
Special Meetings of Stockholders. The Certificate of Incorporation and
Bylaws provide that special meetings of stockholders of Dover may be called only
by (i) the Chairman of the Board of Directors, (ii) the Vice Chairman of the
Board of Directors, (iii) the Chairman of the Executive Committee, or (iv) the
President. Special meetings may not be called by the stockholders.
Stockholder Action by Written Consent. Dover's Bylaws provide that action
required to be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting, and stockholders shall have the
power to consent in writing, without a meeting, to the taking of any action,
except where prohibited by law or the rules and regulations of the New York
Stock Exchange.
Certain Business Combinations. Dover's Certificate of Incorporation
provides that the affirmative vote of holders of a least 75% of the outstanding
shares of capital stock of Dover entitled to vote in the election of directors
is required to approve certain business combinations involving Dover and any
person owning more than 20% of Dover's outstanding voting stock (an "Interested
Stockholder"), including any merger, consolidation or similar business
combination, any issuance or transfer of securities by Dover or its subsidiary
to any Interested Stockholder or its affiliate in exchange for cash, securities
or other property having an aggregate fair market value of $5,000,000 or more,
the transfer or other disposition of assets by Dover or its subsidiary to an
Interested Stockholder
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or its affiliate having an aggregate fair market value of $5,000,000 or more,
the adoption of any plan or proposal for liquidation or dissolution of Dover,
and any reclassification or recapitalization which would increase the
proportionate shareholdings of any class of stock owned by an Interested
Stockholder or an affiliate of such Interested Stockholder.
Amendment to Certain Provisions of the Certificate of Incorporation and
Bylaws. Subject to the DGCL, the Certificate of Incorporation may be amended by
the affirmative vote of a majority of the outstanding shares entitled to vote
thereon, together with the affirmative vote of a majority of the outstanding
shares of each class or series entitled to vote thereon as a class or series in
accordance with the DGCL and the Certificate of Incorporation. Notwithstanding
the foregoing, the amendment, modification or repeal of certain provisions of
the Certificate of Incorporation regarding (i) the Dover Capital Stock, (ii) the
classification of the Board of Directors, (iii) certain business combinations
and (iv) amendments to the Certificate of Incorporation and the Bylaws relating
to special stockholder meetings' requires the affirmative vote of the holders of
at least 75% of the holders of Dover Capital Stock then entitled to vote in the
election of directors unless the majority of the Board of Directors has already
recommended to the stockholders for adoption such amendment, modification or
repeal, in which case only the approval of a majority of the outstanding shares
of Dover Capital Stock entitled to vote would be necessary.
The stockholders may make, alter or repeal any bylaws whether or not
adopted by them, provided, that any such additional bylaws, alterations or
repeal may be adopted only by the affirmative vote of the holders of 75% or more
of the outstanding shares of Dover Capital Stock entitled to vote in the
election of directors, unless such additional bylaws, alterations or repeal have
been recommended to the stockholders for adoption by a majority of the Board of
Directors, in which event such additional bylaws, alterations or repeal may be
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Dover Capital Stock entitled to vote in the election of directors.
TRANSFER AGENT
The transfer agent and registrar for the Dover Common Stock is ChaseMellon
Shareholder Services, L.L.P. Its address for such purposes is 450 West 33rd
Street, 15th Floor, New York, New York 10001-2697 and its telephone number at
that address is 212-946-8494.
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DESCRIPTION OF GRAND PRIX CAPITAL STOCK
GRAND PRIX COMMON STOCK
The Grand Prix Articles of Incorporation authorizes the issuance of
20,000,000 shares of Grand Prix Common Stock, of which 4,677,187 shares were
issued and outstanding as of May 18, 1998. On any matter other than the election
of directors holders of shares of Grand Prix Common Stock are entitled to one
vote for each share on all matters to be voted on by the shareholders. Holders
of shares of Grand Prix Common Stock are entitled to share ratably in dividends,
if any, as may be declared, from time to time, by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Grand Prix, the holders of shares of
Grand Prix Common Stock are entitled to share pro rata in all assets remaining
after payment in full of all liabilities and after full payment of all
liquidation preferences of the holders of any preferred stock then issued and
outstanding. Holders of Grand Prix Common Stock have no preemptive rights to
purchase Grand Prix's Common Stock. There are no conversion rights or redemption
or sinking fund provisions with respect to Grand Prix's Common Stock. All of the
outstanding shares of Grand Prix Common Stock are fully paid and non-assessable.
As of May 18, 1998 there were 222 record holders of Grand Prix Common Stock.
GRAND PRIX PREFERRED STOCK
Grand Prix is authorized to issue 10,000,000 shares of preferred stock, no
par value ("Grand Prix Preferred Stock"). No shares of Grand Prix Preferred
Stock are currently outstanding. The Board of Directors has authority, without
action by the shareholders, to issue all or any portion of the authorized but
undesignated Grand Prix Preferred Stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights and other rights to such series.
DIVIDEND POLICY
Grand Prix has not paid any dividends on its Grand Prix Common Stock since
1992. Any decision concerning payment of dividends on the Grand Prix Common
Stock will depend on the results of operations, financial condition and capital
expenditure plans of Grand Prix as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.
BONDS
SWIDA has issued Bonds in the aggregate principal amount of $21,500,000.
The Bonds are unconditionally guaranteed by Grand Prix. The closing of the sale
of the Bonds occurred on June 21, 1996. The Bonds were offered by SWIDA on a
private placement basis in reliance upon an exemption from registration
contained in Section 4(2) of the Securities Act. SWIDA has loaned all of the
proceeds from the Municipal Bond Offering to Grand Prix for the purpose of the
development, construction and expansion of Gateway, and the funds so obtained
were used to complete construction of Gateway, to create a $2,550,000 interest
reserve fund and to pay for the cost of issuance of the Bonds. The Bonds are
enhanced by the moral obligation of the State of Illinois and have a 20-year
maturity. The Bonds offered an effective yield of approximately 9.1% with
varying rates of interest ranging from 8.35% to 9.25%, and received an A- rating
from Standard & Poor's based upon receiving the moral obligation of the State of
Illinois.
The Bonds provide for a 20-year amortization, with the final maturity of
the Bonds to be no later than 20 years from the date of issuance. Interest only
payments on the Bonds, payable on February 1 and August 1 of each year commenced
February 1, 1997 and will be made during the first 30 months after the issuance
of the Bonds, and, thereafter, approximately level debt service will begin on
the Bonds in 2000 and will remain in effect until the maturity of the Bonds. The
Bonds are secured by a first mortgage lien on the real estate and other assets
of the subsidiaries of Grand Prix which hold the assets of Gateway. The SWIDA
Loan obligated Grand Prix to complete the redevelopment of Gateway with its own
funds in the event the proceeds of the SWIDA Loan were insufficient.
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In order to meet its payment obligations under the SWIDA Loan, which
payment obligations correspond to the payment obligations of SWIDA under the
Bonds, Grand Prix was required to establish a special reserve and redemption
fund into which will be deposited a "ticket surcharge" equal to five percent of
the gross spectator revenues received by Grand Prix from all nationally
sanctioned professional motorsports events at Gateway. Once $2,000,000 has been
accumulated in this fund, all excess funds, in increments of $5,000, will be
used pursuant to the SWIDA Loan to redeem Bonds annually commencing February 1,
2002.
In January 1996, the City of Madison, Illinois designated the site on which
Gateway is located, together with certain surrounding properties, as a "tax
increment financing district". Pursuant to a Redevelopment Agreement dated
February 27, 1996 between the City of Madison and Grand Prix (the "Redevelopment
Agreement"), the City of Madison has agreed to reimburse Grand Prix for the cost
of any portion of the development of Gateway that qualifies for tax increment
financing, in an amount not to exceed $12,000,000. Grand Prix currently expects
such costs to exceed $12,000,000. Under the Redevelopment Agreement the City of
Madison has agreed to reimburse such costs from 70% of the net incremental
increases in real estate taxes generated by Gateway as, when and if such tax
increments are received by the City of Madison over the next 20 years. These tax
revenues will be pledged by the City of Madison to the annual retirement of debt
service, thereby reducing the stated maturity of the Bonds. In the event Gateway
is damaged or destroyed, Grand Prix must either repair or restore the facility
or pay off the SWIDA Loan in full. In addition, Grand Prix's payment obligations
under the SWIDA Loan may be accelerated if Grand Prix is in default under any
long-term debt in excess of $50,000.
As a condition to the issuance of the Bonds, SWIDA required that Grand Prix
establish a fully funded debt service reserve equivalent to the maximum annual
debt service in any year of the bond repayment schedule, or approximately
$2,400,000. Grand Prix conducted a private placement in April and May 1996 to
raise an aggregate of approximately $2,300,000 in net proceeds to Grand Prix
from the sale of Grand Prix's Series A Convertible Preferred Stock (the "Private
Placement"), which funds were deposited by Grand Prix into the required debt
service reserve fund. In January 1998 Grand Prix substituted an irrevocable
standby letter of credit secured by the Memphis facility and the guaranty of
Grand Prix and its subsidiaries for the cash on deposit in the debt service
reserve fund.
Warrant. Grand Prix granted to L.H. Friend a warrant to purchase an
aggregate of 31,250 shares of Series A Preferred Stock which upon the
consummation of Grand Prix's initial public offering converted into the right to
purchase 31,250 shares of Grand Prix Common Stock at an exercise price of $10.00
per share. The Warrant is exercisable until June 24, 2001. Grand Prix also
agreed to grant L.H. Friend certain registration rights with respect to the
Grand Prix Common Stock underlying the Warrant.
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
In March 1997, Denis McGlynn, President and Chief Executive Officer of
Dover, approached Christopher R. Pook, President and Chief Executive Officer of
Grand Prix, on an informal basis at a securities analyst conference and raised
the possibility of a strategic transaction between the two companies.
In June 1997, at Mr. McGlynn's invitation, Mr. Pook visited Dover's
facility in Dover, Delaware.
Discussions were terminated by Grand Prix while it negotiated and completed
a sale of shares of Grand Prix Common Stock to Penske and Midwest in August
1997.
On October 16, 1997, Mr. McGlynn, Timothy R. Horne, Vice President-Finance
and Jerry Dunning, General Manager of Dover Downs, visited both Gateway and
Memphis.
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On October 22, 1997, Mr. Pook advised the Executive Committee of the Grand
Prix Board of the status of the discussions with Dover. The Executive Committee
authorized and directed Mr. Pook to continue the discussions with Dover and also
authorized and directed Mr. Pook to enter into a non-disclosure agreement with
Dover in order for the companies to begin preliminary due diligence on each
other.
On October 24, 1997, representatives of Dover and Grand Prix negotiated and
executed a confidentiality agreement.
In December 1997, at another securities analyst conference held in New York
City, Mr. McGlynn suggested that formal discussions be commenced between Dover
and Grand Prix in connection with a possible strategic transaction. During such
discussions, Mr. Pook informed Dover that any proposed transaction would require
a premium for Grand Prix's shareholders.
At the end of January 1998, Mr. McGlynn informed Mr. Pook that Dover wanted
to enter into serious discussions concerning a possible strategic merger of
Dover and Grand Prix. Grand Prix and its advisors indicated to Dover that any
such transaction would require a premium to current stock prices and that a
transaction should promptly be pursued or abandoned. Several discussions then
ensued among representatives of Dover, Grand Prix and L.H. Friend.
On February 20, 1998, in St. Louis, Missouri, representatives of Dover and
Grand Prix met to discuss the potential transaction. Present for Grand Prix were
Christopher Pook, James Michaelian and representatives from L.H. Friend and
Kaye, Scholer, Fierman, Hays & Handler, LLP, Grand Prix's outside counsel
("Kaye, Scholer"). Present for Dover were Denis McGlynn, Timothy Horne, Henry B.
Tippie, Vice Chairman of the Board of Dover, and Klaus M. Belohoubek, Assistant
Secretary and Assistant General Counsel to Dover. During such meeting, the
parties negotiated the Exchange Ratio and certain of the principal terms of the
Merger, subject to due diligence, negotiation and execution of definitive
agreements and board approvals.
On February 23, 1998, drafts of the Merger Agreement and the Support
Agreements were delivered to Grand Prix, L.H. Friend and Kaye, Scholer for their
review.
Over the next few days, representatives of Dover, Grand Prix and Kaye,
Scholer held numerous telephonic discussions to begin negotiations of the terms
of the Merger Agreement and the ancillary documents.
On March 4, March 5, and March 6, 1998, representatives of Dover and Grand
Prix met to conduct due diligence on the other.
On March 5, 1998, representatives of Dover, Grand Prix, L.H. Friend and
Kaye, Scholer met at the Hyatt Regency Hotel in Long Beach to continue the
negotiation of the terms of the Merger Agreement and the ancillary documents.
Over the next few days, representatives of Dover and Kaye, Scholer held
numerous telephonic discussions to continue the negotiation of the terms of the
Merger Agreement and the ancillary documents.
On March 16, 1998, the Grand Prix Board held a special meeting at the Long
Beach Hilton where the Board was informed of the discussions regarding a
proposed transaction with Dover. All directors of Grand Prix were present in
person or by telephone. Messrs. Combs and Penske informed the Board that certain
employees of Midwest and Penske, with whom they were affiliated, were in
separate discussions with Dover for Dover to acquire such entities' shares of
Grand Prix Common Stock for cash. Mr. Combs informed the Board that he believed
that he should not participate in the discussions on this matter and left the
meeting. At the meeting, the Board heard a detailed presentation by
representatives of Kaye, Scholer with respect to the Board's fiduciary duties,
the terms of the proposed Merger Agreement and the Support Agreements, the legal
diligence performed and certain of the factors to be considered by the Board in
their deliberations. The Board heard a presentation from representatives of L.H.
Friend with respect to the financial terms of the proposed transaction and that,
based upon the terms of the current transaction, L.H. Friend was prepared to
deliver to the Board an
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opinion that the transaction was fair to Grand Prix and its shareholders from a
financial point of view. The Board reviewed and discussed with Grand Prix's
management, representatives of Kaye Scholer and representatives of L.H. Friend
the Merger Agreement and the Support Agreements, the transactions contemplated
thereby and the potential conflict of interest of certain directors. The Board
also reviewed the terms of the proposed employment agreements between Dover and
Messrs. Pook and Michaelian, as to which such officers were represented by
separate counsel in their negotiations with Dover.
On March 17, and March 18, 1998, representatives of Dover and Kaye, Scholer
held numerous telephonic discussions to continue the negotiation of the terms of
the Merger Agreement and the ancillary documents.
On March 18, 1998, the Grand Prix Board held a special meeting at the Long
Beach Hilton where the Board received an update of the discussions regarding the
proposed transaction with Dover. All directors of Grand Prix were present in
person or by telephone other than Mr. Neil Matlins who was present through a
representative. Mr. Combs informed the Board that he had retained independent
counsel to advise him on the transaction and had been advised that it was
appropriate for him to attend the Board meeting. The Board was informed that in
connection with the requirement by Midwest and Penske for an immediate stock
sale to Dover, Dover had certain requirements as to Grand Prix in connection
with a proposal that it was preparing to make to Midwest and Penske. Such
requirements included the right to nominate three individuals to serve on the
Board (in lieu of Midwest's and Penske's two director seats), inclusion of a
substantial breakup fee, maintaining the balance of the Support Agreements and
certain registration rights with respect to the shares of Common Stock it would
acquire from Midwest and Penske. The Board discussed these matters among
themselves and with Grand Prix's management and advisors. The Board authorized
Mr. Pook and legal counsel to continue negotiations with Dover over its demands,
including agreeing to a substantially smaller breakup fee if Dover would agree
to adjust the collars for the agreed-upon exchange ratio in light of the recent
appreciation of Dover Common Stock.
The Grand Prix Board discussed the proposed transaction and alternatives
reasonably available to Grand Prix among themselves and with Grand Prix's
management and advisors and asked numerous questions of management and such
advisors. Messrs. Combs and Penske were asked whether their respective companies
would be interested in acquiring Grand Prix at the current valuations. Each
stated that, on behalf of their respective companies, they were not interested
in acquiring Grand Prix. Mr. Pook polled each director. Each director expressed
his belief that the transaction was in the best interests of Grand Prix and its
shareholders.
On March 18, 1998, Dover held a special meeting of its Board of Directors
at Dover's main corporate offices in Wilmington, Delaware to consider the merger
of Grand Prix with Merger Sub. Mr. Dominic Petito of Gerard Klauer was present
at the meeting to advise the Board regarding the proposed transaction and gave a
detailed presentation (i) outlining the financial terms and conditions of the
proposed Merger and (ii) explaining the financial analysis previously
distributed to all members of the Board in advance of the meeting. The
presentation concluded with the delivery of an oral opinion by Gerard Klauer
that, subject to the assumptions made, matters considered and limits on the
review undertaken, the consideration to be paid by Dover to holders of Grand
Prix Common Stock, based on the Exchange Ratio, was fair to the holders of Dover
Common Stock, from a financial point of view. The Board members discussed these
matters and unanimously adopted resolutions to (i) approve the Agreement and
Plan of Merger (in draft form as provided to all members of the Board in advance
of the meeting), with such changes as are approved by the Executive Committee
and are satisfactory to counsel of Dover, (ii) approve the issuance of Dover
Common Stock, pursuant to the Merger, (iii) authorize the exchange of options to
acquire Grand Prix Common Stock for options to acquire Dover Common Stock under
Dover's 1996 Stock Option Plan, based on the Exchange Ratio, (iv) negotiate and
close the acquisition of the 680,000 shares of Grand Prix Common Stock owned by
Penske and Midwest at its market price, (v) amend Dover's Certificate of
Incorporation to increase the size of the Board of Directors by adding an
additional Class I Director, (vi) amend Dover's Certificate of Incorporation to
increase the number of shares of Dover Capital Stock authorized for issuance,
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(vii) designate Christopher R. Pook as the nominee for election as a Class I
director for a term expiring in 2000, (viii) grant options to purchase specified
amounts of Dover Common Stock, provided the Merger is consummated, to
Christopher R. Pook and James P. Michaelian, (ix) list on the New York Stock
Exchange the shares of Dover Common Stock to be issued pursuant to the Merger,
and (x) authorize appropriate officers to take all other acts and execute and
deliver all such other instruments and documents as deemed appropriate to carry
out fully the intent and purpose of the aforementioned resolutions.
Over the next few days, representatives of Dover and Kaye, Scholer held
numerous telephonic discussions to finalize the negotiation of the terms of the
Merger Agreement and the ancillary documents.
On March 24, 1998, the Grand Prix Board held a regular meeting at the Grand
Prix offices in Long Beach where the Board received a further update of the
discussions regarding the proposed transaction with Dover. All directors of
Grand Prix were present in person or by telephone other than Mr. Daniel Gurney.
Mr. Pook informed the Board that Dover had insisted upon the inclusion of a
breakup fee and refused to modify the collars set forth in the proposed
agreements. Mr. Pook informed the Board that they were successful in reducing
the breakup fee to $3 million and that such fee would be limited to
circumstances where an alternative deal is actually completed within a specified
period after the termination of the proposed transaction under certain limited
circumstances. A representative of Kaye, Scholer described the provisions of the
proposed Merger Agreement and the Support Agreements in detail. The Board
discussed the proposed transaction among themselves and with Grand Prix's
management and advisors.
On March 25, 1998, Dover entered into the Stock Purchase Agreements
pursuant to which it acquired from Penske and Midwest the Grand Prix Acquired
Shares for cash. Gerard Klauer delivered an updated opinion on March 26, 1998 to
the Dover Board of Directors to the effect that, subject to the assumptions
made, matters considered and limits on the review undertaken, the cash
consideration to be paid to Penske and Midwest for the Grand Prix Acquired
Shares and the consideration to be paid to holders of Grand Prix Common Stock,
based on the Exchange Ratio, was fair to the holders of Dover Common Stock, from
a financial point of view. A copy of the Gerard Klauer Opinion is attached to
this Joint Proxy Statement/Prospectus as Annex B hereto and is incorporated
herein by reference.
On March 26, 1998, the Grand Prix Board held a special meeting at the Grand
Prix offices in Long Beach where the Board received a final update of the
discussions regarding the proposed transaction with Dover. All directors of
Grand Prix were present in person or by telephone. Mr. Pook informed the Grand
Prix Board that shareholders representing over 38% of the Grand Prix Common
Stock on a fully-diluted-basis had signed the Grand Prix Support Agreement in
favor of the Merger which, when combined with the shares of Grand Prix Common
Stock Dover had agreed to acquire from Midwest and Penske, would represent an
aggregate of greater than 50% of the shares of Grand Prix Common Stock on a
fully-diluted basis. Mr. Pook informed the Board that Midwest and Penske had
agreed to sell their respective shares of Grand Prix Common Stock to Dover at
$15.50 per share, in cash, representing the closing bid price of the Grand Prix
Common Stock on the date the parties reached agreement. Mr. Pook explained to
the Board that he and Mr. James Michaelian, as shareholder representatives under
that certain Right of First Refusal Agreement, dated August 8, 1997, among
certain shareholders of Grand Prix, Midwest and Penske (the "ROFR Agreement"),
had consented to the proposed sale by each of Midwest and Penske to Dover
subject to (i) the termination of the ROFR Agreement and (ii) the preservation
of the standstill provisions contained in those certain Stock Purchase
Agreements, dated August 8, 1997, between Grand Prix and each of Midwest and
Penske. Mr. Shirley reported to the Board favorably on Grand Prix's due
diligence with regard to the financial position of Dover. Members of the Board
were informed that Dover had advised the Company that the "sunset" limitations
on Dover's gaming authority had been removed that day by the Delaware
legislature and the other provisions of the proposed gaming bill had been
adopted. Representatives of L.H. Friend delivered to the Board an opinion that
the transaction is fair to Grand Prix and its shareholders, other than Dover,
Midwest and Penske, from a financial point of view. The Board
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discussed the proposed transaction among themselves and with Grand Prix's
management and advisors asking numerous questions of such advisors.
Based upon such discussions, presentations and opinions, the Grand Prix
Board unanimously (with abstentions by Messrs. Combs and Penske) (i) determined
that the Merger is advisable and fair to and in the best interest of Grand Prix
and its shareholders, (ii) approved and adopted the Merger and the transactions
contemplated in the Merger Agreement, (iii) recommended the approval of the
Merger Agreement and the Merger by the holders of Grand Prix Common Stock, (iv)
directed that the Merger be submitted for consideration by Grand Prix's
shareholders at the meeting of the shareholders held for such purpose and (v)
authorized and directed the officers of Grand Prix to take any actions necessary
or appropriate in consummating the Merger.
Later that same day (i) representatives of Dover, Merger Sub and Grand Prix
signed the Merger Agreement, (ii) simultaneously therewith, a representative of
Grand Prix and certain shareholders of Dover entered into the Dover Support
Agreement, (iii) simultaneously therewith, a representative of Dover and Mr.
Pook entered into the Pook Employment Agreement, and (iv) simultaneously
therewith, a representative of Dover and Mr. Michaelian entered into the
Michaelian Employment Agreement.
JOINT REASONS FOR THE MERGER
The Merger is a strategic combination and will create an entertainment
company with a broad spectrum of events in geographically diversified markets
and relationships with a wide array of sanctioning bodies, sponsors, broacasters
and advertisers. For Grand Prix, the Merger presents an opportunity for its
shareholders to participate in a combined entity with greater financial
resources and greater diversification, and an opportunity to realize a premium
over historic market prices for Grand Prix Common Stock. For Dover, the Merger
is consistent with its strategy of diversification and seeking growth through
strategic acquisitions and alliances. Dover management also believes that the
companies' senior management teams have complementary strengths and operating
philosophies, particularly in the areas of marketing and promotion.
RECOMMENDATIONS OF THE DOVER BOARD OF DIRECTORS
The Dover Board of Directors has carefully reviewed and considered the
terms and conditions of the Merger. The Dover Board of Directors has concluded
that the Merger is fair to and in the best interests of Dover and its
stockholders. Accordingly, the Dover Board of Directors has approved, by a
unanimous vote, the Merger Proposal and the Issuance Proposal, and recommends
that the stockholders of Dover vote FOR the approval of the Merger Proposal and
the Issuance Proposal. In reaching its determination, the Dover Board of
Directors consulted with Dover's management, as well as its financial and legal
advisors, and considered a number of factors.
RECOMMENDATIONS OF THE GRAND PRIX BOARD OF DIRECTORS
The Grand Prix Board of Directors has carefully considered, discussed and
reviewed the proposed terms and conditions set forth in the Merger Agreement. In
addition to consulting with legal advisors of Grand Prix, the Grand Prix Board
of Directors considered and reviewed the opinion of L.H. Friend regarding the
fairness, from a financial point of view, of the proposed consideration to be
paid to the shareholders of Grand Prix in the Merger (other than Dover, Penske
and Midwest). The Board of Directors of Grand Prix also considered that certain
shareholders of Grand Prix representing (when combined with the Grand Prix
Acquired Shares) a majority of the outstanding shares of Grand Prix Common Stock
supported the Merger and agreed to vote for it, as evidenced by their execution
and delivery of the Grand Prix Support Agreement. The Grand Prix Board of
Directors further considered the knowledge of Grand Prix's management and Board
of Directors, Grand Prix's and Dover's respective businesses and the current
economic, financial and business climate impacting those businesses. The Grand
Prix Board of Directors has determined that the Merger is advisable and fair to
and in the best interests of Grand Prix and its shareholders, and therefore
approved and adopted the
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Merger and the other transactions contemplated in the Merger Agreement and
recommends the approval of the Merger Agreement and the Merger by the
shareholders of Grand Prix.
The Grand Prix Board of Directors gave significant consideration to the
following factors and believes that the Merger will be beneficial to Grand Prix
and its shareholders for the following reasons:
-- The Merger consideration represents an equity value for Grand Prix
which includes a premium of 11.8% based upon the respective values of the
Grand Prix Common Stock and Dover Common Stock as of March 26, 1998.
-- The Merger would provide the shareholders of Grand Prix with
greater future value for their shares through ownership in the combined
companies.
-- The Merger represents a strategic combination of two complementary
companies in the field of motorsports that would allow increased
utilization of, among other things, strategic relationships with
sanctioning bodies, sponsors and other motorsports companies.
-- A combination of the two companies presents a number of potential
synergies including, but not limited to, synergies of management,
marketing, promotion, ticket sales and liquidity.
-- The combination of sites in the areas of Dover, Delaware, Long
Beach, California, Nashville, Tennessee, Memphis, Tennessee and St. Louis,
Missouri is expected to create a nationwide company with increased
opportunities for expansion on a national scale.
-- The philosophies and corporate cultures of the companies are very
similar, providing an easier transition to a combined company.
-- The management of both companies provide expertise that complement
each other.
-- The Merger would provide significant benefits above those that
could be achieved through available combinations with other parties or from
Grand Prix continuing as an independent company.
-- The Merger would allow the shareholders of Grand Prix to continue
to participate in Grand Prix's motorsports business while diversifying to
include Dover's motorsports business and substantial cash flow from gaming.
-- The Merger Agreement eliminates the covenants made by Grand Prix in
certain right of first refusal agreements, which had limited Grand Prix's
use of equity financing mechanisms for future growth.
In addition, during the course of its consideration of the Merger, the
Grand Prix Board of Directors also deliberated with respect to the following
potentially negative factors concerning the Merger:
-- The combined entity may not be able to achieve the potential
synergies that would provide significant value in a merger.
-- There may be adverse effects to the combined company due to
one-time charges expected to be incurred in connection with the costs of
the Merger and the subsequent transition to a combined company.
-- Key employees of both companies may decide not to continue
employment with the combined company after the consummation of the Merger.
-- Financial value and other benefits sought to be achieved in the
Merger may not be obtained.
After duly considering all of the above mentioned factors among others, the
Grand Prix Board of Directors determined that the potential benefits available
to Grand Prix and its shareholders, when combined with the financial value of
the Merger, outweigh such negative factors. The Board of Directors of Grand Prix
therefore approved the Merger as described above.
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The foregoing discussion of the information and factors considered by the
Board of Directors of Grand Prix is not intended to be exhaustive but is
believed to include all material factors considered by the Board of Directors of
Grand Prix. In view of the complexity and variety of factors considered in
connection with its evaluation of the Merger, the Board of Directors of Grand
Prix did not find it practical to and did not quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board of Directors of
Grand Prix may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR TO DOVER
Dover retained Gerard Klauer to render an opinion to the Dover Board of
Directors as to whether the total amount of consideration to be offered by Dover
in the Merger is fair, from a financial point of view, to the holders of Dover
Common Stock. On March 18, 1998, Gerard Klauer rendered its oral opinion,
subsequently confirmed in writing, to the Dover Board of Directors that, as of
such date and based upon and subject to certain considerations and assumptions,
the Exchange Ratio to be paid by Dover as specified in the draft of the Merger
Agreement dated March 9, 1998 was fair, from a financial point of view, to the
holders of Dover Common Stock. In view of the changes that were made to the
terms of the Merger as originally set forth in the draft Merger Agreement dated
March 9, 1998, on March 26, 1998, Gerard Klauer rendered an updated opinion,
subsequently confirmed in writing to the Dover Board of Directors, that, as of
such date and based upon and subject to certain considerations and assumptions,
the total consideration to be paid by Dover as specified in the draft of the
Merger Agreement dated March 24, 1998 was fair, from a financial point of view,
to the holders of Dover Common Stock, which opinion superseded their previously
rendered opinion dated March 18, 1998. References herein to the "Gerard Klauer
Opinion" or similar references refer to the written opinion of Gerard Klauer
dated March 26, 1998. The full text of the Gerard Klauer Opinion, which sets
forth the assumptions made, matters considered and scope and limitations of the
review undertaken and procedures followed by Gerard Klauer in rendering its
opinion, is attached to this Joint Proxy Statement/Prospectus as Annex B hereto
and is incorporated herein by reference. THE FOLLOWING DESCRIPTION OF THE GERARD
KLAUER OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. DOVER STOCKHOLDERS ARE URGED TO READ CAREFULLY THE OPINION OF GERARD
KLAUER IN ITS ENTIRETY. NO LIMITATIONS WERE IMPOSED BY DOVER ON GERARD KLAUER
WITH RESPECT TO THE INVESTIGATIONS MADE OR PROCEDURES FOLLOWED IN RENDERING THIS
OPINION.
In conducting its analysis and arriving at its opinion, Gerard Klauer
reviewed and analyzed, among other things: (i) a draft dated March 24, 1998 of
the Merger Agreement, and assumed that the final form of such agreement would
not vary in any regard that is material to their analysis; (ii) the Stock
Purchase Agreements; (iii) certain publicly available Commission filings made by
Dover and Grand Prix, including Form 10-Ks, Form 10-Qs, proxy statements and
prospectuses; (iv) certain internal business, operating and financial
information, including financial forecasts and projections, furnished to Gerard
Klauer by Dover and Grand Prix; (v) the pro forma impact of the Merger on
Dover's results of operations, earnings per share, consolidated capitalization
and certain financial ratios; (vi) the historical and projected financial
results and financial condition of Dover and Grand Prix and compared them with
those of other companies and businesses that Gerard Klauer deemed relevant;
(vii) the reported prices and trading activity of Dover's and Grand Prix's
Common Stock and compared their performance with those of other publicly traded
companies that Gerard Klauer deemed relevant; and (viii) the financial terms of
the Merger and compared them with the financial terms, to the extent publicly
available, of certain other recent transactions that Gerard Klauer deemed
relevant. In addition, in conducting its analysis and arriving at its opinion,
Gerard Klauer also held discussions with Dover's and Grand Prix's managements
regarding the business, operations, financial condition and prospects of Dover
and Grand Prix, respectively, as well as other matters Gerard Klauer considered
relevant to its inquiry. Gerard Klauer also conducted such other analyses and
performed such other investigations and considered such other matters as it
deemed necessary to arrive at its opinion, including its assessment of general
economic, market and monetary conditions.
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In rendering its opinion, Gerard Klauer relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information publicly available or furnished or otherwise communicated
to Gerard Klauer. With respect to the financial forecasts, projections and other
information provided to or otherwise reviewed by Gerard Klauer, Gerard Klauer
relied upon the assurances of the management of Dover and Grand Prix that such
forecasts, projections and other information were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
Dover's and Grand Prix's managements as to the expected future competitive,
operating and financial performance of Dover and Grand Prix, and the benefits
Dover and Grand Prix expect to receive from the Merger. Gerard Klauer assumes no
responsibility for and expresses no view as to such forecasts and projections or
the assumptions on which they are based. Gerard Klauer further assumed that the
final form of Merger Agreement would not vary in any regard that is material to
its analysis and that such agreement and Stock Purchase Agreements will be
consummated in accordance with their respective terms. Gerard Klauer has not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Dover or Grand Prix, and Gerard
Klauer has not made a physical inspection of the properties or assets of Dover
or Grand Prix. Furthermore, Gerard Klauer assumed the Merger will qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code and
that for accounting purposes, the Merger is intended to be accounted for as a
purchase.
Gerard Klauer's opinion is necessarily based upon information made
available to it and business, market, economic, monetary and other conditions as
they exist on, and can be evaluated as of, the date of the Gerard Klauer Opinion
and does not address the underlying business decision of Dover to effect the
Merger or any other transaction in which Dover might engage. In addition, Gerard
Klauer expressed no opinion as to the value of the Dover Common Stock upon
issuance to Grand Prix's shareholders pursuant to the Merger, or the price at
which the Dover Common Stock would trade prior to or subsequent to the closing
of the Merger. Gerard Klauer's opinion does not constitute a recommendation to
any holder of Dover Common Stock as to whether such holder should continue to
hold such securities. Furthermore, Gerard Klauer's opinion does not constitute a
recommendation by Gerard Klauer to any stockholders to vote in favor of the
Merger. Gerard Klauer relied as to all legal matters on Dover.
Gerard Klauer believes that its analyses must be considered in the
aggregate, and that selecting portions of its analysis or the factors considered
by it, without considering all factors and analyses considered by Gerard Klauer
could create a misleading view of the processes underlying its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Gerard Klauer did not attribute any particular weight to any one
analysis or factor considered by it, but rather made qualitative judgements as
to the significance and relevance of each analysis and factor. In its analyses,
Gerard Klauer made numerous implicit assumptions about industry and general
economic conditions, and other matters, many of which are beyond the control of
Dover or Grand Prix. Any estimates contained therein are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than such estimates. Estimates of values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
may actually be sold. Because such estimates are inherently subject to
uncertainty, none of Dover, Grand Prix, Gerard Klauer or any other person
assumes responsibility for their accuracy.
The following is a brief summary of the financial analyses utilized by
Gerard Klauer in rendering its opinion. Such summary does not purport to be a
complete description of all of the analyses performed by, or all the factors
considered by, Gerard Klauer in connection with its opinion.
Analyses Relating to Dover.
Comparable Transaction Analysis. Gerard Klauer evaluated publicly
available information regarding nine acquisitions of selected motorsports and
entertainment complex companies (the "Acquired Entertainment Companies"). Gerard
Klauer also evaluated publicly available information regarding eighteen
acquisitions of selected pari-mutuel/gaming companies (the "Acquired Gaming
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Companies"). Gerard Klauer calculated EBITDA multiples based on the ratio of the
enterprise value (total common shares outstanding multiplied by closing market
price per share, plus total debt, preferred stock and minority interests, minus
cash and cash equivalents) to the latest twelve month (previous reported four
quarters, or "LTM") earnings before interest, taxes, depreciation and
amortization ("EBITDA") (calculated immediately prior to such acquisition) for
each Acquired Entertainment Company and each Acquired Gaming Company. These LTM
EBITDA multiples for the Acquired Entertainment Companies ranged from 11.3x to
21.7x, and these LTM EBITDA multiples for the Acquired Gaming Companies ranged
from 4.6x to 13.5x. Gerard Klauer applied the median of each of the foregoing
multiple ranges to the applicable LTM EBITDA for Dover's respective motorsports
and pari-mutuel/gaming segments to arrive at a total enterprise value. After
subtracting Dover's total debt obligations and adding its total cash at December
31, 1997, this analysis yielded a range of implied equity values for Dover of
between $17.65 per share and $39.20 per share of Dover Common Stock.
None of such acquisitions, however, took place under market conditions or
competitive circumstances that were directly comparable to those of the Merger,
and each of the Acquired Entertainment Companies and Acquired Gaming Companies
is distinguishable from Dover in certain respects. Accordingly, an analysis of
the results of the foregoing is not mathematical nor necessarily precise;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of companies and other factors that
could affect results.
Comparable Company Analysis. Gerard Klauer compared selected historical,
current and projected financial and operating results of Dover with the publicly
reported operating results of selected publicly traded motorsports and
pari-mutuel/gaming companies that, in Gerard Klauer's judgment, were most
closely comparable to Dover (the "Dover Comparable Companies"). The Dover
Comparable Companies were chosen by Gerard Klauer as companies that, based upon
publicly available data, possess general business, operating and financial
characteristics representative of companies in the industries in which Dover
operates, although Gerard Klauer recognized that each of the Dover Comparable
Companies is distinguishable from Dover in certain respects. The Dover
Comparable Companies were divided into two groups: motorsports ("Comparable
Motorsports Companies") and pari-mutuel/gaming ("Comparable Pari-Mutuel/Gaming
Companies"). Such Comparable Motorsports Companies included: International
Speedway; Speedway Motorsports; and Penske. Such Comparable Pari-Mutuel/Gaming
Companies included: MTR Gaming; Penn National Gaming; and Hollywood Park. Gerard
Klauer considered with respect to the Dover Comparable Companies, among other
things, (i) selected balance sheet data; (ii) LTM EBITDA and estimated 1998 and
1999 EBITDA (adjusted for a calendar year end), (iii) LTM earnings per share
("EPS") and 1998 and 1999 estimated EPS (adjusted for a calendar year end). All
1998 and 1999 estimates were based on publicly available estimates.
Gerard Klauer calculated a range of market multiples for the Dover
Comparable Companies by dividing the enterprise value (total common shares
outstanding multiplied by closing market price per share, plus total debt,
preferred stock and minority interests, minus cash and cash equivalents) as of
March 25, 1998 for each Dover Comparable Company by, among other things, such
company's LTM EBITDA, estimated 1998 EBITDA and estimated 1999 EBITDA. For the
Comparable Motorsports Companies such LTM EBITDA multiples ranged from 13.1x to
20.2x, such estimated 1998 EBITDA multiples ranged from 10.4x to 16.4x, and such
estimated 1999 EBITDA multiples ranged from 9.7x to 13.9x. For the Comparable
PariMutuel/Gaming Companies such LTM EBITDA multiples ranged from 6.4x to 13.8x,
such estimated 1998 EBITDA multiples ranged from 7.3x to 8.2x, and the estimated
1999 EBITDA multiple was 6.5x. Gerard Klauer also calculated price to earnings
("P/E") multiples by dividing each of the Dover Comparable Companies' closing
sale price per share on March 25, 1998 by the respective LTM EPS, estimated 1998
EPS and estimated 1999 EPS. For the Comparable Motorsports Companies, such LTM
P/E multiples ranged from 26.1x to 41.8x, such estimated 1998 P/E multiples
ranged from 23.5x to 34.5x, and such estimated 1999 P/E multiples ranged from
20.4x to 29.6x. For the Comparable Pari-Mutuel/Gaming Companies, such LTM P/E
multiples ranged from 16.9x to 31.6x, the estimated 1998 P/E multiple was 19.1x,
and the estimated 1999 P/E multiple was
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13.8x. Gerard Klauer applied the median of each of the foregoing multiple ranges
or multiples to the applicable LTM and estimated EBITDA and net income for
Dover's respective motorsports and pari-mutuel/gaming segments. Based on EBITDA
multiples, this analysis yielded a range of implied equity values for Dover
(after subtracting Dover's total debt and adding its total cash for the
respective year) of between $26.44 per share and $28.26 per share of Dover
Common Stock. Based on P/E multiples, this analysis yielded a range of implied
equity values for Dover of between $31.44 per share and $33.06 per share of
Dover Common Stock.
Because of the inherent differences in the business, operations and
prospects of Dover and the business, operations and prospects of the Dover
Comparable Companies, Gerard Klauer believed it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, but
rather also made qualitative judgments concerning the differences between the
financial and operating characteristics and prospects of Dover and the Dover
Comparable Companies that would affect the public trading values of each.
Discounted Cash Flow Analysis. Gerard Klauer performed a discounted cash
flow analysis of Dover based upon projections prepared by management of Dover
for calendar years ending December 31, 1998 through December 31, 2002 (the "DCF
Projections"). Gerard Klauer discounted the projected free cash flows (earnings
before interest and taxes ("EBIT") less taxes, capital expenditures, and changes
in net working capital plus depreciation) plus the terminal value (calculated as
a multiple of future EBITDA) to arrive at a present value ("DCF Present Value")
for Dover. Gerard Klauer utilized multiples of EBITDA ranging from 8.0x to
10.0x, which represented the weighted average multiple of the Comparable
Motorsports Companies and the Comparable Gaming Companies. From this DCF Present
Value, Gerard Klauer subtracted all debt obligations appearing on Dover's
balance sheet at December 31, 1997 and added the excess cash balance on such
balance sheet to arrive at an equity value ("DCF Equity Value") for Dover.
Gerard Klauer performed sensitivity analyses using different discount rates
(representing the weighted average cost of capital) and terminal value
multiples. Such analyses were performed using discount rate assumptions ranging
from 11% to 15%, based upon assumptions regarding such factors as inflation
rates, interest rates, Dover's cost of capital, and the inherent business risk
of Dover, as well as of the motorsports and pari-mutuel/gaming industries as a
whole. Based on the DCF Projections, the discounted cash flow analysis yielded a
range of DCF Equity Values of $26.73 to $37.46 per share of Dover Common Stock.
Dividend Discount Valuation. Gerard Klauer performed a dividend discount
analysis of Dover based upon projections prepared by management of Dover for
calendar years ending December 31, 1998 through December 31, 2001 (the "DDA
Projections"). Gerard Klauer discounted the projected dividends plus the
terminal equity value (calculated as a multiple of future EBITDA and subtracting
all future debt obligations and adding the excess future cash balance) to arrive
at a present equity value ("DDA Equity Value") for Dover. Gerard Klauer utilized
multiples of EBITDA ranging from 8.0x to 10.0x, which represented the weighted
average multiple range for the Comparable Motorsports Companies and the
Comparable Gaming Companies. Gerard Klauer performed sensitivity analyses using
different discount rates and terminal value multiples. Such analyses were
performed using equity discount rate assumptions ranging from 11% to 15%, based
upon assumptions regarding such factors as inflation rates, interest rates,
Dover's cost of capital, and the inherent business risk of Dover, as well as of
the motorsports and pari-mutuel/gaming industries as a whole. Based on the DDA
Projections, the dividend discount analysis yielded a range of DDA Equity Value
of $24.76 to $34.45 per share of Dover Common Stock.
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Analyses Relating to Grand Prix.
Comparable Transaction Analysis. Gerard Klauer applied the median LTM
EBITDA multiple for the Acquired Entertainment Companies to Grand Prix's LTM
EBITDA to arrive at a total enterprise value. After subtracting Grand Prix's
total debt obligations and adding its total cash at November 31, 1997, this
analysis yielded a range of implied equity values for Grand Prix of between
$12.61 per share and $26.85 per share of Grand Prix Common Stock.
None of such acquisitions, however, took place under market conditions or
competitive circumstances that were directly comparable to those of the Merger,
and each of the Acquired Entertainment Companies is distinguishable from Grand
Prix in certain respects. Accordingly, an analysis of the results of the
foregoing is not mathematical nor necessarily precise; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of companies and other factors that could affect
results.
Comparable Company Analysis. Gerard Klauer compared selected historical,
current and projected financial and operating results of Grand Prix with the
publicly reported operating results of selected publicly traded motorsports
companies that, in Gerard Klauer's judgment, were most closely comparable to
Grand Prix (the "Grand Prix Comparable Companies"). The Grand Prix Comparable
Companies were chosen by Gerard Klauer as companies that, based upon publicly
available data, possess general business, operating and financial
characteristics representative of companies in the industries in which Grand
Prix operates, although Gerard Klauer recognized that each of the Grand Prix
Comparable Companies is distinguishable from Grand Prix in certain respects. The
Grand Prix Comparable Companies were the same as the Comparable Motorsports
Companies discussed above (See "Analyses Relating to Dover Comparable Company
Analysis"). Gerard Klauer considered with respect to the Grand Prix Comparable
Companies, among other things, (i) selected balance sheet data; (ii) LTM EBITDA
and estimated 1998 and 1999 EBITDA (adjusted for a calendar year end) and (iii)
LTM EPS and 1998 and 1999 estimated EPS (adjusted for a calendar year). All 1998
and 1999 estimates were based on publicly available estimates.
Gerard Klauer calculated a range of market multiples for the Grand Prix
Comparable Companies by dividing the enterprise value (total common shares
outstanding multiplied by closing market price per share, plus total debt,
preferred stock and minority interests, minus cash and cash equivalents) as of
March 25, 1998 for each Grand Prix Comparable Company by, among other things,
such company's LTM EBITDA, estimated 1998 EBITDA and estimated 1999 EBITDA.
Gerard Klauer applied the median of each of the multiple ranges (see "Analyses
Relating to Dover Comparable Company Analysis") to Grand Prix's LTM and
estimated EBITDA and net income. Based on EBITDA multiples, this analysis
yielded a range of implied equity values for Grand Prix (after subtracting Grand
Prix's total debt and adding its total cash for the respective year) of between
$18.05 per share and $21.29 per share of Grand Prix Common Stock. Based on P/E
multiples, this analysis yielded a range of implied equity values for Grand Prix
of between $14.98 per share and $20.60 per share of Grand Prix Common Stock.
Because of the inherent differences in the business, operations and
prospects of Grand Prix and the business, operations and prospects of the Grand
Prix Comparable Companies, Gerard Klauer believed it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, but
rather also made qualitative judgments concerning the differences between the
financial and operating characteristics and prospects of Grand Prix and the
Grand Prix Comparable Companies that would affect the public trading values of
each.
Discounted Cash Flow Analysis. Gerard Klauer performed a discounted cash
flow analysis of Grand Prix based upon projections prepared by management of
Grand Prix for calendar years ending November 30, 1998 through November 30, 2002
(the "DCF Projections"). Gerard Klauer discounted the projected free cash flows
(EBIT less taxes, capital expenditures, and changes in net working capital plus
depreciation) plus the terminal value (calculated as a multiple of future
EBITDA) to arrive at a present value ("DCF Present Value") for Grand Prix.
Gerard Klauer utilized multiples of EBITDA
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ranging from 10.0x to 12.0x, which represented the multiple range for the Grand
Prix Comparable Companies. From the DCF Present Value, Gerard Klauer subtracted
all debt obligations appearing on Grand Prix's balance sheet at November 30,
1997 and added the excess cash balance on such balance sheet to arrive at an
equity value ("DCF Equity Value") for Grand Prix. Gerard Klauer performed
sensitivity analyses using different discount rates (representing the weighted
average cost of capital) and terminal value multiples. Such analyses were
performed using discount rate assumptions ranging from 11% to 15%, based upon
assumptions regarding such factors as inflation rates, interest rates, Grand
Prix's cost of capital, and the inherent business risk of Grand Prix, as well as
of the motorsports industry as a whole. Based on the DCF Projections, the
discounted cash flow analysis yielded a range of DCF Equity Values of $17.87 to
$26.14 per share of Grand Prix Common Stock.
Discounted Share Price Analysis. Gerard Klauer performed a discounted
share price analysis of Grand Prix based upon projections prepared by management
of Grand Prix for calendar year ending December 31, 2001 (the "Grand Prix
Projection"). Gerard Klauer discounted the projected terminal equity value
(calculated as a multiple of future EBITDA and subtracting all future debt
obligations and adding the excess future cash balance) to arrive at a present
equity value (the "Share Equity Value") for Grand Prix. Gerard Klauer utilized
multiples of EBITDA ranging from 10.0x to 12.0x, which represented the multiple
range for the Comparable Motorsports Companies. Gerard Klauer performed
sensitivity analyses using different discount rates and terminal value
multiples. Such analyses were performed using equity discount rate assumptions
ranging from 13.5% to 16.5%, based upon assumptions regarding such factors as
inflation rates, interest rates, Grand Prix's cost of capital, and the inherent
business risk of Grand Prix, as well as of the motorsports industry as a whole.
Based on the Grand Prix Projection, the discounted share price analysis yielded
a Share Equity Value of $15.52 to $21.11 per share of Grand Prix Common Stock.
Analyses Relating to Dover and Grand Prix
Stock Performance Analysis. For comparison purposes, Gerard Klauer
reviewed and analyzed (i) the historical trading prices and volume for Dover's
and Grand Prix's Common Stock from March 24, 1997 to March 25, 1998; (ii)
indexed share prices of Dover, Grand Prix, the S&P 500 and a group of comparable
public companies from October 4, 1996 to March 25, 1998; and (iii) the relative
ratio of Dover's actual share price to Grand Prix's actual share price from
October 4, 1996 to March 25, 1998. Gerard Klauer noted that the mean and median
ratios of Grand Prix's stock price to Dover's stock price for the period from
October 4, 1996 to March 25, 1998 were 0.6236 and 0.6309, respectively.
Implied Exchange Ratio Analysis. Gerard Klauer calculated ranges of
implied exchange ratios using the implied share prices derived from the
comparable transaction analyses, comparable company analyses, discounted cash
flow analyses and dividend discount/share price analyses discussed above. Based
on applied LTM EBITDA multiples, the comparable transaction analyses implied an
exchange ratio range of 0.6848 to 0.8067. Based on applied LTM, estimated 1998
and estimated 1999 EBITDA multiples, the comparable company analyses implied an
exchange ratio range of 0.6829 to 0.7536. Based on applied LTM, estimated 1998
and estimated 1999 P/E multiples, the comparable company analyses implied an
exchange ratio range of 0.4588 to 0.6553. The discounted cash flow analyses
implied an exchange ratio range of 0.6684 to 0.6978, and the dividend
discount/share price analyses implied an exchange ratio of 0.6053 to 0.6347.
Relative Contribution Analysis. Gerard Klauer examined certain historical
and projected financial information for Dover, Grand Prix and the pro forma
combined entity resulting from the Merger. Gerard Klauer analyzed the relative
pro forma contribution of Grand Prix to Dover's pro forma actual and projected
revenue, EBITDA and net income (before amortization of new goodwill created by
the Merger) for the calendar year ended December 31, 1997 and the calendar year
ending December 31, 1998 and 1999 utilizing management projections (without
giving effect to synergies or cost savings). This analysis indicated that, for
the year ended December 31, 1997, Grand Prix would have contributed
approximately 20.2%, 16.3% and 12.1% to the revenue, EBITDA and net income,
respectively, of the pro forma combined entity. For the year ending December 31,
1998, Grand Prix is projected to contribute approximately 20.8%, 19.1% and 13.2%
to the revenue, EBITDA and net
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income, respectively, of the pro forma combined entity. For the year ending
December 31, 1999, Grand Prix is projected to contribute approximately 21.7%,
19.7% and 14.6% to the revenue, EBITDA and net income, respectively, of the pro
forma combined entity. The results of this contribution analysis are not
necessarily indicative of what the actual contributions of the respective
businesses to the combined entity would have been or will be in the future.
Earnings Dilution Analysis. Gerard Klauer noted that, based on the
combined Dover and Grand Prix management projections, the Merger would be 8.6%
dilutive on an EPS basis (excluding any transaction costs associated with the
Merger), to stockholders of the combined company in both fiscal years ending
June 30, 1998 and June 30, 1999, before any post-Merger synergies, cost savings
or revenue enhancements.
Other Factors
Gerard Klauer, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, divestitures, restructuring, recapitalization,
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Gerard
Klauer has been engaged to render the financial opinion as described herein and
received a fee upon the delivery of this opinion. Gerard Klauer also, from time
to time, may in the future perform certain financial advisory services for Dover
for which it may receive a fee. In the ordinary course of business, Gerard
Klauer may actively trade the securities of Dover for its own account and for
the accounts of its customers and, accordingly, may at any time hold a short or
long position in such securities. Dover has agreed to indemnify Gerard Klauer
for certain liabilities that may arise out of the rendering of this opinion.
Pursuant to the terms of an engagement letter, Dover paid Gerard Klauer
$150,000 for the delivery of the opinion. Dover also has agreed to reimburse
Gerard Klauer for its out-of-pocket expenses, including reasonable fees and
expenses of its legal counsel, and to indemnify Gerard Klauer and certain
related parties against certain liabilities, including liabilities under the
federal securities laws, arising out of or in connection with the services
rendered by Gerard Klauer under the engagement letter. The terms of the fee
arrangement with Gerard Klauer were negotiated at arm's length between Dover and
Gerard Klauer.
OPINION OF FINANCIAL ADVISOR TO GRAND PRIX
Grand Prix engaged L.H. Friend on October 22, 1997, to assist it in
consideration and evaluation of a possible merger transaction with Dover. L.H.
Friend assisted Grand Prix's senior management, Executive Committee and Board of
Directors in their review of, and participated in the negotiation of, the
Merger. In March 1998, L.H. Friend was requested to render an opinion to the
Board of Directors of Grand Prix as to the fairness of the Merger to the
shareholders of Grand Prix from a financial point of view. No limitations were
placed by the Executive Committee or senior management of Grand Prix with
respect to the investigations made or the procedures followed by L.H. Friend in
preparing or rendering its opinion.
L.H. Friend provided to the Board of Directors its oral opinion on March
16, 1998, which it reiterated on March 26, 1998, that, as of the respective
dates, the terms of the Merger were fair to Grand Prix's shareholders from a
financial point of view. L.H. Friend's oral opinion was subsequently confirmed
in a written opinion dated March 26, 1998. The full text of the opinion of L.H.
Friend, which sets forth assumptions made, matters considered and limitations on
the review undertaken, is attached as Annex C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Shareholders are
urged to read the opinion carefully and in its entirety. THE SUMMARY OF THE
OPINION OF L.H. FRIEND SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. L.H.
FRIEND'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER FROM A FINANCIAL
POINT OF VIEW TO THE SHAREHOLDERS OF GRAND PRIX, WITH THE EXCEPTION OF MIDWEST,
PENSKE AND DOVER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
GRAND PRIX AS TO HOW TO VOTE AT THE GRAND PRIX SPECIAL MEETING.
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In rendering its opinion, among other things, L.H. Friend: (i) reviewed the
Agreement between Grand Prix and Dover dated March 26, 1998; (ii) reviewed Grand
Prix's Annual Report to Shareholders on Form 10-KSB for the fiscal years ended
November 30, 1997, November 30, 1996, and June 30, 1996, Quarterly Reports on
Form 10-QSB for the periods ended August 31, 1997 and May 31, 1997 and February
28, 1997 and its Proxy Statement dated October 21, 1996; (iii) reviewed Dover's
Annual Report to Stockholders on Form 10-K for the fiscal year ended June 30,
1997, and Quarterly Reports on Form 10-Q for the periods ended December 31, 1997
and September 30, 1997, and its Proxy Statement dated September 24, 1997; (iv)
examined certain operating and financial information and financial projections
of Grand Prix and/or Dover provided to L.H. Friend by Grand Prix's management;
(v) reviewed the historical market prices and trading volume of the Grand Prix
Common Stock and Dover Common Stock; (vi) analyzed publicly available financial
and market data regarding certain companies in the auto racing industry and
compared them to Grand Prix's and Dover's financial and market data; (vii)
conducted limited interviews with certain members of Grand Prix's and Dover's
management teams; and (viii) performed such other studies, analyses, inquires
and investigations as it deemed appropriate.
In rendering its opinion, L.H. Friend relied upon the accuracy and
completeness of all financial and other information that was supplied to L.H.
Friend and assumed that there has been no material change in the assets,
financial condition and business prospects of Grand Prix and Dover since the
date of the most recent financial statements made available to L.H. Friend. With
respect to financial projections for Grand Prix, L.H. Friend assumed that such
projections were reasonably prepared and reflect the best currently available
estimates of the future financial results and conditions of Grand Prix.
The following is a brief summary of the various financial information
analyzed or otherwise considered by L.H. Friend in connection with rendering its
opinion:
Comparison with Selected Companies. L.H. Friend reviewed and compared
selected historical stock market and financial statistics for Grand Prix to the
corresponding data and statistics of three publicly traded companies in the
automobile racing industry; International Speedway, Penske and Speedway
Motorsports, Inc. (the "Comparable Group"). L.H. Friend examined certain
publicly available financial data and statistics of the Comparable Group and
Grand Prix, including revenue, earnings before interest and taxes plus
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), pre-tax income, net income, earnings per share, book value, gross
profit margins, EBIT margins, EBITDA margins, pretax margins, net income margins
and the multiple of Total Enterprise Value (defined as the market value of the
common equity, plus total debt, less cash and equivalents) to revenue, gross
profit, EBIT and EBITDA. In addition, L.H. Friend examined the multiples of
total market value of common equity to book value and the stock price per share
divided by earnings per share (the "P/E ratio"). All of the multiple comparisons
were done for the latest 12 months of reported results. In addition, P/E ratios
were analyzed for the latest 12 months of reported results as well as for
publicly available brokerage analysts' estimates of earnings per share for each
company's next fiscal year and the following fiscal year.
The indicated average and median Total Enterprise Value multiple ranges for
the Comparable Group were 6.6 times and 6.8 times revenue, 17.1 times and 15.5
times EBITDA, and 21.0 and 19.1 times EBIT. The common equity multiple average
and median values for the Comparable Group were 5.3 times and 6.1 times book
value, 32.3 and 30.1 times latest 12 months earnings per share, 28.3 and 26.0
times next fiscal year earnings per share and 24.1 and 22.0 times the following
fiscal year earnings per share. L.H. Friend then compared these multiples to
Grand Prix's current multiples and the multiples based upon the share price to
be received by Grand Prix's shareholders in Dover Common Stock in the Merger.
Total Enterprise Value multiple ranges based on its current price and merger
price were 2.9 times and 3.5 times revenue, 17.3 times and 20.4 times EBITDA,
and 23.9 and 28.3 times EBIT, respectively. The common equity multiples base on
current and merger prices were 2.7 times and 3.2 times book value, 39.0 and 43.7
times current earnings per share, 27.3 and 30.5 times next fiscal year earnings
per share and 22.4 and 25.1 times following fiscal year earnings per share.
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With respect to the comparison with selected public companies L.H. Friend
noted that Grand Prix was trading at multiples of profitability, including
EBITDA, EBIT and earnings per share, which were consistent with or above those
of the Comparable Group at its then current price prior to announcement of the
Merger. In addition, L.H. Friend further noted that when considering the same
profitability multiples at the share price to be received in Dover Common Stock,
those of Grand Prix were higher than those of the Comparable Group. L.H.
Friend focussed more heavily on profitability measures and placed relatively
less emphasis on revenue or book value because, in its opinion, motorsports
companies are generally valued in the public markets more on profitability
measures than either revenue or underlying net asset values.
Selected Mergers and Acquisitions Transactions -- Multiples Analysis. L.H.
Friend reviewed the consideration paid in selected acquisition transactions of
companies in the automobile racing industry. Specifically, L.H. Friend reviewed
the following transactions; the acquisition of Bristol International Raceway by
Speedway Motorsports, Inc., the acquisition of Memphis by Grand Prix, the
acquisition of Sears Point International Raceway, California by Speedway
Motorsports, Inc., the acquisition of North Carolina Motor Speedway by Penske,
and the acquisition of Phoenix International Raceway by International Speedway.
L.H. Friend calculated Enterprise Value to sales, EBITDA, EBIT multiples and
market value of common equity to net income and book value multiples. The
indicated average and median Enterprise Value multiples were 3.1 times and 2.7
times sales, 14.4 and 15.5 times EBITDA, 16.8 times and 18.0 times EBIT,
respectively. The market value of common equity multiples were 23.2 and 24.0
times net income and 7.0 and 7.1 times book value, respectively.
L.H. Friend then compared these multiples to the Enterprise Value to sales,
EBITDA and EBIT multiples and common equity value to net income and book value
multiples based on the terms of the Merger. L.H. Friend calculated Grand Prix's
Enterprise Value multiples to be 3.5 times sales, 20.4 times EBITDA, 28.3 times
EBIT and its market value of common equity multiples to be 43.7 times net income
and 3.2 times book value.
With respect to the selected mergers and acquisitions analysis, L.H. Friend
noted that the consideration to be received in the Merger by Grand Prix, when
considered on a relative multiples basis was higher in all cases when compared
to the comparable group of transactions with the exception of book value. L.H.
Friend placed relatively less emphasis on book value because, in its opinion,
motorsports companies are generally valued more on their profitability than on
the value of their underlying net assets.
Premiums Paid Analysis. L.H. Friend reviewed the stock price premiums paid
(the percent change in price from the closing price in the indicated periods to
purchase price per share) one day prior to the announcement date of the
transaction, one week prior to the announcement date of the transaction, and
four weeks prior to the announcement date of the transaction in recent stock for
stock merger transactions with Enterprise Values between $50 million and $150
million and in which the acquiror had a market capitalization of between $250
and $550 million which closed from January 1993 to March 1998. Of the 34
transactions included in the group, the indicated average and median premiums
paid were 41.8% and 37.8% for the date four weeks prior to the announcement date
of the transaction, 34.1% and 28.2% for the date one week prior to the
announcement date of the transaction, and 33.3% and 26.5% for the date one day
prior to the announcement date of the transaction. These premiums were then
compared to those of this Merger which were 12.9% for the date four weeks prior
to the announcement date of the transaction, 22.9% for the date one week prior
to the announcement date of the transaction, and 11.8% for the date one day
prior to the announcement date of the transaction.
In analyzing the premiums paid in similar stock for stock merger
transactions L.H. Friend noted that the premium being paid for Grand Prix was
lower than the average or median values of the comparable group of transactions,
however there were a considerable number of transactions in the group which had
premiums lower than those of this Merger. In addition, L.H. Friend noted that
Grand Prix's profitability multiples based upon its stock price on March 26,
1998 exceeded the profitability multiples for all the Selected Merger and
Acquisition Transactions discussed previously.
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Contribution Analysis. L.H. Friend, as part of its analysis, reviewed
certain historical and projected financial information for the combined
companies in order to analyze the relative contributions of Grand Prix and Dover
to the proposed business combination. This analysis was performed for the fiscal
year ended November 30, 1997 for Grand Prix and the latest twelve months ended
December 31, 1997 for Dover and for the projected twelve months ended May 31,
1998 for Grand Prix and the projected fiscal year ending June 30, 1998 for
Dover, using the average of several brokerage firms analysts' estimates of such
results. The analysis was performed assuming no pro forma transaction
adjustments and indicated that as of the historical periods ended November 30,
1997 and December 31, 1997 Grand Prix was contributing 20.2% of revenue, 12.8%
of EBITDA, 10.2% of EBIT, 8.2% of pre-tax income, 8.1% of net income and 31.5%
of book value to the combination compared to 17.3% of the combined companies
shares based on the exchange ratio of .63 Dover shares for each Grand Prix
share. The analysis of the projected periods ending May 31, 1998 for Grand Prix
and June 30, 1998 for Dover also assume no pro forma transaction adjustments and
indicate that Grand Prix is contributing 21.5% of revenue, 13.3% of EBITDA, 9.7%
of EBIT, 5.1% of pre-tax income, 5.8% of net income and 26.7% of book value to
the combination compared to 17.3% of the combined companies shares based on the
exchange ratio of .63 Dover shares for each Grand Prix share. For the purposes
of this analysis, its was assumed that the shares sold by Midwest and Penske to
Dover on March 27, 1998 would also be exchanged for 0.63 shares of Dover Common
Stock.
With respect to this analysis L.H. Friend noted that Grand Prix was
receiving a higher percentage of the ownership of combined companies than it was
contributing with respect to the measures of profitability, including EBITDA,
EBIT, pre-tax income and net income.
Discounted Cash Flow Analysis. L.H. Friend performed a discounted cash
flow analysis of Grand Prix based on two versions of projections provided to it
by Grand Prix. One of such versions assumed Grand Prix did not host a NASCAR
Winston Cup event (a "Winston Cup") in the year 2000 at its St. Louis facility
and the other assumed that it did host a Winston Cup. L.H. Friend calculated the
present values of the estimated free cash flows of Grand Prix through the fiscal
year ended November 30, 2000 and the estimated terminal value of Grand Prix at
the end of such date. In calculating the estimated terminal value, L.H. Friend
utilized the average of the average and median EBITDA multiples of the selected
automobile racing merger and acquisition transactions. The average multiple was
15.0 times and L.H. Friend's calculations utilized multiples 13.5 times, 15.0
times and 16.5 times. In calculating the present values of estimated free cash
flows and estimated terminal value, L.H. Friend used implied discount rates of
23.0%, 25.0% and 27.0% respectively. These calculations implied a present value
of the equity of Grand Prix of between $85 and $118 million if it does not host
a Winston Cup and between $110 and $153 million if it does host a Winston Cup.
In analyzing the discounted cash flow analysis of Grand Prix L.H. Friend
noted that the valuation of Grand Prix in the discounted cash flow analysis was
consistent with the valuation to be received by Grand Prix in the Merger with
respect to the projection which assumed no Winston Cup and was lower than the
projection which assumed Grand Prix would receive a Winston Cup in 2000 as to
which there could be no assurance. L.H. Friend deemed the discounted cash flow
analysis to be less relevant than the other analyses that it performed because
it assumes future operating results of Grand Prix which are inherently difficult
to predict and measure.
Stock Trading History. L.H. Friend examined the history of the trading
prices and volume of Grand Prix's Common Stock for the latest twelve months
ended March 25, 1998 and the latest six months ended March 25, 1998, the volume
of Grand Prix's Common Stock traded at specified price ranges for the latest
twelve months ended March 25, 1998 and the latest six months ended March 25,
1998, the history of the trading prices and volume of Dover's Common Stock for
the latest twelve months ended March 25, 1998 and the latest six months ended
March 25, 1998. The analysis indicated that over the last twelve months Grand
Prix's stock price had improved from approximately $11 per share to
approximately $15 per share, however for the latest six months Grand Prix's
stock price had traded in a narrow range that centered on $15 per share Dover's
Common Stock price had risen considerably in both periods, from approximately
$19 to approximately $29 per share over the latest
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twelve months and had risen from approximately $20 per share to approximately
$29 per share in the latest six months.
In addition, L.H. Friend analyzed the percent change in Grand Prix's Common
Stock for the latest twelve months ended March 25, 1998 and the latest six
months ended March 25, 1998 compared to Dover, a composite index of the
Comparable Group, and the S&P 500 index. The analysis indicated that on a
percentage change basis the Grand Prix's Common Stock had outperformed the
Comparable Group and the S&P 500 over the latest twelve months, however Grand
Prix's Common Stock had underperformed all indices during the latest six months.
The summary of the L.H. Friend presentation set forth above does not
purport to be a complete description of the presentations made by L.H. Friend to
Grand Prix management or its Board of Directors. L.H. Friend notes its belief
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering all factors and analyses, could create a
misleading view of the process underlying its opinion. In its analyses, L.H.
Friend made certain assumptions with respect to industry performance, general
business and economic conditions, and other matters, many of which are beyond
the control of Grand Prix or Dover. Any estimates contained therein are not
necessarily indicative of actual values, which may vary significantly. Estimates
of the relative financial values of Grand Prix and Dover do not purport to be
appraisals or necessarily reflect the prices at which such companies may
actually be sold. In addition, no assurance can be given as to the trading value
of Dover Common Stock upon consummation of the Merger, which may differ
materially from the recent trading prices of Dover. Because such matters are
inherently uncertain, none of Grand Prix, Dover, L.H. Friend or any other person
assumes any responsibility for such matter.
L.H. Friend was selected by Grand Prix's Board of Directors based on L.H.
Friend's qualifications, experience, expertise, and reputation. As part of its
investment banking business, L.H. Friend is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other transactions.
Pursuant to a letter agreement dated as of October 22, 1997, Grand Prix has
agreed to pay L.H. Friend a fee of $250,000 for its services referred to above,
including rendering its opinion, $150,000 of which has already been paid. In
addition, Grand Prix has agreed to reimburse L.H. Friend for its reasonable
expenses incurred in connection with its engagement by Grand Prix. Grand Prix
has also agreed to indemnify L.H. Friend and its directors, officers, agents,
employees, affiliates, and controlling persons against any loses, claims, or
liabilities to which L.H. Friend becomes subject to in connection with its
rendering of services, except those that arise from L.H. Friend's gross
negligence or willful misconduct.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Grand Prix Board of Directors,
shareholders of Grand Prix should be aware that certain members of management
and the Grand Prix Board of Directors may be deemed to have interests in the
Merger that are in addition to the interests of Dover and Grand Prix
stockholders generally.
Effect of Stock Purchase Agreements. Prior to the execution of the Merger
Agreement, Dover entered into Stock Purchase Agreements with Penske and Midwest,
pursuant to which, on March 27, 1998, Dover acquired 680,000 shares of Grand
Prix Common Stock at $15.50 per share, for a total purchase price of
$10,540,000. 340,000 shares of Grand Prix Common Stock were purchased from
Penske and 340,000 shares of Grand Prix Common Stock were purchased from
Midwest. Taken together, as a result of these stock purchases, Dover owns
approximately 14.6% of the issued and outstanding Grand Prix Common Stock.
According to the terms of the Merger Agreement, the Grand Prix Common Stock held
by, among others, Dover or any Dover subsidiary will not be exchanged for Dover
Common Stock pursuant to the Exchange Ratio. However, Dover intends to vote the
Grand Prix Acquired Shares in favor of the Merger Proposal and, in connection
with the Stock Purchase Agreements, has elected three nominees to the Board of
Directors of Grand Prix.
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The Stock Purchase Agreements provided that upon the acquisition of the
Grand Prix Acquired Shares by Dover, H. Lee Combs and Gregory Penske, members of
the Board of Directors of Grand Prix who were nominated by Midwest and Penske,
respectively, would resign as directors of Grand Prix.
Effect of Support Agreements. Concurrent with the execution of the Merger
Agreement on March 26, 1998, Dover entered into the Grand Prix Support Agreement
with certain existing shareholders of Grand Prix, representing approximately 38%
of the outstanding Grand Prix Common Stock on a fully diluted basis, pursuant to
which they have granted to Dover a proxy to vote their shares of Grand Prix
Common Stock in favor of the Merger, in favor of the election of up to three
nominees of Dover to the Board of Directors of Grand Prix and against certain
transactions. The votes pledged in the Support Agreement taken in combination
with the Grand Prix Acquired Shares, which Dover intends to vote in favor of the
Merger Proposal, represent more than a majority of the voting power of Grand
Prix on a fully diluted basis. Moreover, under the Grand Prix Support Agreement,
each shareholder who is a party thereto, granted to Dover the "Irrevocable
Option" to purchase the Grand Prix Common Stock owned by each such shareholder
under certain circumstances specified in the agreement. The Irrevocable Option
may be exercised by Dover at any time commencing upon the termination of the
Merger Agreement in certain situations for a period terminating in accordance
with the terms of the Grand Prix Support Agreement. Thus, under certain
circumstances, including the withdrawal of the approval of the Grand Prix Board
of Directors, if the Merger Agreement is terminated, Dover has an Irrevocable
Option to acquire approximately 38% of the outstanding Grand Prix Common Stock
on a fully diluted basis, which purchase would be in addition to Dover's current
approximately 14.6% ownership of Grand Prix Common Stock.
Officers and Directors of Grand Prix. Certain members of Grand Prix
management may be deemed to have certain interests in the Merger different or in
addition to those of Grand Prix shareholders generally. The Grand Prix Board of
Directors was aware of these interests and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
Certain Grand Prix officers are entitled to receive the benefits under
employment agreements entered into between Grand Prix and such officers. See
"Grand Prix Management."
In anticipation of the proposed Merger, Christopher R. Pook entered into
the Pook Employment Agreement pursuant to which Mr. Pook is assured of continued
employment with the Surviving Corporation. Under the Merger Agreement, Mr. Pook
is also being nominated as a director of Dover. The term of the Pook Employment
Agreement is five (5) years commencing either at the Effective Time or upon
Dover's exercise of the Irrevocable Option, and provides Mr. Pook with a fixed
base salary and incentive plan as well as certain stock options to purchase
Dover Common Stock. Mr. James P. Michaelian entered into the Michaelian
Employment Agreement on terms substantially similar to those in the Pook
Employment Agreement but with a lower base salary and incentive plan and fewer
stock options.
Interested Directors. Due to their employment affiliations, Gregory Penske
is employed by Penske and H. Lee Combs works for Midwest, and/or certain of
their respective affiliates, both Messrs. Penske and Combs abstained from voting
at the meeting of the Grand Prix Board of Directors on March 26, 1998, at which
meeting the Grand Prix Board of Directors approved the transactions contemplated
by the Merger Agreement.
Indemnification. The Merger Agreement provides for certain indemnification
of directors and officers of Grand Prix and Dover. In addition, pursuant to the
Merger Agreement, Dover has agreed to maintain directors' and officers'
liability insurance for the directors and officers of Grand Prix and Dover. See
"THE MERGER AGREEMENT -- Indemnification; Directors' and Officers' Insurance."
DISSENTERS' RIGHTS
See "DISSENTERS' RIGHTS."
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached to this Joint Proxy Statement/Prospectus
as Annex A and incorporated herein by reference. Capitalized terms which are not
otherwise defined in this summary have the meanings set forth in the Merger
Agreement. The following description of the Merger Agreement is qualified in its
entirety by reference to the complete text of the Merger Agreement.
EFFECTIVE TIME
If the Merger Proposal is approved by the requisite vote of Grand Prix's
shareholders and the Issuance Proposal are approved by the requisite vote of
Dover's stockholders, the Merger will become effective upon the satisfaction or
waiver (where permissible) of various conditions and upon the filing of an
executed Agreement of Merger with the Secretary of State of the State of
California (the "Effective Time").
CONVERSION OF SHARES
At the Effective Time, (i) it is contemplated that the Merger Sub shall be
merged with and into Grand Prix and the separate existence of Merger Sub shall
cease and Grand Prix shall continue as the Surviving Corporation, (ii) each
share of common stock of Merger Sub then outstanding shall be converted into one
(1) validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation, and (iii) each share of Grand Prix Common Stock issued
and outstanding immediately prior to the Effective Time, other than shares of
Grand Prix Common Stock then held by Grand Prix or any subsidiary of Grand Prix,
or then held by Dover or any subsidiary of Dover, and other than Dissenting
Shares, shall be converted into the right to receive shares of Dover Common
Stock based on the Exchange Ratio. However, in the event that the average of the
closing sale prices of the Dover Common Stock for fifteen (15) consecutive
business days next preceding the Effective Time, as reported on the New York
Stock Exchange is greater than $32.00 per share or less than $21.00 per share,
the Exchange Ratio shall be adjusted as follows: (a) if the Average Closing
Price is greater than $32.00 per share, the Exchange Ratio shall equal $20.16
divided by the Average Closing Price, rounded to the nearest four decimal
places; or (b) if the Average Closing Price is less than $21.00 per share, the
Exchange Ratio shall equal $13.23 divided by the Average Closing Price, rounded
to the nearest four decimal places; and (c) provided that the Exchange Ratio
shall not be greater than 0.6963 nor less than 0.5929. The Exchange Ratio shall
be appropriately adjusted in the event of any dividend (other than regular
quarterly cash dividends which shall not differ materially from prior
dividends), distributions, stock split, stock dividend, reclassification,
subdivision, recapitalization, combination or exchange of shares or other
similar transaction with respect to Dover Common Stock or Grand Prix Common
Stock that may occur after March 26, 1998 and prior to the Effective Time.
FRACTIONAL SHARES
No fractional shares of Dover Common Stock will be issued in connection
with the Merger. Holders of Grand Prix Common Stock will receive cash in lieu of
any fractional shares of Dover Common Stock to which such shareholders would
have otherwise been entitled, in an amount equal to such fractional part of a
share of Dover Common Stock multiplied by the Average Closing Price.
EFFECT ON STOCK OPTIONS
At the Effective Time, all rights with respect to Grand Prix Common Stock
in connection with Grand Prix Options then outstanding, whether vested or
unvested, shall be converted into and become rights with respect to Dover Common
Stock, and each such option shall be assumed by Dover and continue to have, and
be subject to, the same terms and conditions, including any restriction on the
exercise of any such option, except that (i) each such option assumed by Dover
may be exercisable solely for shares of Dover Common Stock; (ii) the number of
shares of Dover Common Stock subject to each such option shall be equal to the
number of shares of Grand Prix Common Stock subject to such option immediately
prior to the Effective Time multiplied by the Exchange Ratio and rounded up to
the nearest whole share; and (iii) the exercise price per share under each such
option shall equal the
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exercise price immediately prior to the Effective Time divided by the Exchange
Ratio and rounding up to the nearest full cent. However, in the case of any
option to which Section 421 of the Code applies by reason of its qualification
under Section 422 of the Code, the option price, the number of shares
purchasable pursuant to such option shall be determined in order to comply with
Section 424(a) of the Code. Promptly after the Effective Time, Dover will
deliver to each holder of such outstanding options appropriate notices setting
forth such holder's rights and describing the assumption of such option by Dover
and Dover will file with the Commission a Registration Statement on Form S-8
relating to the shares of Dover Common Stock issuable with respect to the
assumed Grand Prix Options. All Grand Prix Options that are unvested prior to
the Effective Time shall become accelerated upon consummation of the Merger.
EFFECT ON WARRANT
The Warrant, dated June 24, 1996, issued by Grand Prix to L.H. Friend
permitting L.H. Friend to purchase 31,250 shares of Grand Prix Common Stock will
be assumed by Dover and converted automatically into a warrant to purchase Dover
Common Stock (the "New Warrant"). The New Warrant will, as of the Effective
Time, permit L.H. Friend to purchase, on the same terms and conditions as were
applicable under the Warrant, that number of shares of Dover Common Stock
determined by multiplying the number of shares of Grand Prix Common Stock to be
purchased under the Warrant by the Exchange Ratio, rounded up to the nearest
whole share, at an exercise price of $10.00 divided by the Exchange Ratio,
rounded up to the nearest full cent.
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, Dover will cause ChaseMellon, in its
capacity as Exchange Agent (the "Exchange Agent"), to mail to record holder of
outstanding certificates which immediately prior to the Effective Time
represented Grand Prix Common Stock (the "Grand Prix Certificates"), a letter of
transmittal (the "Grand Prix Letter of Transmittal") and instructions for use in
effecting the surrender of the Grand Prix Certificates in exchange for
certificates representing shares of Dover Common Stock. Upon surrender to the
Exchange Agent of a Grand Prix Certificate for cancellation, together with such
Grand Prix Letter of Transmittal duly executed and completed in accordance with
the instructions and any other reasonably required documents, the holder of such
Grand Prix Certificate will be entitled to receive (i) a certificate
representing that number of whole shares of Dover Common Stock which such holder
has the right to receive, (ii) cash in lieu of any fractional shares of Dover
Common Stock to which the holder is entitled, after giving effect to any
required tax withholdings, and (iii) any dividends or other distributions to
which such holder is entitled, and the Grand Prix Certificate so surrendered
will forthwith be canceled.
If the exchange of Grand Prix Certificates is to be made to a person other
than the person in whose name the surrendered Grand Prix Certificate is
registered, it will be a condition of exchange that the Grand Prix Certificate
so surrendered will be properly endorsed or will be otherwise in proper form for
transfer and that the person requesting such exchange will pay to the Exchange
Agent or will have paid any transfer and other taxes required by reason of the
exchange of certificates representing shares of Grand Prix Common Stock to a
person other than the registered holder of the Grand Prix Certificate
surrendered or will have established that such tax either has been paid or is
not applicable.
Any holder of unsurrendered Grand Prix Certificates twelve months after the
Effective Time will have no further claim on the Exchange Agent and may only
look to Dover and the Surviving Corporation for payment of the merger
consideration.
Dividends or Distributions; Fractional Shares. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of Dover Common Stock will be paid to the holder of any unsurrendered Grand Prix
Certificates, and no cash payment in lieu of fractional shares will be paid
until such Grand Prix Certificate has been surrendered to the Exchange Agent.
Upon such surrender, such dividends and distributions and such cash payment in
lieu of fractional shares will be paid without interest.
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Mutilated, Lost, Stolen or Destroyed Certificates. If any Grand Prix
Certificate has been mutilated, lost, stolen or destroyed, the owner of such
mutilated, lost, stolen or destroyed Grand Prix Certificate must make an
affidavit of that fact and, if required by Dover, provide a reasonable bond as
indemnity against any claim that may be made respect to such Grand Prix
Certificate.
HOLDERS OF GRAND PRIX COMMON STOCK SHOULD NOT FORWARD GRAND PRIX
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A GRAND PRIX LETTER
OF TRANSMITTAL. HOLDERS OF GRAND PRIX COMMON STOCK SHOULD NOT RETURN GRAND PRIX
CERTIFICATES WITH THE ENCLOSED PROXY.
CORPORATE MATTERS
The Articles of Incorporation and Bylaws of Grand Prix as in effect at the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation, and thereafter may be amended in accordance with their
terms, as provided by law and by the Merger Agreement. The officers and
directors of Merger Sub immediately prior to the Effective Time shall be the
officers and directors of the Surviving Corporation, in each case until their
respective successors are duly elected and qualified.
STOCK EXCHANGE LISTING OF DOVER COMMON STOCK
Listing on the New York Stock Exchange of the shares of Dover Common Stock
to be issued in the Merger has been approved, subject to shareholder approval
and official notice of issuance. Obtaining approval for listing is a condition
to the obligation of Grand Prix to effect the Merger. See "Conditions to
Closing"
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
Grand Prix, as to, among other things, (i) its corporate organization and
qualification; (ii) its capitalization; (iii) the accuracy of its reports and
financial statements; (iv) the absence of certain changes with respect to its
business or financial condition since a certain date; (v) employee benefits
plans; (vi) material contracts and agreements and the absence of any material
breaches or violations thereof; (vii) bank accounts; (viii) tax matters; (ix)
compliance with environmental laws; (x) insurance matters; (xi) the absence of
pending or threatened litigation; (xii) its corporate power and authority to
enter into, and the enforceability against it of, the Merger Agreement; (xiii)
the approval of the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement by the Board of Directors, such Board of
Director's recommendation that the shareholders approve the Merger Agreement and
subsequent approval by holders of Grand Prix Common Stock; (xiv) the Merger
Agreement's non-contravention of laws, agreements and governmental permits; and
(xv) the engagement of financial advisors and the absence of fees payable to any
other broker, finder or investment banker.
The Merger Agreement also includes representations and warranties by Dover
and Merger Sub as to, among other things, (i) their corporate organization,
standing and power; (ii) Dover's capitalization; (iii) the accuracy of Dover's
financial statements and information contained in certain filings of Dover with
the Commission; (iv) the absence of certain changes with respect to Dover's
business or financial condition since a certain date; (v) certain agreements and
the absence of any material breaches or violations thereof; (vi) compliance with
legal requirements and the maintenance of necessary governmental authorizations
to conduct Dover's business; (vii) employee benefit plans; (viii) environmental
matters; (ix) insurance matters; (x) the absence of pending or threatened
litigation; (xi) the corporate power and due authorization for, and
enforceability of, the Merger Agreement, with respect to Dover and Merger Sub;
(xii) the approval of the Merger Agreement by the Dover Board of Directors and
such Board of Director's recommendation that the Dover stockholders approve the
issuance of Dover Common Stock in connection therewith; (xiii) the Merger
Agreement's non-contravention of laws, agreements and governmental permits;
(xiv) the engagement of financial advisors and the absence of fees payable to
any other broker, finder or investment banker; (xv) the valid issuance of Dover
Common Stock pursuant to the Merger; and (xvi) tax matters.
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CONDUCT OF BUSINESS PENDING THE MERGER
Conduct of Dover's Business Prior to the Effective Time. Pursuant to the
Merger Agreement, Dover has agreed that, prior to the Effective Time, it shall,
and shall cause its subsidiaries to, (i) provide Grand Prix with reasonable
access to its properties, books, contracts, commitments, records and personnel;
(ii) carry on their respective businesses in the ordinary course in
substantially the same manner as heretofore conducted and in material compliance
with legal requirements and contractual requirements; (iii) use reasonable
efforts to preserve intact its current business organization, and to preserve
their relationships with sponsors and customers, to keep available the services
of its current officers and employees and to maintain its relations and goodwill
with all individuals and entities with which it has a business relationship; and
(iv) perform in all material respects its obligations under all material
contracts and commitments to which it is a party.
In addition, Dover has agreed that, prior to the Effective Time, it shall
not propose or agree to (i) sell or pledge or agree to sell or pledge any
capital stock owned by it in any of its subsidiaries; (ii) amend its Certificate
of Incorporation or Bylaws, except as contemplated by this Agreement; (iii)
combine or reclassify its outstanding capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of Dover, or declare, set aside,
authorize or pay any dividend or other distribution payable in cash, stock,
property or otherwise, provided that the foregoing shall not prohibit Dover from
announcing or consummating a stock split; (iv) except as specifically permitted
in the Merger Agreement, issue, deliver or sell or agree to issue, deliver or
sell, or permit any of its subsidiaries to deliver or sell, any additional
shares of, or rights of any kind to acquire any shares of, its respective
capital stock of any class, any indebtedness having the right to vote on any
matter on which Dover's stockholders may vote or any options, rights or warrants
to acquire, or securities convertible into, exercisable for or exchangeable for,
shares of capital stock other than issuances, of Dover securities under Dover
Employee Benefit Plans; (v) acquire, lease or dispose or agree to acquire, lease
or dispose of any capital assets or any other assets where the amount involved
exceeds $10,000,000 other than in the ordinary course of business; (vi) incur
additional indebtedness or encumber or grant a security interest in any asset or
enter into any other material transaction where the amount involved exceeds
$20,000,000 other than in the ordinary course of business; (vii) acquire or
agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in any formal business entity where the amount
involved exceeds $25,000,000; (viii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing; (ix) take any
action which would disqualify the Merger as a reorganization within the meaning
of Section 368(a) of the Code; or (x) amend, modify, terminate, waive or permit
to lapse any material right of first refusal.
Conduct of Grand Prix's Business Prior to the Effective Time. Pursuant to
the Merger Agreement, Grand Prix has agreed that, prior to the Effective Time,
it shall, and shall cause its subsidiaries to, (i) provide Dover and its
accountants, counsel and other representatives with reasonable access to its
properties, books, contracts, commitments, records and personnel; (ii) carry on
their respective businesses in the ordinary course in substantially the same
manner as heretofore conducted and in material compliance with legal
requirements and contractual requirements; (iii) use reasonable efforts to
preserve intact its current business organization, to preserve their
relationships with sponsors and customers, to keep available the services of its
current officers and employees and to maintain its relations and goodwill with
all individuals and entities with which it has a business relationship; and (iv)
perform in all material respects its obligations under all material contracts
and commitments to which it is a party. Grand Prix has also agreed to maintain
its books consistent with past practice, comply with all applicable laws and
maintain its material properties and equipment in good repair.
In addition, Grand Prix has agreed that, prior to the Effective Time, it
shall not and shall not propose or agree to (i) sell or pledge or agree to sell
or pledge any capital stock owned by it in any of its subsidiaries; (ii) amend
its charter or By-laws; (iii) increase the size of its Board of Directors; (iv)
split, combine or reclassify its outstanding stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for the outstanding shares of stock of Grand Prix, or declare, set
aside, authorize or pay any dividend or other distribution payable in cash,
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stock or property; (v) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of Grand
Prix Common Stock; (vi) permit any of its subsidiaries to: issue, deliver or
sell or agree to issue, deliver or sell any additional shares of, or rights of
any kind to acquire any shares of, its respective stock of any class, any
indebtedness having the right to vote on any matter on which Grand Prix's
shareholders may vote or any option, rights or warrants to acquire, or
securities convertible into, exercisable for or exchangeable for, shares of
stock other than issuances, deliveries or sales of Grand Prix Capital Stock
pursuant to obligations outstanding as of the date of this Merger Agreement
under Grand Prix Employee Benefit Plans and under the Warrant other than to
Grand Prix or to another Subsidiary of Grand Prix; (vii) in certain
circumstances, acquire, lease or dispose or agree to acquire, lease or dispose
of any capital assets or any other assets other than in the ordinary course of
business; (viii) in certain circumstances, incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any other
material transaction other than in each case in the ordinary course of business;
(ix) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any formal
business entity; (x) in certain circumstances, enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing; or
(xi) enter into any new (or amend any existing) Employee Benefit Plan or any new
(or amend any existing) employment, severance or consulting agreement, grant any
general increase in the compensation of current or former directors, officers or
employees or grant any increase in the compensation payable to any director,
officer or employee, except in any of the foregoing cases in accordance with
preexisting contractual provisions or in the ordinary course of business
consistent with past practice.
No Solicitation of Alternative Proposals. Pursuant to the Merger
Agreement, Grand Prix has agreed that (a) neither it nor any of its subsidiaries
shall, and it shall direct and use its reasonable best efforts to cause its
officers, directors, employees, agents and representatives not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any Alternative Proposal, or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person proposing an Alternative Proposal, or release any
third party from any obligations under any existing standstill agreement or
arrangement, or enter into any agreement with respect to an Alternative
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal; (b) it will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing, and it will take the necessary
steps to inform the individuals or entities referred to above of the obligations
undertaken in the Merger Agreement with respect to Alternative Proposals; and
(c) it will notify Dover promptly if any such inquiries or proposals are made
regarding an Alternative Proposal. Notwithstanding the foregoing, Grand Prix
may, directly or indirectly, furnish information and access to, and may
participate in discussions and negotiate with, any corporation, partnership,
person or other entity, and may agree to or endorse such Alternate Proposal if
such corporation, partnership, person or other entity has made a proposal to its
Board of Directors relating to an Alternative Proposal which the Board of
Directors believes is (i) superior from a financial point of view to the Merger
and (ii) is reasonably likely to be consummated and the Board of Directors,
after consultation with independent legal counsel, determines in its good faith
judgment that taking such action is required to comply with the Board of
Directors' fiduciary duty to its shareholders imposed by law. The Board of
Directors shall provide a copy of any such proposal if in writing to Dover
promptly after receipt thereof and thereafter keep Dover promptly advised of any
material development with respect thereto and any revision of the terms of such
Alternative Proposal.
Mutual Covenants. Pursuant to the Merger Agreement: (i) Dover has agreed
to use all reasonable efforts, and Dover has agreed to cooperate, to cause the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part to be declared effective as promptly as practicable after its filing; and
(ii) both Grand Prix and Dover agreed to: (a) cause the Joint Proxy
Statement/Prospectus to be mailed to Dover's stockholders, in the case of Dover,
and to Grand Prix's shareholders, in the case of Grand Prix; (b) notify the
other party of any comments received from the Commission or of any request for
any amendment or supplement to this Joint Proxy Statement/Prospectus or the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part or for any other information; (c) promptly inform the other party of any
information that
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should be disclosed in an amendment or supplement to this Joint Proxy
Statement/Prospectus or the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part and to cooperate with the other in filing such
amendment or supplement with the Commission; (d) take all action necessary to
call and hold their respective stockholder meetings to consider and vote upon,
in the case of Grand Prix, the Merger Proposal and, in the case of Dover, the
Issuance Proposal, and that the Board of Directors of each company shall,
subject to its fiduciary duties, recommend that its stockholders approve the
applicable Proposals; (e) use all reasonable efforts to file all notices,
reports and documentation required by law to be filed with respect to the Merger
and any other transaction contemplated by the Merger Agreement; (f) to respond
as promptly as practicable to inquiries and requests from the Federal Trade
Commission or the Department of Justice for additional documentation or from any
state attorney general or other governmental body in connection with antitrust
or related matters; (g) to provide prompt notice to the other party of any
material legal proceeding with respect to the Merger or any other transaction
contemplated by the Merger Agreement and to keep the other party informed of the
status of such legal proceeding; (h) make all filings and give all notices that
may be required in connection with the Merger and other transactions
contemplated by the Merger Agreement and use reasonable efforts to obtain any
and all consents required to be obtained in connection with the Merger or other
transactions contemplated by the Merger Agreement; and (i) consult with each
other prior to issuing any press release or otherwise making any public
statement with respect to the transactions contemplated by the Merger Agreement,
the issuance of such press release or the dissemination of such material is
required or advisable under applicable law or pursuant to any listing agreement
with NASDAQ or the New York Stock Exchange.
Other Covenants. Pursuant to the Merger Agreement, Dover has agreed to (i)
use reasonable efforts to obtain all necessary regulatory approvals under state
securities laws; (ii) waive any pre-existing condition limitation and provide
credit for any co-payments or deductibles contained in Dover's employee benefit
plans under which an employee of the Surviving Corporation would be otherwise
eligible to receive benefits; (iii) use reasonable efforts to cause the shares
of Dover Common Stock to be issued pursuant to the Merger to be approved for
listing on the New York Stock Exchange; (iv) use its best efforts to increase
the size of Dover's Board of Directors to ten (10); and (v) use its best efforts
to nominate Christopher R. Pook for election as a Class I director. Grand Prix
has agreed to (i) take all necessary corporate action to immediately appoint
three (3) individuals designated by Dover as members of the Board of Directors
to fill existing vacancies and, for a year, use reasonable efforts to ensure
that Dover designees are nominated and elected to the Board of Directors or, if
not elected, permitted to participate at Board meetings; (ii) not register the
transfer of any Grand Prix Common Stock certificate if such transfer would
violate the terms of the Grand Prix Support Agreement; and (iii) ensure that the
Pook Employment Agreement and the Michaelian Employment Agreement are executed
and in full force and effect. Both Dover and Grand Prix have agreed (i) not to
solicit the employment of any senior management or key employee of the other
party for eighteen months after execution of the Merger Agreement, without the
other party's prior written consent; and (ii) create a special transition team
to be headed by one person designated by Dover and one person designated by
Grand Prix and comprised of personnel from each party.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
From the Effective Time (i) and for the six years thereafter, Dover shall
ensure that the Articles of Incorporation and Bylaws of the Surviving
Corporation contain the provisions with respect to indemnification, advancement
of expenses and director exculpation set forth in the Articles of Incorporation
and Bylaws of Grand Prix on the date of the Merger Agreement, which provisions
shall not be amended, repealed or otherwise modified in any manner that would
adversely affect the rights thereunder of persons who at any time prior to the
Effective Time were or would have been entitled to such indemnification,
advancement or exculpation with regard to actions or omissions occurring at or
prior to the Effective Time, including the Merger Agreement and the transactions
contemplated thereof; and (ii) Dover and the Surviving Corporation shall,
jointly and severally, indemnify, defend and hold harmless the present and
former officers, directors and employees of Grand Prix and its subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of (with the
approval of Dover and the Surviving
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Corporation, which approval shall not be unreasonably withheld or delayed), or
otherwise in connection with, any claim, action, suit, proceeding or
investigation (a "Claim"), to which any such person is or may become a party by
virtue of his or her service as a present or former director, officer or
employee of Grand Prix or any of its subsidiaries and arising out of actual or
alleged events, actions or omissions occurring or alleged to have occurred at or
prior to the Effective Time (including, without limitation, the transactions
contemplated hereby), in each case to the fullest extent permitted under the
California Code (and shall pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the fullest extent
permitted under the California Code, upon receipt from the Indemnified Party to
whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 317(f) of the California Code).
Dover shall cause to be maintained in effect for not less than six (6)
years after the Effective Time (except to the extent not generally available in
the market) directors' and officers' liability insurance and fiduciary liability
insurance that is substantially equivalent in coverage to Grand Prix's current
insurance, with an amount of coverage of not less than 100% of the amount of
coverage maintained by Grand Prix as of March 26, 1998 with respect to matters
occurring prior to the Effective Time, provided that the cost thereof shall not
exceed 150% of Grand Prix's current cost per year.
CONDITIONS TO CONSUMMATION OF THE MERGER
General. The respective obligations of Grand Prix, Dover and Merger Sub to
effect the Merger and the other transactions contemplated by the Merger
Agreement are subject to the satisfaction at or prior to the Effective Time of
the following conditions:
(i) the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part shall have become effective in accordance
with the Securities Act, and no stop order shall have been issued by the
Commission with respect thereto and remain in effect;
(ii) the Merger Proposal shall have been approved by the requisite
vote of the Grand Prix shareholders and the Issuance Proposal shall have
been approved by the requisite vote of the Dover stockholders;
(iii) the shares of Dover Common Stock to be issued in the Merger to
Grand Prix shareholders shall have been approved for listing on the New
York Stock Exchange;
(iv) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated; and
(v) no preliminary or permanent injunction or other order by any
federal or state court in the United States of competent jurisdiction
preventing the consummation of the Merger shall have been issued and remain
in effect.
Grand Prix's Conditions. The obligations of Grand Prix to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions, unless waived by Grand Prix:
(i) Dover and Merger Sub shall have performed in all material respects
their agreements contained in the Merger Agreement required to be performed
on or prior to the Effective Time, except where the failure to so perform
would not have a Parent Material Adverse Effect (as defined in the Merger
Agreement);
(ii) the representations and warranties of Dover and Merger Sub
contained in the Merger Agreement shall be true in all material respects
when made, except as expressly contemplated or permitted by the Merger
Agreement or where the failure to be so true and correct would not or would
not reasonably be expected to have a Parent Material Adverse Effect. The
representations and warranties of Dover and Merger Sub contained in the
Merger Agreement shall be true in all material respects as of the Effective
Time as if made on and as of such date (except to the extent they relate to
a particular date), except as expressly contemplated or permitted by this
Agreement or where the failure to be so true and correct would not have a
Parent Material Adverse Effect (which for purposes of this sentence shall
be determined by replacing any references to the phrase
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"would [not] reasonably be expected to have a Parent Material Adverse
Effect" with the phrase "would [not] have a Parent Material Adverse
Effect");
(iii) Grand Prix shall have received a certificate of the President
and Chief Executive Officer or a Vice President of each of Dover and Merger
Sub stating that conditions (i) and (ii) have been fulfilled; and
(iv) the Pook Employment Agreement and the Michaelian Employment
Agreement shall have been executed and in full force and effect.
Dover's Conditions. The obligations of Dover and Merger Sub to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions, unless waived by Dover:
(i) Grand Prix shall have performed in all material respects their
agreements contained in the Merger Agreement required to be performed on or
prior to the Effective Time, except where the failure to so perform would
not have a Company Material Adverse Effect (as defined in the Merger
Agreement);
(ii) the representations and warranties of Grand Prix contained in the
Merger Agreement (a) shall be true in all material respects when made,
except as expressly contemplated or permitted or where the failure to be so
true and correct would not or would not reasonably be expected to have a
Company Material Adverse Effect and (b) shall be true in all material
respects as of the Effective Time as if made on and as of such date (except
to the extent they relate to a particular date), except as expressly
contemplated or permitted by the Merger Agreement or where the failure to
be so true and correct would not have a Company Material Adverse Effect
(which for the purpose of this clause (b) shall be determined by replacing
any references to the phrase "would [not] reasonably be expected to have a
Company Material Adverse Effect" with the phrase "would [not] have a
Company Material Adverse Effect"); provided that in either case, the
representations and warranties regarding Dover's and Merger Sub's
capitalization must be true and correct in all respects; and
(iii) Dover shall have received a certificate of the President and
Chief Executive Officer or a Vice President of Grand Prix stating that
conditions (i) and (ii) have been fulfilled.
(iv) the Pook Employment Agreement and the Michaelian Employment
Agreement shall have been executed and in full force and effect.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated:
(i) any time prior to the Effective Time by mutual consent of the
Boards of Directors of Grand Prix and Dover;
(ii) by either Grand Prix or Dover, if the Merger shall not have been
consummated by August 30, 1998 or by September 30, 1998 if the Effective
Time shall not have occurred because of the failure of certain conditions
to occur; (See "Conditions to Consummation of the Merger").
(iii) by either Grand Prix or Dover, if the Merger Proposal shall not
have been approved at the Grand Prix Special Meeting;
(iv) by Grand Prix, if the Issuance Proposal shall not have been
approved at the Dover Special Meeting;
(v) by either Grand Prix or Dover, if a court of competent
jurisdiction or other governmental body shall have issued a final
nonappealable order or ruling or shall have taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger;
(vi) by Dover if the Board of Directors of Grand Prix (A) shall have
withdrawn or modified in a manner adverse to Dover its approval or
recommendation of the Merger Agreement or the
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transactions contemplated thereunder or (B) shall have recommended an
Alternative Proposal to Grand Prix's shareholders;
(vii) by Grand Prix, if the Board of Directors of Grand Prix shall
have received an Alternative Proposal which the Grand Prix Board of
Directors believes is (A) superior from a financial point of view to the
Merger and (B) reasonably likely to be consummated and (C) the Board, after
consultation with independent legal counsel, believes such action is
required to comply with its fiduciary duties imposed by law;
(viii) by either Dover or Grand Prix, after a breach of any material
representation, warranty, covenant or agreement set forth in the Merger
Agreement of the other party, provided, that if such breach is curable by
the breaching party through the exercise of its reasonable best efforts
within thirty (30) days of such breach, the non-breaching party may not
terminate the Merger Agreement during such thirty day period so long as the
breaching party continues to exercise its reasonable best efforts to cure,
and the non-breaching party shall not terminate the Merger Agreement if
such breach has been cured in all material respects;
(ix) by Dover if the Support Agreements fail to continue in full force
and effect, or if the shares represented thereby, when aggregated with the
Grand Prix Common Stock owned or acquired by Dover, fail to continue to
represent a majority of the voting power of Grand Prix on a fully-diluted
basis and such failure shall not have been cured within fourteen (14) days
of receipt of written notice from Dover of such failure.
In the event that (i) any person shall have made an Alternative Proposal
with respect to Grand Prix and thereafter the Merger Agreement is terminated by
either party because approval of Grand Prix's shareholders was not obtained and
within 12 months thereafer such Alternative Proposal with respect to Grand Prix
shall have been consummated, (ii) the Board of Directors of Grand Prix shall
have withdrawn or modified in a manner adverse to Dover its approval or
recommendation to Grand Prix's shareholders by reason of an Alternative Proposal
with respect to Grand Prix and Dover shall have terminated the Merger Agreement
prior to the Effective Time because Grand Prix has withdrawn or modified, in a
manner adverse to Dover, approval or recommendation of the Merger Agreement or
the Merger or shall have recommended an Alternative Proposal to Grand Prix's
shareholders (a "Grand Prix Withdrawal") and within 12 months thereafter any
Alternative Proposal with respect to Grand Prix shall have been consummated,
(iii) the Board of Directors of Grand Prix shall have recommended an Alternative
Proposal with respect to Grand Prix shareholders and Dover shall have terminated
the Merger Agreement because of a Grand Prix Withdrawal, and within 12 months
thereafer any Alternative Proposal with respect to Grand Prix shall have been
consummated, or (iv) Grand Prix shall have terminated the Merger Agreement
because Grand Prix shall have received an Alternative Proposal which the Board
of Directors of Grand Prix believes is (a) superior from a financial point of
view to the Merger and (b) reasonably likely to be consummated and the Board of
Directors of Grand Prix, after consultation with independent legal counsel,
believes such action is required to comply with its fiduciary duties imposed by
law and within 12 months thereafter any Alternative Proposal with respect to
Grand Prix shall have been consummated, then, in any such case, Grand Prix shall
in no event later than the date of consummation of such Alternative Proposal pay
Dover a fee of Three Million and 00/100 Dollars ($3,000,000.00) (a "Termination
Fee"), which amount shall be payable by wire transfer of same day funds. For
purposes of this clause, no Termination Fee shall be payable unless such
Alternative Proposal is superior from a financial point of view to the Merger.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended in writing with the approval of the
Boards of Directors of Grand Prix and Dover at any time before or after approval
of matters presented in connection with the Merger by the stockholders of Dover
and Grand Prix; provided, however, that after such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such stockholder approval.
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EXPENSES AND FEES
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated under the Merger Agreement will be paid by the
party incurring such expenses; provided, however, that Grand Prix and Dover have
each agreed to share equally the expenses of printing and mailing the
Registration Statement and this Joint Proxy Statement/Prospectus.
STOCK PURCHASE AGREEMENTS AND REGISTRATION RIGHTS AGREEMENT
STOCK PURCHASE AGREEMENTS. On March 27, 1998, pursuant to the Stock
Purchase Agreements entered into with Penske and Midwest, Dover acquired the
Grand Prix Acquired Shares. Penske and Midwest each sold Dover all of their
respective holdings, 340,000 shares of Grand Prix Common Stock each, at $15.50
per share in cash for an aggregate purchase price of $10,540,000. As a result of
these purchases, Dover owns approximately 14.6% of the outstanding Grand Prix
Common Stock.
To effect Dover's purchase of the Grand Prix Acquired Shares, the consent
of Christopher R. Pook and James P. Michaelian was required, as representatives
of the Grand Prix shareholders who were parties to the ROFR Agreement. As a
condition to such consents, Penske and Midwest agreed that upon the sale of the
Grand Prix Acquired Shares to Dover, the ROFR Agreement would terminate and that
Dover's purchase of such shares would not be an event terminating the standstill
provisions of the stock purchase agreements, dated August 8, 1997, pursuant to
which Penske and Midwest acquired their Grand Prix Common Stock.
In addition, the Stock Purchase Agreements provide that upon Dover's
acquisition of the Grand Prix Acquired Shares, H. Lee Combs and Gregory Penske,
members of the Grand Prix Board of Directors nominated by Midwest and Penske
respectively, would resign as directors of Grand Prix.
The Stock Purchase Agreements also contain the Standstill Provision which
prohibits Penske and Midwest and Midwest's affiliates, including International
Speedway Corporation, from (a) purchasing or offering to purchase any of Grand
Prix's Common Stock or (b) conducting a proxy contest to obtain control of Grand
Prix's Board of Directors. The Standstill Provision shall remain, in effect with
respect to Penske and Midwest, respectively, until the Merger Agreement is
consummated, provided that Dover retains ownership of at least eighty percent
(80%) of the Grand Prix Acquired Shares.
REGISTRATION RIGHTS AGREEMENT. In connection with Dover's acquisition of
the Grand Prix Acquired Shares, Dover and Grand Prix entered into the
Registration Rights Agreement. The Registration Rights Agreement provides that
Dover shall have certain rights to cause the Grand Prix Acquired Shares, and any
additional shares of Grand Prix Common Stock acquired by Dover, to be registered
under the Securities Act. Not later than sixty (60) days after the termination
of the Merger Agreement, pursuant to certain specified provisions, Dover has the
right, subject to certain limitations, to cause Grand Prix to file a shelf
registration statement under the Securities Act to register such securities and
to maintain the effectiveness of such registration statement for up to three (3)
years. Grand Prix has the right to prohibit sales pursuant to such shelf
registration in certain circumstances. Pursuant to the Registration Rights
Agreement, Dover also has the right, within three (3) years from the date of the
Registration Rights Agreement, to cause registrable securities to be included in
any registration statements under the Securities Act filed by Grand Prix, other
than a registration statement or Forms S-4 or S-8.
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DISSENTERS' RIGHTS
THE FOLLOWING SUMMARY OF GRAND PRIX SHAREHOLDERS' DISSENTERS' RIGHTS UNDER
CALIFORNIA LAW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED
HERETO AS ANNEX D.
FAILURE TO STRICTLY FOLLOW THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW MAY RESULT IN THE LOSS, TERMINATION OR WAIVER
OF DISSENTERS' RIGHTS. A GRAND PRIX SHAREHOLDER WHO FAILS TO EITHER SIGN AND
RETURN A PROXY CARD DISAPPROVING THE MERGER PROPOSAL OR TO ATTEND THE GRAND PRIX
SPECIAL MEETING AND VOTE HIS OR HER SHARES AGAINST THE MERGER WILL NOT HAVE A
RIGHT TO EXERCISE DISSENTERS' RIGHTS. A GRAND PRIX SHAREHOLDER WHO DESIRES TO
EXERCISE HIS OR HER DISSENTERS' RIGHTS ALSO MUST SUBMIT A WRITTEN DEMAND FOR
PAYMENT TO BE RECEIVED BY GRAND PRIX ON OR BEFORE THE DATE OF THE GRAND PRIX
SPECIAL MEETING. IN ADDITION, NO GRAND PRIX SHAREHOLDER, UNDER ANY
CIRCUMSTANCES, WILL HAVE A RIGHT TO DISSENT FROM THE MERGER PROPOSAL UNLESS THE
HOLDERS OF AT LEAST FIVE PERCENT OF THE OUTSTANDING SHARES OF GRAND PRIX COMMON
STOCK PERFECT THEIR RIGHT TO DISSENT IN ACCORDANCE WITH CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW.
NO STATUTORY DISSENTERS' OR APPRAISAL RIGHTS ARE AVAILABLE TO DOVER
STOCKHOLDERS IN CONNECTION WITH THE MERGER.
Prior to the Grand Prix Special Meeting, each Grand Prix shareholder who
elects to exercise his, her or its dissenters' rights must take a written demand
upon Grand Prix for the purchase of his or her Grand Prix shares. The Grand Prix
shareholder's demand must state the number and class of shares held of record by
such Grand Prix shareholder which such Grand Prix shareholder demands that Grand
Prix purchase, as well as a statement by such Grand Prix shareholder as to what
such Grand Prix shareholder claims the fair market value of such shares was as
of the last trading day prior to the date of the announcement of the Merger. The
statement of fair market value constitutes an offer by such Grand Prix
shareholder to sell the shares at such price. Voting against the Merger,
abstaining from voting or failing to vote on the Merger itself will not
constitute such written demand within the meaning of Chapter 13 of the
California Code. Any notice should be addressed to: Grand Prix Association of
Long Beach, Inc., 3000 Pacific Avenue, Long Beach, CA 90806, Attention:
Christopher R. Pook.
A Grand Prix shareholder wishing to exercise his, her or its right to
dissent from the Merger and to demand payment for the fair market value of his
or her shares of Grand Prix Common Stock must vote against the Merger. A failure
to vote, a vote in favor of the Merger, by proxy or in person, or a direction to
abstain will constitute a waiver of such dissenters' rights.
Unless Grand Prix shareholders holding at least five percent of the
outstanding shares of Grand Prix Common Stock in the aggregate perfect their
right to dissent and exercise their dissenters' rights in accordance with
Chapter 13 of the California Code, no Grand Prix shareholder will have a right
to dissent from the Merger.
If the Merger is approved at the Grand Prix Special Meeting and dissenters'
rights are perfected with respect to at least five percent of the outstanding
Grand Prix Common Stock, Grand Prix will mail by registered or certified mail,
return receipt requested, no later than ten days after the Grand Prix Special
Meeting, a written notice of the approval of the Merger by the Grand Prix
shareholders (the "Grand Prix Notice") to all shareholders who have perfected
their dissenters' rights, accompanied by Sections 1300-1312 of the California
Code. The Grand Prix Notice also shall state the price determined by Grand Prix
to be the fair market value of shares (which may be less than the value in the
Merger Agreement) of Grand Prix Common Stock with respect to which dissenters'
rights are perfected under Chapter 13 of the California Code ("Grand Prix
Dissenting Shares") and a brief description of the procedure to be followed by a
shareholder who elects to exercise such rights.
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Within the 30-day period following the mailing of the Grand Prix Notice,
each dissenting Grand Prix shareholder must submit to Grand Prix for endorsement
certificates for any of such shareholder's Grand Prix Dissenting Shares. If
Grand Prix and the Grand Prix shareholder agree that such shares are Grand Prix
Dissenting Shares and agree upon the price of the Grand Prix Dissenting Shares,
the dissenting Grand Prix shareholder is entitled to the agreed price with
interest at the legal rate on judgment from the date of such agreement as to
fair market value. Payment must be made within 30 days of the later of the date
of the agreement between the Grand Prix shareholder and Grand Prix or the date
that the contractual conditions to closing of the transactions contemplated by
the Merger Agreement are satisfied.
A shareholder who perfects his or her dissenters' rights in accordance with
Chapter 13 of the California Code retains all other rights and privileges
incident to his shares until the fair market value of his or her shares is
agreed upon or determined. A dissenting Grand Prix shareholder may not withdraw
a demand for payment without the consent of Grand Prix.
If Grand Prix and the Grand Prix shareholder cannot agree as to the fair
market value or as to the fact that such shareholder's shares are Grand Prix
Dissenting Shares, such Grand Prix shareholder may file within six months of the
date of mailing of the Grand Prix Notice a complaint with the California
Superior Court for the proper county demanding judicial determination of such
matters. Grand Prix will then be required to make any payments in accordance
with such judicial determination. If the complaint is not filed within the
specified six months, the shareholder's rights as a dissenter are lost.
Grand Prix Dissenting Shares lose their status as such if (a) Grand Prix
abandons the Merger, (b) the shares are transferred prior to submission for
endorsement or are surrendered for conversion into shares of another class in
accordance with the Articles of Incorporation, (c) the Grand Prix shareholder
and Grand Prix do not agree upon the status of the shares as Dissenting Shares
or upon the fair market value of such shares and a complaint is not filed within
six months of the date the Grand Prix Notice was mailed or (d) the dissenting
Grand Prix shareholder, with the consent of Grand Prix, withdraws his or her
demand for purchase of shares.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase of Grand Prix by Dover in
accordance with generally accepted accounting principles. The purchase price,
including the cash and fair market value of Dover Common Stock, issued for Grand
Prix Common Stock in the Merger, will be compared to the book value of the net
assets acquired and the difference (acquisition adjustment) generally will be
recorded as goodwill and amortized on a straight-line basis in accordance with
generally accepted accounting principles. Grand Prix's results of operations
will be included in Dover's consolidated results of operations after the
Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES OF THE MERGER
All shares of Dover Common Stock received by Grand Prix shareholders in the
Merger will be freely transferable, except that shares of Dover Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Grand Prix prior to or at the Effective Time may be
resold by them only in transactions permitted by the resale provisions of Rule
145 promulgated under the Securities Act or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Grand Prix
generally include individuals or entities that control, are controlled by, or
are under common control with, Grand Prix and may include certain officers and
directors of such party as well as principal shareholders of Grand Prix. This
Joint Proxy Statement/Prospectus does not register any resales of Dover Common
Stock received by persons who may be deemed to be affiliates of Grand Prix.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion summarizes the material United States
federal income tax consequences of the Merger and is based upon Code, the
applicable Treasury Department regulations thereunder, judicial authority and
current administrative rulings and practice, all as in effect as of the date
hereof. Future legislation, regulations, administrative rulings or court
decisions could significantly change such authorities either prospectively or
retroactively. The following discussion does not address the consequences of the
Merger under state, local or foreign law nor does the discussion address all
aspects of United States federal income taxation that may be important to a
shareholder in light of such shareholder's particular circumstances or to a
shareholder subject to special rules including, without limitation, S
corporations, financial institutions, insurance companies, tax-exempt entities,
dealers in securities, taxpayers subject to alternative minimum tax, persons who
acquired Grand Prix Common Stock pursuant to the exercise of an employee option
(or otherwise as compensation), persons holding Grand Prix Common Stock as part
of a hedging or conversion transaction or a straddle or any other derivative
security or risk-reducing transaction. This discussion assumes that Grand Prix
shareholders hold their respective shares of Grand Prix Common Stock as capital
assets within the meaning of Section 1221 of the Code.
The following discussion is limited to the United States federal income tax
consequences relevant to a holder of Grand Prix Common Stock that is a citizen
or resident of the United States, or any state thereof, or a corporation or
other entity created or organized under the laws of the United States, or any
political subdivision thereof, or an estate the income of which is subject to
United States federal income tax regardless of its source or a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust.
The discussion below assumes that the Merger qualifies as a reorganization
within the meaning of Section 368(a) of the Code (a "Reorganization").
Neither Dover nor Grand Prix has sought nor will seek any rulings from the
Internal Revenue Service (the "IRS") with respect to the position of its company
discussed herein, and there can be no assurance that the IRS will not take a
different position concerning the tax consequences of the Merger. In addition,
neither Dover nor Grand Prix have requested or received opinions of counsel as
to whether the Merger will qualify as a Reorganization.
THE FOLLOWING IS A SUMMARY OF CERTAIN MATERIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER, WITHOUT REFERENCE TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF ANY PARTICULAR SHAREHOLDER. IN ADDITION, THIS DISCUSSION DOES
NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES
OF THE MERGER. THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF ANY
TRANSACTION OTHER THAN THE MERGER. ACCORDINGLY, EACH SHAREHOLDER IS STRONGLY
URGED TO CONSULT WITH SUCH SHAREHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
OF THE MERGER TO SUCH SHAREHOLDER.
EXCHANGE OF GRAND PRIX COMMON STOCK FOR DOVER COMMON STOCK
No gain or loss will be recognized for United States federal income tax
purposes in connection with the exchange of Grand Prix Common Stock solely for
Dover Common Stock. Gain or loss may be recognized to the extent any cash is
received in lieu of a fractional share of Dover Common Stock. See "Cash Received
in Lieu of Fractional Shares of Dover Common Stock" below for a more complete
discussion. The tax basis of the shares of Dover Common Stock received in the
Merger will equal the tax basis of the Grand Prix Common Stock surrendered in
the Merger (reduced by any tax basis allocable to fractional shares exchanged
for cash), and the holding period of the shares of Dover Common Stock will
include the holding period of the Grand Prix Common Stock.
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CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF DOVER COMMON STOCK
No fractional shares of Dover will be issued in exchange for shares of
Grand Prix Common Stock. The payment of cash to a holder of Grand Prix Common
Stock in lieu of a fractional share interest of Dover Common Stock will be
treated as if the fractional share had been distributed as part of the exchange
and then redeemed by Dover. The cash payment deemed received as a distribution
in payment for the Dover Common Stock hypothetically received in the Merger will
be treated as provided in Section 302 of the Code and generally should result in
the recognition of capital gain or loss measured by the difference between the
amount of cash received and the portion of the tax basis of the share of Grand
Prix Common Stock allocable to such fractional share interest.
GRAND PRIX SHAREHOLDERS WHO EXERCISE DISSENTERS' RIGHTS
Cash received by a shareholder exercising dissenters' rights will be
treated for United States federal income tax purposes as a dividend unless the
payment (i) results in a "complete termination" of the shareholder's direct or
indirect stock interest in Grand Prix under Section 302(b)(3) of the Code, (ii)
is "substantially disproportionate" with respect to the shareholder under
Section 302(b)(2) of the Code or (iii) is "not essentially equivalent to a
dividend" with respect to the shareholder under Section 302(b)(1) of the Code.
Shareholders should consult their tax advisors to determine if any cash received
in connection with their exercise of dissenters' rights will be characterized as
a dividend under Section 302 of the Code.
Cash received pursuant to the exercise of dissenters' rights that is not
treated as a distribution taxable as a dividend would be recognized as capital
gain or loss equal to the difference between the amount of cash received that is
not characterized as a dividend and the shareholder's adjusted tax basis in such
shareholder's Grand Prix Common Stock.
GRAND PRIX, DOVER AND MERGER SUB
For United States federal income tax purposes, no gain or loss will be
recognized by Grand Prix, Dover or Merger Sub solely as a result of the Merger.
CAPITAL GAIN OR LOSS
Gain or loss recognized as a result of exercising dissenters' rights will
be capital gain or loss and in the case of a non-corporate shareholder will be
mid-term or long-term capital gain if the holding period for the Grand Prix
Common Stock is more than one year or eighteen months, respectively.
BACKUP WITHHOLDING
A holder of Grand Prix Common Stock may be subject to backup withholding at
the rate of 31% with respect to "reportable payments," which may include
payments of cash received in lieu of a fractional share of Dover Common Stock or
cash received as a result of exercising dissenters' rights. The payor will be
required to deduct and withhold the prescribed amounts unless such shareholder
(i) is a corporation or comes within other exempt categories and, when required,
demonstrates this fact or (ii) provides a correct taxpayer identification
number, or otherwise establishes a basis for an exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder of Grand Prix who does not provide Dover with
his, her or its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the shareholder's
United States federal income tax liabilities, so long as the required
information is provided to the IRS.
FILING WITH THE IRS
Each Grand Prix shareholder will be required to attach a statement to such
shareholder's federal tax return for the year of the Merger containing
information about the Merger, including a description of the Dover Common Stock
received and the basis of the Grand Prix Common Stock surrendered.
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COMPARISON OF RIGHTS OF HOLDERS OF DOVER
COMMON STOCK AND HOLDERS OF GRAND PRIX COMMON STOCK
As a result of the Merger, holders of Grand Prix Common Stock will be
exchanging their shares of a California corporation which is governed by the
California Code and Grand Prix's Articles of Incorporation and Bylaws, for
shares of Dover Common Stock, which shares are governed by the DGCL and Dover's
Certificate of Incorporation and Bylaws. While the rights and privileges of
stockholders of a Delaware corporation such as Dover are, in many instances,
comparable to those of shareholders of a California corporation such as Grand
Prix, there are certain differences. The following is a summary of material
differences between the rights of holders of Grand Prix Common Stock and the
rights of holders of Dover Common Stock on the date hereof. These differences
arise from differences between the DGCL and the California Code and between
Dover's Certificate of Incorporation and Bylaws on the one hand and Grand Prix's
Articles of Incorporation and Bylaws on the other.
MERGERS AND CONSOLIDATIONS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience no material change with respect to their rights
relating to mergers and consolidations other than with regard to appraisal
rights, as described herein.
The DGCL requires the approval of the Dover Board of Directors and the
holders of a majority of the outstanding shares of Dover Common Stock entitled
to vote thereon for mergers or consolidations, and for sales, leases or
exchanges of substantially all of Dover's property and assets. The DGCL would
permit Dover to merge with another corporation without obtaining the approval of
Dover's stockholders if: (a) Dover is the surviving corporation of the merger;
(b) the merger agreement does not amend Dover's Certificate of Incorporation;
(c) each share of Dover Common Stock outstanding immediately prior to the
effective date of the merger is to be an identical outstanding or treasury share
of Dover Common Stock after the merger; and (d) either no shares of Dover Common
Stock and no shares, securities or obligations convertible into such Dover
Common Stock are to be issued or delivered under the plan of merger, or any
authorized but unissued shares or treasury shares of Dover Common Stock to be
issued or delivered under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan do not exceed 20% of the shares of Dover Common Stock
outstanding immediately prior to the effective date of the merger.
The California Code requires that the principal terms of a merger be
approved by the affirmative vote of a majority of the outstanding shares of each
class entitled to vote thereon, except that, unless required by its articles of
incorporation, no authorizing shareholder vote is required of a corporation
surviving a merger if the shareholders of such corporation shall own,
immediately after the merger, more than five-sixths of the voting power of the
surviving or acquiring corporation or its parent. Grand Prix's Articles of
Incorporation do not require a greater percentage vote. The California Code
further requires the affirmative vote of a majority of the outstanding shares
entitled to vote thereon if (a) of the surviving corporation if the surviving
corporation's articles of incorporation will be amended and such amendment would
otherwise require shareholder approval or (b) shareholders of such corporation
will receive shares of the surviving corporation having different rights,
preferences, privileges or restrictions (including shares in a foreign
corporation) than the shares surrendered. Shareholder approval is not required
under the California Code or the DGCL for mergers or consolidations in which a
parent corporation merges or consolidates with a subsidiary of which it owns at
least 90% of the outstanding shares of each class of stock.
With certain exceptions, the California Code also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of stock outstanding. In contrast, the DGCL
generally does not require class voting (unless otherwise required in a
corporation's certificate of incorporation), except in certain transactions
involving an amendment to the certificate of incorporation. As a result,
stockholder approval of such transactions may be easier to obtain under the DGCL
for companies which have more than one class of stock outstanding.
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ANTI-TAKEOVER PROVISIONS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience a material change with respect to certain
anti-takeover provisions as a result of certain provisions contained within DGCL
and Dover's Certificate.
Dover is subject to the provisions of Section 203 of the DGCL ("Section
203") which prohibits a "business combination" (defined in Section 203 as
generally including mergers, sales and leases of assets, issuances of
securities, and similar transactions) by Dover or a subsidiary with an
"interested stockholder" (defined in Section 203 as generally the beneficial
owner of 15% or more of Dover Common Stock or an affiliate of such owner) within
three years after the person or entity becomes an interested stockholder, unless
(a) prior to the person or entity becoming an interested stockholder, Dover's
Board of Directors approved the business combination or the transaction pursuant
to which such person or entity became an interested stockholder or (b) upon
consummation of the transaction in which such owner became an interested
stockholder, the interested stockholder holds at least 85% of the Dover Common
Stock (excluding shares held by persons who are both officers and directors and
shares held by certain employee benefit plans), or (c) at or subsequent to such
time, the business combination is approved by Dover's Board of Directors and by
holders of at least two-thirds of the outstanding Dover Common Stock, excluding
shares owned by the interested stockholder. See "DESCRIPTION OF DOVER CAPITAL
STOCK -- Anti-Takeover Provisions."
The DGCL requires a vote of the corporation's board of directors followed
by the affirmative vote of a majority of the outstanding stock entitled to vote
and a majority of the outstanding stock of each class entitled to vote as a
class for any amendment to the certificate of incorporation, unless a greater
level of approval is required by the certificate of incorporation. Dover's
Certificate of Incorporation requires the affirmative vote of at least 75% of
the total number of outstanding shares entitled to vote for the amendment,
modification or repeal of certain provisions of the Certificate of Incorporation
regarding (a) the Dover Capital Stock, (b) the powers and classification of the
Board of Directors, (c) certain business combinations, (d) amendments to the
Certificate of Incorporation and (e) special meetings of stockholders. If an
amendment would alter the powers, preferences or special rights of a particular
class or series of stock so as to affect them adversely, the class or series
shall be given the power to vote as a class notwithstanding the absence of any
specifically enumerated power in the certificate of incorporation. The DGCL also
states that the power to adopt, amend or repeal the bylaws of a corporation
shall be in the stockholders entitled to vote, provided that the corporation in
its certificate of incorporation may confer such power on the board of directors
in addition to the stockholders. Dover's Certificate of Incorporation expressly
authorizes the board of directors to adopt, amend or repeal Dover's Bylaws.
Dover's Certificate of Incorporation requires the approval of 75% of the total
number of shares entitled to vote for any amendment of Dover's Bylaws.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval. Grand Prix's Articles of Incorporation do not require
a greater level of approval for an amendment thereto. Under the California Code,
the holders of the outstanding shares of a class are entitled to vote as a
class, notwithstanding the absence of any specifically enumerated power in the
articles of incorporation, if a proposed amendment to the articles of
incorporation would: (a) increase or decrease the aggregate number of authorized
shares of such class; (b) effect an exchange, reclassification or cancellation
of all or part of the shares of such class, including a reverse split but
excluding a stock split; (c) effect an exchange, or create a right of exchange,
of all or part of the shares of another class into the shares of such class; (d)
change the rights, preferences, privileges or restrictions of the shares of such
class; (e) create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number of authorized shares of any class having rights,
preferences or privileges prior to the shares of such class; (f) in the case of
preferred shares, divide the shares of any class into series having different
rights, preferences, privileges or restrictions or authorize the board of
directors to do so; or (g) cancel or otherwise affect dividends on the shares of
such class which have accrued but have not been paid. Under the California Code,
a corporation's bylaws may be adopted, amended or repealed either by the
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board of directors or the shareholders of the corporation. Grand Prix's Bylaws
provide that Grand Prix's Bylaws may be adopted, amended or repealed either by
the vote of the holders of a majority of the outstanding shares entitled to vote
or by the board of directors; provided, however, that the Grand Prix Board may
not adopt or amend Grand Prix's Bylaws in order to change the authorized number
of directors or change from a fixed to a variable number of directors or vice
versa.
The California Code provides that, except where the terms and conditions of
the transaction and their fairness have been approved by the California
Commissioner of Corporations and except in a "short-form" merger (the merger of
a parent corporation with a subsidiary in which the parent owns at least 90% of
the outstanding shares of each class of the subsidiary's stock), if the
surviving corporation or its parent corporation owns, directly or indirectly,
shares of the target corporation representing more than 50% of the voting power
of the target corporation prior to the merger, the nonredeemable common stock of
a target corporation may be converted only into nonredeemable common stock of
the surviving corporation or its parent corporation, unless all of the
shareholders of the class consent, other than in connection with the payment of
cash in lieu of fractional shares. The effect of this provision is to prohibit a
cash-out merger of minority shareholders, except where the majority shareholders
already own 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
APPRAISAL RIGHTS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will be entitled to appraisal rights in fewer instances than
otherwise exist under California Law.
The rights of appraisal of dissenting shareholders of Grand Prix are
governed by Chapter 13 of the California Code. Pursuant thereto, subject to
certain exceptions, any shareholder has the right to dissent from any merger or
consolidation, except that no such appraisal rights are available for the shares
of any class or series if (a) approval of the Merger by the shareholders is not
required under Section 1201 of the California Code, or (b) such shares are then
redeemable by the corporation at a price not greater than the cash to be
received in exchange for such shares. See "DISSENTERS' RIGHTS."
Under the DGCL, stockholders are entitled to certain limited rights of
appraisal. No appraisal rights shall be available, however, for the holders of
any shares of a stock of a constituent Delaware corporation to a merger if that
corporation survives the merger and the merger did not require for its approval
the vote of the stockholders of such constituent Delaware corporation. Moreover,
under the DGCL, no appraisal rights are available to stockholders of a Delaware
constituent corporation to a merger for any shares of stock which, at the record
date for the vote on such merger, were either (a) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or (b) held of record by more than 2,000 stockholders. Appraisal rights
are available to Delaware stockholders in any event if such stockholders are
required by the terms of an agreement of merger or consolidation to accept for
such stock of the constituent corporation anything except: (w) shares of stock
of the corporation surviving or resulting from such merger or consolidation; (x)
shares of stock of any other corporation, which shares of stock at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 stockholders; (y) cash in lieu of
fractional shares of the corporation described in clauses (w) and (x) above; or
(z) any combination of the shares of stock and cash in lieu of fractional shares
described in clauses (w), (x) and (y) above.
SPECIAL MEETINGS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will be unable to call special meetings of stockholders.
Under the California Code, special meetings of shareholders may be called
by a corporation's board of directors, the chairman of the board of directors,
the president, the holders of shares entitled to cast not less than ten percent
of the votes at such meeting or such additional persons as may be
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provided in the corporation's articles of incorporation or bylaws. Grand Prix's
Bylaws do not provide for any such additional persons to call special meetings
of shareholders.
Under the DGCL, special meetings of stockholders may be called by a
corporation's board of directors or such person or persons as may be authorized
by such corporation's certificate of incorporation or bylaws. Dover's Bylaws and
Certificate of Incorporation provide that special meetings of stockholders of
Dover may be called only by (a) the chairman of the Dover Board of Directors,
(b) the vice chairman of the Dover Board of Directors, (c) the chairman of the
executive committee of the Dover Board of Directors, or (d) the president of
Dover. Dover stockholders do not have the ability to call a special meeting of
Dover stockholders.
ACTIONS WITHOUT A MEETING
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will be able to act by written consent in lieu of a meeting.
Under the DGCL and the California Code, unless otherwise provided in the
certificate or articles of incorporation, any action required to be taken or
which may be taken at an annual or special meeting of stockholders may be taken
without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote were present and voted. Dover's Certificate of Incorporation provides that
any action by the stockholders may be taken at any annual or special meeting of
stockholders and may be taken without a meeting, by written consent, except
where prohibited by law or the rules and regulations of the New York Stock
Exchange. Grand Prix's Articles of Incorporation provide that action by written
consent of stockholders is permitted, except that directors may not be elected
by written consent except by unanimous written consent of all shares entitled to
vote for the election of directors except that a director may be elected at any
time to fill a vacancy caused by removal by the written consent of a majority of
the votes entitled to be cast.
PROXY REQUIREMENTS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will be subject to the DGCL with respect to proxy duration and
revocability.
Under the California Code, proxies are valid for an eleven-month period
unless otherwise provided for in the proxy. Under the DGCL, proxies are valid
for up to three years unless otherwise specified therein. In addition, the
California Code specifies that, if the appointment form conspicuously states
that it is irrevocable, proxies for pledgees, purchasers of the shares,
creditors, contract employees, and persons designated in a shareholder
agreement, and other proxies coupled with an interest, are, under certain
circumstances, irrevocable. Under the DGCL, a proxy is irrevocable if it
specifically states that it is irrevocable if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power.
DERIVATIVE ACTIONS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will have to meet stricter requirements in order to bring a
derivative action.
The California Code provides that a shareholder bringing a derivative
action on behalf of the corporation need not have been a shareholder at the time
of the transaction in question, provided that certain tests are met. The
California Code also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond.
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must represent in the complaint that he, she or it was a stockholder
of the corporation at the time of the transaction of which he, she or it
complains. A stockholder may not sue derivatively unless he first makes demand
on the corporation that it bring suit
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and such demand has been refused, unless it is shown that such demand would have
futile. The DGCL does not have a bonding requirement similar to that of the
California Code.
DIVIDENDS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience no material adverse change with respect to the
legal limitations on their right to receive dividends.
The California Code provides that a corporation may, unless otherwise
restricted by its articles of incorporation, make distributions (including cash
dividends) to its shareholders (a) if the amount of the retained earnings of the
corporation immediately prior to such distribution equals or exceeds the amount
of the proposed distribution, (b) if, after giving effect to such distribution,
the sum of the assets of the corporation (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least equal
to 125% of its liabilities (not including deferred taxes, deferred income and
other deferred credits) and (c) if such corporation's total current assets would
be at least equal to its current liabilities or, if the average of the earnings
of the corporation before taxes on income and before interest expense for the
two preceding fiscal years was less than the average of the interest expense of
the corporation for those fiscal years, at least equal to 125% of its current
liabilities. In addition, the California Code provides that a corporation may
not make any distribution that would render the corporation unable to meet its
liabilities, and such a distribution may not be made if, as a result, the excess
of the corporation's assets over its liabilities would be less than the
liquidation preference of all shares having a preference on liquidation over the
class or series to which the distribution is made. Such tests are applied to
California corporations on a consolidated basis.
Grand Prix's Bylaws provide that the Grand Prix Board of Directors may pay
distributions and dividends as permitted by law.
A Delaware corporation may pay dividends not only out of surplus (the
excess of net assets over capital) but also out of net profits for the fiscal
year in which the dividend is declared or the preceding fiscal year if it has no
surplus, subject to any restrictions contained in the certificate of
incorporation. The ability of a Delaware corporation to pay dividends or to make
repurchases or redemptions of its shares is dependent on the financial status of
the corporation alone, not on a consolidated basis. Under the DGCL, surplus may
be created by a reduction of capital and may be distributed by board action, as
long as capital is maintained in an amount not less than the aggregate par value
of the remaining outstanding shares plus the stated value of any shares not
having par value.
Dover's Certificate of Incorporation contains no restrictions on dividend
payments.
INDEMNIFICATION
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience no material change with respect to indemnification
rights of certain officers and directors.
The DGCL provides that a corporation may indemnify against certain
liabilities and expenses of an officer, director, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, employee or agent of another entity, who is made a party to
certain proceedings by reason of his or her service in such capacity if such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. However, under the DGCL, a corporation may not indemnify any
person with respect to any claim or issue as to which such person was found
liable to the corporation in a proceeding by or in the right of the corporation,
unless indemnification of expenses is ordered by a court. The DGCL provides that
a corporation must indemnify against reasonable expenses a director, officer,
employee or agent of the corporation who is made a party to any proceeding by
reason of his or her service in such capacity and who is successful, on the
merits or otherwise, in the defense of any claim, issue or matter therein. The
DGCL permits a corporation to advance expenses to a director or officer under
certain conditions.
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Under the California Code, (a) a corporation has the power to indemnify any
person who was or is threatened to be made a party to any proceeding by reason
of the fact that the person is or was an agent of the corporation, against
expenses, judgments, fines and settlements (other than in connection with
actions by or in the right of the corporation) if that person acted in good
faith and in a manner the person reasonably believed to be in the best interests
of the corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of the person was unlawful, and (b) a corporation
has the power to indemnify, with certain exceptions, any person who is a party
to any action by or in the right of the corporation, against expenses actually
or reasonably incurred by that person in connection with the defense or
settlement of the action if the person acted in good faith and in a manner the
person believed to be in the best interests of the corporation and its
shareholders.
The indemnification authorized by the California Code is not exclusive, and
a corporation may grant its directors, officers, employees or other agents
certain additional rights to indemnification. Grand Prix's Articles of
Incorporation and Bylaws provide for the indemnification of its agents (as
defined under the California Code) to the fullest extent permissible under the
California Code, which may be in excess of the indemnification expressly
permitted by Section 317 of the California Code, subject to the limits set forth
in Section 204 of the California Code with respect to actions for breach of duty
to the corporation and its shareholders.
The DGCL and the California Code allow for the advance payment on an
indemnitee's expenses prior to the final disposition of an action, provided that
the indemnitee undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
FIDUCIARY DUTIES OF DIRECTORS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience no material change with respect to the fiduciary
duties of directors.
Directors of corporations incorporated or organized under the DGCL and the
California Code have fiduciary obligations to the corporation and its
stockholders. Pursuant to these fiduciary obligations, the directors must act in
accordance with the so-called duties of "care" and "loyalty." Under the DGCL,
the duty of care requires that the directors act in an informed and deliberative
manner and inform themselves, prior to making a business decision, of all
material information reasonably available to them. The duty of loyalty may be
summarized as the duty to act in good faith, not out of self-interest and in a
manner that the directors reasonably believe to be in the best interest of the
corporation. Under the California Code, the duty of loyalty requires directors
to perform their duties in good faith in a manner that the directors reasonably
believe to be in the best interest of the corporation and its shareholders. The
duty of care requires that the directors act with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would
exercise under similar circumstances.
LIMITATION OF LIABILITY
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will experience no material change with respect to the limitation
of liability of directors.
The DGCL and the California Code each provide that the charter documents of
the corporation may include provisions which limit or eliminate the personal
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided such liability does
not arise from certain proscribed conduct, including, in the case of the DGCL,
breach of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, the payment of
unlawful dividends or expenditure of funds for unlawful stock purchases or
redemptions or transactions from which such director derived an improper
personal benefit, or, in the case of the California Code, acts or omissions that
involve intentional misconduct or a knowing and culpable violation of law, acts
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders or that involve the absence of good faith on
the part of the director, the receipt of an improper personal benefit, acts or
omissions that shows reckless
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disregard for the director's duty to the corporation or its shareholders, where
the director in the ordinary course of performing of a director's duties was
aware or should be aware of a risk of serious injury to the corporation or its
shareholders, acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, interested transactions between the corporation
and a director in which a director has a material financial interest and
liability for improper distributions, loans or guarantees. Dover's Certificate
contains a provision limiting the liability of its directors to the fullest
extent permitted by the DGCL. Grand Prix's Articles of Incorporation contain a
provision limiting the liability of its directors to the fullest extent provided
by the California Code.
CUMULATIVE VOTING FOR DIRECTORS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will not have the benefit of cumulative voting.
Both the California Code and the Grand Prix Bylaws provide for the
cumulative voting of shares by any shareholder in any election of directors
provided that (i) the name of the candidate for whom the shareholder wishes to
cumulate votes has been placed in nomination prior to the relevant meeting and
(ii) the shareholder has given notice at the meeting of his, her or its intent
to cumulative votes. If any shareholder has given the notice set forth in clause
(ii) above, all shareholders are entitled to a number of votes equal to the
number of directors to be elected. Votes may be cast for a single candidate or
may be distributed among two or more candidates in such proportions as the
shareholder may determine. The candidates receiving the highest number of votes,
up to the number of directors to be elected, are elected. Under cumulative
voting, shareholders who own far less than a majority of a corporation's
outstanding stock can obtain representation on the Board of Directors. If
voting is not conducted by cumulative voting, each share is entitled to vote and
the holders of a majority of shares voting at the meeting can elect all of the
directors if they choose to do so, and the other shareholders cannot elect any
director. On all other matters, each share of Grand Prix Common Stock has one
vote.
Dover stockholders do not have cumulative voting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will be unable to exclusively fill the vacancy created by the
removal of a director.
Under the DGCL, unless the bylaws or certificate or incorporation provides
otherwise, the board of directors may fill vacancies, including vacancies
created by an increase in the number of directors. If the directors remaining in
office constitute less than a quorum of the board, the vacancy may be filled by
the affirmative vote of a majority of all the directors then in office, or by
the sole remaining director. Dover's Bylaws mirror this statutory provision. The
California Code grants similar authority to the directors, subject to a
provision to the contrary in the articles of incorporation; provided, however,
that unless otherwise provided by the bylaws or articles of incorporation, only
the shareholders may fill vacancies created by the removal of directors. Grand
Prix's Bylaws provide that vacancies occurring in the Board of Directors by
reason of removal of directors shall be filled only by approval of the
shareholders.
REMOVAL OF DIRECTORS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will only be permitted to remove a director for cause.
Under the California Code, any director or the entire board of directors
may be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
Stockholders of a Delaware corporation holding a majority of the outstanding
shares entitled to vote for directors may remove a director with or without
cause, except in certain cases involving classified boards or where cumulative
voting is permitted. Dover's Bylaws provide that directors may be removed by
stockholders only for cause.
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INSPECTION OF BOOKS AND RECORDS
Upon completion of the Merger and receipt of Dover Common Stock, Grand Prix
shareholders will have broader rights with respect to inspection of corporate
books and records.
Under the California Code, any shareholder of record who is the holder of
at least five percent of all of the outstanding shares of stock of a corporation
is entitled to examine and copy a corporation's shareholder ledger. The
California Code also provides that any shareholder of record may inspect the
accounting books and records of the corporation for a purpose reasonably related
to such holder's interests as a shareholder. Under the DGCL, any stockholder has
the right to inspect and make copies of the stockholder ledger and other books
and records of the corporation upon written demand.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE ALL MATERIAL DIFFERENCES IN THE
CORPORATION LAWS OF THE TWO STATES AND THE GRAND PRIX ARTICLES OF INCORPORATION
AND THE DOVER CERTIFICATE OF INCORPORATION AND DOES NOT PURPORT TO BE A COMPLETE
LISTING OF DIFFERENCES IN THE RIGHTS AND REMEDIES OF HOLDERS OF SHARES OF
CALIFORNIA, AS OPPOSED TO DELAWARE, CORPORATIONS AND STOCKHOLDERS OF GRAND PRIX
AND DOVER, IN PARTICULAR. SUCH DIFFERENCES CAN BE DETERMINED IN FULL BY
REFERENCE TO THE CALIFORNIA CODE AND TO THE DGCL AND THE GRAND PRIX ARTICLES OF
INCORPORATION AND THE DOVER CERTIFICATE OF INCORPORATION AS INTERPRETED BY
APPLICABLE CASE LAW. IN ADDITION, THE LAWS OF CALIFORNIA AND DELAWARE PROVIDE
THAT SOME OF THE STATUTORY PROVISIONS AS THEY AFFECT VARIOUS RIGHTS OF HOLDERS
OF SHARES MAY BE MODIFIED BY PROVISIONS IN THE ARTICLES OF INCORPORATION,
CHARTER OR BYLAWS OF THE CORPORATION.
AMENDMENTS TO DOVER'S
CERTIFICATE OF INCORPORATION
At the Dover Special Meeting, holders of Dover Capital Stock will be asked
to consider and vote upon a proposal to amend and restate Dover's 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.
INCREASE IN AUTHORIZED DOVER CAPITAL STOCK
The increase in the number of shares of Dover Common Stock authorized for
issuance is not necessary to effect the Merger. As of May 18, 1998 there were
2,998,950 shares of Dover Common Stock issued and outstanding and 35,000,000
authorized for issuance. In addition, up to a maximum of 2,793,946 shares of
Dover Common Stock will be issued to holders of Grand Prix Common Stock in
connection with the Merger. Following the Merger and the issuance required
thereby, the Board of Directors intends to use the authorized but unissued
shares of Dover Common Stock for any proper corporate purpose, which could
include raising capital, paying stock dividends, providing compensation or
benefits to employees or acquiring other companies or businesses. If the
proposed amendment is adopted by the stockholders, the Board of Directors could,
in the future, authorize the issuance of any authorized but unissued shares of
Dover Common Stock on terms determined by it without further action by the
stockholders, unless the shares were issued in a transaction such as a merger or
consolidation, which action would require stockholder approval. This means that
Dover could sell the majority interest in Dover Common Stock to any party it
deems appropriate and by doing so significantly dilute the rights of holders of
outstanding shares of Dover Common Stock.
The Dover Board of Directors also proposes to increase the number of shares
of Dover Class A Common Stock authorized for issuance even though this increase
is in no way related to the Merger. The Dover Board of Directors wishes to
increase the number of shares of Dover Class A Common
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Stock authorized for issuance to increase its flexibility. Following the
stockholder approval of this proposal, the Dover Board of Directors could issue
the authorized but unissued shares for any proper corporate purpose, which could
include raising capital, paying stock dividends, providing compensation or
benefits to employees or acquiring other companies or businesses.
All attributes of the newly authorized shares of Dover Capital Stock will
be the same as those of existing shares of authorized and unissued Dover Capital
Stock. Under Dover Certificate of Incorporation, the stockholders of Dover have
no preemptive rights to subscribe to or purchase any shares of Dover Capital
Stock or other securities of Dover. The issuance of additional shares of Dover
Capital Stock may affect the voting, dividend, liquidation and other rights of
current holders of the Dover Capital Stock.
However, although the attributes of Dover Common Stock differ substantially
from those of Dover Class A Common Stock, primarily because the former is
publicly traded and listed on the New York Stock Exchange, because each share of
Dover Common Stock has one vote per share and each share of Dover class A Common
Stock has ten votes per share, the sale of the newly authorized shares of Dover
Class A Common Stock could have a significant dilutive effect on the voting
power of holders of Class A Common Stock.
At the present time, except for shares of Dover Common Stock to be issued
in connection with the Merger, Dover has no specific plans, understanding or
arrangements for issuing any of the additional shares of Dover Capital Stock to
be authorized by the proposed amendment.
REQUIRED VOTE
The amendments to Dover's Certificate of Incorporation will be approved if
(a) a majority of the holders of Dover Common Stock, voting as a class, vote in
favor of the proposal and (b) a majority of the holders of Dover Class A Common
Stock, voting as a class, vote in favor of the proposal.
ELECTION OF DIRECTOR
One individual is to be elected at the Dover Special Meeting to serve as
Class I Director for the remainder of a three-year term expiring in 2000, and
until the election and qualification of his successor. Nine other individuals
serve as directors but are not standing for re-election because their terms as
directors extend past the Dover Special Meeting pursuant to provisions of
Dover's Certificate of Incorporation which provide for the election of directors
for staggered terms, with each director serving a three-year term.
Unless a stockholder WITHHOLDS AUTHORITY, the proxy holder will vote FOR
the election of Christopher R. Pook to serve as a Class I Director for the
remainder of a three-year term expiring in 2000. Although the Board of Directors
does not contemplate the possibility, in the event Christopher R. Pook is not a
candidate or is unable to serve as director at the time of the election, unless
the stockholder WITHHOLDS AUTHORITY, the proxies will be voted for such nominee
as is designated by the present Board of Directors to fill such vacancy.
Mr. Pook's principal occupation is Chairman and Chief Executive Officer of
Grand Prix. See "THE STOCKHOLDER MEETINGS -- Dover Special Meeting -- Election
of Directors." He is age 57 and owns 310,207 shares of Grand Prix Common Stock
which at the Effective Time will be converted into 195,430 shares of Dover
Common Stock, based on the Exchange Ratio (assuming the Exchange Ratio is 0.63
without adjustment), which will constitute immediately after the Merger
approximately 3.6 of the outstanding shares of Dover Common Stock, which is
approximately 1.1% of the outstanding shares of Dover Capital Stock.
For information regarding those Dover Directors whose terms expire in
future years, see "INFORMATION CONCERNING THE COMPANIES -- Directors and
Executive Officers of Dover."
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DOVER BENEFIT PLANS
PENSION PLANS
Dover's Pension Plan is a non-contributory qualified employee defined
benefit plan. All full time employees of Dover are eligible to participate in
the Pension Plan. Up to September 30, 1989, retirement benefits were equal to
the sum of from 1% to 1.5% of an employee's annual cash compensation for each
year of service to age 65. Commencing October 1, 1989 and thereafter, retirement
benefits are equal to the sum of 1.35% of earnings up to covered compensation,
as that term is defined in the Pension Plan, and 1.7% of earnings above covered
compensation. Covered compensation includes regular salaries or wages,
commissions, bonuses, overtime earnings and short-term disability income
protection benefits.
Retirement benefits are not subject to any reduction for Social Security
benefits or other offset amounts. An employee's benefits may be paid in certain
alternative forms having actuarially equivalent values. Retirement benefits are
fully vested after the completion of five years of credited service or, if
earlier, upon reaching age 55. The maximum annual benefit under a qualified
pension plan is currently $120,000 beginning at the Social Security retirement
age (currently age 65).
Dover maintains a non-qualified, defined benefit plan, called the Excess
Benefit Plan, which covers those participants of the Pension Plan whose benefits
are limited by the Code. A participant in the Excess Benefit Plan is entitled to
a benefit equaling the difference between the amount of the benefit payable
without limitation and the amount of the benefit payable under the Pension Plan.
Annual pension benefit projections for the executives covered by such plans
assume: (a) that the participant remains in the service of the Company until age
65; (b) that the participant's earnings continue at the same rate as paid in the
fiscal year ended June 30, 1997 during the remainder of his service until age
65; and (c) that the Plans continue without substantial modification.
The estimated annual benefit at retirement for each of the following
executive officers of Dover is: Denis McGlynn, $226,722; Eugene W. Weaver,
$7,290; and Robert M. Comollo, $88,193.
401(K) RETIREMENT PLAN
Since October 1994, Dover has had a deferred compensation plan pursuant to
section 401(k) of the Code for substantially all of its full time employees who
have completed ninety (90) days of service. Covered employees may contribute up
to 9% of their compensation for each calendar year. In addition, Dover
contributes up to an additional 100% of the first $250 of compensation
contributed by any covered employee to the plan (an employee's maximum
contribution is $9,500 factored for inflation annually). All contributions are
funded currently.
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DOVER MANAGEMENT'S DISCUSSION AND ANALYSIS
The following section incorporates the text of the Management's Discussion
and Analysis sections from Dover's 10-K for fiscal year ended June 30, 1997 and
10-Q for the quarter and the nine month period ended March 31, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 1997
Results of Operations 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 operations.
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 Dover's video
lottery casino being recognized in 1997 compared with six months of depreciation
in 1996. Capital expenditures for the expansion of Dover'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 Dover's expansion of video
lottery (slot) machine and simulcasting operations.
Dover'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
Dover's NASCAR-sanctioned events in September 1996 and June 1997.
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Fiscal Year 1996 Compared With Fiscal Year 1995
Revenues increased by $32,558,000 to $50,090,000 from $17,532,000 in the
prior year. The significant increase in revenues was principally due to the
introduction of video lottery (slot) machine operations in late December 1995.
Fiscal year 1996 revenues include six months of video lottery revenues of
$28,818,000 compared with none in fiscal 1995. Motorsports revenues increased by
$1,828,000 or 11.2%. Approximately $1,028,000 of the total motorsports revenue
increase resulted from increased attendance and $345,000 resulted from increased
ticket prices. The remainder of the revenue increase of $455,000 was principally
due to increased marketing and sponsorship revenues.
Operating expenses increased by $23,302,000 of which $20,952,000 was due to
the introduction of video lottery (slot) machine operations. Payments to the
State of Delaware, fees to the manager who operates the video lottery (slot)
machine operation, and payments to the vendors who provide the video lottery
machines were $12,188,000 in fiscal 1996 and none in fiscal 1995. Amounts
allocated from the video lottery operation for harness horse racing purses were
$3,550,000 in fiscal 1996 and none in fiscal 1995. Wages and benefits of newly
hired employees for the video lottery (slot) machine operation were $2,277,000.
Advertising, promotional and customer complimentary costs of $636,000, costs
associated with casino food and beverage sales of $611,000 and building service
costs of $229,000 were some of the other significant operating costs of the
video lottery (slot) machine operations.
For the horse racing and simulcasting operations, increased purses of
$451,000 (exclusive of the $3,550,000 of harness horse racing purses allocated
from video lottery operations), higher wage and benefit costs of $444,000 and
increased simulcasting costs of $285,000 accounted for the most significant
operating cost increases.
Motorsports' operating expenses increased principally due to a $505,000
increase in purse obligation expenses. Sanction fees increased by $91,000 and
wages and related benefits increased by $66,000 during the 1996 fiscal year.
Depreciation increased by $426,000 or 40.8% to $1,469,000 from $1,043,000
due to the capital expenditures related to Dover's newly constructed video
lottery casino and to the further expansion of its motorsports facilities.
General and administrative expenses increased by $368,000 to $2,073,000
from $1,705,000. Wage and benefit costs increased by $616,000 principally due to
Dover's introduction of video lottery (slot) machine operations and expansion of
simulcasting operations.
Dover's effective income tax rates for fiscal 1996 and fiscal 1995 were
41.0% and 40.8%, respectively.
Net earnings increased by $4,912,000 due to the inclusion of video lottery
(slot) machine operations for six months in fiscal 1996 and also due to higher
attendance and related revenues at Dover's NASCAR-sanctioned events in September
1995 and June 1996.
Liquidity and Capital Resources
Cash flow from operations for the three years ended June 30, 1997, 1996 and
1995 was $18,600,000, $15,317,000 and $4,802,000, respectively. The significant
increase from fiscal 1995 to fiscal 1996 reflected Dover's higher net earnings
and increased non-cash charges, as well as deferred revenue, which is cash
received in advance for NASCAR-sanctioned event tickets. Deferred revenue
amounted to $7,542,000 and $6,003,000 at June 30, 1997 and 1996, respectively.
Dover 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. Dover was in compliance with all terms of the facility and there
were no amounts outstanding at June 30, 1997.
Capital expenditures for the year ended June 30, 1997 were $16,841,000.
Purchases of land for $1,060,000 were completed to provide for additional
parking and other future expansion. Construction
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of the 17,000 square foot casino facility expansion for $5,124,000 and
construction of additional permanent grandstand seating and luxury suites for
motorsports events of approximately $8,061,000 represented the more significant
capital projects in fiscal 1997. The capital expenditures were financed with the
proceeds from the initial public offering and cash from operations.
Capital expenditures were $18,936,000 in fiscal 1996 compared with
$6,166,000 in fiscal 1995. Construction of Dover's video lottery gaming facility
was begun in fiscal 1995 with $1,790,000 expended during the year. The higher
level of capital spending in fiscal 1996 compared with fiscal 1995 also
reflected the construction of additional grandstand seating, new skyboxes, the
acquisition and improvement of land, the resurfacing of the auto race track, and
improvements to the horse racing facilities.
In fiscal 1998, Dover expects to make capital expenditures of approximately
$12,500,000 which will include additional permanent grandstand and skybox
seating and renovations to the existing harness racing grandstand. Dover
anticipates that cash from operations and funds expected to be available under
its bank credit facility will satisfy Dover's cash requirements in fiscal 1998.
Impact of Recent Accounting Pronouncements
In February 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. This statement, which is effective
in fiscal 1998, simplifies the standards for computing EPS by replacing the
presentation of primary EPS with a presentation of basic EPS. Dover has
determined that SFAS 128 will not have a material effect on its financial
statements.
In June 1997, the 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. Dover 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. Dover 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR QUARTERLY PERIOD ENDED MARCH 31, 1998
Results of Operations: Nine Months Ended March 31, 1998 vs. Nine Months Ended
March 31, 1997
Revenues increased by $30,362,000 to $96,518,000 primarily as a result of
expanding the casino facility and increasing the number of video lottery (slot)
machines from an average of 825 in the first nine months of fiscal 1997 to 1,000
machines during the entire first nine months of fiscal 1998. Motorsports
revenues increased by $2,679,000 or 28.2%. Approximately $812,000 of the total
motorsports revenue increase resulted from increased attendance, $150,000 from
increased ticket prices and $792,000 related to sponsorship, concession and
broadcast revenues at Dover Downs International Speedway. The remainder of the
increase resulted from the acquisition, on January 2, 1998, of the Nashville
Speedway USA.
Operating expenses increased by $21,721,000 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
$12,235,000 in the first nine months of fiscal 1998. Amounts allocated from the
video lottery operation for harness horse racing purses were $9,308,000 in the
first nine months of fiscal 1998 compared with $6,407,000 in the first nine
months of fiscal 1997. Advertising, promotional and customer complimentary cost
increases of $1,655,000 were the other significant operating cost increases.
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Motorsports operating expenses increased primarily due to a $220,000
increase in purse obligation expenses and related sanction fees and the
inclusion of the results of operations of Nashville Speedway USA.
Depreciation and amortization increased by $462,000 or 30.8% due to capital
expenditures related to Dover's video lottery casino and motorsports facilities
expansion and amortization of goodwill.
General and administrative expenses increased by $1,022,000 to $3,239,000
from $2,217,000 in the first nine months of 1997 primarily as a result of
increased wages and benefits related to the video lottery operations and the
general growth in Dover's business.
Dover's effective income tax rates for the nine-month period ended March
31, 1998 and 1997 were 41.8% and 41.7%, respectively.
Net earnings increased by $4,374,000 as a result of increased promotional
and marketing efforts that led to increased play in the casino, which was
expanded in the second quarter of fiscal 1997, and higher attendance and related
revenues at Dover's NASCAR-sanctioned events in September 1997 as compared with
September 1996.
Results of Operations: Quarter Ended March 31, 1998 vs. Quarter Ended
March 31, 1997
Revenues increased by $10,051,000 to $31,735,000 primarily as a result of
increased marketing and promotional efforts in the third quarter of fiscal 1998.
Harness horse racing revenues increased by $527,000 as a result of a 113.0%
increase in average handle from exporting live harness horse races to other
tracks and off-track betting facilities and the addition of 19 days of live
harness racing as compared with the same quarter in 1997.
Operating expenses increased by $7,785,000 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
$3,953,000 in the third quarter of fiscal 1998. Amounts allocated from the video
lottery operation for the harness horse racing purses were $3,293,000 in the
third quarter of fiscal 1998 compared with $2,380,000 in the third quarter of
fiscal 1997. Advertising, promotional and customer complimentary cost increases
of $500,000 were the other significant operating cost increases.
Depreciation and amortization increased by $164,000 or 30.3% as a result of
Dover's video lottery casino and motorsports facilities expansion and
amortization of goodwill.
General and administrative expenses increased by $438,000 to $1,178,000
from $740,000 in the third quarter of 1997 primarily as a result of increased
wages and benefits related to the video lottery operations and the general
growth in of Dover's business.
Dover's effective income tax rates for the third quarter of fiscal 1998 and
fiscal 1997 were 41.5% and 41.0%, respectively.
Net earnings increased by $973,000 primarily as a result of the increased
promotional and marketing efforts that led to increased play in the casino
during the third quarter of fiscal 1998.
Liquidity and Capital Resources
Cash flows from operations for the nine months ended March 31, 1998 and
1997 were $19,783,000 and $11,589,000, respectively. The reason for the increase
in operating cash flows was primarily the increased net earnings and increased
deferred revenue, which resulted from cash received for advance ticket sales for
NASCAR-sanctioned events.
Capital expenditures for the first nine months of fiscal 1998 were
$4,952,000 and related primarily to the expansion of and improvements to the
auto racing facility.
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Effective January 2, 1998, Dover acquired all of the outstanding common
stock of Nashville Speedway USA, Inc. for $3 million.
Dover and Grand Prix entered into the Merger Agreement on March 26, 1998,
pursuant to which Grand Prix will become a wholly owned subsidiary of Dover.
The Merger is structured as a tax-free exchange and contemplates that each
shareholder of Grand Prix will receive 0.63 shares of Dover Common Stock for
each share of Grand Prix Common Stock owned by such shareholder, subject to
certain adjustments if the fifteen-day average price of Dover Common Stock prior
to closing is greater than $32.00 or less than $21.00 per share, provided that
the Exchange Ratio shall not be greater than 0.6963 nor less than 0.5929.
Certain shareholders of Grand Prix, representing approximately 38 percent
of the outstanding Grand Prix Common Stock on a fully diluted basis, have
entered into support agreements with Dover pursuant to which they have granted
to Dover a proxy to vote their shares in favor of the Merger and an option to
Dover to purchase their shares upon the happenings of certain events. Combined
with 680,000 shares of Grand Prix Common Stock purchased by Dover from two
non-management shareholders in March of 1998 for $10,540,000, over 50% of the
outstanding Grand Prix Common Stock on a fully diluted basis is committed to
consummating the Merger. Certain holders of Dover Capital Stock, representing
more than a majority of its voting rights, have similarly agreed to vote their
shares in favor of the Merger.
The Merger is expected to close in June 1998 and is subject to approval of
the stockholders of both Dover and Grand Prix and certain other customary
conditions.
Dover has a $20,000,000 committed revolving line of credit to provide
seasonal funding needs and to finance capital improvements. There were no
amounts outstanding under the credit facility at March 31, 1998.
On October 3, 1996, Dover issued 1,075,000 shares of Dover Common Stock at
$17.00 per share. Dover used the proceeds to pay down Dover's revolving credit
facility and to finance capital expenditures.
Management believes that cash flows from operations and funds available
under its bank credit facility will satisfy Dover's cash requirements for fiscal
1998.
FORWARD-LOOKING STATEMENTS
Dover may make forward-looking statements relating to anticipated financial
performance, business prospects, acquisitions or divestitures, 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, Dover notes that a variety of factors could
cause Dover's actual results and experience to differ materially from the
anticipated results or other expectations expressed in Dover's forward-looking
statements. Forward-looking statements typically contain words such 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 operations, performance,
development and results of Dover's business and could cause future outcomes to
differ materially from those set forth in forward-looking statements, including
the following factors: the weather, Dover's relationship with NASCAR, the
motorsports sanctioning body, changes in state and local laws and regulations,
the ability to keep purses at a competitive level and the ability to increase
on-track and simulcast handle as well as the risks, uncertainties and other
factors described from time to time in Dover's SEC filings and reports. For a
discussion of certain matters that should be considered by the Stockholders of
Dover and Grand Prix, see "RISK FACTORS."
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GRAND PRIX MANAGEMENT'S DISCUSSION AND ANALYSIS
The following section incorporates the text of the Management's Discussion
and Analysis sections from Grand Prix's 10-KSB for fiscal year ended November
30, 1997 and 10-QSB for the quarterly period ended February 28, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
Basis of Presentation.
Major Event Revenues. Major event revenues are derived from Sanctioned
Events at Gateway and Memphis. For the year ended November 30, 1997, major event
revenues include revenues earned from the Grand Prix Event; the Motorola 300,
Gateway 300, NHRA Sears Craftsman Nationals and the ARCA/USAC Twin 100's at
Gateway; and the NHRA Pennzoil Nationals at Memphis. For the year ended June 30,
1996, major event revenues included the Grand Prix Event and the NHRA Pennzoil
Nationals in Memphis. There were no major event revenues in the five month
period ended November 30, 1996.
Admissions. Admissions revenue represents ticket sales in connection with
the major events. Ticket sales revenue, whenever collected, is considered earned
upon completion of the related event. A substantial portion of Grand Prix's
admissions revenue is collected in advance of the event to which it relates.
Sponsorships. Sponsorship revenue includes corporate sponsorships for
major events received in accordance with negotiated contracts with a diverse
group of companies.
Ancillary. Ancillary revenues for major events include hospitality,
broadcast services, merchandise and concession sales, expo and program ads.
Other Operating Revenues. Grand Prix generates other operating revenues
from special, local and regional motorsports events and related concessions and
venue sponsorships at Gateway and Memphis, along with promotion, marketing and
public relations consulting services, and rentals of grandstands, structures and
related equipment services.
Expenses. Grand Prix classifies its expenses to include major event
expenses, other operating expenses, general and administrative expenses and
depreciation. Major event expenses principally include sanction fees, circuit
construction costs, operational direct expenses, marketing, advertising and
public relations, costs of souvenir sales, ticket sales expenses and city
service fees. Sanction agreements require race promoters to pay fees and provide
services to the relevant sanctioning body during the event. Other operating
expenses include expenses directly related to operating the Gateway and Memphis
facilities for the special, local and regional events; marketing and public
relations consulting services; structures and electrical services costs. General
and administrative expenses include wages and other general expenses, as well as
the infrastructure costs of Gateway and Memphis during periods when events do
not occur.
Forward-Looking Statements
Grand Prix may make forward-looking statements relating to anticipated
financial performance, business prospects, acquisitions or divestitures, 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, Grand Prix notes that a variety of
factors could cause Grand Prix's actual results and experience to differ
materially from the anticipated results or other expectations expressed in Grand
Prix's forward-looking statements. Forward-looking statements typically contain
words such as "anticipates", "believes", "estimates", "expects", "forecasts",
"predicts", or "projects", or variations of these words, suggesting that future
outcomes are uncertain. For a discussion of certain matters that should be
considered by the stockholders of Dover and Grand Prix, see "RISK FACTORS."
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Various risks and uncertainties may affect the operations, performance,
development and results of Grand Prix's business and could cause future outcomes
to differ materially from those set forth in forward-looking statements,
including the following factors: the weather, Grand Prix's relationship with
NASCAR, the motorsports sanctioning body, changes in state and local laws and
regulations, the ability to keep purses at a competitive level and the ability
to increase on-track and simulcast handle as well as the risks, uncertainties
and other factors described from time to time in Grand Prix's SEC filings and
reports.
Results of Operations.
The table below sets forth revenues and expenses as a percentage of total
revenue for the year ended November 30, 1997, the five month transition period
ended November 30, 1996 and the year ended June 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED 5 MONTHS ENDED YEAR ENDED
JUNE 30, NOVEMBER 30, JUNE 30,
1996 1996 1997
----------- --------------- ------------
<S> <C> <C> <C>
Revenues:
Major event revenues
Admissions..................................... 36.4% 0.0% 39.4%
Sponsorships................................... 19.9 0.0 13.1
Ancillary...................................... 25.5 0.0 26.7
----- ------ -----
Total major event revenues.................. 81.8 0.0 79.2
Other operating revenues......................... 18.2 100.0 20.8
----- ------ -----
Total revenues.............................. 100.0 100.0 100.0
----- ------ -----
Expenses:
Major event expenses........................... 47.3 0.0 48.8
Other operating expenses....................... 12.9 51.5 8.0
General and administrative..................... 21.1 117.1 26.1
Depreciation................................... 3.0 34.1 4.8
----- ------ -----
Total expenses.............................. 84.3 202.7 87.7
----- ------ -----
Operating income (loss).......................... 15.7 (102.7) 12.3
Other expense.................................... (0.7) (6.5) (2.5)
(Provision) benefit for income taxes............. (6.3) 40.7 (4.1)
----- ------ -----
Net income (loss)................................ 8.7% (68.5)% 5.7%
===== ====== =====
</TABLE>
Year Ended November 30, 1997 Compared to the Year Ended June 30, 1996.
The following discussion compares the year ended November 30, 1997 with
Grand Prix's previous fiscal year ended June 30, 1996. No discussion of the five
months ended November 30, 1996 has been included as it was a transition period
with no major racing events occurring during that period.
Major event revenues increased by $11,993,000 to $24,470,000 from
$12,477,000 in the prior year. The significant increase in revenues was
primarily due to Grand Prix operating six major events compared with two in
1996. The Grand Prix Event and the NHRA Pennzoil Nationals at Memphis were
featured in both fiscal years. In 1997 the following additional major events
took place: the CART sanctioned Motorola 300, the NHRA sanctioned Sears
Craftsman Nationals, the NASCAR-sanctioned Gateway 300 and the ARCA/USAC
sanctioned Twin 100's. The most significant increases occurred in admissions and
ancillary revenue attributed largely to spectator attendance. Major event
expenses increased by $7,881,000 to $15,089,000 also as a result of the addition
of six major events in 1997 compared to 1996.
Other operating revenues increased $3,665,000 to $6,439,000 primarily as a
result of experiencing a full year of special, local and regional motorsports
events and related concessions and venue
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sponsorships at Gateway and Memphis. In the prior full fiscal year ended June
30, 1996, there were no such revenues recorded for Memphis because the facility
was purchased in June 1996. In addition, at Gateway, due to the redevelopment
that was ongoing, there was limited event activity during 1996. Both Gateway and
Memphis obtained venue sponsorships in 1997, whereas previously there were event
sponsorships only. These sponsorships resulted in additional revenues of
approximately $700,000 over prior periods. Other operating expenses increased
$520,000 to $2,491,000. The increase was primarily due to the increase in
staffing needed to execute a full season of racing activity at Gateway and
Memphis in 1997 versus the limited activity included in 1996.
General and administrative costs increased by $4,842,000 to $8,074,000
primarily as a result of the overhead costs of two additional permanent racing
facilities compared with the overhead costs of operating one temporary circuit
race. The addition of overhead costs was required to enable Grand Prix to stage
the four additional major events in 1997 and to be prepared to add additional
major events in the future. Management believes that adding additional major
events should not require a substantial increase in overhead as the
infrastructure of personnel and facilities is in place. The paved oval at
Memphis Motorsports Park is still under construction. Therefore a certain amount
of additional overhead costs associated with operating and maintaining that
facility is expected. The increase is not expected to be significant.
Depreciation expense increased $1,004,000 to $1,455,000 primarily as a
result of the completion of the first phase of the redevelopment at Gateway in
time for the Motorola 300 race in May 1997. Accordingly depreciation expense on
these assets was recognized for the first time in fiscal year 1997.
Interest income increased $507,000 to $626,000 primarily as a result of
increased cash reserves during the period. Interest expense increased $1,261,000
to $1,435,000 primarily due to the interest on the SWIDA Loan no longer being
capitalized following substantial completion of the redevelopment project at
Gateway.
Grand Prix's effective income tax rate for 1997 and 1996 was 42%.
Net income increased by $439,000 due to the inclusion of six major events
in 1997 compared with two in 1996, offset by the increase in interest expense
related to the SWIDA Loan, additional depreciation and infrastructure costs
necessary to be prepared to host major events at Gateway and Memphis.
Five Month Transition Period Ended November 30, 1996 Compared to the Five
Month Period Ended November 30, 1995 (unaudited).
Grand Prix did not hold any major events July through November 1995 or
1996. All revenues collected during these months related to major events are
deferred until completion of the related event. All direct major event expenses
incurred were deferred until completion of the related event.
Other operating revenues increased by $364,000 primarily as a result of
five months of revenues at Memphis in 1996 not operated by Grand Prix in 1995
and increases in revenues from grandstand rentals.
Other operating expenses increased by 30.2% from 1995 to 1996, or 2.9% as a
percentage of other operating revenues from 48.6% in 1995 to 51.5% in 1996,
primarily due to the change in other operating revenues as described above.
General and administrative expenses increased by $975,000 from 1995 to
1996. This increase is due to several factors including five months of
expenditures related to Memphis ($254,000), administrative costs related to
operating Gateway ($136,000), increases in the number of employees over the
prior period and increases in professional fees pertaining mainly to the
reporting requirements of a public company.
Depreciation expense of $668,000 for the five months ended November 30,
1996 increased $503,000, from the five months ended November 30, 1995. This
increase is attributable to five months
117
<PAGE>
of depreciation expense on Memphis capital assets in 1996, depreciation on the
completed drag strip at Gateway for three months, other Gateway construction and
corporate capital assets purchased during the current period.
Liquidity and Capital Resources.
Cash flow from operations for the year ended November 30, 1997 was
$2,508,000.
Grand Prix relied on cash generated from operating revenues and on the
proceeds of its initial public offering for working capital during the year
ended November 30, 1997. In addition, the proceeds of its 21-year, $21,500,000
promissory note to SWIDA, the initial public offering and cash generated from
operations were used to fund the redevelopment at Gateway and Memphis.
On August 8, 1997 Grand Prix reached an agreement to sell 630,000 shares of
Grand Prix Common Stock for $12.34 per share. There was a requirement to meet
certain conditions prior to the effective date of the sale. Those conditions
were subsequently met and the Grand Prix Common Stock was issued with an
effective date of September 23, 1997 resulting in net proceeds to Grand Prix of
$7,615,000. The remaining proceeds of $4,340,000 are available for board
approved projects.
Grand Prix's cash and cash equivalents as of November 30, 1997 are
$1,520,000, a net decrease of $8,694,000 from November 30, 1996. The decrease in
cash is primarily the result of funding redevelopment activities at Gateway and
Memphis.
Restricted cash pursuant to the terms of the SWIDA Loan as of November 30,
1997 was $3,305,000. Cash used by Grand Prix from restricted and non-restricted
cash in capital improvements totaled $23,762,000 for the year ended November 30,
1997, primarily for the redevelopment at Gateway and Memphis.
Grand Prix expects to make capital expenditures of approximately $5,400,000
which will include completion of the paved oval at Memphis and construction of
additional grandstands, concession facilities and other improvements at Gateway.
Grand Prix anticipates funding the costs of additional capital improvements
primarily through cash generated from the sale of Grand Prix Common Stock in
September 1997 and with cash flow from operations. Grand Prix anticipates
meeting its working capital needs which include its major event expenditures
such as sanctioning fees and other commitments through cash generated from
operations.
Grand Prix's bank borrowings consist of short and long term obligations
incurred in connection with specific capital improvements and expenditures. Long
term debt includes first and second trust deed notes, which together had an
outstanding principal balance of approximately $2,461,000 on November 30, 1997
and the SWIDA Loan with a balance of $21,460,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28,
1998
Grand Prix operates the Grand Prix Event, a three day, temporary circuit
motorsports event run every spring on the streets of the City of Long Beach,
California. Grand Prix also owns and operates Gateway, in Madison, Illinois, and
Memphis, in Millington, Tennessee. Both facilities are permanent multi-purpose
racing venues, with major racing events sanctioned by CART, NHRA, NASCAR, ARCA
and USAC held at one or both facilities.
Revenues are generated from ticket sales, corporate sponsorships and
hospitality services (including rental of corporate suites, tents and chalets),
broadcast production services, merchandise sales, concessions and other related
event revenues as well as weekly racing activities at Gateway and Memphis.
Grand Prix recently completed a new 0.25-mile dirt oval at Memphis.
Construction of a new 0.75 mile paved oval at Memphis is currently in progress.
Grand Prix anticipates total expenditures for this project will be approximately
$3,100,000. In addition Grand Prix is in the process of completing approximately
$3,000,000 worth of improvements to its Gateway facility. Such improvements
include additional grandstand seating capacity at both the oval and drag strip,
additional concession and
118
<PAGE>
restroom facilities, additional land for parking and improved ingress/egress
capabilities. Grand Prix anticipates funding the additional costs of these
capital improvements through cash reserves, cash generated by operations and by
financing certain asset acquisitions.
Basis of Presentation.
Revenues. Major event revenues are derived from nationally sanctioned
events at the Grand Prix, Gateway and Memphis; including admissions from ticket
sales, sponsorships and ancillary, comprising hospitality services, broadcast
services, merchandising, lifestyle/auto-expo and concessions. Grand Prix
generates other operating revenues from promotion, marketing and public
relations consulting services and rentals of grandstands, structures and related
equipment services.
Expenses. Major event expenses principally include sanction fees,
temporary-circuit construction costs, operational direct expenses, marketing,
advertising and public relations, costs of merchandise sales, ticket sales
expenses and city service fees. Sanction agreements require race promoters to
pay fees, including prize money, and provide services to the relevant
sanctioning body during the event. Other operating expenses include expenses
directly related to public relations consulting services, structures and
equipment rental services, broadcast services and the direct expenses of
operating Gateway and Memphis for activities other than major events.
Three Months Ended February 28, 1998 Compared to Three Months Ended February
28, 1997.
Major Event Revenues and Expenses. There were no major events in either
period.
Other Operating Revenues and Expenses. Other operating revenues and
expenses increased $30,000 and $381,000 respectively, compared to the three
months ended February 28, 1997. The increase in other operating expenses was
primarily due to the impact of Gateway being operational for the three months
ended February 28, 1998, while for the corresponding period in 1997 the facility
was in a redevelopment phase.
General and Administrative Expenses. General and administrative expenses
increased $60,000 compared to the three months ended February 28, 1997. This was
related to normal operating activities.
Depreciation. Depreciation expense increased $117,000 compared to the
three months ended February 28, 1997. This was primarily due to the completion
of the first phase of the redevelopment project at Gateway in time for the
Motorola 300 race in May 1997. Accordingly, depreciation expense on these assets
was recognized for the first time beginning in June 1997.
Interest Income. Interest income decreased $136,000 compared to the three
months ended February 28, 1997. This was primarily due to the decrease in cash
on hand as a result of the construction and redevelopment activities at Gateway
and Memphis.
Interest Expense. Interest expense increased $366,000 compared to the
three months ended February 28, 1997. This was primarily due to the interest on
the SWIDA Loan being expensed in the three months ended February 28, 1998
following substantial completion of the redevelopment project at Gateway as
compared to being capitalized in the three months ended February 28, 1997.
Liquidity and Capital Resources.
Grand Prix relied on cash on hand and cash generated by advance receipts
related to major events for working capital during the three months ended
February 28, 1998. In addition, the proceeds of the sale of 630,000 shares of
Grand Prix Common Stock in September 1997 were used to fund improvements at
Gateway and construction activity at Memphis. Grand Prix anticipates funding the
costs of additional capital improvements and working capital needs principally
through cash generated from operations and bank financing.
In January 1998, Grand Prix arranged a standby letter of credit to serve as
substitute collateral for its debt service fund obligation in connection with
the SWIDA Loan. As a result approximately
119
<PAGE>
$2,500,000 in restricted cash was made available for general corporate purposes.
Substantially all of the property at the Memphis facility was pledged as
security for the letter of credit.
Grand Prix's cash and cash equivalents as of February 28, 1998 are
$5,594,000, a net increase of $4,074,000 from November 30, 1997. The increase in
cash is primarily the result of advance receipts related to major events
combined with the reclassification of cash connected with the letter of credit
as discussed above.
Restricted cash pursuant to the terms of the SWIDA Loan as of February 28,
1998 was $293,000. Restricted cash as of February 28, 1998 related to the sale
of 630,000 shares of Grand Prix Common Stock was $3,464,000. Effective in March
1998, such cash will no longer be restricted as the shares were sold and the
restrictions were removed. Cash used by Grand Prix from restricted and non-
restricted cash in capital improvements totaled $891,000 for the three months
ended February 28, 1998, primarily for improvements at Gateway and construction
activity at Memphis.
Grand Prix's bank borrowings consist of short and long term obligations
incurred in connection with specific capital improvements and expenditures. Long
term debt includes first and second trust deed notes, which together had an
outstanding principal balance of approximately $2,400,000 on February 28, 1998
and the SWIDA Loan with a balance of $21,460,000.
Outlook for the Remainder of 1998.
Grand Prix's major events commenced in April 1998 and continue through
October 1998. In addition, the weekly racing activity, track rentals, and
special events will begin at both Gateway and Memphis during the second quarter
and will continue into the fourth quarter. Accordingly there will be significant
increases in revenues and expenses reflected in the remaining periods of 1998.
Grand Prix expects construction activity at Memphis will continue through
at least the second quarter of 1998. The inaugural event at the new 0.75 mile
oval, the combined ARCA/USAC "Delta Thunder", is scheduled for June 6-7, 1998.
There will be some continuation of construction activity at Memphis beyond the
inaugural event as the facility is readied for its NASCAR debut in September
1998, the NASCAR Craftsman Truck Series race.
Grand Prix's capital requirements will depend on numerous factors,
including the rate at which Grand Prix completes the development and
improvements at Gateway and Memphis, and acquires other motorsports facilities.
In addition, Grand Prix will have various ongoing needs for capital, including:
(i) working capital for operations; (ii) routine capital expenditures to
maintain and expand its Long Beach temporary circuit and permanent facilities;
and (iii) funds required to service corporate obligations, including the
$21,500,000 obligation under the SWIDA Loan.
Due to the seasonality of racing events, Grand Prix generates the majority
of its revenues in the months of April through October. Therefore, the results
of operations for Grand Prix's first quarter cannot be expected to be indicative
of annual results.
120
<PAGE>
EXPERTS
The consolidated financial statements of Dover as of June 30, 1997 and 1996
and for each of the years in the two-year period ended June 30, 1997 have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
The consolidated statements of cash flows of Dover as of June 30, 1995 have
been included herein and in the registration statement in reliance on a report
of Siegfried & Shieffer, LLP (formerly known as Siegfried Schieffer & Seitz),
independent public accountants, appearing elsewhere herein and upon the
authority of said firm as experts in accounting and auditing.
The consolidated balance sheets of Grand Prix as of November 30, 1997 and
1996, and the consolidated statements of income, shareholders' equity, and cash
flows for the year ended November 30, 1997, the 5 month transition period ended
November 30, 1996, and the year ended June 30, 1996, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
LEGAL MATTERS
The validity of the shares of Dover Common Stock offered hereby will be
passed upon for Dover by Dover's General Counsel, Michael B. Kinnard.
STOCKHOLDER PROPOSALS
Appropriate proposals of eligible stockholders (an eligible stockholders
must be a record or beneficial owner of at least 1% or $1,000 in market value of
securities entitled to be voted at the meeting and have held such securities for
at least one year) intended to be presented at Dover's next Annual Meeting of
Shareholders must be received by Dover no later than July 3, 1998 for inclusion
in the Proxy Statement and form of proxy relating to that meeting.
OTHER MATTERS
The boards of directors of Dover and Grand Prix know of no other business
to be presented for action at the Stockholder Meetings. If any matters do come
before the Meetings on which action can properly be taken, it is intended that
the proxies will be voted in accordance with the judgment of the person or
persons exercising the authority conferred by the proxies at the Meeting.
By order of the Board of Directors
of Dover Downs Entertainment, Inc.
/s/ MICHAEL B. KINNARD
--------------------------------------
Michael B. Kinnard, Esq.
Vice President-General Counsel of
Dover Downs Entertainment, Inc.
Dover, Delaware
Date: May 21, 1998
---------------
By order of the Board of Directors
of Grand Prix Association of Long
Beach, Inc.
/s/ GEMMA A. BANNON
--------------------------------------
Gemma A. Bannon, Corporate Secretary
of Grand Prix Association
of Long Beach, Inc.
Long Beach, CA
Date: May 21, 1998
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOVER DOWNS ENTERTAINMENT, INC.
Report of Independent Accountants......................... F-2
Report of Independent Accountants......................... F-3
Consolidated Statement of Earnings for the Years Ended
June 30, 1997, 1996, and 1995.......................... F-4
Consolidated Balance Sheet as of June 30, 1997 and 1996... F-5
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1997, 1996, and 1995.......................... F-6
Notes to Consolidated Financial Statements for the Years
Ended 1997, 1996, and 1995............................. F-7
Consolidated Statements of Earnings for the Quarter and
Nine Month Periods Ended March 31, 1998 and 1997....... F-15
Consolidated Balance Sheets as of March 31, 1998 and June
30, 1997............................................... F-16
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1998 and 1997.......................... F-17
Notes to Consolidated Financial Statements for the Quarter
and Nine Month Periods Ended March 31, 1998 and 1997... F-18
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
Report of Independent Public Accountants.................. F-19
Consolidated Balance Sheets for November 30, 1997 and
1996................................................... F-20
Consolidated Statements of Income for the Year Ended
November 30, 1997, the Five Month Transition Period
Ended November 30, 1996 and the Year Ended
June 30, 1996.......................................... F-21
Consolidated Statements of Shareholders' Equity for the
Year Ended November 30, 1997, the Five Month Transition
Period Ended November 30, 1996 and the Year Ended
June 30, 1996.......................................... F-22
Consolidated Statements of Cash Flows for the Year Ended
November 30, 1997, the Five Month Transition Period
Ended November 30, 1996 and the Year Ended
June 30, 1996.......................................... F-23
Notes to Consolidated Financial Statements for November
30, 1997............................................... F-25
Condensed Consolidated Balance Sheets as of November 30,
1997 and February 28, 1998............................. F-37
Condensed Consolidated Statements of Operations for the
Three Months Ended February 28, 1998 and 1997.......... F-38
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended February 28, 1998 and 1997.......... F-39
Notes to Condensed Consolidated Financial Statements for
February 28, 1998...................................... F-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Dover Downs Entertainment, Inc.
We have audited the accompanying consolidated statements of earnings and
cash flows of Dover Downs Entertainment, Inc. and its subsidiaries for the year
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Dover
Downs Entertainment, Inc. and its subsidiaries for the year ended June 30, 1995
in conformity with generally accepted accounting principles.
Siegfried Schieffer & Seitz
Wilmington, DE
August 18, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
of Dover Downs Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Dover Downs
Entertainment, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of earnings and of cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dover Downs
Entertainment, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
July 18, 1997
F-3
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Motorsports.................................. $20,516,000 $18,110,000 $16,282,000
Gaming....................................... 81,162,000 31,980,000 1,250,000
----------- ----------- -----------
Total revenues............................... 101,678,000 50,090,000 17,532,000
----------- ----------- -----------
Expenses:
Operating.................................... 68,559,000 30,699,000 7,397,000
Depreciation................................. 2,084,000 1,469,000 1,043,000
General and administrative................... 3,065,000 2,073,000 1,705,000
----------- ----------- -----------
73,708,000 34,241,000 10,145,000
----------- ----------- -----------
Operating earnings............................. 27,970,000 15,849,000 7,387,000
Interest (income) expense...................... (269,000) 256,000 148,000
----------- ----------- -----------
Earnings before income taxes................... 28,239,000 15,593,000 7,239,000
Income taxes................................... 11,767,000 6,397,000 2,955,000
----------- ----------- -----------
Net earnings................................... $16,472,000 $ 9,196,000 $ 4,284,000
=========== =========== ===========
Earnings per common share
-- basic........ $ 1.11 $ .66 $ .31
-- diluted...... 1.08 .63 .30
Weighted average common shares and common share
equivalents outstanding
-- basic........... 14,863,000 18,926,000 13,728,000
-- diluted......... 15,275,000 14,511,000 14,511,000
</TABLE>
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-4
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(FOR THE YEARS ENDED JUNE 30, 1997 AND 1996)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $15,503,000 $ 3,140,000
Accounts receivable...................................... 1,613,000 1,221,000
Due from State of Delaware............................... 1,983,000 901,000
Inventories.............................................. 402,000 356,000
Prepaid expenses......................................... 775,000 533,000
Deferred income taxes.................................... 124,000 56,000
----------- -----------
Total current assets.................................. 20,400,000 6,207,000
Property, plant and equipment, at cost
Land..................................................... 10,563,000 9,481,000
Casino facility.......................................... 11,566,000 6,442,000
Racing facility.......................................... 38,546,000 28,872,000
Machinery and equipment.................................. 5,357,000 4,101,000
Furniture and fixtures................................... 573,000 413,000
Construction in progress................................. 83,000 538,000
----------- -----------
66,688,000 49,847,000
Less accumulated depreciation......................... (15,827,000) (13,743,000)
----------- -----------
50,861,000 36,104,000
----------- -----------
Total assets.......................................... $71,261,000 $42,311,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.................................... $ -- $ 3,500,000
Accounts payable......................................... 1,860,000 1,189,000
Purses due horsemen...................................... 1,387,000 1,436,000
Accrued liabilities...................................... 2,280,000 2,368,000
Income taxes payable..................................... 2,507,000 2,836,000
Current portion of long-term debt........................ 19,000 22,000
Deferred revenue......................................... 7,542,000 6,003,000
----------- -----------
Total current liabilities............................. 15,595,000 17,354,000
----------- -----------
Long-term debt............................................. 760,000 766,000
Deferred income taxes...................................... 606,000 476,000
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; 35,000,000 shares
authorized; issued and outstanding: 1997 -- 2,939,000;
1996 -- none.......................................... 294,000 --
Class A common stock, $.10 par value; 30,000,000 shares
authorized; issued and outstanding: 1997 -- 12,286,830
shares; 1996 -- 13,925,830 shares..................... 1,229,000 1,393,000
Additional paid-in capital............................... 21,081,000 4,669,000
Retained earnings........................................ 31,696,000 17,653,000
----------- -----------
Total shareholders' equity............................ 54,300,000 23,715,000
----------- -----------
Total liabilities and shareholders' equity............ $71,261,000 $42,311,000
=========== ===========
</TABLE>
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-5
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $16,472,000 $ 9,196,000 $4,284,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation.............................................. 2,084,000 1,469,000 1,043,000
Loss on disposition of property........................... -- -- 135,000
(Increase) decrease in assets:
Accounts receivable..................................... (392,000) 48,000 (418,000)
Due from affiliate...................................... -- 333,000 44,000
Due from State of Delaware.............................. (1,082,000) (901,000) --
Inventories............................................. (46,000) (250,000) 17,000
Prepaid expenses........................................ (242,000) (39,000) (205,000)
Increase (decrease) in liabilities:
Accounts payable........................................ 671,000 152,000 (542,000)
Purses due horsemen..................................... (49,000) 1,436,000 --
Accrued liabilities..................................... (88,000) 1,497,000 (668,000)
Current and deferred income taxes....................... (267,000) 1,927,000 (146,000)
Deferred revenue........................................ 1,539,000 449,000 1,258,000
----------- ----------- ----------
Net cash provided by operating activities............... 18,600,000 15,317,000 4,802,000
----------- ----------- ----------
Cash flows from investing activities:
Sale of short-term investments............................ -- 3,200,000 3,038,000
Capital expenditures...................................... (16,841,000) (18,936,000) (6,166,000)
----------- ----------- ----------
Net cash used in investing activities................... (16,841,000) (15,736,000) (3,128,000)
----------- ----------- ----------
Cash flows from financing activities:
Short-term borrowings (repayments)........................ (3,500,000) 3,500,000 --
Repayment of long-term debt............................... (9,000) (786,000) (77,000)
Repayment to shareholder.................................. -- (200,000) (1,016,000)
Net proceeds from initial public offering................. 16,360,000 -- --
Dividends paid............................................ (2,429,000) -- --
Proceeds from stock options exercised, including related
tax benefit............................................. 182,000 294,000 18,000
----------- ----------- ----------
Net cash provided by (used in) financing activities..... 10,604,000 2,808,000 (1,075,000)
----------- ----------- ----------
Net increase in cash and cash equivalents................... 12,363,000 2,389,000 599,000
Cash and cash equivalents, beginning of year................ 3,140,000 751,000 152,000
----------- ----------- ----------
Cash and cash equivalents, end of year...................... $15,503,000 $ 3,140,000 $ 751,000
=========== =========== ==========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 168,000 $ 373,000 $1,173,000
Income taxes paid......................................... $12,034,000 $ 4,413,000 $3,113,000
Non-cash investing and financing activities:
Land acquired............................................. $ 1,300,000
Cash paid................................................. (500,000)
Mortgage incurred......................................... $ 800,000
</TABLE>
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
F-6
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
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-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, 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 operations.
Unless the Act is extended or reenacted, it will terminate on March 15, 2000, in
which event the Company will be required to discontinue its video lottery
operations. In addition, under the Act, no payments can be made to Dover Downs
beyond December 29, 1998 unless new legislation is enacted, in which event the
Company would be required to discontinue its video lottery operations. The video
lottery operations account for a significant portion of the Company's revenues
and operating earnings.
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
F-7
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 2 -- REORGANIZATION -- (CONTINUED)
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, 1994.
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 restated the results for the three years ended June 30, 1997.
Certain amounts in the 1996 and 1995 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 -- Basic earnings per common share are computed based on
the weighted average number of common shares outstanding. Diluted earnings per
common share are computed assuming the conversion of all potentially dilutive
outstanding stock options, using the treasury stock method.
Cash and cash equivalents -- The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Pre-opening costs -- The Company deferred costs in the amount of $760,000
associated with the opening of its new casino facility in fiscal 1996. Such
costs were principally related to the wages and fringe benefits of newly hired
personnel during a training period prior to opening, casino management and
consulting fees, advertising and promotional expenses and supply items. All such
costs were amortized during the period from the casino's opening on December 29,
1995 through July 31, 1996 in order to match such costs with associated gaming
revenues. Pre-opening costs deferred at June 30, 1996 were $108,000.
Inventories -- Inventories, primarily items held for sale at concession and
novelty stands, are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) basis.
Property, plant and equipment -- Property, plant and equipment is stated at
cost. Depreciation is computed on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C>
Racing and casino facilities.......................... 10 - 40 years
Machinery and equipment............................... 5 - 10 years
Furniture and fixtures................................ 5 years
</TABLE>
F-8
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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, 1997.
Recently Adopted Accounting Standards -- 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, 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:
1998 -- $19,000; 1999 -- $20,000; 2000 -- $22,000; 2001 -- $24,000; 2002 --
$26,000; and thereafter $668,000.
NOTE 5 -- INCOME TAXES
The current and deferred income tax provisions are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $ 9,207,000 $4,971,000 $2,306,000
State.................................. 2,498,000 1,329,000 631,000
----------- ---------- ----------
11,705,000 6,300,000 2,937,000
Deferred:
Federal................................ 49,000 81,000 14,000
State.................................. 13,000 16,000 4,000
----------- ---------- ----------
62,000 97,000 18,000
----------- ---------- ----------
Total income taxes....................... $11,767,000 $6,397,000 $2,955,000
=========== ========== ==========
</TABLE>
F-9
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 5 -- INCOME TAXES -- (CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Federal tax at statutory rate.................... 35.0% 35.0% 34.0%
State taxes, net of federal benefit.............. 5.7% 5.7% 5.7%
Other............................................ 1.0% .3% 1.1%
Effective income tax rate...................... 41.7% 41.0% 40.8%
</TABLE>
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, 1997:
Actuarial present value of accumulated benefit obligation:
<TABLE>
<S> <C>
Vested.................................................... $289,254
Non-vested................................................ 41,570
--------
$330,824
========
Projected benefit obligation.............................. $530,761
Plan assets at market value............................... 463,844
--------
Funded status............................................. (66,917)
Unrecognized net gain..................................... (35,760)
Unrecognized prior service cost........................... 205,442
========
Prepaid pension cost...................................... $102,765
========
</TABLE>
At June 30, 1997, the assets of the plan were invested 81% in equity
securities, 18% in fixed income securities and the balance in other short-term
interest-bearing accounts. The discount rate and the assumed rate of
compensation increase were 8% and 5%, respectively. The expected long-term rate
of return on assets was 9% for 1997.
F-10
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 6 -- PENSION PLAN -- (CONTINUED)
The components of net periodic pension cost for 1997 are as follows:
<TABLE>
<S> <C>
Service cost............................................... $61,129
Interest cost.............................................. 32,087
Return on plan assets...................................... (68,385)
Net amortization........................................... 16,416
Deferral of net gain....................................... 35,760
-------
$77,007
</TABLE>
Net periodic pension costs for 1996 and 1995 were $24,000 and $32,000,
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.
NOTE 7 -- SHAREHOLDERS' EQUITY
Changes in the components of shareholders' equity are as follows:
<TABLE>
<CAPTION>
$.10
$.10 PAR VALUE
PAR VALUE CLASS A ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30, 1994.............. $ -- $1,371,000 $ 4,379,000 $ 4,173,000
Net earnings.......................... 4,284,000
Issuance of common stock.............. -- 1,000 17,000 --
-------- ---------- ----------- -----------
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
</TABLE>
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.
F-11
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 7 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
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 earnings per share
disclosed in the basic financial statements would be reduced by less than $.01
per share in 1997 and 1996.
Option activity is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Number of options:
Outstanding at beginning of year................ 585,000 787,500 225,000
Granted......................................... 112,764 -- 562,500
Exercised....................................... (225,000) (202,500) --
-------- -------- -------
Outstanding at June 30.......................... 472,764 585,000 787,500
-------- -------- -------
At June 30:
Options available for grant..................... 637,236 750,000 --
Options exercisable............................. 22,500 90,000 135,000
Weighted Average Exercise Price
Options granted............................... $ 17.13 -- $ 1.33
Options exercised............................. $ .81 $ .95 --
Options outstanding........................... $ 5.10 $ 1.13 $ 1.08
Options exercisable........................... $ 1.33 $ .46 $ .46
</TABLE>
F-12
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
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 years
ended June 30, 1995 and 1996 were $176,000 and $122,000, respectively. At June
30, 1995 accounts receivable due from related party were $333,000 related to
such services. There was no balance due the Company at June 30, 1996 or 1997 as
the management service agreement was cancelled. In June 1996, the Company
acquired for cash several tracts of undeveloped land comprising a total of 206
acres for $6,200,000 from a company wholly-owned by the majority shareholder.
The purchase price was determined on the basis of an independent appraisal
performed in 1996. During the year ended June 30, 1997 and 1996, the Company
purchased certain paving, site work and construction services involving total
payments of $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 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 $178,000 and $36,000 in 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:
<TABLE>
<CAPTION>
MOTORSPORTS GAMING CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
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 expenditure................. 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
Year ended June 30, 1995
Revenue............................. $16,282,000 $ 1,250,000 $ 17,532,000
Operating earnings (loss)........... 8,372,000 (985,000) 7,387,000
Identifiable assets at year-end..... 17,109,000 6,363,000 23,472,000
Capital expenditures................ 5,749,000 417,000 6,166,000
Depreciation........................ $ 712,000 $ 331,000 $ 1,043,000
</TABLE>
F-13
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995)
NOTE 10 -- COMMITMENTS
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 $5,184,908 in fiscal 1997 and $2,260,909 in fiscal 1996. Amounts
due to Caesars at June 30, 1997 and 1996 totaled $431,464 and $401,117,
respectively and are included in accrued liabilities.
The Company currently holds licenses to conduct four NASCAR-sanctioned
events in 1997 (two of which were held in June 1997 and two of which will be
held in September 1997). NASCAR sanctions are issued on an annual basis and
require the payment of sanction fees, prize money and point funds to NASCAR. The
Company has held NASCAR-sanctioned events for 29 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 -- QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
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.......... $ .39 $ .08 $ .15 $ .46
1996
Revenues........................... $ 8,632 $ 980 $14,482 $25,996
Gross profit (loss)................ 5,165 (488) 3,339 9,906
Net earnings (loss)................ 2,913 (644) 1,682 5,245
Earnings (loss) per common share... $ .20 $ (.04) $ .11 $ .36
</TABLE>
F-14
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(FOR THE QUARTERS ENDED MARCH 31, 1998 & 1997 AND
FOR THE NINE MONTHS ENDED MARCH 31, 1998 & 1997)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Motorsports.................................... $ 949 $ 43 $12,194 $ 9,515
Gaming (including win) (1)..................... 30,786 21,641 84,324 56,641
------- ------- ------- -------
31,735 21,684 96,518 66,156
------- ------- ------- -------
Expenses:
Operating...................................... 24,380 16,595 68,370 46,649
Depreciation and amortization.................. 706 542 1,962 1,500
General and administrative..................... 1,178 740 3,239 2,217
------- ------- ------- -------
26,264 17,877 73,571 50,366
------- ------- ------- -------
Operating earnings............................... 5,471 3,807 22,947 15,790
Interest income.................................. 161 131 490 102
------- ------- ------- -------
Earnings before income taxes..................... 5,632 3,938 23,437 15,892
Income taxes..................................... 2,337 1,616 9,791 6,620
------- ------- ------- -------
Net earnings..................................... $ 3,295 $ 2,322 $13,646 $ 9,272
======= ======= ======= =======
Earnings per common share
-Basic...................................... $ .22 $ .15 $ .90 $ .63
======= ======= ======= =======
-Diluted.................................... $ .21 $ .15 $ .87 $ .61
======= ======= ======= =======
Average shares outstanding (000)
- Basic..................................... 15,248 15,136 15,245 14,763
- Diluted................................... 15,615 15,552 15,597 15,181
Dividends paid per common share.................. $ .08 $ .08 $ .24 $ .08
</TABLE>
- ------------------
(1) Gaming revenues from Dover'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 Dover as its
commission for acting as a Licensed Agent. The difference between total win
and the amount remitted to Dover is reflected in Operating Expenses.
F-15
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
(FOR THE NINE MONTHS ENDED MARCH 31, 1998 & JUNE 30, 1997)
DOLLARS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
------------ --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $13,263 $15,503
Accounts receivable....................................... 3,085 1,613
Due from State of Delaware................................ 2,161 1,983
Inventories............................................... 305 402
Prepaid expenses.......................................... 1,241 775
Deferred income taxes..................................... 315 124
------- -------
Total current assets................................... 20,370 20,400
------- -------
Property, plant and equipment, net.......................... 53,935 50,861
Investments................................................. 10,540 --
Goodwill, net............................................... 2,931 --
------- -------
Total assets........................................... $87,776 $71,261
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,425 $ 1,860
Purses due horsemen....................................... 996 1,387
Accrued liabilities....................................... 3,553 2,280
Income taxes payable...................................... 14 2,507
Current portion of long-term debt......................... 19 19
Deferred revenue.......................................... 14,983 7,542
------- -------
Total current liabilities.............................. 21,990 15,595
Long-term debt.............................................. 746 760
Deferred income taxes....................................... 721 606
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity:
Preferred stock, $.10 par value; 1,000,000 shares
authorized; issued and outstanding: none
Common stock, $.10 par value; 35,000,000 shares
authorized; issued and outstanding: March --
2,998,950; June -- 2,939,000........................... 300 294
Class A common stock, $.10 par value; 30,000,000 shares
authorized; issued and outstanding: March --
12,249,380; June -- 12,286,830......................... 1,225 1,229
Additional paid-in capital................................ 21,109 21,081
Retained earnings......................................... 41,685 31,696
------- -------
Total shareholders' equity............................. 64,319 54,300
------- -------
Total liabilities and shareholders' equity............. $87,776 $71,261
------- -------
</TABLE>
F-16
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(FOR THE NINE MONTHS ENDED MARCH 31, 1998 & 1997)
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $13,646 $ 9,272
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,962 1,500
(Increase) decrease in assets:
Accounts receivable................................. (1,447) (949)
Due from State of Delaware.......................... (178) (310)
Inventories......................................... 97 (84)
Prepaid expenses.................................... (461) 72
Increase (decrease) in liabilities:
Accounts payable.................................... 417 680
Purses due horsemen................................. (391) (805)
Accrued liabilities................................. 1,266 (454)
Current and deferred income taxes................... (2,569) (2,204)
Deferred revenue.................................... 7,441 4,871
------- -------
Net cash provided by operating activities................. 19,783 11,589
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (4,952) (11,869)
Investment in Grand Prix Association of Long Beach........ (10,540) --
Acquisition of business, net of cash acquired............. (2,889) --
------- -------
Net cash used in investing activities.................. (18,381) (11,869)
------- -------
Cash flows from financing activities:
Repayments of short-term borrowing........................ -- (3,500)
Dividends paid............................................ (3,658) (1,210)
Repayment of long-term debt............................... (14) (5)
Proceeds of stock options exercised....................... 30 62
Net proceeds from initial public offering................. -- 16,362
------- -------
Net cash (used in) provided by financing activities.... (3,642) 11,709
------- -------
Net (decrease) increase in cash and cash equivalents........ (2,240) 11,429
Cash and cash equivalents, beginning of period.............. 15,503 3,140
------- -------
Cash and cash equivalents, end of period.................... $13,263 $14,569
======= =======
Supplemental information:
Interest paid............................................. $ 46 $ 148
Income taxes paid......................................... $12,360 $ 8,824
</TABLE>
F-17
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FOR THE QUARTER AND NINE MONTH PERIOD ENDED MARCH 31, 1998 AND 1997)
NOTE 1
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
quarter and nine months ended March 31, 1998 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998.
NOTE 2
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 Dover'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 Dover 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.
NOTE 3 EARNINGS PER SHARE
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," the number of weighted average shares used in
computing basic and diluted earnings per share (EPS) are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic EPS........................... 15,248 15,136 15,245 14,763
Effect of Options................... 367 416 352 418
------ ------ ------ ------
Diluted EPS......................... 15,615 15,552 15,597 15,181
====== ====== ====== ======
</TABLE>
No adjustments to net income available to common shareholders were required
during the periods presented.
NOTE 4
Legislation which permits an additional 1,000 slot machines at any of the
currently licensed facilities in the State of Delaware, including Dover's
facility in Dover, Delaware, and eliminates the existing sunset provision for
the State's video lottery operations was passed by the Delaware Senate and
signed into law by the Governor on March 26, 1998. The bill was previously
passed by the House of Representatives in January of 1998. It also creates a new
Delaware standardbred Breeder's Program, increases the number of required live
harness racing days at Dover's track, removes the administrative burden of
reapplying for a license every five years and makes various administrative
changes.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grand Prix Association of Long Beach, Inc.:
We have audited the accompanying consolidated balance sheets of Grand Prix
Association of Long Beach, Inc. (a California corporation) and subsidiaries as
of November 30, 1997 and 1996 and the related consolidated statements of income,
shareholders' equity and cash flows for the year ended November 30, 1997, the
five month transition period ended November 30, 1996 and the year ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grand Prix Association of
Long Beach, Inc. and subsidiaries as of November 30, 1997 and 1996 and the
results of their operations and their cash flows for the year ended November 30,
1997, the five month transition period ended November 30, 1996 and the year
ended June 30, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 20, 1998
F-19
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $10,214 $ 1,520
Accounts receivable....................................... 456 712
Prepaid expenses and other current assets................. 388 587
Inventories............................................... 51 326
Income taxes receivable................................... -- 966
Deferred income tax asset................................. 860 207
------- -------
Total current assets................................ 11,969 4,318
Property and equipment, net................................. 22,279 44,786
Restricted cash............................................. 11,546 7,645
Other assets................................................ 1,092 1,407
------- -------
Total assets........................................ $46,886 $58,156
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current.................................... $ 73 $ 228
Accounts payable.......................................... 680 870
Accrued interest.......................................... 817 593
Deferred major event revenues............................. 1,424 1,511
Other accrued liabilities................................. 49 104
------- -------
Total current liabilities........................... 3,043 3,306
Notes and bonds payable, long term.......................... 22,932 23,693
Other long term liabilities................................. -- 200
Deferred income tax liability............................... 928 915
------- -------
Total liabilities................................... 26,903 28,114
------- -------
Series B mandatorily redeemable convertible preferred stock,
250,000 shares issued and outstanding at November 30,
1996...................................................... 2,500 --
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized................................................ -- --
Common stock, no par value, 20,000,000 shares authorized,
4,648,000 and 3,641,000 shares issued and outstanding as
of November 30, 1997 and November 30, 1996,
respectively.............................................. 15,673 26,536
Retained earnings........................................... 2,193 3,864
Shareholders' notes......................................... (383) (358)
------- -------
Total shareholders' equity.......................... 17,483 30,042
------- -------
Total liabilities and shareholders' equity.......... $46,886 $58,156
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED NOVEMBER 30, 1997,
THE FIVE MONTH TRANSITION PERIOD ENDED
NOVEMBER 30, 1996, AND THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997
------------- ----------------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Major event revenues
Admissions............................ $ 5,552 $ -- $ 12,166
Sponsorships.......................... 3,033 -- 4,049
Ancillary............................. 3,892 -- 8,255
--------- --------- ---------
Total major event revenues......... 12,477 -- 24,470
Other operating revenues................. 2,774 1,960 6,439
--------- --------- ---------
Total revenues..................... 15,251 1,960 30,909
--------- --------- ---------
Expenses:
Major event expenses..................... 7,208 -- 15,089
Other operating expenses................. 1,971 1,010 2,491
General and administrative............... 3,232 2,295 8,074
Depreciation............................. 451 668 1,455
--------- --------- ---------
Total expenses..................... 12,862 3,973 27,109
--------- --------- ---------
Income (loss) from operations.............. 2,389 (2,013) 3,800
Other income (expense):
Interest income.......................... 119 647 626
Interest expense, net of capitalized
interest of $772 for the year ended
November 30, 1997, $186 for the five
month period ended November 30, 1996
and $0 for the year ended June 30,
1996.................................. (174) (764) (1,435)
Other, net............................... (59) (10) 41
--------- --------- ---------
Total other income (expense)....... (114) (127) (768)
--------- --------- ---------
Income (loss) before (provision) benefit
for income taxes......................... 2,275 (2,140) 3,032
(Provision) benefit for income taxes....... (955) 797 (1,273)
--------- --------- ---------
Net income (loss).......................... 1,320 (1,343) 1,759
Dividends on Series B mandatorily
redeemable convertible preferred stock... -- (44) (88)
--------- --------- ---------
Net income (loss) applicable to common
stockholders............................. $ 1,320 $ (1,387) $ 1,671
========= ========= =========
Income (loss) per share:
Basic.................................... $ 0.66 $ (0.38) $ 0.43
========= ========= =========
Diluted.................................. $ 0.64 $ (0.38) $ 0.42
========= ========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic.................................... 1,992,321 3,640,576 3,877,663
========= ========= =========
Diluted.................................. 2,074,851 3,640,574 4,007,500
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1997,
THE FIVE MONTH TRANSITION PERIOD
ENDED NOVEMBER 30, 1996, AND THE YEAR ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------- ---------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS NOTES TOTAL
------ ------- ------ ------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995.............. 1,956 $ 1,385 -- $ -- $2,261 $(399) $ 3,247
Issuance of common stock.......... 23 25 -- -- -- -- 25
Repurchase of common stock........ (1) (1) -- -- (1) -- (2)
Cash received on shareholders'
notes........................... -- -- -- -- -- 16 16
Issuance of Series A redeemable
preferred stock, net of issuance
cost of $170.................... -- -- 313 2,330 -- -- 2,330
Conversion of Series A redeemable
preferred stock................. 313 2,330 (313) (2,330) -- -- --
Issuance of common stock for cash
in connection with the initial
public offering, net of issuance
cost of $1,566.................. 1,350 11,934 -- -- -- -- 11,934
Net income........................ -- -- -- -- 1,320 -- 1,320
----- ------- ---- ------- ------ ----- -------
BALANCE, June 30, 1996.............. 3,641 15,673 -- -- 3,580 (383) 18,870
Net loss.......................... -- -- -- -- (1,343) -- (1,343)
Dividends paid.................... -- -- -- -- (44) -- (44)
----- ------- ---- ------- ------ ----- -------
BALANCE, November 30, 1996.......... 3,641 15,673 -- -- 2,193 (383) 17,483
Cash received on shareholders'
notes........................... -- -- -- -- -- 25 25
Exercise of common stock
options......................... 127 139 -- -- -- -- 139
Tax benefit from exercise of stock
options......................... -- 609 -- -- -- -- 609
Private placement of common stock,
net of issuance cost of $159.... 630 7,615 -- -- -- -- 7,615
Conversion of Series B preferred
stock to common stock........... 250 2,500 -- -- -- -- 2,500
Net income........................ -- -- -- -- 1,759 -- 1,759
Dividends paid.................... -- -- -- -- (88) -- (88)
----- ------- ---- ------- ------ ----- -------
BALANCE, November 30, 1997.......... 4,648 $26,536 -- $ -- $3,864 $(358) $30,042
===== ======= ==== ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-22
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1997,
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996,
AND THE YEAR ENDED JUNE 30, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 1,320 $(1,343) $ 1,759
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation....................... 451 668 1,455
Amortization of deferred financing
costs........................... -- 30 98
Interest earned on restricted
cash............................ -- (400) (312)
Gain on sale of assets............. (1) (2) --
Tax benefit from exercise of
employee stock options.......... -- -- 609
Changes in assets and liabilities:
Accounts receivable................... (249) 421 (256)
Income taxes receivable............... -- -- (966)
Notes receivable...................... (3) -- --
Other current assets.................. (80) (100) (474)
Other assets.......................... -- 50 (153)
Accounts payable...................... 1,323 (1,943) 190
Other accrued liabilities............. -- -- 55
Accrued interest...................... -- 817 (224)
Deferred major event revenues......... -- 1,424 87
Income taxes payable.................. (129) -- --
Deferred income taxes................. (2) (786) 640
------- ------- -------
Net cash provided by (used in)
operating activities.......... 2,630 (1,164) 2,508
------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures..................... (2,400) (11,774) (23,762)
Memphis acquisition...................... (2,604) -- --
Restricted cash -- construction fund..... (17,124) 11,036 4,213
Cash received for sale of assets......... 4 10 --
Other.................................... -- -- (260)
------- ------- -------
Net cash used in investing
activities.................... (22,124) (728) (19,809)
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEAR ENDED NOVEMBER 30, 1997,
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996,
AND THE YEAR ENDED JUNE 30, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED YEAR ENDED
JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Borrowings under notes payable........... 16 -- 1,027
Repayment under notes payable............ (217) (158) (111)
Borrowings under loans payable........... 21,460 -- --
Repurchase of common stock............... (2) -- --
Restricted cash -- debt service reserve
fund.................................. (2,504) -- --
Restricted cash -- interest fund......... (2,554) -- --
Bond issuance costs...................... (1,048) -- --
Proceeds from Series A preferred stock,
net................................... 2,330 -- --
Proceeds from initial public offering,
net................................... 11,934 -- --
Dividends................................ -- (44) (88)
Exercise of stock options................ -- -- 139
Proceeds from private placement of common
stock, net............................ -- -- 7,615
Shareholders' notes...................... 16 -- 25
------- ------- -------
Net cash (used in) provided by financing
activities............................ 29,431 (202) 8,607
------- ------- -------
Net increase (decrease) in cash.......... 9,937 (2,094) (8,694)
Cash and cash equivalents at
beginning of period................... 2,371 12,308 10,214
------- ------- -------
Cash and cash equivalents at end of
period................................ $12,308 $10,214 $ 1,520
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.............................. $ 174 $ 60 $ 2,412
Income taxes.......................... $ 960 $ 199 $ 944
Cash received during the period for:
Interest.............................. $ 119 $ 622 $ 624
DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Intangible recorded on issuance of common
stock for minority interest in
subsidiaries.......................... $ 25 $ -- $ --
Series B preferred stock issued for
Memphis acquisition................... $ 2,500 $ -- $ --
Conversion of Series B preferred stock to
common shares......................... $ -- $ -- $ 2,500
Financing of property and equipment...... $ -- $ -- $ 200
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-24
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
General
Grand Prix Association of Long Beach, Inc. and its wholly-owned
subsidiaries (the "Company") engage primarily in the organization, promotion and
management of auto racing events. Grand Prix's wholly-owned subsidiaries are:
Del Mar Race Management, Inc.
Automotive Safety & Transportation Systems, Inc.
Event Construction Services, Inc.
Gateway International Motorsports Corporation
Gateway International Services Corporation
Memphis International Motorsports Corporation
Motorsports Services Corporation of Memphis
In June 1996, Grand Prix purchased Memphis Motorsports Park located in
Millington, Tennessee. See Note 2 for acquisition details.
On December 9, 1996, the shareholders of Grand Prix ratified a Board of
Directors resolution to change the fiscal year end from June 30 to November 30.
Unaudited results of operations for the comparable five month period ended
November 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenues................................... $ 1,596
Loss from operations....................... (665)
Loss before benefit for income taxes....... (805)
Net loss................................... (467)
Loss per share............................. (0.23)
Weighted average number of common shares
outstanding.............................. 2,018,000
</TABLE>
Basis of Consolidation
The consolidated financial statements include the accounts of Grand Prix
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-25
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (CONTINUED)
Statements of Cash Flows
Grand Prix prepares its statements of cash flows using the indirect method
as defined under Statement of Financial Accounting Standards (SFAS) No. 95,
"Statement of Cash Flows". Grand Prix considers all short term investments with
a maturity at the date of purchase of three months or less to be cash
equivalents.
Concentration of Risk
Balances on deposits at banks in the United States are insured by the
Federal Deposit Insurance Corporation up to $100,000 per institution per
corporation. As of November 30, 1997, the uninsured portion of these balances
held at banks aggregated $5,527,000. In addition, Grand Prix has established
certain restricted cash funds which are held by a trustee. See Note 3 for
details.
Accounts receivable represent unsecured balances due from its customers and
Grand Prix is at risk to the extent such amounts become uncollectible. The
Company performs credit evaluations of each of its customers and maintains
allowances for potential credit losses. Such losses have generally been within
management's expectations.
A substantial portion of Grand Prix's revenues (39% and 72% for the years
ended November 30, 1997 and June 30, 1996, respectively) was realized in
connection with the annual Grand Prix race (normally in April) in Long Beach,
California. Grand Prix has an agreement with the City of Long Beach to conduct
open wheel racing one weekend a year through June 30, 2010. The Company has been
conducting Championship Auto Racing Teams, Inc. ("CART") sanctioned Indy car
events since 1984 and currently has an agreement which (including the option
periods) expires in April 2000. For the year ended November 30, 1997 the
Motorola 300 held at Gateway International Raceway accounted for 11% of
revenues. Grand Prix has an agreement with CART to conduct this event through
November 30, 2000. Should these contracts be terminated or if Grand Prix is not
successful in extending the contracts, this would have a significant impact on
Grand Prix. Management is developing other racing venues and other ancillary
revenue sources in order to reduce the Company's reliance on the Grand Prix.
Inventories
Inventories are stated at the lower of cost (first in, first out) or market
and consist principally of merchandise held for resale.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line depreciation method over the estimated useful lives of the
various classes of property and equipment, which range from five to thirty-one
and one-half years. Betterment's, renewals and extraordinary repairs that extend
the life of an asset are capitalized. Other repairs and maintenance costs are
expensed.
Debt Issuance Costs
Costs associated with the issuance of the Southwestern Illinois Development
Authority ("SWIDA") loan have been capitalized and included in other assets in
the accompanying consolidated balance sheet. These costs are being amortized
over the life of the loan using the effective interest rate
F-26
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (CONTINUED)
method and are included in interest expense in the accompanying consolidated
statements of income. Amortization expense totaled $98,000 and $30,000 for the
year ended November 30, 1997 and the five month transition period, ended
November 30, 1996 respectively.
Income Taxes
Grand Prix accounts for income taxes using the liability method as required
by SFAS No. 109, "Accounting for Income Taxes". Under SFAS 109, a deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards. The measurement of
deferred income tax assets is adjusted by a valuation reserve, if necessary, so
that the net tax benefits are recognized only to the extent that they will be
realized.
Non-Monetary Trade Agreements
Grand Prix enters into agreements to exchange advertising, exhibit space,
hospitality or event tickets for goods or services. The recorded value of the
goods or services received is based on their fair market value. The recorded
value of non-monetary trade agreements included within major event revenues for
the years ended November 30, 1997 and June 30, 1996 amounted to $518,000 and
$137,000, respectively. There were no such agreements recorded during the five
month transition period ended November 30, 1996.
Revenue Recognition
Grand Prix records race event and related revenues at the date the event is
held. Revenues related to public relations and marketing services and other
operating revenues are recorded as services are rendered.
Deferred Costs
Direct costs associated with and incurred prior to major race events
primarily consisting of deposits for convention facilities, hospitality
facilities, construction of the racing circuit, sanctioning body fees and other
direct costs are initially capitalized and then charged to expense at the date
of the event. Indirect costs and period costs are charged to expense when
incurred.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Net Income Per Share
Grand Prix has adopted SFAS No. 128, "Earnings Per Share", effective for
the quarter-ended February 28, 1998. All prior period EPS data presented has
been restated to conform with the provisions of this statement. As a result,
Grand Prix Common Stock issued for consideration below the estimated offering
price of $10.00 per share and stock options and warrants issued with exercise
prices below the offering price during the twelve month period preceding the
initial filing of the initial public offering, originally included in the
calculation of Grand Prix Common Stock EPS in accordance with Staff Accounting
Bulletin No. 83, have been excluded. The exclusion in accordance with current
Staff Accounting Bulletins of these shares has resulted in a restatement of
diluted earnings per share from $0.62 per share as originally presented to $0.64
per share for the year-ended June 30, 1996. The adoption of SFAS No. 128 had no
impact on diluted earnings per share for any other periods presented.
F-27
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (CONTINUED)
Under SFAS No. 128, primary EPS is replaced by "Basic" EPS, which excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
"Diluted" EPS, which is computed similarly to fully diluted EPS, reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. When dilutive, stock
options are included as share equivalents in computing diluted earnings per
share using the treasury stock method. In accordance with the treasury stock
method, unexercised dilutive options and warrants are assumed to have been
exercised at the beginning of the period or at the date of issuance, if later.
The assumed proceeds are then treated as if used to purchase Grand Prix Common
Stock at the average market price during the period.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
FIVE-MONTH
YEAR-ENDED TRANSITION PERIOD YEAR-ENDED
JUNE 30, 1996 ENDED NOVEMBER 30, 1996 NOVEMBER 30, 1997
------------- ----------------------- -----------------
<S> <C> <C> <C>
Weighted average common shares used
to compute basic earnings per
share................................ 1,992,321 3,640,574 3,877,663
Effect of Dilutive Securities:
Stock options........................ 80,470 -- 126,514
Convertible preferred stock.......... 2,060 -- --
Warrants............................. -- -- 3,323
---------- ---------- ----------
Weighted average common shares used
to compute diluted earnings per
share................................ 2,074,851 3,640,574 4,007,500
========== ========== ==========
</TABLE>
New Financial Accounting Pronouncements
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129 is effective for periods ending after
December 15, 1997.
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of An Enterprise and
Related Information" which are effective for the financial statements for
periods beginning after December 15, 1997.
While management has not determined the effect of the adoption of these
pronouncements on Grand Prix's financial statements, it believes they will not
be material.
NOTE 2 -- ACQUISITIONS:
Memphis Motorsports Park
On June 28, 1996, Grand Prix acquired substantially all of the assets of
Memphis Motorsports Park for a total acquisition cost of $5,104,000. In
connection with the acquisition, Grand Prix paid certain indebtedness of the
seller totaling $2,500,000 and issued 250,000 shares of Series B Mandatorily
Redeemable Convertible Preferred stock valued at $2,500,000 which bears a
cumulative 4.185% dividend rate (see Note 7). In accordance with the purchase
agreement, the results of operations have been included in these financial
statements from June 1, 1996 forward.
F-28
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 2 -- ACQUISITIONS: -- (CONTINUED)
Unaudited pro forma results of operations of Grand Prix assuming this
transaction, the private placement of Series A Preferred Stock as discussed in
Note 6, and the SWIDA loan discussed in Note 5 had all taken place effective as
of July 1, 1995 are as follows:
YEAR ENDED
JUNE 30,
1996
-----------
Revenues....................................... $16,416,000
Net loss....................................... (38,000)
Pro forma loss per share....................... (0.01)
Pro forma weighted average number of common
shares outstanding........................... 3,939,000
NOTE 3 -- RESTRICTED CASH:
Grand Prix has established certain restricted cash funds as required by the
SWIDA loan (see Note 5) which are held by the Trustee (Magna Trust Company) and
as required by the terms of its $7,615,000 private placement (See Note 6) and
consist of the following as of November 30, 1997 and 1996:
NOVEMBER 30, NOVEMBER 30,
1996 1997
------------ ------------
Debt service reserve fund.................. $ 2,561,000 $ 2,524,000
Interest fund.............................. 2,609,000 511,000
Construction fund.......................... 6,376,000 1,000
Ticket surcharge fund...................... -- 269,000
Private placement restricted funds......... -- 4,340,000
----------- -----------
$11,546,000 $ 7,645,000
=========== ===========
These funds are primarily invested in cash equivalents.
The proceeds from the issuance of common stock during the year ended
November 30, 1997 must be used to develop Grand Prix's facilities at Gateway and
Memphis and to obtain additional sanctioned events.
On January 23, 1998, Gateway International Motorsports Corporation signed a
Reimbursement Agreement with First Tennessee Bank whereby the bank provided an
irrevocable standby letter of credit to secure the debt reserve fund established
pursuant to Gateway's agreement with SWIDA. In furtherance of the Reimbursement
Agreement and concurrent therewith, Grand Prix and each of its subsidiaries
signed Guaranty Agreements, and Memphis International Motorsports Corporation
signed a Trust Deed on its properties to secure repayment of the letter of
credit.
NOTE 4 -- PROPERTY AND EQUIPMENT:
Property and equipment as of November 30, 1997 and 1996 consist of the
following:
F-29
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 4 -- PROPERTY AND EQUIPMENT: -- (CONTINUED)
NOVEMBER 30, NOVEMBER 30,
1996 1997
------------ ------------
Buildings.................................. $ 3,841,000 $14,996,000
Safety systems and materials............... 4,041,000 6,834,000
Land....................................... 2,827,000 3,273,000
Vehicles and equipment..................... 1,585,000 2,514,000
Facilities................................. 5,855,000 16,489,000
Office furniture and fixtures.............. 882,000 1,779,000
Equipment.................................. 704,000 1,100,000
Construction in process.................... 6,142,000 2,475,000
Other...................................... 781,000 1,160,000
----------- -----------
26,658,000 50,620,000
Less: accumulated depreciation............. (4,379,000) (5,834,000)
----------- -----------
$22,279,000 $44,786,000
The cost of fully depreciated property included above is $1,664,000 and
$1,465,000 at November 30, 1997 and 1996, respectively.
Construction in process relates to the redevelopment of Gateway
International Raceway and Memphis Motorsports Park.
F-30
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 5 -- NOTES AND LOANS PAYABLE:
Notes and loans payable as of November 30, 1997 and 1996 are as follows:
NOVEMBER NOVEMBER
30, 1996 30, 1997
----------- -----------
SWIDA loan for Gateway redevelopment, net of
$40,000 original issue discount (see below)...... $21,460,000 $21,460,000
First trust deed on Long Beach office note payable
to bank; bearing interest at a variable rate of
prime plus 2% per annum (10.50% at November 30,
1997); payable in monthly installments of
principal and interest of $7,000 through May
2002; final payment of principal and interest
totaling $730,000 due June 2002.................. 775,000 771,000
Second trust deed on Long Beach office note payable
to bank; bearing interest at 7.519% per annum;
payable in monthly installments of principal and
interest of $6,000 through December 2012......... 673,000 651,000
Other.............................................. 97,000 1,039,000
----------- -----------
23,005,000 23,921,000
Less: current portion.............................. (73,000) (228,000)
----------- -----------
$22,932,000 $23,693,000
=========== ===========
Grand Prix entered into an agreement with Southwestern Illinois Development
Authority to receive the proceeds from a Municipal Bond Offering which issued
"Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway International
Motorsports Corporation Project)" municipal bonds in the aggregate principal
amount of $21,500,000. The offering of the bonds closed on June 21, 1996. The
repayment terms and debt service reserve requirements of the bonds issued in the
Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA loaned
all of the proceeds from the Municipal Bond Offering to Grand Prix for the
purpose of the redevelopment, construction and expansion of Gateway
International Raceway, and the proceeds of the SWIDA loan are irrevocably
committed to complete all planned construction of Gateway International Raceway,
to fund interest, to create a debt service reserve fund and to pay for the cost
of issuance of the bonds. The SWIDA loan is secured by a first mortgage lien on
all the real property owned and a security interest in all property leased by
Grand Prix at Gateway International Raceway. The SWIDA loan bears interest at
varying rates ranging from 8.35% to 9.25% with an effective rate of
approximately 9.1%. The structure of the bonds permits amortization from
February 1997 through February 2017 with debt service beginning in 2000
following interest only payments from February 1997 through August 1999. In
addition, a portion of the property taxes to be paid by the Company (if any) to
the City of Madison Tax Incremental Fund have been pledged to the annual
retirement of debt.
F-31
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 5 -- NOTES AND LOANS PAYABLE: -- (CONTINUED)
Aggregate annual maturities of long term debt are as follows:
YEARS ENDING NOVEMBER 30
- ------------------------
1998........................................... $ 228,000
1999........................................... 130,000
2000........................................... 749,000
2001........................................... 695,000
2002........................................... 1,440,000
Thereafter..................................... 20,679,000
-----------
$23,921,000
===========
The carrying values of long term debt approximate their fair value.
NOTE 6 -- EQUITY:
In May 1996, Grand Prix effected a recapitalization pursuant to which Grand
Prix (i) increased its authorized shares of Grand Prix Common Stock to
20,000,000 shares, (ii) effected a 1:35.57013 stock split and (iii) authorized
10,000,000 shares of Grand Prix Preferred Stock. Share and per share information
presented in these financial statements reflect this recapitalization.
In April and May 1996, Grand Prix conducted a private placement of 312,500
shares of its Series A Convertible Preferred stock for $2,500,000. The private
placement closed concurrently with the closing of the SWIDA loan to Grand Prix.
Effective June 25, 1996, the Series A Convertible Preferred stock automatically
converted into Grand Prix Common Stock at $8.00 per share. Additionally, the
placement agent for the Series A Convertible Preferred stock offering received
warrants to purchase 31,250 shares of Common stock at $10.00 per share. The net
proceeds from the private placement of approximately $2,330,000 were used by
Grand Prix to establish a portion of the debt service reserve fund required for
the SWIDA loan.
Grand Prix received net proceeds of $11,934,000 from the sale of 1,350,000
shares of Grand Prix Common Stock offered at the initial public offering price
of $10.00 per share (aggregate gross proceeds of $13,500,000), with the
deduction of offering expenses and underwriting discounts ($1,566,000). Grand
Prix applied approximately $2,500,000 of the net proceeds to fund the
acquisition of Memphis Motorsports Park with the remainder being used for the
redevelopment at Gateway, the improvements at Memphis and general corporate
purposes.
Grand Prix received $7,615,000, net of issuance costs of $159,000, from a
private placement sale of 630,000 shares of Grand Prix Common Stock during the
year ended November 30, 1997. The proceeds from the issuance of this stock must
be used to develop Grand Prix's facilities at Gateway and Memphis and to obtain
additional sanctioned events
NOTE 7 -- MANDATORILY REDEEMABLE PREFERRED STOCK:
On June 28, 1996, Grand Prix issued 250,000 shares of Series B Convertible
Preferred stock which was mandatorily redeemable (the number of shares of Series
B Convertible Preferred stock was based upon the initial public offering price
of the common stock) for the acquisition of Memphis Motorsports Park. The stock
was issued with a cumulative 4.185% dividend rate payable quarterly. The Grand
Prix Preferred Stock was converted to Grand Prix Common Stock in October 1997 on
a one for one basis. Dividends paid while these shares were outstanding totaled
$88,000 and $44,000 for the year ended November 30, 1997 and the five month
period ended November 30, 1996, respectively.
F-32
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 8 -- STOCK REPURCHASE AND STOCK OPTION PLAN:
All options under Grand Prix's 1990 Stock Option Plan were exercised and
resulted in Grand Prix receiving notes from employees, officers and board
members with the stock received upon exercise of the options being pledged as
collateral for these notes. The notes bear interest at 6.5% with interest only
payable annually through December 1997.
Grand Prix granted options to purchase 602,451 shares of Grand Prix Common
Stock pursuant to Grand Prix's 1993 Stock Option Plan (the Plan) at an exercise
price of $1.09 per share (estimated fair market value at date of grant) to
certain key employees, officers and members of the Board of Directors. The
options granted under the Plan vest over a five year period and must be
exercised by December 13, 2003. As of November 30, 1997 approximately 257,270
shares have vested and are exercisable. An additional 127,723 options that were
vested were exercised during the year ended November 30, 1997. An additional
12,691 non-vested options were forfeited in 1997 upon the resignation of an
employee.
In May 1996, the 1996 Employee and Director Stock Incentive Plan (the 1996
Plan) was approved with all directors and year-round salaried employees of Grand
Prix eligible to participate. Pursuant to the 1996 Plan, the Stock Option
Committee (the Committee) may grant, without limitation, any of the following
awards to employees or directors: shares of common stock or any option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to an equity security, or similar
securities with a value derived from the value of an equity security (an
"Award"). Awards are not restricted to any specified form or structure and may
include, without limitation, sales or bonuses of stock, restricted stock, stock
options, stock purchase warrants, other rights to acquire stock, securities
convertible into or redeemable for stock, stock appreciation rights, limited
stock appreciation rights, phantom stock, dividend equivalents, performance
units or performance shares. An Award may consist of one such security or
benefit, or two or more of them in tandem or in the alternative. The Committee,
in its sole discretion, determines all of the terms and conditions of each Award
granted under the 1996 Plan. An aggregate of 400,000 shares of Grand Prix Common
Stock have been reserved for issuance in connection with Awards made to
employees and directors under the 1996 Plan. No stock options have been granted
under the 1996 Plan which terminates in May 2006. The Board of Directors of
Grand Prix may amend or terminate the 1996 Plan at any time and in any manner;
provided, however, that no such amendment or termination may terminate or modify
any Award previously granted under the 1996 Plan without the consent of the
recipient of the Award.
Grand Prix applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its fixed stock option plans. Accordingly, no
compensation cost has been recognized. In fiscal year 1996 Grand Prix adopted
the disclosure method as permitted under SFAS No. 123, "Accounting for
Stock-Based Compensation". The adoption of SFAS 123 has had no impact on the
Company as there have been no options granted subsequent to June 30, 1995.
NOTE 9 -- INCOME TAXES:
The provisions (benefit) for income taxes for the years ended November 30,
1997 and June 30, 1996 and the five month transition period ended November 30,
1996 are as follows:
F-33
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 9 -- INCOME TAXES: -- (CONTINUED)
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
Taxes currently payable
(receivable):
Federal........................... 744,000 $ (22,000) $ 512,000
State............................. 213,000 11,000 121,000
-------- --------- ----------
957,000 (11,000) 633,000
Taxes applicable to temporary
differences....................... (2,000) (786,000) 640,000
-------- --------- ----------
Provision (benefit) for income
taxes............................. $955,000 $(797,000) $1,273,000
======== ========= ==========
</TABLE>
The provisions (benefit) for income taxes for the year ended November 30,
1997, the five month transition period ended November 30, 1996 and the year
ended June 30, 1996 result in effective tax rates of 42%, 37% and 42%,
respectively
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
Federal income tax rate............. 34% (34)% 34%
State income tax, net of federal tax
effect............................ 6% (4)% 6%
Effect of permanent disallowable
deductions........................ 2% 1% 2%
-------- --------- ----------
Effective tax rate.................. 42% (37)% 42%
-------- --------- ----------
</TABLE>
Temporary differences which give rise to a significant portion of deferred
taxes as of November 30, 1997 and 1996 are:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating losses..................................... $ 793,000 $ 1,391,000
Reserves and other....................................... 118,000 207,000
Depreciation on property................................. 152,000 --
----------- -----------
1,063,000 1,598,000
----------- -----------
Deferred tax liabilities:
Reserves and other....................................... (51,000) (50,000)
Depreciation and deferred gain on property............... (1,080,000) (2,256,000)
----------- -----------
(1,131,000) (2,306,000)
----------- -----------
Net deferred tax liability................................. $ (68,000) $ (708,000)
=========== ===========
</TABLE>
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
Grand Prix leases certain property at Gateway with leases expiring at
various dates through 2070, subject to annual adjustments based on increases in
the consumer price index. Total rental payments charged to operations amounted
to $162,000 for the year ended November 30, 1997, $50,000 for the five month
transition period ended November 30, 1996 and $84,000 for the year ended June
30, 1996. In addition, one lease contains a commitment of Grand Prix to pay
additional payments aggregating $120,000 payable in $35,000 installments due
June 1, 1996, 1997 and 1998 and $15,000 due June 1, 1999 for the option to
purchase the property in 2015. If Grand Prix does not exercise its purchase
F-34
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:: -- (CONTINUED)
option, these payments will be applied toward reducing Grand Prix's rent
payments after 2015 at the rate of $1,000 per month.
Grand Prix leases office space under a non-cancelable operating lease
through December 1999 for its box office operations. The rental payment is
subject to annual adjustments based on changes in the Los Angeles consumer price
index or five percent (5%), whichever is greater. Total rental payments charged
to operations amounted to $10,000 for the year ended November 30, 1997, $4,000
for the five month transition period ended November 30, 1996 and $9,000 for the
year ended June 30, 1996.
The minimum lease payments due under the aforementioned leases are as
follows:
1998............................................ $ 294,000
1999............................................ 273,000
2000............................................ 251,000
2001............................................ 235,000
2002............................................ 209,000
Thereafter...................................... 4,738,000
Grand Prix has entered into several sanctioning agreements to conduct
various race competitions in Long Beach, at Gateway and at Memphis. These
contracts expire between 1997 and 2000 with certain options to extend
thereafter.
In connection with the major events, fixed commitments related to various
contracts in place, including sanctioning fees and municipal facilities and
services among others, require the following minimum payments as of November 30,
1997:
1998............................................ $6,956,000
1999............................................ 2,352,000
2000............................................ 2,123,000
2001............................................ 60,000
2002............................................ 60,000
Thereafter...................................... 480,000
In addition to these fixed commitments, certain of the agreements call for
additional payments based upon the profitability (as defined) of the events.
In May 1996, Grand Prix entered into employment agreements for two key
executive officers. The agreements called for an annual minimum base salary of
$400,000 and expire in May 2001. Annual increases in base salary are based on
increases in the consumer price index. Future minimum payments required under
the employment agreements as of November 30, 1997 are as follows:
1998............................................ $ 411,000
1999............................................ 412,000
2000............................................ 412,000
2001............................................ 188,000
NOTE 11 -- RELATED PARTIES:
During the years ended November 30, 1997 and June 30, 1996, Grand Prix
purchased merchandise for resale from a company owned by a director valued at
approximately $38,000 and $12,000 respectively. There were no such purchases
during the five month period ended November 30, 1996.
F-35
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 30, 1997
NOTE 11 -- RELATED PARTIES: -- (CONTINUED)
During the years ended November 30, 1997 and June 30, 1996 Grand Prix
purchased merchandise for resale from a company owned by the daughter and
son-in-law of a director valued at approximately $176,000 and $5,000
respectively. There were no such purchases during the five month transition
period ended November 30, 1996, however, deposits of $23,000 were made toward
purchases of merchandise to be delivered in the fiscal year ending November 30,
1997. In addition, during the year ended November 30, 1997, Grand Prix purchased
manufacturing equipment from the same company in the amount of $134,000.
Included in accounts receivable as of November 30, 1997 and 1996 is $15,000
and $8,500, respectively, due from directors and officers and primarily
represents interest due on the shareholders' notes.
NOTE 12 -- BENEFIT PLANS:
On November 1, 1995, Grand Prix adopted a 401(k) profit sharing plan (the
"Plan") pursuant to which employees who have completed at least one year of
service with Grand Prix and meet certain other eligibility requirements, may
contribute, on a pre-tax basis, a percentage of the employee's total annual
income from Grand Prix subject to certain Internal Revenue Code limitations.
Grand Prix may make matching contributions to the 401(k) Plan at its discretion.
Contributions made by Grand Prix to the Plan were $25,000 for the year ended
November 30, 1997, $12,000 for the five month transition period ended November
30, 1996 and $23,000 for the year ended June 30, 1996.
Since 1990, Grand Prix has had in effect a three tier bonus plan for
eligible employees (the "Bonus Plan") which is geared toward sharing the risk
and reward achieved by Grand Prix, as well as compensating personal initiative.
In the first tier of the Bonus Plan, a bonus is paid based on the Company's
marketing department having surpassed its projected earnings for the Grand Prix
Event. The second tier of the Bonus Plan offers incentives to employees for
bringing new business into Grand Prix unrelated to the Grand Prix Event. The
third tier of the Bonus Plan is based on the general profitability of Grand Prix
overall. For the year ended June 30, 1996 $422,000 was distributed pursuant to
Grand Prix's Bonus Plan. There were no distributions under the Bonus Plan for
the five month transition period ended November 30, 1996 or for the year ended
November 30, 1997. The Bonus Plan may be terminated or modified at any time at
the sole discretion of Grand Prix.
Certain Grand Prix employees are covered by union sponsored collectively
bargained multi-employer pension plans. Grand Prix contributed approximately
$49,000, $5,000 and $50,000 for such plans in the year ended November 30, 1997,
the five month transition period ended November 30, 1996, and the year ended
June 30, 1996, respectively. Information from the plans' administrators is not
sufficient to permit Grand Prix to determine its share of unfunded vested
benefits, if any.
F-36
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,520 $ 5,594
Accounts receivable....................................... 712 1,726
Prepaid expenses and other current assets................. 587 541
Inventories............................................... 326 366
Income taxes receivable................................... 966 2,064
Deferred major event expenses............................. -- 1,098
Deferred income tax asset................................. 207 207
------- -------
Total current assets................................ 4,318 11,596
Property and equipment, net................................. 44,786 45,251
Restricted cash............................................. 7,645 3,757
Other assets................................................ 1,407 1,512
------- -------
Total assets........................................ $58,156 $62,116
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current.................................... $ 228 $ 194
Accounts payable.......................................... 870 712
Accrued interest.......................................... 593 109
Other accrued liabilities................................. 104 60
Deferred revenues......................................... 1,511 7,482
------- -------
Total current liabilities........................... 3,306 8,557
Notes and bonds payable, long term.......................... 23,693 23,666
Deferred income tax liability............................... 915 915
Other long term liabilities................................. 200 200
------- -------
Total liabilities................................... 28,114 33,338
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized............................................. -- --
Common stock, no par value, 20,000,000 shares authorized
4,665,000 and 4,648,000 shares issued and outstanding
as of
February 28, 1998 and November 30, 1997,
respectively........................................... 26,536 26,644
Retained earnings......................................... 3,864 2,492
Shareholders' notes....................................... (358) (358)
------- -------
Total shareholders' equity.......................... 30,042 28,778
------- -------
Total liabilities and shareholders' equity.......... $58,156 $62,116
======= =======
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
F-37
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Revenues:
Major event revenues
Admissions............................................. $ -- $ --
Sponsorships........................................... -- --
Ancillary.............................................. -- --
--------- ---------
Total major event revenues....................... -- --
Other operating revenues.................................. 403 433
--------- ---------
Total revenues................................... 403 433
--------- ---------
Expenses:
Major event expenses...................................... -- --
Other operating expenses.................................. 223 604
General and administrative................................ 1,212 1,272
Depreciation.............................................. 309 426
--------- ---------
Total expenses................................... 1,744 2,302
--------- ---------
Loss from operations........................................ (1,341) (1,869)
--------- ---------
Interest income............................................. 246 110
Interest (expense).......................................... (241) (607)
Other, net.................................................. 125 --
--------- ---------
Total other income (expense)..................... 130 (497)
--------- ---------
Loss before benefit for income taxes........................ (1,211) (2,366)
Benefit for income taxes.................................... 447 994
--------- ---------
Net loss.................................................... (764) (1,372)
Dividends on Series B mandatorily redeemable
Convertible Preferred stock............................... (26) --
--------- ---------
Net loss applicable to common stock......................... $ (790) $ (1,372)
========= =========
Basic and diluted loss per share............................ $ (0.22) $ (0.29)
========= =========
Weighted average number of common and common equivalent
shares outstanding........................................ 3,640,565 4,658,901
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-38
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities........................ $ 246 $8,806
------ ------
Cash flows from investing activities........................ (241) (4,779)
------ ------
Cash flows from financing activities........................ (70) 47
------ ------
Net increase (decrease) in cash............................. (65) 4,074
Cash and cash equivalents at beginning of period............ 1,350 1,520
------ ------
Cash and cash equivalents at end of period.................. $1,285 $5,594
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-39
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
1. The interim condensed data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The condensed financial statements included herein have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although Grand Prix believes that the disclosures included herein
are adequate to make the information presented not misleading.
The organization and business of Grand Prix, accounting policies followed
by Grand Prix and other information are contained in the notes to Grand Prix's
financial statements filed as part of Grand Prix's November 30, 1997 Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.
2. Grand Prix's Series B convertible Preferred stock was converted to an
equal number of shares of Grand Prix's common stock and registered with the
Securities and Exchange Commission with an effective date of October 3, 1997.
3. Pursuant to an agreement dated August 8, 1997, Grand Prix sold a total
of 630,000 shares of common stock for $12.34 per share in a private placement.
Uses of the proceeds from that sale were restricted to further develop the
facilities at Gateway and Memphis. In March 1998, those shares were purchased by
Dover Downs Entertainment, Inc. (Dover) and the restriction on the use of the
proceeds was removed.
4. In March 1998, Grand Prix entered into a merger agreement with Dover
whereby, if consummated, Grand Prix would become a wholly owned subsidiary of
Dover. See "Part II. Other Information" for a discussion of the transaction.
5. Grand Prix has adopted SFAS No. 128, "Earnings Per Share", effective for
all periods ending after December 15, 1997. Under SFAS No. 128, primary EPS is
replaced by "Basic" EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. "Diluted" EPS, which is computed similarly to
fully diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. When dilutive, stock options are included as share
equivalents in computing diluted earnings per share using the treasury stock
method. The weighted average number of shares used in computing basic earnings
per share was 4,658,901 for the three months ended February 28, 1998 and
3,640,565 for the three months ended February 28, 1997. Options of 418,347
shares for the period ending February 28, 1998 and 602,443 shares for the period
ending February 28, 1997 and Warrants to purchase 31,250 shares at $10.00 per
share are not included in the calculation of Diluted EPS, because they are
antidilutive. There was no change in the basic and dilutive income per share for
the quarter ended February 28, 1997 due to adoption of SFAS No. 128.
F-40
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 26,
1998, by and among Dover Downs Entertainment, Inc., a Delaware corporation
("Parent"), FOG Acquisition Corporation, a California corporation and a wholly
owned subsidiary of Parent ("Sub"), and Grand Prix Association of Long Beach,
Inc., a California corporation (the "Company").
W I T N E S S E T H :
WHEREAS, each of Parent and the Company has concluded that a business
combination between Parent and the Company represents a strategic combination of
their complementary assets and operational and long term vision and is in the
best interests of the shareholders of Parent and the shareholders of the
Company, respectively, and, accordingly, Parent and the Company desire to effect
a business combination by means of the merger of Sub with and into the Company
(the "Merger");
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
unanimously approved the Merger, upon the terms and subject to the conditions
set forth herein;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a purchase;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, prior to the execution and delivery of this Agreement, Parent
entered into two agreements to purchase 680,000 shares of common stock, no par
value, of the Company (the "Company Stock") from two shareholders of the Company
and will purchase such shares of Company Stock on or about the date of this
Agreement (such 680,000 shares referred to herein as the "Parent Owned Company
Stock"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company and Parent have entered into a registration rights agreement providing
Parent certain registration rights with respect to the Parent Owned Company
Stock and any additional shares of Company Stock acquired by Parent; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Parent and certain existing shareholders of the Company (the "Supporting Company
Shareholders"), representing, together with the Parent Owned Company Stock, a
majority of the voting power of the Company on a fully-diluted basis assuming
the exercise of all outstanding warrants and vested options, are entering into
agreements (the "Support Agreements") pursuant to which Parent shall be granted
certain voting and option rights with respect to shares of Company Stock owned
by such shareholders, upon the terms and subject to the conditions set forth
therein; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company and two existing shareholders of Parent, representing a majority of the
voting power of Parent, are entering into an agreement pursuant to which Company
shall be granted certain voting rights with respect to shares of Parent Class A
Common Stock (as defined below) owned by such shareholders, upon the terms and
subject to the conditions set forth therein;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties and agreements contained herein the parties hereto
agree as follows:
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ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof and the Agreement of Merger attached as Annex A (the "Agreement of
Merger"), at the Effective Time (as defined in Section 1.2), Sub shall be merged
with and into the Company and the separate existence of Sub shall thereupon
cease, and the Company, as the corporation surviving the Merger (the "Surviving
Corporation"), shall by virtue of the Merger continue its corporate existence
under the laws of the State of California.
Section 1.2 Effective Time of the Merger. As soon as practicable after the
conditions to the Merger set forth in Article IX hereof shall have been
satisfied or waived, the parties hereto shall execute the Agreement of Merger
and shall cause the Merger to be consummated by filing such executed Agreement
of Merger with the Secretary of State of the State of California, with an
officer's certificate of each constituent corporation attached, in such form or
forms as are required by, and executed in accordance with, the relevant
provisions of the GCL (as hereinafter defined). The Merger shall become
effective as of such filing. The date of such filing is sometimes referred to
herein as the "Effective Time."
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation. The Articles of Incorporation of
the Company as in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
Section 2.2 By-laws. The By-laws of the Company as in effect at the
Effective Time shall be the By-laws of the Surviving Corporation, and thereafter
may be amended in accordance with their terms and as provided by law and this
Agreement.
Section 2.3 Board of Directors; Officers. The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
and the officers of Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set forth
in Section 1107 of the California Corporation Code (the "GCL").
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Exchange Ratio. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, the Company or any holder of any
Company Stock:
(a) All shares of Company Stock which are held by the Company or any
subsidiary of the Company and any shares of Company Stock owned by Parent or any
subsidiary of Parent shall be canceled without payment of any consideration
therefor.
(b) Subject to Section 3.4, each outstanding share of Company Stock (other
than any shares to be cancelled pursuant to Section 3.1 (a)), shall be
converted, subject to Section 3.5, into the right to receive .63 (the "Exchange
Ratio") fully paid and non-assessable shares of the common stock, par value $.10
per share of Parent ("Parent Common Stock"). Each share of Parent Common Stock
issued to holders of Company Stock in the Merger shall be issued together with
one associated stock purchase right (a "Parent Right") in accordance with the
Rights Agreement dated as of June 14, 1996, as amended, between Parent and
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"), as rights agent, or
any successor rights agreement (the "Parent Rights Agreement"). References
herein to the
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shares of Parent Common Stock issuable in the Merger shall be deemed to include
the associated Parent Rights.
(c) In the event of any dividend other than regular quarterly cash
dividends on the Parent Common Stock which shall not differ materially from
prior dividends (the "Parent Quarterly Dividend"), distributions, stock split,
stock dividends, reclassification, subdivision, recapitalization, combination or
exchange of shares or other similar transaction with respect to the Parent
Common Stock or Company Stock after the date of this Agreement and prior to the
Effective Time, the Exchange Ratio (and, if appropriate, the number of Parent
Rights) shall be appropriately adjusted.
(d) In the event that the average of the closing sale prices of the Parent
Common Stock for fifteen (15) consecutive business days next preceding the
Effective Time, as reported on the New York Stock Exchange (the "NYSE"), (the
"Average Closing Price"), is greater than $32.00 per share or less than $21.00
per share, the Exchange Ratio shall be adjusted as follows: (a) if the Average
Price is greater than $32.00 per share, the Exchange Ratio shall equal $20.16
divided by the Average Closing Price, rounded to the nearest four decimal
places; or (b) if the Average Price is less than $21.00 per share, the Exchange
Ratio shall equal $13.23 divided by the Average Closing Price, rounded to the
nearest four decimal places; and (c) provided that the Exchange Ratio shall not
be greater than .6963 nor less than .5929.
(e) Each issued and outstanding share of stock of Sub shall be converted
into and become one validly issued, fully paid and non-assessable share of
capital stock of the Surviving Corporation.
Section 3.2 Parent to Make Certificates Available.
(a) Prior to the Effective Time, Parent shall select an Exchange Agent,
which may be ChaseMellon, Parent's Transfer Agent, or such other bank or trust
company reasonably satisfactory to the Company, to act as Exchange Agent for the
Merger (the "Exchange Agent"). As of the Effective Time, Parent shall deposit or
cause to be deposited with the Exchange Agent, and each holder of Company Stock
will be entitled to receive, upon surrender to the Exchange Agent of one or more
certificates ("Certificates") representing shares of Company Stock for
cancellation, certificates representing the number of shares of Parent Common
Stock into which such shares are converted in the Merger and Parent shall
deposit cash, from time to time as required, to make payments in consideration
of fractional shares as provided in Section 3.4 (together with any dividends or
distributions with respect thereto, the "Share Consideration"). The Exchange
Agent shall, pursuant to irrevocable instruction, deliver the Share
Consideration pursuant to Section 3.1. Except as contemplated by Section 3.2
(c), such Share Consideration shall not be used for any other purpose.
(b) As promptly as practicable after the Effective Time, Parent shall cause
the Exchange Agent to mail to each holder of a Certificate or Certificates (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Exchange Agent and shall be in customary form) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Share Consideration. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate evidencing that number of whole shares of Parent Common Stock which
such holder has the right to receive in respect of the Shares formerly evidenced
by such Certificate (after taking into account all shares of Company Stock then
held by such holder), cash in lieu of any fractional shares of Parent Common
Stock to which such holder is entitled pursuant to Section 3.4 and any dividends
or other distributions to which such holder is entitled pursuant to Section 3.3
and the Certificate so surrendered shall forthwith be cancelled. In the event of
a transfer of ownership of shares of Company Stock that is not registered in the
transfer records of the Company, a certificate evidencing the proper number of
shares of Parent Common Stock, cash in lieu of any fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.4 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 3.3 may be issued to a transferee if the Certificate evidencing such
shares of Company Stock is presented
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to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 3.3, each
Certificate shall be deemed, subject to Section 3.5, at any time after the
Effective Time to evidence only the right to receive upon such surrender the
certificate evidencing shares of Parent Common Stock, cash in lieu of any
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 3.4, and any dividends or other distributions to which such
holder is entitled pursuant to Section 3.3.
(c) Any holder of shares of Company Stock who has not exchanged his
Certificates for Parent Common Stock in accordance with subsection (a) of this
Section 3.2 within twelve months after the Effective Time shall have no further
claim upon the Exchange Agent and shall thereafter look only to Parent and the
Surviving Corporation for payment in respect of his shares of Company Stock.
Until so surrendered, Certificates shall represent solely, subject to Section
3.5, the right to receive the Share Consideration.
Section 3.3 Dividends; Stock Transfer Taxes. No dividends or other
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Agreement until such persons surrender their Certificates
representing Company Stock. Upon such surrender, there shall be paid to the
person in whose name the certificates representing such Parent Common Stock
shall be issued (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time and a payment
date prior to surrender with respect to such whole shares of Parent Common Stock
and which have not been paid, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock. In no event
shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. In the event that any certificates representing
shares of Parent Common Stock are to be issued in a name other than that in
which the Certificates surrendered in exchange therefor are registered, it shall
be a condition of such exchange that the Certificate or Certificates so
surrendered shall be properly endorsed or be otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
certificates for such shares of Parent Common Stock in a name other than that of
the registered holder of the Certificate or Certificates surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Company Stock for
any shares of Parent Common Stock or dividends thereon properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar laws. In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost. stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the shares
of Parent Common Stock and cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Parent Common Stock as provided in this
Article 3, deliverable in respect thereof pursuant to this Agreement.
Section 3.4 No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to Section 3.1(b). Notwithstanding any other
provision of this Agreement, each holder of Company Stock exchanged pursuant to
the Merger who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash from Parent in an amount equal
to such fractional part of a share of Parent Common Stock multiplied by the
Average Closing Price defined in Section 3.1 (d). As promptly as practicable
after the determination of the amount of cash, if any, to be paid to holders of
fractional share interests, the Exchange Agent shall so notify Parent, and
Parent shall deposit such amount with
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the Exchange Agent and shall cause the Exchange Agent to forward payments to
such holders of fractional share interests subject to and in accordance with the
terms of Sections 3.2 (b) and (c).
Section 3.5 Dissenting Shares.
(a) Anything to the contrary in this Agreement notwithstanding, shares of
Company Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such shares
in favor of the Merger and who (i) shall be entitled to and shall have validly
exercised rights of appraisal in the manner provided in the Sections 1300
through 1312 of the GCL (the "Dissenters' Rights Provisions") and (ii) as of the
Effective Time, shall not have effectively withdrawn or lost such right to
appraisal ("Dissenting Shares"), shall not be converted into or represent a
right to receive Parent Common Stock pursuant to Section 3.1 hereof, but the
holders thereof shall be entitled only to such rights as are granted by the
Dissenters' Rights Provisions. Each holder of Dissenting Shares who becomes
entitled to payment for such shares pursuant to the Dissenters' Rights
Provisions shall receive payment therefor from the Company in accordance
therewith; provided, however, that if (a) any such Dissenting Shares shall not
become "dissenting shares" pursuant to Sections 1300 (b) of the GCL, (B) any
such Dissenting Shares shall lose their status as "dissenting shares" pursuant
to Section 1309 thereof, or (C) any holder of Dissenting Shares shall have lost
his, her or its status as a "dissenting shareholder" pursuant to Section 1309,
then the right to appraisal with respect to such shares shall be lost and each
such share shall thereupon be deemed to have been converted, as of the Effective
Time, into and shall thereupon represent only the right to receive the
consideration otherwise payable with respect to Company Stock converted at the
Effective Time pursuant to Section 3.1 hereof. If appraisal rights with respect
to the Merger are available, the Company shall provide to holders of Dissenting
Shares the notice and other materials required by Section 1301 (a) of the GCL.
(b) The Company shall give the Parent (i) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the Dissenters' Rights Provisions received by the
Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Dissenters' Rights Provisions.
The Company shall not, except with the prior written consent of the Parent,
voluntarily make any payment with respect to any demands for appraisal or offer
to settle or settle any such demands.
Section 3.6 Stock Options.
(a) Each of the Company's stock option plans (the "Option Plans"), each of
which is set forth in Section 3.6 of the disclosure schedule delivered by the
Company to Parent in connection with this Agreement (the "Company Disclosure
Schedule"), and each option to acquire shares of Company Stock outstanding
immediately prior to the Effective Time thereunder, whether vested or unvested
(each, an "Option" and collectively, the "Options"), shall be assumed by Parent
at the Effective Time, and each such Option shall become an option, to purchase,
on the same terms and condition as were applicable under the Option Plan and the
underlying option agreements, a number of shares of Parent Common Stock (a
"Substitute Option") equal to the number of shares of Company Stock subject to
such Option multiplied by the Exchange Ratio (rounded up to the nearest whole
share). The per share exercise price for each Substitute Option shall be the
current exercise price per share of Company Stock divided by the Exchange Ratio
(rounded up to the nearest full cent), and each Substitute Option otherwise
shall be subject to all of the other terms and conditions of the original option
to which it relates, provided, however, that in the case of any option to which
Section 421 of the Internal Revenue Code of 1986, as amended (the "Code")
applies by reason of its qualification under Section 422 of the Code, the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option shall be determined in order to comply
with Section 424 (a) of the Code. Parent acknowledges that the consummation of
the Merger will constitute a "Terminating Event" (as defined in the Option
Plans) or similar event with respect to the options listed on Section 3.6 of the
Company Disclosure Schedule, and that the vesting of such options shall
therefore become accelerated as a result of the Merger. Prior to the Effective
Time, the Company shall take such additional actions as are necessary under
applicable law and the applicable agreements and
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Option Plans to ensure that each outstanding Option shall, from and after the
Effective Time, represent only the right to purchase, upon exercise, shares of
Parent Common Stock.
(b) As soon as practicable after the Effective Time, Parent shall deliver
to the holders of Company Options appropriate notices setting forth such
holders' rights pursuant to the applicable Option Plans and the agreements
pursuant to which such Options were issued and the agreements evidencing the
grants of such Options shall continue in effect on the same terms and conditions
as specified with respect to such Options as of the Effective Time in the
applicable Option Plan governing such Option (subject to the adjustments and
amendments required by this Section 3.6, and after giving effect to the Merger
and the conversion set forth above). It is the intention of the parties that,
subject to applicable law, each Option that qualified as an incentive stock
option under Section 422 of the Code prior to the Effective Time shall continue
to qualify as an incentive stock option of Parent after the Effective Time.
(c) Parent shall take all corporate action necessary to reserve for
issuance and have available for delivery a sufficient number of shares of Parent
Common Stock to be delivered upon exercise, vesting or payments, as applicable,
of the Options converted in accordance with this Section 3.6 or upon the
exercise of the warrants set forth on Section 5.2 of the Company Disclosure
Schedule (which obligation shall be assumed by Parent in accordance with the
terms of the warrants). As soon as practicable after the Effective Time, Parent
shall file a registration statement on Form S-8 (or any successor or other
appropriate form) with respect to the delivery of such shares of Parent Common
Stock, to the extent such registration statement is required under applicable
law so as to permit resale of such shares, and the Parent shall use its
reasonable best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such benefits and
grants remain payable and such Options remain outstanding.
Section 3.7 Shareholders' Meetings. Each of Parent and the Company will
take all action necessary in accordance with applicable law and its Certificate
or Articles of Incorporation or charter, as the case may be, and By-laws to
convene a meeting of its shareholders as promptly as practicable to consider and
vote upon (i) in the case of Parent, the approval by the holders of a majority
of the capital stock of Parent present and voting at the meeting on the issuance
of the shares of Parent Common Stock contemplated by this Agreement and (ii) in
the case of the Company, the approval by the holders of a majority of the shares
of Company Stock outstanding and entitled to vote thereon of this Agreement and
the transactions contemplated hereby. Parent shall take all action necessary to
authorize and cause Sub to consummate the Merger. The Board of Directors of each
of Parent and the Company shall recommend such approval and Parent and the
Company shall each take all lawful action to solicit such approval; including,
without limitation, timely and prompt mailing of the Proxy Statement/Prospectus
(as defined in Section 8.2); provided, however, that such recommendation is
subject to any action believed in good faith after consultation with independent
counsel to be required by the fiduciary duties of the Board of Directors of the
Company under applicable law and any such action shall not constitute a breach
of this Agreement. Parent and the Company shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day.
Section 3.8 Closing of the Company's Transfer Books. At the Effective
Time, the stock transfer books of the Company shall be closed and no
registration of transfer of shares of Company Stock shall be made thereafter. In
the event that Certificates are presented to the Surviving Corporation after the
Effective Time, they shall be canceled and exchanged for Parent Common Stock
and/or cash as provided in Sections 3.1(b) and 3.4 and any dividends or other
distributions to which the holders are entitled pursuant to Section 3.3.
Section 3.9 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the Wilmington, Delaware offices
of Parent, at 9:00 a.m. local time on the day which is not more than one
business day after the day on which the last of the conditions set
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forth in Article IX (other than those that can only be fulfilled at the
Effective Time) is fulfilled or waived or at such other time and place as Parent
and the Company shall agree in writing.
Section 3.10 Transfer Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to the fourth sentence of Section 3.3 (collectively,
"Transfer Taxes"). From and after the Effective Time, Parent shall pay or cause
to be paid, without deduction or withholding from any amounts payable to the
holders of Company Stock, all Transfer Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows (such
representations and warranties (as well as other provisions of this Agreement))
are qualified by the matters identified (with reference to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company prior to
execution of this Agreement):
Section 4.1 Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted or currently proposed to be conducted except where the failure to be
so organized or to be so organized or to have such power would not have a Parent
Material Adverse Effect. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities make
such qualification necessary, except where the failure to be so qualified will
not, alone or in the aggregate, have a Parent Material Adverse Effect. None of
Parent or Sub is in violation of any of the provisions of its Certificate or
Articles of Incorporation or By-laws.
For the purposes of this Agreement, a "Parent Material Adverse Effect"
means any material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of Parent and its
subsidiaries taken as a whole, other than any effects arising out of, resulting
from or relating to changes in general economic or financial conditions or
generally affecting the motorsports industry. Complete and correct copies as of
the date hereof of the Certificate of Incorporation and By-laws of Parent and
Sub have been delivered to the Company as part of the Parent Disclosure
Schedule.
Section 4.2 Capitalization. The authorized capital stock of Parent
consists of 35,000,000 shares of Parent Common Stock, 30,000,000 shares of Class
A Common Stock, par value $.10 per share (the "Parent Class A Common Stock"),
and 1,000,000 shares of Preferred Stock, par value $.10 per share (the "Parent
Preferred Stock"). As of January 31, 1998, 2,998,950 shares of Parent Common
Stock and 12,249,380 shares of Parent Class A Common Stock were validly issued
and outstanding, fully paid, and non-assessable and no shares of Parent
Preferred Stock were issued and outstanding, 750,000 shares of Parent Common
Stock, 337,500 shares of Parent Class A Common Stock and no shares of Preferred
Stock are reserved for future issuance and there have been no changes in such
numbers through the date of this Agreement. As of the date of this Agreement,
there are no bonds, debentures, notes or other indebtedness issued or
outstanding having the right to vote on any matters on which Parent's
shareholders may vote. As of the date of this Agreement, except for options
issued under Parent's stock option plans disclosed under Section 4.8 as employee
benefit plans, there are no options, warrants, calls, convertible securities or
other rights, agreements or commitments presently outstanding obligating Parent
to issue, deliver or sell shares of its capital stock or debt securities, or
obligating Parent to grant, extend or enter into any such option, warrant, call
or other such right, agreement or commitment, and, except for exercises thereof,
there have been no changes in such numbers through the date of this Agreement.
All of the shares of Parent Common Stock issuable in accordance with this
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Agreement in exchange for Company Stock at the Effective Time in accordance with
this Agreement will be, when so issued, (i) duly authorized, validly issued,
fully paid, non-assessable and free of preemptive rights and shall be delivered
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever and (ii) registered under the Securities Act and the Exchange
Act.
Section 4.3 Subsidiaries. Each subsidiary of Parent is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not have a Parent
Material Adverse Effect) and has the corporate or similar power to carry on its
business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of Parent is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect. Section 4.3 of the Parent Disclosure Schedule
contains, with respect to each subsidiary of Parent, its name and jurisdiction
of organization. Each subsidiary is wholly owned by Parent. All the outstanding
shares of capital stock or share capital of each subsidiary of Parent are
validly issued, fully paid and non-assessable, and are owned by Parent free and
clear of any liens, claims or encumbrances except any of the foregoing which
would not reasonably be expected to have a Parent Material Adverse Effect. There
are no existing options, warrants, calls, convertible securities or other
rights, agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of any of the subsidiaries of Parent.
Parent does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or entity
or have any obligation, commitment or undertaking to acquire any such interest.
Section 4.4 Authority Relative to this Agreement. Parent has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by Parent's Board of
Directors. The shares of Parent Common Stock to be issued pursuant to the Merger
and the other transactions contemplated hereby have been reserved for issuance
by Parent by all necessary corporate action. This Agreement constitutes a valid
and binding obligation of Parent enforceable in accordance with its terms except
as enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought. Except for the approval of the issuance of the Parent Common Stock
contemplated by this Agreement by the holders of the Parent Common Stock as
described in Section 3.7,and the filing and recordation of appropriate merger
documents as required by the GCL, no other corporate proceedings on the part of
Parent are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. Parent is not subject to or obligated under
(i) any charter, by-law, indenture or other loan or credit document provision or
(ii) any other contract, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or regulation
applicable to Parent or any of its subsidiaries or their respective properties
or assets, which would be breached or violated, or under which there would be a
default (with or without notice or lapse of time, or both), or under which there
would arise a right of termination, cancellation, modification or acceleration
of any obligation, or any right to payment or compensation, or the loss of a
material benefit, by its executing and carrying out this Agreement except for
such breaches, violations, defaults or arising of such rights which would not
reasonably be expected to have a Parent Material Adverse Effect. Except as
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
corporation, securities or blue sky laws or regulations of the various states,
and except for the filing and recordation of appropriate merger documents as
required by the GCL, no filing or registration with, or authorization, consent
or approval of, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (each, a
"Governmental Entity"), is necessary for the consummation by Parent or Sub of
the Merger or the other transactions contemplated
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by this Agreement, other than filings, registrations, authorizations, consents
or approvals the failure to make or obtain which has not had, and would not
reasonably be expected to have, a Parent Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby.
Section 4.5 Reports and Financial Statements. Parent has previously
furnished the Company with true and complete copies of its (i) Registration
Statement No. 333-8147 on Form S-1 effective October 3, 1996, as filed with the
Securities and Exchange Commission (the "Commission"), (ii) Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, as filed with the Commission,
(iii) Quarterly Report on Form 10-Q for the quarter ended December 31,1997, as
filed with the Commission, (iv) proxy statements related to all meetings of its
shareholders (whether annual or special) since October 4, 1996, and (v) all
other reports or registration statements filed by Parent with the Commission
since October 4, 1996, except for preliminary material, which are all the
documents that Parent was required to file with the Commission since that date
(the documents in clauses (i) through (v) being referred to herein collectively
as the "Parent SEC Reports"). As of their respective dates, the Parent SEC
Reports complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Parent SEC Reports.
As of their respective dates, the Parent SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Parent included in the Parent SEC Reports comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto (except as may be
indicated thereon or in the notes thereto). The financial statements included in
the Parent SEC Reports: have been prepared in accordance with generally accepted
accounting principles in effect as of such time applied on a consistent basis
(except as may be indicated therein or in the notes thereto); present fairly, in
all material respects, the financial position of Parent and its subsidiaries as
at the dates thereof and the results of their operations and cash flows for the
periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments, any other adjustments described
therein and the fact that certain information and notes have been condensed or
omitted in accordance with the Exchange Act and the rules promulgated
thereunder, and are in all material respects in accordance with the books of
account and records of Parent and its subsidiaries. As of December 31, 1997,
there was no basis for any claim or liability of any nature against Parent or
its subsidiaries, whether absolute, accrued, contingent or otherwise that would
be required to be reflected on, or reserved against on a balance sheet of
Parent, or in the notes thereto, prepared in accordance with the published rules
and regulations of the Commission and generally accepted accounting principles,
which, alone or in the aggregate, has had, or would reasonably be expected to
have, a Parent Material Adverse Effect, other than as reflected in the Parent
SEC Reports.
Section 4.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement, since December
31, 1997, Parent and its subsidiaries have operated their respective businesses
in the ordinary course of business consistent with past practice and there has
not been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which, alone or in the aggregate, has had, or would reasonably be
expected to have, a Parent Material Adverse Effect; (ii) any damage, destruction
or loss, whether or not covered by insurance, which has had, or would reasonably
be expected to have, a Parent Material Adverse Effect; (iii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash,
stock, property or otherwise) with respect to the capital stock of the Company
or any of its subsidiaries (other than dividends or distributions between Parent
and its wholly owned subsidiaries and other than the Parent Quarterly Dividend);
(iv) any material change in Parent's accounting principles, practices or
methods; (v) any repurchase or redemption with respect to its capital stock;
(vi) any stock split, combination or reclassification of any of Parent's capital
stock or the issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for, shares of Parent's capital
stock; (vii) any grant of or any amendment of the terms of any option to
purchase shares of capital stock of Parent
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other than pursuant to the stock option plans of Parent; or (viii) any agreement
(whether or not in writing), arrangement or understanding to do any of the
foregoing.
Section 4.7 Litigation. Except as disclosed in the Parent SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding pending or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries which, alone or in the aggregate, has had or would
reasonably be expected to have, a Parent Material Adverse Effect, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or any of its subsidiaries which, alone or
in the aggregate, has had, or would reasonably be expected to have, any such
Parent Material Adverse Effect.
Section 4.8 Employee Benefit Plans. (a) All "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements maintained by Parent, any subsidiary of Parent or any
Parent ERISA Affiliate (as defined below) or to which Parent, any subsidiary of
Parent or any Parent ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of Parent, any subsidiary of Parent or any Parent ERISA
Affiliate are referred to herein as the "Parent Employee Benefit Plans".
(b) None of the Parent Employee Benefit Plans is a "multi employer plan",
as defined in Section 4001(a)(3) of ERISA (a "Multi employer Plan"), and neither
Parent nor any Parent ERISA Affiliate presently maintains or has maintained such
a plan.
(c) Parent does not maintain or contribute to any plan or arrangement which
provides or has any liability to provide life insurance or medical or other
employee welfare benefits to any employee or former employee upon his retirement
or termination of employment, and Parent has never represented, promised or
contracted (whether in oral or written form) to any employee or former employee
that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee.
(e) Each Parent Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the Internal Revenue Service (the "IRS"), and, to Parent's knowledge,
nothing has occurred with respect to the operation or organization of any such
Parent Employee Benefit Plan that would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code. With respect to any Parent Employee Benefit Plan or other
employee benefit plan which is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA, (i) Parent has not incurred and is not reasonably likely
to incur any liability under Title IV of ERISA (other than for the payment of
premiums, all of which have been paid when due), (ii) Parent has not incurred
any accumulated funding deficiency within the meaning of Section 412 of the Code
and has not applied for or obtained a waiver of any minimum funding standard or
an extension of any amortization period under Section 412 of the Code, (iii) no
"reportable event" (as such term is defined in Section 4043 of ERISA but
excluding any event for which the provision for 30-day notice to the Pension
Benefit Guaranty Corporation has been waived by regulation) has occurred or is
expected to occur and (iv) since December 31, 1996, no material adverse change
in the financial condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Parent Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) Parent
has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to Parent's
knowledge, threatened, in connection with the Parent Employee
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Benefit Plans, and (iv) the Parent Employee Benefit Plans have been maintained,
in all material respects, in accordance with their terms and with all provisions
of ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
For purposes of this Agreement, "Parent ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"
under "common control" or an "affiliated service group" with Parent within the
meanings of Sections 414(b), (c) or (m) of the Code, or required to be
aggregated with Parent under Section 414(o) of the Code, or is under "common
control" with Parent, within the meaning of Section 4001(a)(14) of ERISA, or any
regulations promulgated or proposed under any of the foregoing Sections.
Section 4.9 Financial Advisor. Parent has received the opinion of Gerard
Klauer Mattison & Co., Inc. ("Gerard Klauer") to the effect that the
consideration paid in connection with the Merger and the consideration paid for
the Parent Owned Company Stock is fair from a financial point of view to the
holders of Parent Common Stock. Except for Gerard Klauer, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
Section 4.10 Compliance with Applicable Laws. Parent and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business, except for such permits, licenses,
variances, exemptions, orders and approvals the failure to hold which, alone or
in the aggregate, has not had, and would not reasonably be expected to have, a
Parent Material Adverse Effect (the "Parent Permits"). Parent and each of its
subsidiaries is in compliance with the terms of the Parent Permits, except for
any failure to comply which, alone or in the aggregate, has not had, and would
not reasonably be expected to have, a Parent Material Adverse Effect. Except as
disclosed in the Parent SEC Reports filed prior to the date of this Agreement,
the businesses of Parent and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which, alone or in the aggregate, have not had, and
would not reasonably be expected to have, a Parent Material Adverse Effect. To
the actual knowledge of the executive officers of Parent, during the past five
years, none of Parent's or any of its subsidiaries' officers, employees or
agents, nor any other person acting on behalf of any of them or Parent or any of
its subsidiaries, has, directly or indirectly, given or agreed to give any gift
or similar benefit to any customer, supplier, governmental employee or other
person in violation of any law, ordinance or regulation of any Governmental
Entity, including without limitation, the Foreign Corrupt Practices Act which
violation would reasonably be expected to have a Parent Material Adverse Effect.
Section 4.11 Taxes. For the purposes of this Agreement, the term "Tax"
shall include all Federal, state, local, Indian and foreign income, profits,
franchise, gross receipts, production, severance, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and assessments of
any nature whatsoever together with all interest, penalties and additions
imposed with respect to such amounts. Each of Parent and its subsidiaries has
filed all material Tax returns required to be filed by any of them and has paid
(or Parent has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns. The information contained in such Tax returns is true, complete
and accurate in all material respects. Neither Parent nor any subsidiary of
Parent is delinquent in the payment of any material Tax, assessment or
governmental charge, except where such delinquency has not had, or would not
reasonably be expected to have, a Parent Material Adverse Effect. No material
deficiencies for any taxes have been proposed, asserted or assessed against
Parent or any of its subsidiaries that have not been finally settled or paid in
full, and no requests for waivers of the time to assess any such Tax are
pending.
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Section 4.12 Certain Agreements. Neither Parent nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any indenture, note, credit agreement, loan document, lease,
license, sponsorship, sanction, concession or other agreement, whether or not
such default has been waived, which default, alone or in the aggregate with
other such defaults, has had, or would reasonably be expected to have, a Parent
Material Adverse Effect.
Section 4.13 Tax Matters. To the actual knowledge of the executive
officers of Parent, Parent has not taken any action which would prevent the
Merger from constituting a reorganization within the meaning of Section 368(a)
of the Code.
Section 4.14 Parent Action. The Board of Directors of Parent (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and fair to and in the best interests of
Parent and its shareholders, (b) approved the Merger and the transactions
contemplated by this Agreement in accordance with the provisions of the Delaware
General Corporation Law, and (c) recommended the approval of this Agreement and
the Merger by the holders of Parent capital stock and directed that the Merger
be submitted for consideration by Parent's shareholders at the meeting of
shareholders contemplated by Section 3.7.
Section 4.15 Environmental Matters.
(i) To the knowledge of Parent, neither Parent nor any of its
subsidiaries (a) has transported, stored, received, treated or disposed of,
nor have they arranged for any third parties to transport, receive, store,
treat or dispose of, waste to or at (1) any location other than a site
where the receipt of such waste for such purposes was not at the time of
such receipt unlawful or (2) any location designated for remedial action
pursuant to the United States Comprehensive Environmental Response,
Compensation and Liability Act, as from time to time amended, or any
similar law assigning responsibility for the cost of investigating or
remediating releases of hazardous substances into the environment, except
to the extent such Parent action with respect to waste would not have a
Parent Material Adverse Effect; (b) has received written notice that any
location to which such waste has been transported, stored or disposed of
has been designated for remedial action pursuant to any applicable law
relating to responsibility for the cost of investigating or remediating
releases of hazardous substances into the environment; (c) has received
written notice that it is in material violation of any environmental law,
that it is materially liable for the release of any hazardous substances on
or off of its property, or that it is a potentially responsible party for a
federal, state or local clean-up site or for corrective action under any
environmental law.
(ii) Parent has made available to Company all environmental audits,
evaluations and assessments in its possession which concern any of its
operations or properties, a complete listing of which is set forth on
Section 4.15 to the Parent Disclosure Schedule.
Section 4.16 Insurance. Parent maintains insurance coverage with reputable
insurers in such amounts and covering such risks as are in accordance with
normal industry practice for companies engaged in businesses similar to that of
Parent (taking into account the cost and availability of such insurance), except
where the foregoing would not have a Parent Material Adverse Effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows (such
representations and warranties (as well as other provisions of this Agreement)
are qualified by the matters identified (with references to the appropriate
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Company Disclosure Schedule") delivered by the Company to Parent prior to
execution of this Agreement):
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the corporate power to carry on its business as it
is now being conducted or currently proposed to be conducted except where the
failure to be so organized or to be so organized or to have such power would not
have a Company Material Adverse Effect. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified will not, alone or in the aggregate, have a
Company Material Adverse Effect. Company is not in violation of any of the
provisions of its Articles of Incorporation or By-laws.
For the purposes of this Agreement, a "Company Material Adverse Effect"
means a material adverse effect on the business, properties, assets, condition
(financial or otherwise), liabilities or results of operations of the Company
and its subsidiaries taken as a whole, other than (i) any effects arising out
of, resulting from or relating to changes in general economic or financial
conditions or generally affecting the motorsports industry or (ii) the filing,
initiation and subsequent prosecution by or on behalf of the shareholders of the
Company of litigation that challenges or seeks damages with respect to the
transactions contemplated hereby (except as contemplated by Section 10.2 (d)).
Complete and correct copies as of the date hereof of the charter and By-laws of
the Company have been delivered to Parent as part of the Company Disclosure
Schedule.
Section 5.2 Capitalization. The authorized stock of the Company consists
of 20,000,000 shares of Company Stock and 10,000,000 shares of Preferred Stock,
no par value (the "Company Preferred Stock"). As of January 31, 1998, 4,665,236
shares of Company Stock were validly issued and outstanding, fully paid and
nonassessable, and no shares of Company Preferred Stock were issued and
outstanding, 400,000 shares of Company Stock are reserved for future issuance,
and there have been no changes in such numbers of shares through the date of
this Agreement. Section 5.8 to the Company Disclosure Schedule sets forth by
employee the total number of shares of Company Stock issuable pursuant to the
Company's stock option plans, including detail with respect to date of grant,
exercise price, vesting schedule and options exercised to date. As of the date
of this Agreement, there are no bonds. debentures, notes or other indebtedness
issued or outstanding having the right to vote on any matters on which the
Company's shareholders may vote. As of the date of this Agreement, except for
options issued under the Company's stock option plans disclosed under Section
5.8 as employee benefit plans and except for the outstanding warrants set forth
on Section 5.2 to the Company Disclosure Schedule, there are no options,
warrants, calls, convertible securities or other rights, agreements or
commitments presently outstanding obligating the Company to issue, deliver or
sell shares of its stock or debt securities, or obligating the Company to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment, and, except for exercises thereof, there have been no
changes in such numbers through the date of this Agreement. After the Effective
Time, the Surviving Corporation will have no obligation to issue, transfer or
sell any shares of stock of the Company or the Surviving Corporation (as opposed
to shares of Parent Common Stock) pursuant to any Company Employee Benefit Plan
(as defined in Section 5.8).
Section 5.3 Subsidiaries. Each subsidiary of the Company is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization (except where the
failure to be validly existing and in good standing would not have a Company
Material Adverse Effect) and has the corporate or similar power to carry on its
business as it
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is now being conducted or currently proposed to be conducted. Each subsidiary of
the Company is duly qualified to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary except where the
failure to be so qualified, when taken together with all such failures, has not
had, and would not have, a Company Material Adverse Effect. Section 5.3 of the
Company Disclosure Schedule contains, with respect to each subsidiary of the
Company, its name and jurisdiction of organization and, with respect to each
subsidiary that is not wholly owned, the number of issued and outstanding shares
of capital stock or share capital and the number of shares of capital stock or
share capital owned by the Company or a subsidiary. All the outstanding shares
of capital stock or share capital of each subsidiary of the Company are validly
issued, fully paid and nonassessable, and those owned by the Company or by a
subsidiary of the Company are owned free and clear of any liens, claims or
encumbrances except any of the foregoing which would not reasonably be expected
to have a Company Material Adverse Effect. There are no existing options,
warrants, calls, convertible securities or other rights, agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of any of the subsidiaries of the Company. Except as set forth
in the Company's Annual Report on Form 10-KSB for the fiscal year ended November
30, 1997, the Company does not directly or indirectly own any interest in any
other corporation, partnership, joint venture or other business association or
entity or have any obligation, commitment or undertaking to acquire any such
interest.
Section 5.4 Authority Relative to this Agreement. The Company has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Company's
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the shares of Company Stock outstanding and entitled to
vote thereon as described in Section 3.7, and the filing and recordation of
appropriate merger documents as required by the GCL, no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or consummate transactions contemplated hereby. The Company is not subject to or
obligated under (i) any charter, by-law, indenture or other loan or credit
document provision or (ii) any other contract, license, franchise, permit,
order, decree, concession, lease, instrument, judgment, statute, law, ordinance,
rule or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets which would be breached or violated, or under
which there would be a default (with or without notice or lapse of time, or
both), or under which there would arise a right of termination, cancellation,
modification or acceleration of any obligation, or any right to payment or
compensation, or the loss of a material benefit, by its executing and carrying
out this Agreement except for such breaches, violations, defaults or arising of
such rights which would not reasonably be expected to have a Company Material
Adverse Effect. Except as required by the HSR Act, the Securities Act, the
Exchange Act, and the corporation, securities or blue sky laws or regulations of
the various states, and except for the filing and recordation of appropriate
merger documents as required by the GCL, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, other than filings, registrations,
authorizations, consents or approvals the failure to make or obtain which has
not had, and would not reasonably be expected to have, a Company Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby.
Section 5.5 Reports and Financial Statements. The Company has previously
furnished Parent with true and complete copies of its (i) Registration Statement
No. 333-4834LA on Form SB2 effective June 25, 1996 as filed with the Commission,
(ii) Annual Reports on Form 10-KSB for the fiscal periods ended June 30, 1996,
November 30, 1996 and November 30, 1997 as filed with the
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Commission, (iii) proxy statements related to all meetings of its shareholders
(whether annual or special) since June 26, 1996 and (v) all other reports or
registration statements filed by the Company with the Commission since June 26,
1996, except for preliminary material, which are all the documents that the
Company was required to file with the Commission since that date (the documents
in clauses (i) through (v) being referred to herein collectively as the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports complied as
to form in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates, the Company SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
the Company included in the Company SEC Reports comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto (except as may be
indicated thereon or in the notes thereto). The financial statements included in
the Company SEC Reports: have been prepared in accordance with generally
accepted accounting principles in effect as of such time applied on a consistent
basis (except as may be indicated therein or in the notes thereto); present
fairly, in all material respects, the financial position of the Company and its
subsidiaries, as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder; and are in all material respects in accordance with the
books of account and records of the Company and its subsidiaries. As of November
30, 1997, there was no basis for any claim or liability of any nature against
the Company or any of its subsidiaries, whether absolute, accrued, contingent or
otherwise that would be required to be reflected on, or reserved against on a
balance sheet of Parent, or in the notes thereto, prepared in accordance with
the published rules and regulations of the Commission and generally accepted
accounting principles, which, alone or in the aggregate, has had or would
reasonably be expected to have, a Company Material Adverse Effect, other than as
reflected in the Company SEC Reports.
Section 5.6 Absence of Certain Changes or events. Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement or
contemplated by this Agreement, since November 30, 1997, the Company and its
subsidiaries have operated their respective businesses in the ordinary course of
business consistent with past practice and there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
which, alone or in the aggregate, has had or would reasonably be expected to
have, a Company Material Adverse Effect; (ii) any damage, destruction or loss,
whether or not covered by insurance, which has had, or would reasonably be
expected to have, a Company Material Adverse Effect; (iii) any declaration,
setting aside or payment of any dividend or distribution (whether in cash, stock
or property) with respect to the stock of the Company or any of its subsidiaries
(other than dividends or distributions between the Company and its wholly owned
subsidiaries; (iv) any material change in the Company's accounting principles,
practices or methods; (v) any repurchase or redemption with respect to its
stock; (vi) any stock split, combination or reclassification of any of the
Company's stock or the issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, shares of the
Company's stock; (vii) any grant of or any amendment of the terms of any option
to purchase shares of stock of the Company other than pursuant to the Option
Plans; (viii) any granting by the Company or any of its subsidiaries to any
director, officer or employee of the Company or any of its subsidiaries of (A)
any increase in compensation (other than in the case of employees in the
ordinary course of business consistent with past practice), (B) any increase in
severance or termination pay, or (C) acceleration of compensation or benefits;
(ix) any entry by the Company or any of its subsidiaries into any employment,
severance, bonus or termination agreement with any director, officer or employee
of the Company or any of its subsidiaries; or (x) any agreement (whether or not
in writing), arrangement or understanding to do any of the foregoing.
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Section 5.7 Litigation. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, there is no suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries which, alone or in the aggregate, has had or
would reasonably be expected to have, a Company Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its subsidiaries which,
alone or in the aggregate, has had, or would reasonably be expected to have, any
such Company Material Adverse Effect. Section 5.7 of the Company Disclosure
Schedule hereto sets forth a complete listing and brief description of all
suits, actions or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, where the amount in
controversy exceeds $25,000.
Section 5.8 Employee Benefit Plans. (a) Section 5.8 of the Company
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or
compensation arrangements or payroll practices, including, without limitation,
any such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
Directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by the Company, any subsidiary of the Company or any Company ERISA
Affiliate (as defined below) or to which the Company, any subsidiary of the
Company or any Company ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of the Company, any subsidiary of the Company or any Company
ERISA Affiliate (the "Company Employee Benefit Plans").
(b) None of the Company Employee Benefit Plans is a "multi employer plan",
as defined in Section 4001(a)(3) of ERISA (a "Multi employer Plan"), and neither
the Company nor any Company ERISA Affiliate presently maintains or has
maintained such a plan.
(c) The Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, and the Company has never represented,
promised or contracted (whether in oral or written form) to any employee or
former employee that such benefits would be provided.
(d) The execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent
events, result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
severance agreements or severance policies applicable to the Company or its
subsidiaries in the event of a change of control of the Company are the
agreements and policies specifically referred to in Section 5.8 of the Company
Disclosure Schedule. The Board of Directors of the Company has determined that
the transactions contemplated hereby do not constitute a change of control for
purposes of any such agreement, plan, policy or stock option plan or program to
the extent the Company or its Board has discretion to make such determination
under such agreement, plan or policy and such Board shall not change
such determination, provided that the foregoing shall not apply to the
accelerated vesting of any
stock options.
(e) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been
determined to be exempt from federal income taxation under Section 501 of the
Code by the IRS, and, to the Company's knowledge, nothing has occurred with
respect to the operation or organization of any such Company Employee Benefit
Plan that would cause the loss of such qualification or exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
With respect to any Company Employee Benefit Plan or other employee benefit plan
which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA,
(i) the Company has not incurred and is not reasonably likely to incur any
liability
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under Title IV of ERISA (other than for the payment of premiums, all of which
have been paid when due), (ii) the Company has not incurred any accumulated
funding deficiency within the meaning of Section 412 of the Code and has not
applied for or obtained a waiver of any minimum funding standard or an extension
of any amortization period under Section 412 of the Code, (iii) no "reportable
event" (as such term is defined in Section 4043 of ERISA but excluding any event
for which the provision for 30-day notice to the Pension Benefit Guaranty
Corporation has been waived by regulation) has occurred or is expected to occur
and (iv) since December 31, 1996, no material adverse change in the financial
condition of any such plan has occurred.
(f) (i) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Employee Benefit Plans to any funds or trusts established thereunder
or in connection therewith have been made by the due date thereof, (ii) the
Company has complied in all material respects with any notice, reporting and
documentation requirements of ERISA and the Code, (iii) there are no pending
actions, claims or lawsuits which have been asserted, instituted or, to the
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all
material respects, in accordance with their terms and with all provisions of
ERISA and the Code (including rules and regulations thereunder) and other
applicable federal and state laws and regulations.
For purposes of this Agreement, "Company ERISA Affiliate" means any
business or entity which is a member of the same "controlled group of
corporations," under "common control" or an "affiliated service group" with the
Company within the meanings of Sections 414(b), (c) or (m) of the Code, or
required to be aggregated with the Company under Section 414(o) of the Code, or
is under "common control" with the Company, within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any of
the foregoing Sections.
Section 5.9 Company Action. The Board of Directors of the Company (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best
interests of the Company and its shareholders, (b) approved the Merger and the
transactions contemplated by this Agreement in accordance with the provisions of
the GCL, and (c) recommended the approval of this Agreement and the Merger by
the holders of the Company Stock and directed that the Merger be submitted for
consideration by the Company's shareholders at the meeting of shareholders
contemplated by Section 3.7.
Section 5.10 Financial Advisors. The Company has received the opinion of
L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H. Friend") to the effect
that, as of the date hereof, the Exchange Ratio is fair from a financial point
of view to the holders of Company Stock. Except for L.H. Friend, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company. The
Company has previously delivered to Parent copies of the engagement letter,
dated October 22, 1997, from L.H. Friend to the Company, and shall not amend
such letter without the consent of Parent.
Section 5.11 Compliance with Applicable Laws. The Company and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary or appropriate for the
operation of its respective business (the "Company Permits"), except for such
permits, licenses, variances, exemptions, orders and approvals the failure to
hold which, alone or in the aggregate, has not had, and would not reasonably be
expected to have a Company Material Adverse Effect. Section 5.11 of the Company
Disclosure Schedule sets forth a complete listing of all Company Permits and
their expiration dates. The Company and each of its subsidiaries is in
compliance in all material respects with the terms of the Company Permits except
for any failure to comply which, alone or in the aggregate, has not had, and
would not reasonably be expected to have, a Company Material Adverse Effect.
Except as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, the businesses of the Company and its subsidiaries are not being
conducted in
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violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which alone or in the aggregate have not had, and would
not reasonably be expected to have, a Company Material Adverse Effect. To the
actual knowledge of the executive officers of the Company, during the past five
years, none of the Company's or any of its subsidiaries' officers, employees or
agents, nor any other person acting on behalf of any of them or the Company or
any of its subsidiaries, has, directly or indirectly, given or agreed to give
any gift or similar benefit to any customer, supplier, governmental employee or
other person in violation of any law, ordinance or regulation of any
Governmental Entity, including, without limitation, the Foreign Corrupt
Practices Act, which violation would reasonably be expected to have a Company
Material Adverse Effect.
Section 5.12 Taxes. Each of the Company and its subsidiaries has filed all
material Tax returns required to be filed by any of them and has paid (or the
Company has paid on its behalf), or has set up an adequate reserve for the
payment of, all Taxes required to be paid in respect of the periods covered by
such returns, except where the failure to make such payment or reserve has not
had a Company Material Adverse Effect. The information contained in such Tax
returns is true, complete and accurate in all material respects. Neither the
Company nor any subsidiary of the Company is delinquent in the payment of any
material Tax, assessment or governmental charge, except where such delinquency
has not had, or would not reasonably be expected to have, a Company Material
Adverse Effect. No material deficiencies for any taxes have been proposed,
asserted or assessed against the Company or any of its subsidiaries that have
not been finally settled or paid in full, and no requests for waivers of the
time to assess any such Tax are pending.
Section 5.13 Environmental Matters.
(i) To the knowledge of Company, neither Company nor any of its
subsidiaries (a) has transported, stored, received, treated or disposed of,
nor have they arranged for any third parties to transport, receive, store,
treat or dispose of, waste to or at (1) any location other than a site
where the receipt of such waste for such purposes was not at the time of
such receipt unlawful or (2) any location designated for remedial action
pursuant to the United States Comprehensive Environmental Response,
Compensation and Liability Act, as from time to time amended, or any
similar law assigning responsibility for the cost of investigating or
remediating releases of hazardous substances into the environment, except
to the extent such Company action with respect to waste would not have a
Company Material Adverse Effect; (b) has received written notice that any
location to which such waste has been transported, stored or disposed of
has been designated for remedial action pursuant to any applicable law
relating to responsibility for the cost of investigating or remediating
releases of hazardous substances into the environment; (c) has received
written notice that it is in material violation of any environmental law,
that it is materially liable for the release of any hazardous substances on
or off of its property, or that it is a potentially responsible party for a
federal, state or local clean-up site or for corrective action under any
environmental law.
(ii) The Company has made available to Parent all environmental
audits, evaluations and assessments in its possession which concern any of
its operations or properties, a complete listing of which is set forth on
Section 5.13 to the Company Disclosure Schedule.
Section 5.14 Material Contracts. Section 5.14 of the Company Disclosure
Schedule lists all of the following written or oral material contracts,
agreements and commitments (collectively, the "Company Contracts"):
(i) all agreements relating to the sponsorship, sanctioning,
broadcasting or advertising of the events of the Company or any of its
subsidiaries;
(ii) all agreements pertaining to the borrowing of money by the
Company or any of its subsidiaries, including any letters of credit;
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(iii) all employment, consulting or personal services agreements or
contracts with any present or former officer, director or employee of the
Company or any of its subsidiaries;
(iv) all contracts, agreements, agreements in principle, letters of
intent and memoranda of understanding which call for or contemplate the
future disposition (including restrictions on transfer and rights of first
offer or refusal) or acquisition of (or right to acquire) any interest in
any business enterprise, and all contracts, agreements and commitments
relating to the future disposition of a material portion of the assets and
properties of the Company or any of its subsidiaries other than in the
ordinary course of business;
(v) all leases or subleases of real property used in the conduct of
business of the Company or any of its subsidiaries;
(vi) all contracts or agreements committing the Company or any of its
subsidiaries to purchase goods, deliver services or make a capital
expenditure in excess of $50,000;
(vii) all guaranties of the Company or any of its subsidiaries;
(viii) all contracts limiting the freedom of the Company or any of its
subsidiaries from engaging in or competing with any business; and
(ix) any other material contract not in the ordinary course of
business.
Section 5.15 Certain Agreements. Neither the Company nor any of its
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any Company Contracts or other material agreement including, but
not limited to, any Company Benefit Plan, whether or not such default has been
waived, which default, alone or in the aggregate with other such defaults, has
had, or would reasonably be expected to have, a Company Material Adverse Effect.
Section 5.16 Tax Matters. To the actual knowledge of the executive
officers of the Company, the Company has not taken any action which would
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
Section 5.17 Bank Accounts. Section 5.17 of the Company Disclosure
Schedule lists each bank, trust company or similar institution with which the
Company or any of its subsidiaries maintains an account or safe deposit box, and
accurately identifies each such account or safe deposit box by its number or
other identification and the names of all individuals authorized to draw thereon
or have access thereto.
Section 5.18 Officers and Directors. Section 5.18 of the Company
Disclosure Schedule accurately lists by name and title all officers and
directors of the Company and each of its subsidiaries.
Section 5.19 Insurance. The Company maintains insurance coverage with
reputable insurers in such amounts and covering such risks as are in accordance
with normal industry practice for companies engaged in businesses similar to
that of the Company (taking into account the cost and availability of such
insurance) except where the foregoing would not have a Company Material Adverse
Effect. Section 5.19 of the Company Disclosure Schedule sets forth a complete
listing of all insurance maintained by the Company (indicating form of coverage,
name of carrier and broker, coverage limits and premium, whether occurrence or
claims made, expiration dates, deductibles, and all endorsements).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
Section 6.1 Organization. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Sub was
formed solely for the purpose of engaging
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in the transactions contemplated by this Agreement. Sub has not engaged in any
business since it was incorporated other than in connection with its
organization and the transactions contemplated by this Agreement and has no, and
prior to the Effective Time, will have no liabilities except in connection with
the transactions contemplated by this Agreement.
Section 6.2 Capitalization. The authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $1.00 per share, 1,000 shares of
which are validly issued and outstanding, fully paid and nonassessable and are
directly owned by Parent free and clear of all liens, claims and encumbrances.
Section 6.3 Authority Relative to this Agreement. Sub has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and sole shareholder, and no other corporate proceedings on the part
of Sub are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement constitutes a valid and binding obligation
of Sub enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Conduct of Business by the Company Pending the Merger. Prior
to the Effective Time, unless Parent shall otherwise agree in writing or except
as otherwise contemplated by this Agreement or the Company Disclosure Schedule:
(i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
sponsors, sanctioning bodies, customers, suppliers and others having
business dealings with them in an attempt to maintain, unimpaired at the
Effective Time, their goodwill and on-going businesses. The Company shall,
and shall cause its subsidiaries to, (a) maintain its books, accounts and
records in the usual manner consistent with past practice; (b) comply in
all material respects with all laws, ordinances and regulations of
Governmental Entities applicable to the Company and its subsidiaries; (c)
maintain and keep its material properties and equipment in good repair,
working order and condition, ordinary wear and tear excepted; (d) take all
reasonable action to maintain its material agreements in full force and
effect and not take any action or fail to take any action which would
constitute a material breach or default thereunder; and (e) perform in all
material respects its obligations under all material contracts and
commitments to which it is a party or by which it is bound, provided that a
failure to comply with clauses (b) through (e) above shall not be a breach
hereof unless such action or inaction has had or would reasonably be
expected to have a Company Material Adverse Effect;
(ii) the Company shall not and shall not propose or agree to (A) sell
or pledge or agree to sell or pledge any capital stock owned by it in any
of its subsidiaries (except in connection with its revolving lines of
credit), (B) amend its charter or By-laws, (C) increase the size of its
Board of Directors, (D) split, combine or reclassify its outstanding stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for the outstanding shares of
stock of the Company, or declare, set aside, authorize or pay any dividend
or other distribution payable in cash, stock or property, or (E) directly
or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of Company stock except as
provided in the Right of First Refusal Agreement dated August 8, 1997 by
and among
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Midwest Facility Investments, Inc., a Florida corporation, Penske
Motorsports, Inc., a Delaware corporation, and various shareholders of the
Company (the "ROFR Agreement");
(iii) the Company shall not, nor shall it permit any of its
subsidiaries other than to the Company or to another subsidiary of the
Company, to, (A) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of, or rights of any kind to acquire any shares of,
its respective stock of any class, any indebtedness having the right to
vote on any matter on which the Company's shareholders may vote or any
option, rights or warrants to acquire, or securities convertible into,
exercisable for or exchangeable for, shares of stock other than issuances,
deliveries or sales of Company Stock pursuant to obligations outstanding as
of the date of this Agreement under the Company Employee Benefit Plans and
under the warrants set forth on Section 5.2 of the Company Disclosure
Schedules; (B) acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets or any other assets other than in the
ordinary course of business; (C) incur additional indebtedness or encumber
or grant a security interest in any asset or enter into any other material
transaction other than in each case in the ordinary course of business; (D)
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; or (E) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
provided that the prohibitions in clauses (B), (C) and (E) shall not apply
to matters contemplated by Section 7.1(iii) of the Company Disclosure
Schedule;
(iv) the Company shall not, nor shall it permit any of its
subsidiaries to, except as required to comply with applicable law and
except as provided in Sections 8.5 or 9.3 hereof, enter into any new (or
amend any existing) Company Employee Benefit Plan or any new (or amend any
existing) employment, severance or consulting agreement, grant any general
increase in the compensation of current or former directors, officers or
employees (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or grant any increase in the
compensation payable or to become payable to any director, officer or
employee, except in any of the foregoing cases in accordance with
preexisting contractual provisions or in the ordinary course of business
consistent with past practice;
(v) the Company shall not, nor shall it permit any of its subsidiaries
to, take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "reorganization"
within the meaning of Section 368(a) of the Code: and
(vi) the Company shall not, nor shall it permit any of its
subsidiaries to, amend, modify, terminate, waive or permit to lapse any
material right of first refusal (other than in connection with the ROFR
Agreement), preferential right, right of first offer, or any other material
right of the Company or any of its subsidiaries.
Section 7.2 Conduct of Business by Parent Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing or except as
otherwise required by this Agreement:
(i) Parent shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall, and shall
cause its subsidiaries to, use their reasonable efforts to preserve intact
their present business organizations and preserve their relationships with
sponsors, sanctioning bodies, customers, suppliers and others having
business dealings with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Parent shall, and
shall cause its subsidiaries to, (a) maintain insurance coverages and its
books, accounts and records in the usual manner consistent with past
practice; (b) comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to Parent and its
subsidiaries; (c) maintain and keep its material properties and equipment
in good repair, working order and condition, ordinary wear and tear
expected: (d) maintain its material agreements in full force and effect and
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not take any action or fail to take any action which would constitute a
material breach or default thereunder; and (e) perform in all material
respects its obligations under all material contracts and commitments to
which it is a party or by which it is bound;
(ii) Parent shall not and shall not propose or agree to (A) sell or
pledge or agree to sell or pledge any capital stock owned by it in any of
its subsidiaries, (B) amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement, or (C) combine or reclassify its
outstanding capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of capital stock of Parent, or declare, set aside, authorize or pay
any dividend or other distribution payable in cash, stock, property or
otherwise (other than the Parent Quarterly Dividend), provided that the
foregoing shall not prohibit Parent from announcing or consummating a stock
split;
(iii) except as disclosed in Section 7.2 to Parent's Disclosure
Schedule or in connection with acquisitions of assets or businesses that
are primarily engaged in the same business as that conducted by Parent and
its subsidiaries as of the date of this Agreement and any financing
transactions or issuances of securities related thereto which, in each
case, do not require the approval of the shareholders of Parent, Parent
shall not, and shall not permit any of its subsidiaries to, (A) issue,
deliver or sell or agree to issue, deliver or sell any additional shares
of, or rights of any kind to acquire any shares of, its respective capital
stock of any class, any indebtedness having the right to vote on any matter
on which Parent's shareholders may vote or any options, rights or warrants
to acquire, or securities convertible into, exercisable for or exchangeable
for, shares of capital stock other than issuances, deliveries or sales of
Parent securities under Parent Employee Benefit Plans; (B) acquire, lease
or dispose or agree to acquire, lease or dispose of any capital assets or
any other assets where the amount involved exceeds $10,000,000 other than
in the ordinary course of business; (C) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any other
material transaction where the amount involved exceeds $20,000,000 other
than in each case in the ordinary course of business; (D) acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof where the amount involved exceeds $25,000,000; or (E)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(iv) Parent shall not, nor shall it permit any of its subsidiaries or
affiliates to, take or cause to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; and
(v) Parent shall not, nor shall it permit any of its subsidiaries to,
amend, modify, terminate, waive or permit to lapse any material right of
first refusal, preferential right, right of first offer, or any other
material right of Parent or any of its subsidiaries.
Section 7.3 Conduct of Business of Sub. During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement.
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ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information. Each of the Company and Parent and
their respective subsidiaries shall afford to the other and to the other's
accountants, counsel and other representatives reasonable access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel, subject to existing
confidentiality obligations, and, during such period, each shall furnish
promptly to the other (i) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. Each of the
Company and Parent shall hold, and shall use their reasonable best efforts to
cause their respective employees, agents and representatives to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated October 24, 1997 between Parent and the Company.
Section 8.2 Registration Statement/Proxy Statement. Parent and the Company
shall cooperate and promptly prepare, and Parent shall file with the Commission
as soon as practicable, a Registration Statement on Form S-4 (the "Form S-4")
under the Securities Act, with respect to the Parent Common Stock issuable in
the Merger, portions of which Registration Statement shall also serve as the
joint proxy or information statement of Parent and Company with respect to the
meetings of shareholders of Parent and the Company contemplated by Section 3.7
(the "Proxy Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Parent shall use all reasonable
efforts, and the Company will cooperate with Parent, to have the Form S-4
declared effective by the Commission as promptly as practicable after the filing
thereof (including without limitation, responding to any comments received from
the Commission with respect thereto) and to keep the Form S-4 effective as long
as is necessary to consummate the Merger. Each of Parent and the Company shall,
as promptly as practicable, provide to the other copies of any written comments
received from the Commission with respect to the Proxy Statement/Prospectus or
the Form S-4 and advise the other of any oral comments with respect to the Proxy
Statement/Prospectus or the Form S-4 received from the Commission. Parent shall
use its best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by the Merger Agreement and will pay all
expenses incident thereto. Parent agrees that none of the information supplied
or to be supplied by Parent for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of shareholders of Parent and
the Company contemplated by Section 3.7 or (ii) in the case of the Form S-4 and
each amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees that none of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meetings of shareholders of Parent and
the Company contemplated by Section 3.7, or (ii) in the case of the Form S-4 or
any amendment or supplement thereto, at the time it is filed or becomes
effective, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to Parent will be deemed to have been supplied
by Parent and information concerning or related to the Company shall be deemed
to have been supplied by the Company. No amendment or supplement to the Proxy
Statement/Prospectus will be made by Parent or the Company without the approval
of the other party which will not be
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unreasonably withheld or delayed. Parent will advise the Company, promptly after
it receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop order,
or the suspension of the qualification of Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction.
Section 8.3 Stock Exchange Listing. Parent shall promptly prepare and
submit to the NYSE a listing application covering the shares of Parent Common
Stock issuable in connection with the transactions contemplated hereby and shall
use its best efforts to obtain, prior to the Effective Time, approval of such
listing on the NYSE, upon official notice of issuance, of such Parent Common
Stock.
Section 8.4 Employee Matters. As of the Effective Time, the employees of
the Company and each subsidiary shall continue employment with the Surviving
Corporation and the subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of
employment or separation from service; provided, however, except as may be
specifically required by applicable law or any contract, the Surviving
Corporation and the subsidiaries shall not be obligated to continue any
employment relationship with any employee for any specific period of time.
Except with respect to the Option Plans to be assumed by the Parent as provided
by Section 3.6(a) hereto, as of the Effective Time, the Surviving Corporation
shall be the sponsor of the Company Employee Benefit Plans sponsored by the
Company immediately prior to the Effective Time, and Parent shall cause the
Surviving Corporation and the subsidiaries to satisfy all obligations and
liabilities under such Company Employee Benefit Plans; provided, however, that,
except as hereafter provided in this Section 8.4 or in the Company Disclosure
Schedule, nothing contained in this Agreement shall limit or restrict the
Surviving Corporation's right on or after the Effective Time to amend, modify or
terminate any of the Company Employee Benefit Plans. Parent will for a period of
time at least twenty-four (24) months after the Effective Time, other than
during the transition period ending November 30, 1998 (during which the
Company's benefit programs will be maintained or replaced by the Parent benefits
described herein), provide, or cause the Surviving Corporation to provide, and
their respective successors to maintain, to all employees of the Company
benefits under Parent's Qualified Employee Defined Benefit Plan, 401(k) Deferred
Compensation Plan, Health and Welfare Plan on the same terms generally made
available to other employees of Parent and its subsidiaries. To the extent any
employee benefit plan, program or policy of Parent, the Surviving Corporation,
or their affiliates is made available to any person who is an employee of the
Company or any of its subsidiaries immediately prior to the Effective Time: (i)
service with the Company and the subsidiaries by any employee prior to the
Effective Time shall be credited for eligibility purposes and for purposes of
qualifying for any additional benefits tied to periods of service (such as
higher rates of matching contributions and eligibility for early retirement)
under such plan, program or policy, but not for benefit accrual purposes; and
(ii) with respect to any welfare benefit plans to which such employees may
become eligible, Parent shall cause such plans to provide credit for any
co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods, other than limitations or waiting
periods that have not been satisfied under any welfare plans maintained by the
Company and the subsidiaries for their employees prior to the Effective Time.
Section 8.5 Indemnification. (a) The Articles of Incorporation and Bylaws
of the Surviving Corporation shall contain the provisions with respect to
indemnification, advancement and director exculpation set forth in the Articles
of Incorporation and Bylaws of the Company on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six (6) years after the Effective Time in any manner that would adversely affect
the rights thereunder of persons who at any time prior to the Effective Time
were or would have been entitled to indemnification, advancement or exculpation
under the Articles of Incorporation or Bylaws of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated hereby).
(b) From and after the Effective Time, Parent, the Surviving Company shall,
jointly and severally, indemnify, defend and hold harmless the present and
former officers, directors and employees of the Company and its subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of (with the
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approval of Parent and the Surviving Corporation, which approval shall not be
unreasonably withheld or delayed), or otherwise in connection with, any claim,
action, suit, proceeding or investigation (a "Claim"), to which any such person
is or may become a party by virtue of his or her service as a present or former
director, officer or employee of the Company or any of its subsidiaries and
arising out of actual or alleged events, actions or omissions occurring or
alleged to have occurred at or prior to the Effective Time (including, without
limitation, the transactions contemplated hereby), in each case to the fullest
extent permitted under the GCL (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under the GCL, upon receipt from the Indemnified Party
to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 317(f) of the GCL). The Indemnified Parties agree to
reasonably cooperate with Parent in the investigation and defense of any Claim.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 8.5, upon learning of any such Claim, shall notify Parent and the
Surviving Corporation (although the failure so to notify Parent and the
Surviving Corporation shall not relieve either thereof from any liability that
Parent or the Surviving Corporation may have under this Section 8.5, except to
the extent such failure materially prejudices such party). Parent and the
Surviving Corporation shall have the right to assume the defense thereof and
Parent and the Surviving Corporation shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Parent and the Surviving Corporation elect not to assume
such defense or if there is an actual or potential conflict of interest between,
or different defenses exist for Parent and the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them and Parent and the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided however, that (i) Parent and the Surviving
Corporation shall not, in connection with any one such action or proceeding or
separate but substantially similar actions or proceedings arising out of the
same general allegations, be liable for the fees and expenses of more than one
separate firm of attorneys in addition to any appropriate local counsel at any
time for all Indemnified Parties unless there is a conflict on any significant
issue between the positions of any two or more of such Indemnified Parties, in
which event any additional counsel as may be reasonably required may be retained
by such Indemnified Parties at Parent's and the Surviving Corporation's expense,
(ii) Parent, the Surviving Corporation and the Indemnified Parties will
cooperate in the defense of any such matter and (iii) Parent and the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent, which consent will not be unreasonably withheld or delayed, and
provided further, that the Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
not subject to further appeal, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law.
(d) Parent shall cause to be maintained in effect for not less that six (6)
years after the Effective Time (except to the extent not generally available in
the market) directors' and officers' liability insurance and fiduciary liability
insurance that is substantially equivalent in coverage to the Company's current
insurance, with an amount of coverage of not less than 100% of the amount of
coverage maintained by the Company as of the date of this Agreement with respect
to matters occurring prior to the Effective Time, provided that the cost thereof
shall not exceed 150% of the Company's current cost per year.
(e) This Section 8.5 shall survive the consummation of the Merger and is
intended to be for the benefit of, and shall be enforceable by, the Indemnified
Parties referred to herein, their heirs and personal representatives and shall
be binding on Parent and Sub and the Surviving Corporation and their respective
successors and assigns.
Section 8.6 HSR Act. The Company and Parent shall use their reasonable
best efforts to file as soon as practicable notifications under the HSR Act in
connection with the Merger and the transactions contemplated hereby and to
respond as promptly as practicable to any inquiries received from the
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Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation.
Section 8.7 Additional Agreements. (a) Subject to the terms and conditions
herein provided, including the provisions of Section 3.6 hereof,
(a) each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using all commercially reasonable efforts to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings and to lift any injunction to the Merger (and, in such
case, to proceed with the Merger as expeditiously as possible); and
(b) in case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Parent, the Company and the Surviving Corporation
shall take all such necessary action.
Section 8.8 No Shop. The Company agrees (a) that neither it nor any of its
subsidiaries shall, and it shall direct and use its reasonable best efforts to
cause its officers, directors, employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, sale (other than in connection with the ROFR
Agreement), consolidation or similar transaction involving, the purchase of all
or any significant portion of the assets or equity securities of, the Company
and its subsidiaries, taken as a whole (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person proposing an Alternative Proposal, or
release any third party from any obligations under any existing standstill
agreement or arrangement, or enter into any agreement with respect to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal; (b) that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and it will
take the necessary steps to inform the individuals or entities referred to above
of the obligations undertaken in this Section; and (c) that it will notify the
other party promptly if any such inquiries or proposals are made regarding an
Alternative Proposal. Notwithstanding the foregoing, Company may, directly or
indirectly, furnish information and access to, and may participate in
discussions and negotiate with, any corporation, partnership, person or other
entity, and may agree to or endorse such Alternate Proposal if such corporation
partnership, person or other entity has made a proposal to its Board of
Directors relating to an Alternative Proposal which the Board of Directors
believes is (i) superior from a financial point of view to the Merger and (ii)
is reasonably likely to be consummated and the Board of Directors, after
consultation with independent legal counsel, determines in its good faith
judgment that taking such action is required to comply with the Board of
Directors' fiduciary duty to its shareholders imposed by law. The Board of
Directors shall provide a copy of any such proposal if in writing to the Parent
promptly after receipt thereof and thereafter keep the Parent promptly advised
of any material development with respect thereto and any revision of the terms
of such Alternative Proposal. Nothing in this Section 8.8 shall (x) permit the
Company to terminate this Agreement (except as specifically provided in Article
10 hereof), (y) permit Parent or the Company to enter into any agreement with
respect to an Alternative Proposal during the term of this Agreement (it being
agreed that during the term of this Agreement, the Company shall not enter into
any agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal (other than a confidentiality agreement in customary
form)), or (z) affect any other obligation under this Agreement.
Section 8.9 Advice of Changes; SEC Filings. The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall
promptly advise each other orally and in writing of any change or event that has
had, or would reasonably be expected to have, a Company
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Material Adverse Effect or a Parent Material Adverse Effect, as the case may be.
The Company and Parent shall promptly provide each other (or their respective
counsel) copies of all filings made by such party with the SEC or any other
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
Section 8.10 Certain Appointments. As of the Effective Time, Parent shall
use its best efforts to (a) increase the size of the Board of Directors of
Parent to ten (10) persons and (b) nominate Christopher R. Pook ("Pook") for
election as a Class I director for the remainder of a three (3) year term
expiring in the year 2000 subject to shareholder approval, which approval will
be sought at the shareholder meeting contemplated by Section 3.6. At the end of
such three (3) year term, if Pook remains an employee of the Surviving
Corporation, Parent shall use its best efforts to nominate Pook for re-election
as a director for an additional three (3) year term subject to shareholder
approval.
Section 8.11 Employees. Unless and until the Merger is consummated,
neither party shall for a period of eighteen (18) months beginning the date of
execution hereof, without the prior written consent of the other party, solicit
the employment of any employees of the other party. This prohibition shall only
extend to employees in senior management or other key employees. This
prohibition shall not apply to any employee thirty (30) days after such employee
has left the employ of either party not in contravention of the preceding
sentence.
Section 8.12 Transition Team. Parent and the Company shall create a
special transition team which shall be headed jointly by one person designated
by Parent and one person designated by the Company and be composed of personnel
from each of Parent and the Company. The transition team shall facilitate the
strategic alliance of Parent and the Company during the period from the date
hereof to the Effective Time and shall report on its work to the Chief Executive
Officer of each of Parent and the Company.
Section 8.13 Stop Transfer. The Company agrees with, and covenants to,
Parent that the Company shall not register the transfer of any certificate
representing Common Stock owned by any Supporting Company Shareholder if such
transfer is made in violation with the terms of the Support Agreements.
Section 8.14 Right to Nominate Directors. The Company shall take all
corporate action necessary to immediately appoint the following three (3)
individuals: any of the current directors or senior officers of Parent or such
other individuals designated by Parent and reasonably acceptable to the
Company's Board, as a member of the Board of Directors of the Company to fill
existing vacancies; and thereafter during the Covered Period (as defined below)
use reasonable efforts, consistent with and no less than are taken with respect
to all other nominees to the Board of Directors, to have such designee (or other
reasonably acceptable designee of Parent) to be nominated and elected to its
Board of Directors at each election of the Company's directors. Each Parent
designee elected to the Board of Directors shall be indemnified by the Company
to the fullest extent permitted by law and, without limiting the generality of
the foregoing, shall be given indemnification agreement protection, if any, by
the Company in the same form as currently in effect for the Company's current
directors. The Company agrees to provide each such Parent designee with the same
compensation paid by the Company to its other outside directors and to reimburse
the Parent's designee for reasonable out-of-pocket expenses incurred in
connection with his or her attendance of Board meetings. In the event the
Parent's designee(s) is (are) not elected as a member of the Board of Directors
during the Covered Period, the Company shall take all corporate action necessary
to entitle such designee(s) to attend and participate in all of the Company's
Board of Directors meetings. The Covered Period shall begin on the date of
execution hereof and continue for a one (1) year period, provided that it shall
terminate immediately at such time as Parent beneficially owns less than eighty
percent (80%) of the Parent Owned Company Stock.
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ARTICLE IX
CONDITIONS PRECEDENT
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company Stock
and the issuance of the Parent Common Stock pursuant to this Agreement shall
have been approved by the requisite vote of the holders of the Parent capital
stock, in each case as provided in Section 3.7.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) The Form S-4 shall have become effective in accordance with the
provisions of the Securities Act. No stop order suspending the effectiveness of
the Form S-4 shall have been issued by the Commission and remain in effect.
(d) No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect (each
party agreeing to use all commercially reasonable efforts to have any such
injunction lifted).
(e) The Parent Common Stock to be issued to Company shareholders in
connection with the Merger shall have been approved for listing on the NYSE,
subject only to official notice of issuance.
Section 9.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Parent and Sub shall have performed in all material respects their
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, except where the failure to so perform would not have a
Parent Material Adverse Effect. The representations and warranties of Parent and
Sub contained in this Agreement shall be true in all material respects when
made, except as expressly contemplated or permitted by this Agreement or where
the failure to be so true and correct would not or would not reasonably be
expected to have a Parent Material Adverse Effect. The representations and
warranties of Parent and Sub contained in this Agreement shall be true in all
material respects as of the Effective Time as if made on and as of such date
(except to the extent they relate to a particular date), except as expressly
contemplated or permitted by this Agreement or where the failure to be so true
and correct would not have a Parent Material Adverse Effect (which for the
purpose of this sentence shall be determined by replacing any references to the
phrase "would [not] reasonably be expected to have a Parent Material Adverse
Effect" with the phrase "would [not] have a Parent Material Adverse Effect").
The Company shall have received a certificate of the President and Chief
Executive Officer or a Vice President of each of Parent and Sub to that effect.
(b) The employment agreements between the Company and each of Pook and
James P. Michaelian in the form attached hereto as Exhibit 9.3(b)(1) and Exhibit
9.3(b)(2), respectively, shall have been executed and delivered and shall be in
full force and effect.
Section 9.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Parent:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, except where the failure to so perform would not have a
Company Material Adverse Effect. The representations and warranties of the
Company contained in this Agreement (a) shall be true in all material respects
when made, except as expressly contemplated or permitted by this Agreement or
where the failure to be so true and correct
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would not or would not reasonably be expected to have a Company Material Adverse
Effect; (b) shall be true in all material respects as of the Effective Time as
if made on and as of such date (except to the extent they relate to a particular
date), except as expressly contemplated or permitted by this Agreement or where
the failure to be so true and correct would not have a Company Material Adverse
Effect (which for the purpose of this clause (b) shall be determined by
replacing any references to the phrase "would [not] reasonably be expected to
have a Company Material Adverse Effect" with the phrase "would [not] have a
Company Material Adverse Effect"); provided (c) that in either case, the
representations and warranties in Section 5.2 must be true and correct in all
respects. Parent and Sub shall have received a certificate of the President and
Chief Executive Officer or a Vice President of the Company to that effect.
(b) The employment agreements between the Company and each of Pook and
James P. Michaelian in the form attached hereto as Exhibit 9.3(b)(1) and Exhibit
9.3(b)(2), respectively, shall have been executed and delivered and shall be in
full force and effect.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after approval by the shareholders of the Company or Parent, by
the mutual consent of Parent and the Company.
Section 10.2 Termination by Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned (a) by Parent or the Company if the
Merger shall not have been consummated by August 30, 1998 or, if the Effective
Time shall not have occurred because of the failure of a condition set forth in
Section 9.1 (b), (c) or (d), by September 30, 1998, or (b) by Parent or the
Company if the approval of the Company's shareholders required by Section 3.7
shall not have been obtained at a meeting duly convened therefor or at any
adjournment or postponement thereof, or (c) by the Company if the approval of
Parent's shareholders required by Section 3.7 shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof,
(d) by Parent or the Company if a United States federal or state court of
competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable, or (e) by Parent if the Support
Agreements or comparable agreements in form reasonably acceptable to Parent
shall, when aggregated with the Parent Owned Company Stock or any subsequently
acquired shares of Company Stock acquired by Parent or its affiliates, fail to
continue in full force and effect or to represent a majority of the voting power
of the Company on a fully diluted basis assuming the exercise of all outstanding
warrants and vested options and such failure shall not have been cured within
fourteen (14) days of its receipt of written notice from Parent of such failure;
provided, that the party seeking to terminate this Agreement pursuant to clause
(d) above shall have used all commercially reasonable efforts to remove such
injunction, order or decree; and provided in the case of a termination pursuant
to clause (a) above, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure to consummate the Merger; and
provided that no termination under clause (e) above shall be permitted after the
vote on the Merger if the Company's shareholders approve the Merger.
Section 10.3 Termination due to Breach. This Agreement may be terminated
and the Merger may be abandoned: (a) by Parent, if there has been a breach of
any material representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement such that any of the conditions set forth in
Section 9.3(a) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Company through the exercise of its reasonable best efforts and for so long as
the Company continues to exercise such reasonable best efforts (but in no event
longer than thirty (30) days after Parent's notification of the Company of the
occurrence of such Terminating Company Breach), Parent may not terminate this
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Agreement under this subsection; or (b) by the Company, if there has been a
breach of any material representation, warranty, covenant or agreement on the
part of Parent or Sub set forth in this Agreement, such that any of the
conditions set forth in Section 9.2(a) would not be satisfied (a "Terminating
Parent Breach"); provided, however, that, if such Terminating Parent Breach is
curable by Parent or Sub through the exercise of its reasonable best efforts and
for so long as Parent and Sub continue to exercise such reasonable best efforts,
(but in no event longer than thirty (30) days after the Company's notification
of Parent of the occurrence of such Terminating Parent Breach), the Company may
not terminate this Agreement under this subsection.
Section 10.4 Other Termination Rights. (a) This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by action of the Board of Directors of Parent, if the Board of Directors
of the Company shall have withdrawn or modified in a manner adverse to Parent
its approval or recommendation of this Agreement or the Merger or shall have
recommended an Alternative Proposal with respect to the Company to the Company's
shareholders.
(b) This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, by action of the Board of Directors of the
Company, if the Company shall have received an Alternative Proposal which the
Board of Directors of the Company believes is (i) superior from a financial
point of view to the Merger and (ii) reasonably likely to be consummated and the
Board of Directors of the Company after consultation with independent legal
counsel, believes such action is required to comply with its fiduciary duties
imposed by law.
Section 10.5 Effect of Termination and Abandonment. (a) In the event that
(i) any person shall have made an Alternative Proposal with respect to the
Company and thereafter this Agreement is terminated by either party pursuant to
Section 10.2(b) and within 12 months thereafter such Alternative Proposal with
respect to the Company shall have been consummated, (ii) the Board of Directors
of the Company shall have withdrawn or modified in a manner adverse to Parent
its approval or recommendation to the Company's stockholders by reason of an
Alternative Proposal with respect to the Company and Parent shall have
terminated this Agreement pursuant to Section 10.4(a) and within 12 months
thereafter any Alternative Proposal with respect to the Company shall have been
consummated, (iii) the Board of Directors of the Company shall have recommended
an Alternative Proposal with respect to the Company to the Company's
stockholders and Parent shall have terminated this Agreement pursuant to Section
10.4(a) and within 12 months thereafter any Alternative Proposal with respect to
the Company shall have been consummated, or (iv) the Company shall have
terminated this Agreement pursuant to Section 10.4(b) and within 12 months
thereafter any Alternative Proposal with respect to the Company shall have been
consummated, then, in any such case, the Company shall in no event later than
the date of consummation of such Alternative Proposal pay Parent a fee of Three
Million and 00/100 Dollars ($3,000,000.00) (a "Termination Fee), which amount
shall be payable by wire transfer of same day funds. For purposes of clause (a)
above, no Termination Fee shall be payable unless such Alternative Proposal is
superior from a financial point of view to the Merger. The Company acknowledges
that the agreements contained in this Section are an integral part of the
transactions contemplated in this Agreement, and that, without these agreements,
Parent and Sub would not enter into this Agreement. Accordingly, if the Company
fails to promptly pay the amount due pursuant to this Section, and, in order to
obtain such payment, Parent or Sub commences a suit which results in a judgment
against the Company for the fee and expenses set forth in this Section, the
Company shall pay to Parent its costs and expenses (including attorneys fees) in
connection with
such suit.
(b) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article X, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section,
Section 8.11 and Section 11.3 and except for the provisions of the
Confidentiality Agreement referred to in Section 8.1 and the provisions of
Section 11.1. Moreover, in the event of termination of this Agreement pursuant
to Section 10.2(a) or Section 10.3, nothing herein shall prejudice the ability
of the non-breaching party from seeking its costs and expenses and damages from
any other party for any breach of this Agreement, including without limitation,
attorneys' fees and the right to pursue any remedy at law or in equity.
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Non-Survival of Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements set forth
in this Agreement shall terminate at the Effective Time or upon termination of
this Agreement pursuant to Article X, as the case may be, except that the
agreements set forth in Articles I, II and III and Sections 8.4, 8.5, 8.7, 8.10
and Article XI shall survive the Effective Time and those set forth in or
referred to in Section 10.5 shall survive termination. All covenants and
agreements set forth in this Agreement shall survive in accordance with their
terms.
Section 11.2 Notices. All notices or other communications under this
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Christopher R. Pook
Chief Executive Officer
Grand Prix Association of Long Beach, Inc.
3000 Pacific Avenue
Long Beach, CA 90806
With a copy to:
Barry L. Dastin, Esquire
Kaye, Scholer, Fierman, Hays & Handler, L.L.P.
1999 Avenue of the Stars, Suite 1600
Los Angeles, CA 90067-6048
If to Parent or Sub:
Denis McGlynn
President & Chief Executive Officer
Dover Downs Entertainment, Inc.
1131 N. DuPont Highway
Dover, DE 19901
With a copy to:
Klaus M. Belohoubek, Esquire
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, DE 19803
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
Section 11.3 Fees and Expenses. Whether or not the Merger is consummated,
except as provided in Section 10.4 and Section 8.2, all costs and expenses,
including legal and accounting fees, incurred in connection with this Agreement
and the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger is consummated except as
expressly provided herein and except that the expenses of printing and mailing
the Form S-4 and the Proxy Statement/Prospectus, shall be shared equally by the
Company and Parent.
Section 11.4 Publicity. So long as this Agreement is in effect, Parent,
Sub and the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of them shall issue any
press release or make any public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
NASDAQ or any national securities exchange.
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Section 11.5 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 11.6 Assignment; Binding Effect. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except as provided in Section 8.5
and 8.10 nothing in this Agreement, expressed or implied, including without
limitation the provisions of Section 8.4, is intended to nor shall it confer on
any person other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
Section 11.7 Entire Agreement. This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement dated October 24, 1997, between the Company and Parent and any
documents delivered by the parties in connection herewith and therewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
Section 11.8 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with the Mergers by
the shareholders of the Company and Parent, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its rules of conflict of laws.
EACH OF THE PARTIES HERETO (I) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL
JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR ANY
DELAWARE STATE COURT IN THE EVENT ANY DISPUTE ARISES OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, (II) AGREES THAT IT
SHALL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR
OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (III) AGREES THAT IT SHALL NOT
BRING ANY ACTION RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT IN ANY COURT OTHER THAN A FEDERAL COURT SITTING
IN THE STATE OF DELAWARE OR A DELAWARE STATE COURT.
Section 11.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but any such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
Section 11.11 Headings and Table of Contents. Headings of the Articles and
Sections of this Agreement and the Table of Contents are for the convenience of
the parties only, and shall be given no substantive or interpretive effect
whatsoever.
Section 11.12 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender
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shall include all genders and words denoting natural persons shall include
corporations and partnerships and vice versa.
Section 11.13 Waivers. At any time prior to the Effective Time, the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies by the
other party in the representations and warranties contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid if
set forth in an instrument in writing signed on behalf of such party. Except as
provided in this Agreement, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision hereunder shall not operate or be construed as a waiver of any prior
or subsequent breach of the same or any other provision hereunder.
Section 11.14 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 11.15 Subsidiaries. As used in this Agreement, the word
"subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of
the date first written above.
Dover Downs Entertainment, Inc.
By: /s/ Denis McGlynn
--------------------------------
Name: Denis McGlynn
Title: President
FOG Acquisition Corporation
By: /s/ Denis McGlynn
--------------------------------
Name: Denis McGlynn
Title: President
Grand Prix Association of Long Beach, Inc.
By: /s/ Christopher R. Pook
--------------------------------
Name: Christopher R. Pook
Title: Chief Executive Officer
A-33
<PAGE>
ANNEX A
AGREEMENT OF MERGER
This Agreement of Merger (the "Agreement") is entered into as of the _____
day of March, 1998, by and between FOG Acquisition Corporation, a California
corporation (the "Company") and Grand Prix Association of Long Beach, Inc., a
California corporation (the "Sub").
RECITALS
A. The Sub is a wholly-owned subsidiary of Dover Downs Entertainment, Inc.,
a Delaware corporation (the "Parent"), and is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of California.
B. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California.
C. The respective Boards of Directors of the Sub and the Company deem it
advisable for the mutual benefit of the Sub and the Company, and their
respective shareholders, that the Sub be merged with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth herein and in
the Agreement and Plan of Merger among the parties hereto and the Parent, dated
as of March ___, 1998 (the "Plan of Merger"), and in accordance with the
California Corporations Code (the "GCL").
D. The Sub and the Company and their respective Boards of Directors and, to
the extent required by applicable law, their respective shareholders, have
approved this Agreement and the Plan of Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. The Merger. At the Effective Time (as hereinafter defined), the Sub
shall be merged with and into the Company in accordance with the GCL and the
separate corporate existence of the Sub shall cease. (The Sub and the Company
are herein sometimes referred to as the "Constituent Corporations," and the
Company, in its capacity as the corporation surviving the Merger, is sometimes
referred to herein as the "Surviving Corporation.")
2. Effective Time. The Merger shall become effective immediately upon the
filing of this Agreement, together with appropriate certificates of approval and
adoption executed by authorized representatives of each of the Constituent
Corporations, with the Secretary of State of the State of California in
accordance with Section 1103 of the GCL. The date and time of such filing are
sometimes referred to herein as the "Effective Time."
3. Effect of the Merger. The Merger shall have the effects set forth in
Section 1107 of the GCL.
4. Articles of Incorporation. The Articles of Incorporation of the Company
in effect immediately prior to the Effective Time shall as of and after the
Effective Time be the Articles of Incorporation of the Surviving Corporation,
until thereafter amended as provided by law.
5. By-laws. The By-laws of the Company in effect immediately prior to the
Effective Time shall as of and after the Effective Time be the By-laws of the
Surviving Corporation, until thereafter amended as provided by law.
6. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of the Parent, the Sub, the Company or
the holders thereof:
(a) Subject to Section 6(f) below, each share of the common stock, no
par value, of the Company (collectively, the "Company Common Stock") issued
and outstanding immediately prior to the Effective Time (other than (i)
shares of Company Common Stock to be canceled as provided in Section 6(b)
below and (ii) any Dissenting Shares (as defined in Section 7 below)),
shall be canceled and extinguished and shall automatically be converted
into the right to receive
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.63 (the "Exchange Ratio") fully paid and non-assessable shares of the
common stock, par value $.10 per share, of the Parent ("Parent Common
Stock"). Each share of Parent Common Stock issued to holders of Company
Common Stock in the Merger shall be issued together with one associated
stock purchase right (a "Parent Right") in accordance with the Rights
Agreement, dated as of June 14, 1996, as amended, between Parent and
ChaseMellon Shareholder Services, L.L.C., as rights agent, or any successor
rights agreement (the "Parent Rights Agreement"). References herein to the
shares of Parent Common Stock issuable in the Merger shall be deemed to
include the associated Parent Rights.
(b) All shares of Company Common Stock which are held by the Company
or any subsidiary of the Company and any shares of Company Common Stock
owned by Parent or any subsidiary of Parent shall be canceled.
(c) In the event of any dividend other than regular quarterly cash
dividends on the Parent Common Stock which shall not differ materially from
prior dividends (the "Parent Quarterly Dividend"), distribution, stock
split, reclassification, recapitalization, combination or exchange of
shares or other similar transaction with respect to the Parent Common Stock
or Company Common Stock after the date of the Plan of Merger and prior to
the Effective Time, the Exchange Ratio (and, if appropriate, the number of
Parent Rights) shall be appropriately adjusted.
(d) In the event that the average of the closing sale prices of the
Parent Common Stock for fifteen (15) business days next preceding the
Effective Time, as reported on the New York Stock Exchange (the "NYSE")
(the "Average Closing Price"), is greater than $32.00 per share or less
than $21.00 per share, the Exchange Ratio shall be adjusted as follows: (a)
if the Average Closing Price is greater than $32.00 per share, the Exchange
Ratio shall equal $20.16 divided by the Average Closing Price, rounded to
the nearest four decimal places; or (b) if the Average Closing Price is
less than $21.00 per share, the Exchange Ratio shall equal $13.23 divided
by the Average Closing Price, rounded to the nearest four decimal places;
and (c) provided that the Exchange Ratio shall not be greater than .6963
nor less than .5929.
(e) Each issued and outstanding share of stock of Sub shall be
converted into and become one validly issued, fully paid and non-assessable
share of capital stock of the Surviving Corporation.
(f) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of
certificates representing shares of Company Common Stock ("Certificates")
pursuant to Section 6(a) above. Notwithstanding any other provision of this
Agreement, each holder of Company Common Stock exchanged pursuant to the
Merger who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Certificates delivered
by such holder) shall receive, in lieu thereof, cash from Parent in an
amount equal to such fractional part of a share of Parent Common Stock
multiplied by the Average Closing Price.
(g) The foregoing into which each share of Company Common Stock shall
be converted in the Merger as provided herein are hereinafter collectively
referred to as the "Merger Consideration."
7. Dissenting Shares. Anything to the contrary in this Agreement
notwithstanding, shares of Company Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders who
have not voted such shares in favor of the Merger and who (i) shall be entitled
to and shall have validly exercised rights of appraisal in the manner provided
in the Sections 1300 through 1312 of the GCL (the "Dissenters' Rights
Provisions") and (ii) as of the Effective Time, shall not have effectively
withdrawn or lost such right to appraisal ("Dissenting Shares"), shall not be
converted into or represent a right to receive the Merger Consideration pursuant
to Section 6 hereof, but the holders thereof shall be entitled only to such
rights as are granted by the Dissenters' Rights Provisions. Each holder of
Dissenting Shares who becomes entitled to payment for such shares pursuant to
the Dissenters' Rights Provisions shall receive payment therefor from the
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Surviving Corporation in accordance therewith; provided, however, that if (A)
any such Dissenting Shares shall not become "dissenting shares" pursuant to
Sections 1300(b) of the GCL, (B) any such Dissenting Shares shall lose their
status as "dissenting shares" pursuant to Section 1309 thereof, or (C) any
holder of Dissenting Shares shall have lost his, her or its status as a
"dissenting shareholder" pursuant to such Section 1309, then the right to
appraisal with respect to such shares shall be lost and each such share shall
thereupon be deemed to have been converted, as of the Effective Time, into and
shall thereupon represent only the right to receive the Merger Consideration
otherwise payable with respect to Company Common Stock converted at the
Effective Time pursuant to Section 6 hereof.
8. Termination or Abandonment. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time by the mutual written
consent of the respective Boards of Directors of the Constituent Corporations.
In the event of termination of this Agreement as herein provided, neither of the
Company, Parent nor the Sub nor their respective Boards of Directors,
shareholders or stockholders shall be liable to the other or its respective
directors, shareholders or stockholders except as provided in the Plan of
Merger.
9. Other Provisions.
(a) Governing Law. This Agreement shall be governed in all respects
by the laws of the State of California without giving effect to any
conflicts of law provisions thereof.
(b) Entire Agreement. This Agreement and the Plan of Merger contain
the entire agreement of the parties hereto and supersede any prior written
or oral agreements between them concerning the subject matter contained
herein or therein.
(c) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall
constitute the same agreement.
(d) Modification. This Agreement may not be amended or modified
except by an instrument in writing signed on behalf of each of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized officers as of the date first above written.
FOG Acquisition Corporation
By: /s/ Denis McGlynn
-------------------------------------
Denis McGlynn
Title: President
Grand Prix Association of Long Beach, Inc.
By: /s/ Christopher R. Pook
-------------------------------------
Christopher R. Pook
Title: Chief Executive Officer
A-36
<PAGE>
OPINION OF
GERARD KLAUER MATTISON & CO., INC.
ANNEX B
March 26, 1998
Board of Directors
Dover Downs Entertainment, Inc.
1131 North DuPont Highway
Dover, Delaware 19901
Gentlemen:
We understand that Dover Downs Entertainment, Inc., a Delaware corporation
(the "Company"), Grand Prix Association of Long Beach, Inc., a California
corporation ("Target" and FOG Acquisition Corporation ("Sub"), a California
corporation and wholly owned subsidiary of the Company, are considering entering
into an Agreement and Plan of Merger (the "Merger Agreement") to be dated on or
about March 26, 1998, whereby, among other things, Sub shall be merged with and
into Target in a transaction (the "Transaction") in which (a) each issued and
outstanding share (each a "Target Share") of common stock, no par value, of
Target (other than Target Shares held by (i) Target or the Company or any of
their respective subsidiaries, (ii) Midwest Facility Investments, Inc. ("MFI"),
a wholly owned subsidiary of International Speedway Corporation, or (iii) Penske
Motorsports, Inc. ("PMI")) shall be converted into the right to receive 0.63
(subject to adjustment as provided in Section 3.1(d) of the Merger Agreement,
the "Exchange Ratio") validly issued, fully paid and non-assessable shares
("Company Shares") of common stock, $.10 par value, of the Company, and (b) the
Company will purchase 340,000 Target Shares from each of MFI and PMI
(representing all of the Target Shares beneficially owned by MFI and PMI) for
$15.50 per share in cash (such aggregate cash consideration, together with the
Company Shares issued pursuant to the Exchange Ratio, being referred to as the
"Total Consideration") pursuant to separate stock purchase agreements (the
"Purchase Agreements") with MFI and PMI dated March 25, 1998.
You have requested the opinion of Gerard Klauer Mattison & Co., Inc.
("Gerard Klauer"), as of this date, as to the fairness, from a financial point
of view, to the holders of Company Shares, of the Total Consideration to be
offered by the Company in the Transaction.
In conducting our analysis and arriving at our opinion set forth below, we
have reviewed and analyzed, among other things, the following:
(i) a draft dated March 24, 1998 of the Merger Agreement, and have
assumed that the final form of the Merger Agreement will not vary in any
regard that is material to our analysis;
(ii) the Purchase Agreements;
(iii) certain publicly available Securities and Exchange Commission
filings made by the Company and Target, including Form 10-Ks, Form 10-Qs,
proxy statements and prospectuses;
(iv) certain internal business, operating and financial information,
including financial forecasts and projections, furnished to us by the
Company and Target;
(v) the pro forma impact of the Transaction on the Company's results
of operations, earnings per share, consolidated capitalization and certain
financial ratios;
(vi) the historical and projected financial results and financial
condition of the Company and Target and compared them with those of other
companies and businesses that we deemed relevant;
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<PAGE>
(vii) the reported prices and trading activity of the Company Shares
and Target Shares and compared their performance with those of other
publicly traded companies that we deemed relevant; and
(viii) the financial terms of the Transaction and compared them with
the financial terms, to the extent publicly available, of certain other
recent transactions that we deemed relevant.
In addition, in arriving at our opinion, we have held discussions with the
Company's and Target's managements regarding the business, operations, financial
condition and prospects of the Company and Target, respectively, as well as
other matters we considered relevant to our inquiry.
We have also conducted other such analyses and performed such other
investigations and considered such other matters as we deemed necessary to
arrive at our opinion, including our assessment of general economic, market and
monetary conditions.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information publicly available or furnished or otherwise communicated
to us. With respect to the financial forecasts, projections and other
information provided to or otherwise reviewed by us, we have relied upon the
assurances of the Company's and Target's managements that such forecasts,
projections and other information were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the Company's
and Target's managements as to the expected future competitive, operating and
financial performance of the Company and Target, and the benefits the Company
and Target expect to receive from the Transaction. We assume no responsibility
for and express no view as to such forecasts and projections or the assumptions
on which they are based. We have further assumed that the final form of the
Merger Agreement will not vary in any regard that is material to our analysis
and that the transactions contemplated by such agreement and the Purchase
Agreements will be consummated in accordance with their respective terms. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company or Target,
and we have not made a physical inspection of the properties or assets of the
Company or Target. Furthermore, we have assumed the Transaction will qualify as
a tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and that for accounting purposes, the
Transaction is intended to be accounted for as a purchase.
Our opinion is necessarily based upon information made available to us and
business, market, economic, monetary and other conditions as they exist on, and
can be evaluated as of, the date of this letter and does not address the
underlying business decision of the Company to effect the Transaction or any
other transaction in which the Company might engage. In addition, we express no
opinion as to the value of the Company Shares upon issuance to Target's
stockholders pursuant to the Transaction, or the price at which the Company
Shares will trade prior to or subsequent to the closing of the Transaction. This
opinion does not constitute a recommendation to any holder of the Company Shares
as to whether such holder should continue to hold such securities. Furthermore,
this letter does not constitute a recommendation by our firm to any stockholders
to vote in favor of the Transaction. We have relied as to all legal matters on
the Company.
Gerard Klauer, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, divestiture, restructurings, recapitalizations,
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. We have been
engaged to render the financial opinion as expressed herein and we will receive
a fee upon the delivery of this opinion. We also, from time to time, may in the
future perform certain financial advisory services for the Company for which we
may receive a fee. In the ordinary course of business, we may actively trade the
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a short or long position in
such securities. The Company has agreed to indemnify us for certain liabilities
that may arise out of the rendering of this opinion.
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<PAGE>
This opinion has been prepared for the confidential use and benefit of the
Board of Directors of the Company in its consideration of the Transaction,
supersedes any previously rendered opinion and, except for inclusion of this
letter in its entirety in a proxy statement/prospectus filed with the Securities
and Exchange Commission and mailed to Company stockholders, may not be
reproduced, summarized, described or referred to or given to any other person or
otherwise made public without our prior written consent.
Based upon and subject to the foregoing and based upon other such factors
as we consider relevant, we are of the opinion that, as of the date hereof, the
Total Consideration to be offered by the Company in connection with the
Transaction is fair to the holders of Company Shares from a financial point of
view.
Very truly yours,
GERARD KLAUER MATTISON & CO., INC.
B-3
<PAGE>
ANNEX C
OPINION OF
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
March 26, 1998
Board of Directors
Grand Prix Association of Long Beach, Inc.
3000 Pacific Avenue
Long Beach, CA 90806
Gentlemen:
You have asked L.H. Friend, Weinress, Frankson & Presson, Inc. ("Friend")
for our opinion as investment bankers as to the fairness, from a financial point
of view, to Grand Prix Association of Long Beach, Inc. a California corporation
(the "Company") and its shareholders, with the exception of Midwest Facility
Holdings, Inc., Penske Motorsports, Inc., Dover Downs Entertainment, Inc., a
Delaware Corporation (the "Parent"), FOG Acquisition Corporation, a California
Corporation and wholly-owned subsidiary of Parent (the "Sub") (collectively the
"Non-Participating Shareholders"), of the consideration to be paid for all of
the Company's shares of Common Stock, no par value, that are not held by the
Non-Participating Shareholders (the "Merger Shares") pursuant to a proposed
Agreement and Plan of Merger (the "Agreement") between Parent, Sub and the
Company (the "Transaction"). We have based our opinion on the terms contained in
the Agreement dated March 26, 1998.
The Agreement provides for the Merger Shares to be exchanged for the right
to receive 0.630 (the "Exchange Ratio") fully paid and non-assessable shares of
the Common Stock, par value $0.10 per share of Parent ("Parent Common Stock").
In the event that the average of the closing sale prices of the Parent Common
Stock for fifteen (15) consecutive business days next preceding the time of the
closing of the Transaction, as reported on the New York Stock Exchange ("the
Average Closing Price"), is greater than $32.00 per share or less than $21.00
per share, the Exchange Ratio shall be adjusted as follows: (a) if the Average
Closing Price is greater than $32.00 per share, the Exchange Ratio shall equal
$20.16 divided by the Average Closing Price, rounded to the nearest four decimal
places; or (b) if the Average Closing Price is less than $21.00 per share, the
Exchange Ratio shall equal $13.23 divided by the Average Closing Price, rounded
to the nearest four decimal places; and (c) provided that the Exchange Ratio
shall not be greater than .6963 nor less than .5929. Concurrent with the
execution of the Agreement, the Parent has agreed to purchase all 680,000 shares
of the Company held by the Non-Participating Shareholders for $15.50 in cash.
Concurrently with the execution and delivery of the Agreement, Parent and
certain existing shareholders of the Company (the "Supporting Company
Shareholders"), which in combination with the Non-Participating Shareholders'
shares acquired by the Parent will represent a majority of the voting power of
the Company on a fully-diluted basis, are entering into agreements (the "Support
Agreements") pursuant to which Parent shall be granted certain voting and option
rights with respect to shares of Common Stock of the Company ("Company Stock")
owned by such shareholders, upon the terms and subject to the conditions set
forth in the Agreement; and with the execution and delivery of this Agreement,
the Company and two existing shareholders of Parent, representing a majority of
the voting power of the Parent, are entering into an agreement pursuant to which
the Company will be granted certain voting rights with respect to shares of
Class A Common Stock owned by such shareholders, upon the terms and conditions
set forth therein.
As part of its investment banking business, Friend is continually engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
C-1
<PAGE>
corporate and other purposes. We have acted as advisors to the Company's Board
of Directors as to the fairness of the Transaction and have participated in the
negotiations leading to the Agreement.
You have requested our opinion as to whether the proposed Transaction is
fair to the Company and its shareholders, with the exception of the
Non-Participating Shareholders, from a financial point of view.
In connection with formulating our opinion, we have, among other things:
(a) Reviewed the Agreement between the Company and Parent dated March
26, 1998.
(b) Reviewed the Company's Annual Report to Stockholders on Form
10-KSB for the fiscal years ended November 30, 1997, November 30, 1996, and
June 30, 1996. Quarterly Reports on Form 10-QSB for the periods ended
August 31, 1997 and May 31, 1997 and February 28, 1997 and its Proxy
Statement dated October 21, 1996.
(c) Reviewed Parent's Annual Report to Stockholders on Form 10-K for
the fiscal year ended June 30, 1997, and Quarterly Reports on Form 10-Q for
the periods ended September 30, 1997 and December 31, 1997, and its Proxy
Statement dated September 24, 1997.
(d) Examined certain operating and financial information and financial
projections provided to us by the Company's management.
(e) Reviewed the historical market prices and trading volume of the
Company's and Parent's Common Stock.
(f) Analyzed publicly available financial and market data regarding
certain companies in the auto racing industry and compared them to the
Company's financial and market data.
(g) Conducted limited interviews with certain members of the Company's
and Parent's management teams.
(h) Performed such other studies, analyses, inquires and
investigations as we deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company and that there has been no material change
in the assets, financial condition and business prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us and do not assume any responsibility with respect to
it. We have not made any physical inspection or independent appraisal of any of
the properties or assets of the Company or conducted any independent inquiry or
investigation with respect to the Company or the Transaction. This opinion is
necessarily based on business, economic, market and other conditions as they
exist and have been evaluated by us at the date of this letter.
This opinion is furnished solely for the benefit of the Company, its Board
of Directors, and its shareholders, with the exception of the Non-Participating
Shareholders, in connection with the Transaction, and may not be relied upon by
any other person or for any other purpose without our express, prior, written
consent. This opinion is delivered to each recipient subject to the conditions,
scope of engagement, limitations and understandings set forth in this opinion
and our engagement letter dated October 22, 1997 and subject to the
understanding that the obligations of Friend in the Transaction are solely
corporate obligations, and no officer, director, employee, agent, shareholder or
controlling person of Friend shall be subjected to any personal liability
whatsoever to any person, nor will any such claim be asserted by or on behalf of
any recipient of this opinion.
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<PAGE>
Our opinion is limited to the fairness, from a financial point of view, of
the Transaction and does not address the Company's underlying business decision
to effect the Transaction.
As of the date hereof, based upon and subject to the foregoing, and based
upon such other matters as we deemed relevant, it is our opinion that the
Transaction is fair to the Company and its shareholders, with the exception of
the Non-Participating Shareholders, from a financial point of view.
Very truly yours,
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
C-3
<PAGE>
ANNEX D
PERTINENT STATUTORY PROVISIONS OF THE CALIFORNIA GENERAL
CORPORATION CODE
CALIFORNIA CORPORATION CODE SECTIONS 1300-1312
SECTION 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET VALUE;
"DISSENTING SHARES"; "DISSENTING SHAREHOLDER"
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION APPROVAL;
DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after
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the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303,
1304 and this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. STAMPING OR ENDORSING DISSENTING SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE TO BE PAID
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SECTION 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE DISSENTING
SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER
OF SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF REPORT;
DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND
PAYMENT; APPEAL; COSTS OF ACTION
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR
MARKET VALUE; EFFECT
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
D-3
<PAGE>
SECTION 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF DEMAND
FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION PENDING
LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. SHARES TO WHICH CHAPTER INAPPLICABLE
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER; RIGHTS
OF SHAREHOLDERS; BURDEN OF PROOF
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a
D-4
<PAGE>
reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
D-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL ("Section 145") provides generally and in pertinent
part that a Delaware corporation may indemnify its directors, officers,
employees and agents against expenses (including attorneys' fees), judgments,
fines and settlements actually and reasonably incurred by them in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding (except actions by or in the right of the corporation), if, they
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal suit or proceeding, they had no reasonable cause to believe their
conduct was unlawful. Section 145 further provides that, in connection with the
defense or settlement of any action by or in the right of the corporation, a
Delaware corporation may indemnify its directors, officers, employees and agents
against expenses actually and reasonably incurred by them if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, absent a determination by a court that
such indemnity is proper. Section 145 further permits a Delaware corporation to
grant its directors, officers, employees and agents additional rights of
indemnification through bylaw provisions and otherwise.
Section 145 further permits a Delaware corporation to purchase and maintain
insurance on behalf of any persons who are or were directors, officers,
employees or agents of the corporation, or are or were serving at the request of
the corporation as directors, officers, employees or agents of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against them and incurred by them in any such capacity, or
arising out of their status as such, whether or not the corporation would have
the power to indemnify them against such liability under the other provisions of
Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Certificate of Incorporation of the Registrant provides for the
indemnification of its directors and officers to the fullest extent provided by
the DGCL. The Certificate of Incorporation further states that the Registrant
may, in the sole discretion of its Board of Directors, indemnify any other
person to the extent the Board of Directors deems advisable, as permitted by
Section 145. The Registrant's Bylaws provide that the Registrant shall indemnify
its directors, officers, employees and agents, subject to certain exceptions
regarding such persons' standard of conduct.
In addition, Article TENTH of Dover's Certificate of Incorporation provides
as follows:
"No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that the foregoing clause shall not
apply to the liability of a director (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an
II-1
<PAGE>
improper personal benefit. This Article Tenth shall not eliminate or limit
the liability of a director for any act or omission occurring prior to the
time this Article Tenth became effective."
In addition, Dover's Bylaws provide that it has the power to purchase
liability insurance policies covering its directors, officers, employees and
agents, whether or not Dover would have the power to indemnify such person under
the DGCL. Dover currently maintains such insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1 Agreement and Plan of Merger dated as of March 26, 1998 among Dover,
Grand Prix and FOG Acquisition Corporation (Attached as Annex A to
the Joint Proxy Statement/ Prospectus contained herein).
3.1 Restated Certificate of Incorporation of the Registrant (Incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1).
3.2 Bylaws of the Registrant, as amended (Incorporated hereby reference
to Exhibit 3.2 to the Registrant's Registration Statement on Form
S-1).
5.1 Opinion re Legality of General Counsel of Dover.
10.1 Support Agreement dated March 26, 1998 between Grand Prix and two
stockholders of Dover (Incorporated herein by reference to Exhibit
2.2 of the Registrant's Current Report on Form 8-K dated April 3,
1998).
10.2 Support Agreement dated March 26, 1998 between Dover and numerous
shareholders of Grand Prix (Incorporated herein by reference to
Exhibit 2.3 of the Registrant's Current Report on Form 8-K dated
April 3, 1998).
10.3 Employment Agreement between Christopher R. Pook and Grand Prix.
10.4 Stock Purchase Agreement dated March 25, 1998 between the Registrant
and Penske Motorsports, Inc. (Incorporated herein by reference to
Exhibit 2.5 of the Registrant's Current Report on Form 8-K dated
April 3, 1998).
10.5 Stock Purchase Agreement dated March 25, 1998 between the Registrant
and Midwest Facility Investments, Inc. (Incorporated herein by
reference to Exhibit 2.6 of the Registrant's Current Report on
Form 8-K dated April 3, 1998).
21 Subsidiaries of the Registrant (Incorporated herein by reference to
Exhibit 21.1 of the Registrant's Annual Report of Form 10-K for the
year ended June 30, 1997).
23.1 Consent of Michael B. Kinnard, Esq. (Included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Siegfried & Schieffer, LLP.
23.5 Consent of Gerard Klauer Mattison & Co., Inc.
23.6 Consent of L.H. Friend, Weinress, Frankson & Presson, Inc.
24 Powers of Attorney (contained on the signature pages to the
Registration Statement).
99.1 Form of Proxy Card to be used at the Dover Special Meeting.
99.2 Form of Proxy Card to be used at the Grand Prix Special Meeting.
- ------------------
(b) Financial Statement Schedules.
Financial Statement Schedules are omitted because they are not applicable or are
not required or because the requested information is immaterial or the required
information is included in the financial statements or notes thereto.
(c) 4(b) Information.
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<PAGE>
The opinions of Gerard Klauer Mattison & Co., Inc. and L.H. Friend, Weinress,
Frankson & Presson, Inc. are included as Annexes B and C, respectively, to the
Joint Proxy Statement/Prospectus included in Part I of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the undersigned Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(2) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(4) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to this Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN DOVER, DELAWARE ON MAY 19, 1998.
DOVER DOWNS ENTERTAINMENT, INC.
By: /s/ DENIS MCGLYNN
----------------------------------
Denis McGlynn
President and Chief Executive Officer
Each person whose signature appears below hereby authorizes Klaus M.
Belohoubek to file one or more amendments (including post-effective amendments)
to this Registration Statement, which amendments may make such changes to this
Registration Statement, including any filings pursuant to Rule 462(b) under the
Securities Act of 1933, as he deems appropriate, and each such person hereby
appoints Klaus M. Belohoubek as attorney-in-fact to execute in the name and on
behalf of each person individually, and in each capacity stated below, any such
amendments to this Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s / JOHN W. ROLLINS, SR. Chairman of the Board May 19, 1998
- ------------------------
John W. Rollins, Sr.
/s / HENRY B. TIPPIE Vice Chairman of the Board May 19, 1998
- ------------------------
Henry B. Tippie
/s / DENIS MCGLYNN President, Chief Executive May 19, 1998
- ------------------------ Officer and Director
Denis McGlynn (Principal Executive Officer)
/s / TIMOTHY R. HORNE Vice President -- Finance and May 19, 1998
- ------------------------ Chief Financial Officer (Principal Financial
Timothy R. Horne Officer and Principal Accounting
Officer)
/s / EUGENE W. WEAVER Senior Vice President -- May 19, 1998
- ------------------------ Administration and Director
Eugene W. Weaver
/s / JOHN W. ROLLINS, JR. Director May 19, 1998
- --------------------------
John W. Rollins, Jr.
/s / R. RANDALL ROLLINS Director May 19, 1998
- ------------------------
R. Randall Rollins
/s / PATRICK J. BAGLEY Director May 19, 1998
- ------------------------
Patrick J. Bagley
/s / MELVIN L. JOSEPH Director May 19, 1998
- ------------------------
Melvin L. Joseph
/s / JEFFREY W. ROLLINS Director May 19, 1998
- ------------------------
Jeffrey W. Rollins
</TABLE>
II-4
Exhibit 5.1
Dover Downs Entertainment, Inc.
Dover Downs Entertainment, Inc. May 19, 1998
1131 North Dupont Highway
Dover, Delaware 19901
Ladies and Gentlemen:
I am the Vice President - General Counsel of Dover Downs Entertainment,
Inc., a Delaware corporation ("Dover") and have acted as counsel to Dover in
connection with the filing of a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the registration of 2,793,946 shares of common
stock, par value $.10 per share, of Dover.
In connection with this opinion, I have examined originals, or copies
certified or otherwise identified to my satisfaction, of such instruments,
certificates, records and documents, and have reviewed such questions of law, as
I have deemed necessary or appropriate for purposes of this opinion. In such
examination, I have assumed the genuineness of all signatures, the authenticity
of all documents submitted to me as originals, the conformity to the original
documents of all documents submitted as copies and the authenticity of the
originals of such latter documents.
Based upon the foregoing examination, I am of the opinion that the
shares to be issued by Dover to the shareholders of Grand Prix Association of
Long Beach, Inc. have been duly authorized and, when issued in the manner
contemplated by the Registration Statement (including the declaration and
maintenance of the effectiveness of the Registration Statement and the obtaining
and maintenance of all requisite regulatory and other approvals), will be
validly issued, fully paid and nonassessable.
I am, in this opinion, opining only on the corporate law of the State
of Delaware and the federal law of the United States. I am not opining on "blue
sky" or other state securities laws.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption "Legal
Matters" therein and in the related prospectus, and in any supplements thereto
or amendments thereof.
Very truly yours,
Michael B. Kinnard
Exhibit 10.3
EMPLOYMENT AGREEMENT BETWEEN CHRISTOPHER R. POOK AND GRAND PRIX
This EMPLOYMENT AGREEMENT ("Agreement") is made this _____ day of
March, 1998, by and between the _______________________________________, a
California Corporation (hereinafter called "Company"), and_____________________
(hereinafter called "the Executive").
In consideration of their respective undertakings as hereinafter set
forth, the parties hereto agree as follows:
1. Employment.
Effective at such time as is set forth in Section 4, Company
shall employ the Executive as the Chairman and Chief Executive Officer of
Company and the Executive agrees to such employment upon the terms and
conditions hereinafter set forth.
2. Attention to Business; Duties.
The Executive agrees to continue to devote all of his time,
attention, skill and efforts to the performance of his duties and
responsibilities of Company, and of any subsidiary or subsidiaries of Company,
and to perform such duties and responsibilities as are usual and customary for a
Chief Executive Officer, and in connection therewith shall report only to the
chief executive officer of the Parent. Additionally, Executive shall be under
the supervision and direction of their respective boards of directors of the
Company and Parent, but nothing in this Agreement shall preclude the Executive
from devoting reasonable periods required for:
(i) serving as a director or member of a committee of any
organization involving no conflict of interest with the interest of Company and
with written consent of Company, said consent not to be unreasonably withheld;
(ii) engaging in professional organization and program
activities; and
(iii) managing his personal investments or engaging in any
other noncompeting business; provided that such activities do not materially
interfere with the regular performance of his duties and responsibilities under
this Agreement.
As requested by Parent, the Executive shall also be available
to consult with and assist other subsidiaries of Parent engaged in the
motorsports industry with respect to marketing, promotion and operational
issues.
3. Confidential Information.
Except as required by applicable law, the Executive shall not
disclose, either directly or indirectly, or use, whether during or after his
employment, any confidential information of Company not generally known to the
public or recognized as standard practice, with respect to any inventions,
improvements, machinery, equipment, devices, or formula, or the work or
investigations, or the identity of customers and any secret or confidential
information pertaining to such customers of Company. The Executive shall, at all
times, assist Company in keeping such information confidential and except as
<PAGE>
required by applicable law shall not disclose any such information except at the
request, or with the consent, of Company.
4. Term.
The term of this Agreement shall be five (5) years commencing
at the Effective Time (as defined in that certain Agreement and Plan of Merger
between the Company and ________________________, a Delaware corporation
("Parent"), or Parent's exercise of its Option (as defined in that certain
Support Agreement (the "Support Agreement") between the Parent and certain
shareholders of the Company), whichever shall occur first. This agreement shall
be null and void should the merger or exercise of the Option contemplated
thereby not occur.
5. Compensation.
For all services to be rendered by him in any capacity
hereunder, including services as an officer, director, member of any committee
or otherwise, Company agrees to pay the Executive so long as he shall be
employed hereunder, as follows:
(i) The Executive shall be entitled to a fixed base salary at
the rate of Two Hundred Fifty-Six Thousand and 00/100 Dollars ($256,000.00) per
annum payable in equal monthly or bi-weekly installments, with such
discretionary increases as may be granted from time to time by the Board of
Directors.
(ii) The Executive shall receive from Parent an option
agreement in the form attached hereto as Exhibit A.
(iii) The Executive shall receive incentive compensation as
provided in Exhibit B.
(iv) The Executive shall be a participant in, and beneficiary
of, any and all pension, 401(k), qualified profit sharing, life, dental,
medical, and other group benefit plans provided by Parent during the term of
this Agreement, assuming he qualifies for coverage in these plans in accordance
with provisions of law or requirements of underwriters or third party plan
sponsors. The Executive shall also be provided such benefits as are set forth on
Exhibit B.
(v) The Executive shall be furnished the use of an automobile
as shall be selected by Company and a reasonable allowance for automobile usage
in the performance of his duties hereunder. An automobile provided to the
Executive from a Company sponsor shall satisfy this requirement. In lieu of the
foregoing, the Company may elect to provide a monthly automobile allowance of
$500.00, and a reasonable allowance for automobile usage, including, without
limitation, reimbursement for insurance premiums as it relates to business use
of the automobile.
(vi) The Executive shall be entitled to a vacation of five (5)
weeks per full calendar year, during which time, his compensation will be paid
in full. The Executive can "carry over" up to ten (10) weeks vacation into
succeeding years. Payment for unused vacation upon termination will be made in
accordance with relevant state laws.
(vii) The Executive shall be eligible for participation in any
supplemental executive retirement plan adopted by Parent during the term of this
Agreement.
-2-
<PAGE>
(viii) The Executive shall be entitled to business first class
air travel paid for by the Company for all business-related air travel exceeding
more than two hours.
6. Expenses.
The Executive shall also be entitled to reimbursement for all
reasonable expenses necessary incurred by him in the performance of his duties
upon presentation of a voucher indicating the amount and business purposes.
7. Non-Competition Covenant.
The Executive shall not during the term of this Agreement and
for a period of eighteen (18) months after the termination of this Agreement,
directly or indirectly, in any manner or capacity, engage in or become
financially interested in any business entity which is in competition with the
Company or Parent within the Territory (as defined below) now or at any time
through the time of the termination of this Agreement (whether with respect to
motor racing, harness racing, gaming, concerts or other forms of entertainment;
herein, the "Business"). The foregoing prohibition shall specifically extend to
(a) soliciting any employees of the Company or Parent for any reason, and (b)
soliciting any customers, suppliers, sponsors or promoters of the Company or
Parent with respect to any activities similar to those engaged in by the Company
or Parent within the Territory (as defined below). The Executive shall not
during the term of this Agreement, directly or indirectly, in any manner or
capacity, acquire any financial or beneficial interest or ownership in any
entity of any type engaged in the Business, except publicly held business
entities in which the Executive shall own less than five percent and with which
the Executive shall have no executive, proprietary or policy authority or
responsibility. For purposes of this Section, (i) "Territory" shall mean a 300
mile radius surrounding any facility of Company or Parent whether now existing
or acquired or announced to be acquired prior to the termination of this
Agreement, and (ii) "Parent" shall include any subsidiary of Parent. This
Section shall not apply if this Agreement is terminated by Company other than
for Cause or if Executive terminates this Agreement for Good Reason.
8. Termination of Employment.
(i) Disability.
Company may terminate this Agreement for Disability
if within thirty (30) days after written notice of termination is given, the
Executive has not returned to full time performance of his duties. For purposes
of this Agreement, "Disability" shall mean if, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
with Company on a full time basis for one hundred twenty (120) consecutive
business days.
(ii) Cause.
Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, Company shall have "Cause" to terminate
the employment of the Executive hereunder upon:
(a) the willful and continued failure by him to
substantially perform his duties with Company (other than any such failure
resulting from his incapacity due to physical or mental illness), after a
written demand for substantial performance and a notice of reasonable
opportunity to
-3-
<PAGE>
cure is delivered to the Executive by the Board which specifically identifies
the manner in which the Board believes that he has not substantially performed
his duties, or
(b) the willful engaging by the Executive in gross
misconduct materially and demonstrably injurious to Company, including without
limitation any material violation of this Agreement (including without
limitation, the provisions relating to non-competition). For purposes of this
Section subparagraph (ii), no act, or failure to act, on the part of the
Executive shall be considered "willful" unless done, or omitted to be done, by
him not in good faith and without reasonable belief that his action or omission
was in the best interest of Company.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board held for the purpose (after reasonable notice to the
Executive and an opportunity for him, together with his counsel, to be heard
before said Board), finding that, in the good faith opinion of said Board, the
Executive was guilty of conduct set forth above in clauses (ii)(a) or (b) of
this Section and specifying the particulars thereof in detail.
(iii) Good Reason.
The Executive may terminate his employment for Good
Reason, treat such termination as a termination without Cause and seek damages
in accordance with applicable law. For purposes of this Agreement, Good Reason
shall mean:
(a) a reduction by Company in his base salary as in
effect on the date hereof; or
(b) a reduction by Company in the benefits package
provided to the Executive on the date hereof (taken as a whole); or
(c) the failure of Company to obtain the assumption
of an agreement to perform this Agreement by any successor; or
(d) any purported termination of the Executive's
employment which is not affected pursuant to a Notice of Termination satisfying
the requirements of this Section 8; and for purposes of this Agreement, no such
purported termination shall be effective.
(e) Company's failure to act in good faith or failure
to comply with its duties and responsibilities hereunder.
(f) without the express written consent of the
Executive, the assignment to him of any duties materially inconsistent with his
positions, duties, responsibilities and status with Company, or a material
change in his titles.
(g) a change in control of Company or Parent (which
for these purposes shall mean that members of the Rollins family cease to
exercise predominant control).
(iv) Death.
-4-
<PAGE>
If the Executive dies during the term of his
employment hereunder, the Executive's legal representatives shall be entitled to
receive:
(a) his fixed compensation provided in Section 5
subparagraph (i) hereof to the last day of the calendar month in which the
Executive's death shall have occurred; and
(b) additional compensation or benefits as provided
in the provisions of any plan in which the Executive participates.
(v) Notice of Termination.
Any termination by Company pursuant to this Section
subparagraphs (i) or (ii) above or by the Executive pursuant to this Section
subparagraphs (iii) or (iv) above shall be communicated by written Notice of
Termination to the other party or parties hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the employment of the Executive under the provision so
indicated.
9. Compensation Upon Termination or During Disability.
(i) During any period that the Executive fails to perform his
duties hereunder as a result of incapacity due to physical or mental illness,
the Executive shall be entitled to all compensation and benefits hereunder, less
the benefits he may receive in accordance with Company's disability insurance
plan, if any.
(ii) If the Executive's employment shall be terminated for
Cause, Company shall pay him the base salary and such other compensation as
shall have been earned through the Date of Termination at the rate in effect at
the time Notice of Termination is given and Company shall have no further
obligations to the Executive under this Agreement.
10. Status as a Director of Company and Parent.
Should Executive's employment hereunder cease for any reason,
Executive agrees that such termination will constitute a resignation from his
position as a director of Parent or any subsidiaries of Parent.
11. Successors: Binding Agreement.
(i) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Company, by agreement in form
and substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that Company
would be required to perform it if no such succession had taken place. Failure
to obtain such agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to seek damages
from Company on the same terms as he would be entitled hereunder if the
Executive terminated his employment for Good Reason. As used in this section,
"Company" shall mean Company as hereinbefore defined, and any successor to its
business and/or assets as aforesaid which executes and delivers the agreement
provided for in this Section or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
-5-
<PAGE>
(ii) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If the
Executive should die while any amounts would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such designee, to the
Executive's estate.
12. Indemnity.
The Company and Parent shall indemnify the Executive and hold
him harmless for any acts or decisions made by him in good faith while
performing services for Company and to use its best efforts to obtain coverage
for him under any insurance policy now in force or hereinafter obtained during
the term of this Agreement covering the officers and directors of Company
against lawsuits, and which policy shall cover all actions or inactions of the
Executive during the term of this Agreement, whether or not any such lawsuit is
filed during or after the term hereof. The Company will pay all expenses
including attorney's fees, actually and necessarily incurred by the Executive in
connection with the defense of such act, suit or proceeding and in connection
with any appeal thereon, including the amount and cost of settlements.
13. Notices.
Any notice which either party may be required or may desire to
give to the other party must be in writing and may be given by personal delivery
or by mailing the same by United States mail to the party to whom the notice is
directed as hereinafter set forth:
Company:
Grand Prix Association of Long Beach, Inc.
Attn.: Chairman of the Compensation Committee
3000 Pacific Avenue
Long Beach, CA 90803
With copies to:
Dover Downs Entertainment, Inc.
Attn.: Chief Executive Officer
1131 North DuPont Highway
Dover, Delaware 19901
Klaus M. Belohoubek, Esquire
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, Delaware 19803
The Executive: Christopher R. Pook
16671 Peale Lane
Huntington Beach, CA 92649
subject to the right of either party to designate a different address for itself
or himself by notice immediately given. Any notice given by mail shall be deemed
given on the day after that on which the same is deposited in the United States
mail, addressed as above provided with postage thereon fully prepaid.
-6-
<PAGE>
14. Injunctive Relief.
In the event of any breach or threatened breach of any of the
terms of this Agreement by the Executive, the Company shall be entitled to
injunctions, both preliminary and final, enjoining and restraining such breach
or threatened breach, the Executive recognizing that such breach will result in
immediate and irreparable harm and injury to the Company. Such remedies shall be
in addition to any and all other remedies available at law or in equity,
including the Company's right to recover any and all damages that may be
sustained as a result of Executive's breach of contract. In addition to any
other remedies, the Company shall have the right to stop the Executive, by means
of injunction, from violating any part of this Agreement. In any litigation to
interpret or enforce this Agreement, the prevailing party shall be entitled to
recover its costs and reasonable attorney's fees.
15. Miscellaneous.
This written Agreement contains the sole and entire agreement
between the parties, and shall supersede any and all other agreements, whether
written or oral, between the parties. No agreements or representations, oral or
otherwise, expressed or implied, with respect to the subject matter hereof have
been made by any party which are not set forth expressly in this Agreement.
No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing signed by the Executive and such officers as may be specifically
designated by the Board of Directors of Company. No waiver by any party hereto
at any time of the breach by any other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the laws of
Delaware and the parties agree to the exclusive jurisdiction of state and
federal courts located in Wilmington, Delaware.
16. Validity.
The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
17. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. Legal Fees and Court Costs.
In the event the Executive initiates legal action against
Company for an alleged breach of any provision of this Agreement, and, solely in
the event the Executive's action is finally adjudicated in his favor and against
Company, and only after such event, all reasonably necessary expenses incurred
by the Executive, including, without limitation, attorneys' fees pursuant to
such legal action will be reimbursed to the Executive by Company within ten (10)
days of the Executive presenting an invoice to Company. The provisions of this
Section shall survive any termination of this Agreement by Company or the
Executive and remain enforceable despite the nature of any contest between the
Executive and Company which may arise.
-7-
<PAGE>
19. Upon the execution hereof, Company shall reimburse Executive for
all expenses he has incurred, including, without limitation, attorneys' fees, in
connection with the negotiation, drafting, execution and delivery of this
Agreement up to a maximum of $1,375.00.
20. Sale Restriction.
During the term hereof, the Executive agrees that in any
calendar year he shall not sell, gift, transfer or otherwise dispose of more
than fifteen percent (15%) of the shares of common stock of Parent which he
beneficially owns measured at the beginning of the year (or in the case of the
first calendar year, measured at the Effective Time), provided that with respect
to transfers within the Executive's immediate family, the percentage shall be
increased by an additional five percent (5%).
IN WITNESS WHEREOF, the parties here have executed this Agreement the
day and year first above written.
By: ___________________________________
Member of the Board of Directors
and Compensation Committee Chairman
By: ___________________________________
Christopher R. Pook
Accepted and agreed to by Parent:
By: ________________________________
-8-
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors
Dover Downs Entertainment, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
--------------------------------------
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
May 18, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
joint proxy statement/prospectus.
/s/ Arthur Andersen LLP
------------------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
May 19, 1998
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report included herein insofar as such report
relates to the financial statements and schedules of Dover Downs Entertainment,
Inc. for the year ended June 30, 1995.
/s/ Siegfried Schieffer & Seitz
-------------------------------
SIEGFRIED & SCHIEFFER, LLP
Dover, Delaware
May 19, 1998
EXHIBIT 23.5
CONSENT OF GERARD KLAUER MATTISON & CO. INC.
May 19, 1998
Dover Downs Entertainment, Inc.
1131 N. DuPont Highway
Dover, Delaware 19901
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of Dover
Downs Entertainment, Inc. ("Dover Downs") on Form S-4, relating to the proposed
merger between Dover Downs and Grand Prix Association of Long Beach, Inc., of
our opinion letter appearing as Annex B to the Joint Proxy Statement/Prospectus
which is a part of the Registration Statement, and to the references of our
firm's name therein. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations adopted by
the Securities and Exchange Commission thereunder, nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
GERARD KLAUER MATTISON & CO. INC.
BY: __________________________________
NAME:
TITLE:
EXHIBIT 23.6
CONSENT OF L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
We hereby consent to the use of our opinion letter dated March 26, 1998 to
the Board of Directors of Grand Prix Association of Long Beach, Inc. included as
Annex C to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed merger of FOG
Acquisition Corp., a wholly-owned subsidiary of Dover Downs Entertainment, Inc.
and Grand Prix Association of Long Beach, Inc. and to the references to such
opinion in such Joint Proxy Statement/Prospectus. In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
L.H. FRIEND, WEINRESS, FRANKSON &
PRESSON, INC.
By: __________________________________
May 19, 1998
Exhibit 99.1
DOVER DOWNS ENTERTAINMENT, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 30, 1998
The undersigned, revoking all previous proxies, hereby appoints JOHN
P W. ROLLINS and DENIS MCGLYNN, and each of them jointly and severally,
R proxies with fullpower of substitution to each, to vote all shares of
O common stock, par value $.10 per share, of Dover ("Dover Common Stock") and
X class A common stock, par value $.10 per share, of Dover ("Dover Class A
Y Common Stock") which the undersigned is entitled to vote at the Special
Meeting of Stockholders of Dover Downs Entertainment, Inc. ("Dover") to be
held on June 30, 1998 at 9:00 A.M. (Eastern Daylight Savings Time) on the
First Floor, 1209 Orange Street, Wilmington, Delaware, or at any
adjournment thereof, on all matters set forth in the Notice of Special
Meeting of Stockholders dated May 21, 1998, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AGREEMENT, THE MERGER, THE ISSUANCE OF
SHARES OF DOVER COMMON STOCK IN CONNECTION WITH THE MERGER, THE
ASSUMPTION OF THE GRAND PRIX OPTIONS, THE AMENDMENT OF THE
CERTIFICATE OF INCORPORATION AND THE ELECTION OF CHRISTOPHER R. POOK
TO THE BOARD OF DIRECTORS
|X| Please mark votes as in this example
1. APPROVAL OF THE MERGER AGREEMENT
To approve the Agreement and Plan of Merger, dated as of March 26, 1998
(the "Merger Agreement") by and among Dover, FOG Acquisition Corp.
("Merger Sub") and Grand Prix Association of Long Beach, Inc. ("Grand
Prix") and the merger proposed in the Merger Agreement. Pursuant to the
Merger Agreement, it is contemplated that Merger Sub will be merged
with and into Grand Prix with Grand Prix surviving as a wholly-owned
subsidiary of Dover (the "Merger").
|_| FOR |_| AGAINST
2. ISSUANCE OF DOVER COMMON STOCK
To approve the issuance of up to 2,793,946 shares of Dover Common Stock
in order to effect the Merger.
|_| FOR |_| AGAINST
<PAGE>
3. ASSUMPTION OF GRAND PRIX STOCK OPTIONS
To approve the assumption of the stock options issued by Grand Prix
under Grand Prix's stock option plans that are outstanding immediately
prior to the effective time of the Merger.
|_| FOR |_| AGAINST
4. AMENDMENT OF CERTIFICATE OF INCORPORATION
To amend and restate the Certificate of Incorporation of Dover to (a)
increase the number of directors to serve on the Board of Directors to
ten, consisting of three classes of directors each with three year
staggered terms, Class I to have four members, Class II to have three
members and Class III to have three members, (b) to increase the number
of shares of Dover Common Stock authorized for issuance from 35,000,000
shares to 75,000,000 shares, and (c) to increase the number of shares
of Dover Class A Common Stock authorized for issuance from 30,000,000
shares to 55,000,000 shares.
|_| FOR |_| AGAINST
5. ELECTION OF CHRISTOPHER R. POOK AS A CLASS I DIRECTOR
To elect Christopher R. Pook as an additional Class I Director to the
Board of Directors for the remainder of a three year term expiring in
2000.
|_| FOR |_| AGAINST
6. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT THEREOF.
The undersigned acknowledges receipt of the aforesaid Notice of Special
Meeting and Joint Proxy Statement/Prospectus, each dated May 21, 1998, grants
authority to either of said proxies, or their substitutes, to act in the absence
of others, with all the powers which the undersigned would possess if personally
present at such meeting, and hereby ratifies and confirms all that said proxies,
or their substitutes, may lawfully do in the undersigned's name, place and
stead.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DOVER
DOWNS ENTERTAINMENT, INC. AND THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
IN ACCORDANCE WITH YOUR INSTRUCTIONS. IF NO CHOICE IS SPECIFIED BY YOU, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
<PAGE>
Please sign below, date and return
promptly.
-----------------------------------
-----------------------------------
Signature(s) of Shareholder(s)
DATED: __________, 1998
Signature(s) should conform to
name(s) and title(s) stenciled
hereon. Executors, administrators,
trustees, guardians and attorneys
should add their title(s) on
signing.
NO POSTAGE IS REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED
ENVELOPE AND MAILED IN THE UNITED STATES.
<PAGE>
The shareholder hereby acknowledges
receipt of the Notice of the Special Meeting
and the Proxy Statement/Prospectus
attached thereto.
Please sign your name(s) exactly as it
appears hereon. If signing as attorney or
for estates, trusts or corporations, title or
capacity should be indicated. PLEASE
RETURN THIS PROXY PROMPTLY.
Signature(s):
- --------------------------------------------
- --------------------------------------------
Dated:
-------------------------------------
Exhibit 99.2
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 30, 1998
P The undersigned, revoking all previous proxies, hereby appoints Gemma
R A. Bannon the attorney, agent and proxy of the undersigned, with full power
O of substitution, to vote all shares of common stock of Grand Prix which the
X undersigned is entitled to vote at the Special Meeting of Shareholders of
Y Grand Prix Association of Long Beach, Inc. ("Grand Prix") to be held on
June 30, 1998 at 4:00 P.M. (local time) at the Long Beach Hilton Hotel, Two
World Trade Center, Long Beach, California, or any adjournment thereof, on
all matters set forth in the Notice of Special Meeting of Shareholders
dated May 21, 1998, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
|X| Please mark votes as in this example
1. APPROVAL OF THE MERGER AGREEMENT
To approve the Agreement and Plan of Merger, dated as of March 26, 1998
(the "Merger Agreement") by and among Dover Downs Entertainment, Inc.
("Dover"), FOG Acquisition Corp. ("Merger Sub") and Grand Prix and the
merger proposed in the Merger Agreement. Pursuant to the Merger
Agreement, it is contemplated that Merger Sub will be merged with and
into Grand Prix with Grand Prix surviving as a wholly-owned subsidiary
of Dover (the "Merger").
|_| FOR |_| AGAINST
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT THEREOF.
The undersigned acknowledges receipt of the aforesaid Notice of Special
Meeting and Joint Proxy Statement/Prospectus, each dated May 21, 1998, grants
authority to said proxy, or her substitute, to act in the absence of others,
with all the powers which the undersigned would possess if personally present at
such meeting, and hereby ratifies and confirms all that said proxy, or her
substitute, may lawfully do in the undersigned's name, place and stead.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GRAND
PRIX ASSOCIATION OF LONG BEACH, INC. AND THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH YOUR
<PAGE>
INSTRUCTIONS. IF NO CHOICE IS SPECIFIED BY YOU, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1.
Please sign below, date and return
promptly.
-----------------------------------
-----------------------------------
Signature(s) of Shareholder(s)
DATED: ________, 1998
Signature(s) should conform to
name(s) and title(s) stenciled
hereon. Executors, administrators,
trustees, guardians and attorneys
should add their title(s) on
signing.
NO POSTAGE IS REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED
ENVELOPE AND MAILED IN THE UNITED STATES.
<PAGE>
The shareholder hereby acknowledges receipt of
the Notice of the Special Meeting and the Proxy
Statement/Prospectus attached thereto.
Please sign your name(s) exactly as it appears
hereon. If signing as attorney or for estates,
trusts or corporations, title or capacity should be
indicated. PLEASE RETURN THIS PROXY
PROMPTLY.
Signature(s):
- -----------------------------------------------------
- -----------------------------------------------------
Dated:
-----------------------------------------------
