<PAGE>
As filed with the Securities and Exchange Commission on February 16, 2000
Registration No. 333-30060
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1
to
FORM S-3
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 Industrial (I.R.S. Employer
jurisdiction Code Number) Identification No.)
of incorporation or
organization)
1131 North Dupont Highway
Dover, Delaware 19901
(302) 674-4600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Klaus M. Belohoubek, Esq.
Vice President--General Counsel
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, Delaware 19901
(302) 426-2806
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies of communications to:
Clifford E. Neimeth, Esq. Donn Beloff, Esq.
Maria Allen, Esq. Akerman, Senterfitt & Eidson, P.A.
Greenberg Traurig, LLP Las Olas Centre, Suite 1600
The MetLife Building 350 East Las Olas Boulevard
200 Park Avenue Fort Lauderdale, Florida 33301
New York, New York 10166 (954) 463-2700
(212) 801-9200
----------------
Approximate date of commencement of proposed sale to the public: From time
to time as described in the Prospectus after the effective date of this
Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. These +
+securities may not be sold until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 16, 2000
PROSPECTUS
2,650,000 Shares
[logo]
Dover Downs Entertainment, Inc.
Common Stock
-----------------
We are offering 2,000,000 shares of common stock and 650,000 shares of common
stock are being offered by a selling stockholder, who is the Chairman of our
Board of Directors and our principal stockholder. We will not receive any
proceeds from the sale of common stock by the selling stockholder.
We have two classes of capital stock -- common stock and Class A common
stock. On January 31, 2000, there were 11,746,391 shares of common stock
outstanding and 24,166,210 shares of Class A common stock outstanding.
Our common stock is traded on the New York Stock Exchange under the symbol
"DVD." The closing price of our common stock on the NYSE on February 7, 2000
was $15.63 per share. Our Class A common stock is not publicly traded.
You should consider the risks which we have described in "Risk Factors"
beginning on page 7 before deciding whether to invest in shares of our common
stock.
-----------------
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price......................................... $ $
Underwriting discount.........................................
Proceeds, before expenses, to us..............................
Proceeds to selling stockholder...............................
</TABLE>
-----------------
The selling stockholder has granted the underwriters an option to purchase up
to 397,500 shares of common stock within 30 days after the date of this
prospectus to cover unfilled customer orders for our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Raymond James & Associates, Inc. and J.C. Bradford & Co., on behalf of the
underwriters, expect to deliver the shares to purchasers on or before ,
2000.
-----------------
Raymond James & Associates, Inc.
J.C. Bradford & Co.
The date of this prospectus is , 2000
<PAGE>
Description of Artwork
Outside of gatefold of front cover of prospectus:
------------------------------------------------
Photographs of Dover Downs International Speedway.
Inside of front cover of prospectus:
-----------------------------------
Photographs of our five venues, Dover Downs Slots Casino and our logos.
Inside of back cover of prospectus:
----------------------------------
An artist's rendering of our proposed Dover Downs Hotel and our proposed
Nashville Superspeedway.
<PAGE>
ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the following locations:
. At the Public Reference Room of the Commission, Room 1024-Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330;
. At the public reference facilities at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661;
. By writing to the Commission, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549;
. At the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005; or
. From the Commission's web site at http://www.sec.gov., which contains
reports, proxy and information statements, and other information
regarding issuers that file electronically.
Some of these locations may charge a prescribed or modest fee for copies.
We have filed with the Commission a registration statement on Form S-3 (No.
333-30060) under the Securities Act of 1933, as amended, with respect to the
shares of our common stock being offered hereby by us and by the selling
stockholder. As permitted by the Commission, this prospectus, which constitutes
a part of the registration statement, does not contain all the information
included in the registration statement. Such additional information may be
obtained from the locations described above. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete. You should refer to the contract or other document for
all the details.
----------------
(i)
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. All of the information in this prospectus is very
important, so please read this entire prospectus carefully. Unless otherwise
indicated, "we," "us," "our" and similar terms, as well as references to "Dover
Downs," refer collectively to Dover Downs Entertainment, Inc. and its
subsidiaries.
Our Company
We are a diversified entertainment company with significant motorsports and
gaming operations.
We are a leading promoter of motorsports events in the United States. Our
motorsports venues are:
. Dover Downs International Speedway (Dover, Delaware)
. Gateway International Raceway (Madison, Illinois)
. Nashville Speedway USA (Nashville, Tennessee)
. Memphis Motorsports Park (Millington, Tennessee)
. Grand Prix of Long Beach (Long Beach, California)
We promote more than 150 motorsports events annually. Our major motorsports
events include:
. 2 National Association for Stock Car Auto Racing (NASCAR) Winston Cup
Series events
. 5 NASCAR Busch Grand National Series events
. 4 NASCAR Craftsman Truck Series events
. 2 Championship Auto Racing Team (CART) events
. 2 National Hot Rod Association (NHRA) events
These events attract spectators from 31 of the 50 largest television market
areas in the United States based on Burrelle's Media Directory 2000.
Our gaming operations are located at our flagship property in Dover,
Delaware. Our Dover facility is a multi-purpose gaming and entertainment
complex housing an 80,000 square foot Las Vegas style casino with approximately
1,650 video lottery (slot) machines managed by Caesars World Gaming Development
Corporation. Dover Downs Raceway, a 5/8 mile harness horse racetrack with a
state-of-the-art simulcasting parlor, is located adjacent to the casino.
Our Markets
Motorsports is one of the fastest growing and most popular spectator sports
in the United States. According to the 1998 Goodyear Racing Attendance Report,
1998 attendance at all United States motorsports events exceeded 17 million
people. According to Nielsen Media Research, more than 258 million people tuned
to NASCAR's televised events in 1998. We believe that the demographic profile
of this growing base of spectators and viewing audience has considerable appeal
to sponsors and advertisers, including leading consumer product and
manufacturing companies which have expanded their participation in the
motorsports industry. According to the IEG Sponsorship Report, in 1999
corporate sponsors spent approximately $1.23 billion on motorsports marketing
programs in the United States, and in the year 2000 are expected to spend
approximately $1.35 billion, or 23% of all sports sponsorship dollars, on
motorsports marketing programs in the United States.
Delaware law permits video lottery (slot) machine operations only at our
Dover Downs Raceway and at the two other racetrack facilities in the State of
Delaware. Based upon information published by the Delaware State Lottery
Commission, gaming revenues in Delaware have grown at an approximate 31.8%
compound annual growth rate since video lottery (slot) machines were introduced
in December 1995.
1
<PAGE>
Growth Strategy
We have experienced significant growth in both revenues and earnings in
recent years. Our total revenues increased from approximately $17.5 million for
our fiscal year ended June 30, 1995 to approximately $207.9 million for our
fiscal year ended June 30, 1999. Our net income increased over the same period
from approximately $4.3 million to approximately $26.9 million. Since 1997, we
have increased the percentage of total revenues derived from our motorsports
business from 20.2% for our fiscal year ended June 30, 1997 to 33.0% for our
fiscal year ended June 30, 1999. We intend to continue to increase our revenues
and profitability by:
Developing, Expanding and Improving our Motorsports Facilities
We continue to pursue a strategy to capitalize on the growth in the
motorsports industry by developing, expanding and improving our motorsports
facilities.
. We are constructing a 1.33 mile superspeedway and motorsports complex
near Nashville, Tennessee with an initial seating capacity of 50,000 and
design capacity for up to 150,000 seats. We expect the facility to open
in the spring of 2001.
. We have increased our seating capacity at Dover Downs International
Speedway for 15 consecutive years and plan to increase seating capacity
for the 2000 race season to 135,000 from our current seating capacity of
122,000. We will continue to increase our seating capacity at Dover
Downs as long as demand requires and have received the necessary
approvals to increase our number of seats to 170,000 by 2004. We also
recently expanded the seating capacity at Gateway International Raceway
and Memphis Motorsports Park and will continue to add seats and
hospitality facilities to meet demand.
. We continue to improve our motorsports facilities with enhancements and
upgrades to the design, presentation and quality of our promoted events,
facilities and spectator amenities.
Increasing the Number of Sanctioned Motorsports Events at our Motorsports
Facilities
We will seek to obtain additional sanctioned motorsports events at each of
our facilities.
. Our motorsports facilities are located in or near major population
centers across the United States, including Philadelphia, Washington,
D.C., Baltimore, Los Angeles, San Diego, St. Louis, Memphis and
Nashville. We believe broadcasters and sponsors of motorsports events
find the markets we reach very attractive which should assist us in
obtaining additional sanctioned events.
. We currently promote motorsports events sanctioned by three of the
principal sanctioning bodies--NASCAR, CART and the NHRA. We believe that
we can capitalize on our relationships with these and other sanctioning
bodies to obtain the right to promote additional sanctioned events.
Maximizing Broadcasting and Sponsorship Revenue
For the past several years, motorsports events have experienced increased
television ratings and individual events have experienced increased spectator
and sponsorship demand.
. We entered into a one-year television contract with The Nashville
Network (TNN) for the 2000 race season Winston Cup Series and Busch
Grand National Series races at Dover Downs International Speedway, which
approximately doubles the broadcast rights fees we received under our
1999 contract. Additionally, NASCAR recently negotiated a domestic
broadcast contract for the entire Winston Cup and Busch Grand National
Series schedules commencing with the 2001 race season, which will also
increase our broadcast rights fees over the life of the contract.
2
<PAGE>
. We expect to continue to increase our revenues from corporate sponsors.
Sponsorship opportunities include event-naming rights, official product
designations, billboards, signage, and facility-naming rights.
Additionally, we will continue to increase sales of skybox suites,
tickets and hospitality programs to our corporate customers.
Expanding our Gaming Business
Revenues from our gaming operations have increased from approximately $32.0
million for our fiscal year ended June 30, 1996 to approximately $139.2 million
for our fiscal year ended June 30, 1999. We have several strategies to continue
to increase our gaming revenues.
. We are developing a luxury hotel adjacent to our Dover gaming operations
to attract new patrons and lengthen the stay of current patrons. The
hotel, which is expected to open in the fall of 2001, will be
constructed in two phases of 260 rooms each. The first phase will
include a multi-purpose ballroom/concert hall and a fine dining
restaurant.
. We are increasing the number of video lottery (slot) machines at our
Dover facility to 2,000 during the next several months. We also intend
to add progressive slot machines which offer patrons a more exciting
gaming experience by increasing the overall jackpot size.
. We continue to increase the purse size for harness races at Dover Downs
Raceway which attracts a higher quality of racing product and events.
Improved racing product and events should enable us to increase the
number of facilities that receive our simulcast signal and the number of
patrons wagering on our races.
Acquiring Additional Motorsports, Gaming and Entertainment Venues
Since January 1998, we have acquired the following motorsports venues:
. Nashville Speedway USA, Nashville, Tennessee
. Gateway International Raceway, Madison, Illinois
. Memphis Motorsports Park, Millington, Tennessee
. Grand Prix of Long Beach, Long Beach, California
We intend to pursue additional acquisitions in motorsports and gaming if and
when attractive opportunities arise.
Recent Developments
NASCAR Television Contract
In February 1999, NASCAR announced that it would retain the television, audio
and other electronic media rights for Winston Cup and Busch Grand National
Series events beginning with the 2001 race season. In November 1999, NASCAR
completed negotiations on a new six-year television rights agreement with NBC
and Turner and an eight-year agreement with Fox and its FX cable network. The
packaging of media rights is expected to generate an increase in revenue for
all participating tracks and increase the exposure of NASCAR and the
participating tracks on television.
New Development Projects
Our most recent development projects include:
. January 2000 - we completed a 15,000 square foot expansion of our casino
in Dover, Delaware increasing its size to 80,000 square feet, and will
increase the number of video lottery (slot) machines at the casino to
2,000 during the next several months.
3
<PAGE>
. December 1999 - we commenced construction of an additional 15,000 seats
at our Dover Downs International Speedway in Dover, Delaware.
. December 1999 - we commenced construction of our luxury hotel in Dover,
Delaware.
. October 1999 - we added 6,000 seats and 13 skybox suites at Memphis
Motorsports Park near Memphis, Tennessee.
. August 1999 - we commenced construction of our Nashville superspeedway
and motorsports complex in Wilson County, Tennessee.
Increased Borrowing Capacity
In November 1999, we amended our bank loan agreement to increase the maximum
amount we can borrow from $50.0 million to $125.0 million. As of January 31,
2000, we had outstanding borrowings of $36.1 million under our loan agreement,
which we expect to reduce with the net proceeds from this offering.
Corporate Information
Dover Downs, Inc. was incorporated in Delaware in 1967 and, as a result of a
corporate reorganization completed in 1996, it became a 100% owned subsidiary
of Dover Downs Entertainment, Inc. Our main office is located at 1131 North
Dupont Highway, Dover, Delaware 19901, where our telephone number is 302-674-
4600.
4
<PAGE>
The Offering
We have two classes of authorized and outstanding common stock -- common
stock and Class A common stock. Only our common stock is being offered by this
prospectus.
Our Class A common stock is convertible at any time into our common stock on
a one-for-one basis at the option of the stockholder. No dividends can be paid
on our Class A common stock unless an equal amount, or in the board's
discretion a greater amount, of dividends are declared and paid on our common
stock. Holders of our Class A common stock have 10 votes per share and holders
of our common stock have only one vote per share on all matters voted on by our
stockholders, except to the extent that voting by separate class is required by
applicable law. Otherwise, the rights of holders of our common stock and our
Class A common stock are essentially the same.
<TABLE>
<C> <S>
Common Stock Offered By:
Dover Downs..................................... 2,000,000 shares
Selling Stockholder............................. 650,000 shares
Capital Stock to be Outstanding after the Offering:
Common stock.................................... 14,396,391 shares
Class A common stock............................ 23,516,210 shares
Common stock and Class A common stock........... 37,912,601 shares
Use of Proceeds.................................... We intend to use the $29.4
million estimated net
proceeds from this
offering to reduce
borrowings under our bank
loan agreement and for
general corporate
purposes.
We will not receive any of
the proceeds from the
shares sold by the selling
stockholder.
NYSE Symbol........................................ "DVD"
</TABLE>
The share numbers listed above are based on our shares of common stock and
Class A common stock outstanding at January 31, 2000. These share numbers do
not include 1,002,906 shares of our common stock issuable upon the exercise of
stock options granted under our 1996 Stock Option Plan; 19,710 shares of our
common stock issuable upon the exercise of outstanding warrants to purchase our
common stock; and 405,000 shares of our Class A common stock issuable upon the
exercise of options granted under our 1991 Stock Option Plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
----------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- -------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings
Data:
Revenues:
Motorsports........... $16,282 $18,110 $20,516 $25,874 $68,683 $27,825 $33,652
Gaming (1)............ 1,250 31,980 81,162 115,071 139,249 64,480 82,192
------- ------- ------- ------- ------- -------- --------
Total revenues...... 17,532 50,090 101,678 140,945 207,932 92,305 115,844
Expenses:
Operating............. 7,397 30,699 68,559 96,875 142,498 63,969 81,192
Depreciation and
amortization......... 1,043 1,469 2,084 2,707 7,098 3,628 3,938
General and
administrative....... 1,705 2,073 3,065 4,410 11,213 5,591 6,229
------- ------- ------- ------- ------- -------- --------
Total expenses...... 10,145 34,241 73,708 103,992 160,809 73,188 91,359
Operating earnings...... 7,387 15,849 27,970 36,953 47,123 19,117 24,485
Interest expense
(income)............... 148 256 (269) (702) 1,352 744 844
------- ------- ------- ------- ------- -------- --------
Earnings before income
taxes.................. 7,239 15,593 28,239 37,655 45,771 18,373 23,641
Income taxes............ 2,955 6,397 11,767 15,742 18,880 7,582 9,870
------- ------- ------- ------- ------- -------- --------
Net earnings............ $4,284 $9,196 $16,472 $21,913 $26,891 $10,791 $13,771
======= ======= ======= ======= ======= ======== ========
Diluted earnings per
share (2).............. $0.15 $0.32 $0.54 $0.70 $0.74 $0.30 $0.38
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------
Actual As Adjusted(3)
------- --------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit)............................... $(7,282) $(7,282)
Total assets............................................ 278,727 278,727
Long-term debt.......................................... 53,625 24,250
Total shareholders' equity.............................. 183,406 212,781
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
---------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Motorsports:
Number of seats (4)... 82,000 89,000 96,000 120,000 207,000 180,000 233,000
Gaming:
Total slots facility
attendance
(in thousands)....... -- 954 1,794 1,921 1,933 929 1,180
Average number of slot
machines............. -- 509 869 1,000 1,191 1,066 1,555
Casino revenues (in
thousands)........... -- $28,818 $76,418 $109,613 $133,051 $61,851 $79,802
Casino square
footage.............. -- 24,000 41,000 41,000 65,000 41,000 65,000
</TABLE>
- --------
(1) Our video lottery (slot) casino opened on December 29, 1995. Gaming
revenues prior to December 29, 1995 were solely related to horse racing
activities.
(2) Earnings per share amounts prior to 1999 have been adjusted to reflect the
effect of a two-for-one stock split paid in the form of a stock dividend
effective September 15, 1998.
(3) Adjusted to give effect to our sale of 2,000,000 shares of our common
stock at an assumed public offering price of $15.625 and the application
of $29.4 million estimated net proceeds from this offering as set forth in
"Use of Proceeds."
(4) Consists of oval seating at permanent speedway facilities at the end of
the period. Excludes Grand Prix of Long Beach.
6
<PAGE>
RISK FACTORS
You should carefully read this entire prospectus and the documents
incorporated by reference in this prospectus before deciding whether to invest
in our common stock. The risks and uncertainties described below are not the
only ones that exist. There are additional risks and uncertainties not
presently known to us or that we currently deem insignificant that may also
impair our business operations. If any of the following risks actually occur,
our business could be significantly and negatively affected, the price of our
common stock could decline, and you could lose all or part of your investment.
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although we believe that our
plans, intentions and expectations reflected in or suggested by these forward-
looking statements are reasonable, we cannot assure you that these plans,
intentions or expectations will be successfully implemented or achieved.
Important factors that could cause actual results to differ materially from the
forward looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements in this paragraph.
Risks Related to Motorsports
Our relationship with motorsports event authorities is vital to our success
in motorsports.
Our success in motorsports depends on maintaining a good relationship with
the sanctioning bodies that authorize national motorsports racing events. These
include NASCAR, CART and the NHRA. Many events are sanctioned on an annual
basis. None of these authorities are required to continue to enter into, renew
or extend agreements with us to promote any motorsports event. Furthermore,
none of the sanctioning bodies are responsible for the financial or other
success of the events.
If the sanctions we currently hold to promote motorsports events are not
renewed, we could receive lower revenues from admissions, sponsorships,
hospitality facilities, concessions and merchandise which would decrease our
overall profitability.
Our growth strategy includes the possible acquisition of additional
motorsports facilities and the development of new motorsports facilities.
However, we cannot be certain that we will receive continued or new
authorization to promote motorsports events at these facilities.
We rely on sponsorship agreements to generate a large portion of our
revenues.
We receive a substantial portion of our annual revenues from sponsorship
agreements, including the sponsorship of our various events, "official product"
sponsorships, billboards and signage. Loss of our title sponsors or other major
sponsorships, or failure to obtain future sponsorship agreements, could
decrease our overall profitability.
Increased government regulation of our event sponsors and advertising
restrictions could substantially reduce our revenue.
The motorsports industry generates substantial revenue from promotional
arrangements and we receive a significant portion of our revenue from
sponsorship and advertising by various companies. Government regulation could
significantly limit our ability to receive promotional, sponsorship and
advertising revenue from our motorsports events. In particular, tobacco and
liquor companies which have traditionally sponsored motorsports events, are
generally subject to a higher degree of governmental regulation on advertising
than other sponsors of our events. In the past few years there have been
several governmental attempts to impose
7
<PAGE>
restrictions on the advertising and promotion of cigarettes and smokeless
tobacco, including restrictions related to the sponsorship of motorsports
activities. If tobacco or liquor companies are prohibited from sponsoring the
motorsports events we promote, our revenues could be significantly reduced.
Our competitors could adversely affect our operations.
Motorsports event promotion is very competitive. We compete with other
motorsports promotion companies, including International Speedway Corporation
and Speedway Motorsports, Inc. Our motorsports events also compete with other
spectator-oriented sporting events and other leisure, entertainment and
recreational activities, including professional football, basketball and
baseball. As a result, our revenues and operations are affected not only by our
ability to compete in the motorsports promotion market, but also by the
availability of alternative spectator sports events, forms of entertainment and
changing consumer preferences.
Our Grand Prix event is entirely dependent on our continued receipt of an
annual municipal permit.
Our subsidiary, Grand Prix Association of Long Beach, Inc., derives almost
all of its revenue from our Grand Prix event in Long Beach, California. Grand
Prix's ability to promote the Grand Prix event is dependent on Grand Prix
obtaining a permit from the City of Long Beach, California to hold the race on
city streets. If Grand Prix fails to receive the annual permit from the City of
Long Beach to hold the race, Grand Prix will have no significant source of
revenue, which could negatively affect our results of operations.
The ability of Grand Prix to pay its debt obligations depends on the ability
of Gateway International Raceway to generate revenue.
To finance the redevelopment of Gateway International Raceway, Grand Prix
borrowed $21.5 million from the Southwest Illinois Development Authority which,
in turn, funded the loan to Grand Prix by issuing municipal bonds in that
amount. Payment of these bonds is fully guaranteed by Grand Prix. Payments on
the Southwestern Illinois Development Authority loan are intended to be made
primarily from Gateway's operating revenues.
Earnings from Gateway's future operations may not be sufficient to meet Grand
Prix's payment obligations to the Southwestern Illinois Development Authority
or to the holders of the municipal bonds. Grand Prix's business and our
financial condition could be negatively impacted if Gateway's revenues are not
sufficient to repay the Southwestern Illinois Development Authority.
We could be responsible for the repayment of revenue bonds issued to fund the
development of our new Nashville superspeedway complex.
In September 1999, the Sports Authority of the County of Wilson, Tennessee
issued $25.9 million of bonds to finance local infrastructure improvements
which will benefit the operation of our new Nashville superspeedway complex.
After the Nashville superspeedway complex opens, the bonds will become payable
solely from revenue derived from taxes payable by the superspeedway complex. If
these taxes are insufficient to pay the bonds in full, we will be required to
pay the bonds, which could impair our financial condition and overall
profitability.
Our insurance may not be adequate to cover catastrophic motorsports
incidents.
Motorsports events can be very dangerous to participants and spectators. We
have insurance coverage that we believe to be sufficient to protect us from
potentially significant financial losses, but we cannot be certain that our
insurance coverage will be adequate at all times and in all circumstances or
that our insurance coverage will always be available to us. If we are held
responsible for damages beyond the scope of our insurance coverage, our
business, financial condition and overall profitability could be negatively
affected.
8
<PAGE>
Bad weather can significantly reduce the attendance of our outdoor motorsport
events.
We sponsor and promote outdoor motorsports events but we do not maintain
weather-related insurance. Although we sell many non-refundable tickets in
advance of our outdoor events, poor and unpredictable weather conditions could
adversely affect additional ticket sales, and sales of concessions and
souvenirs. This could negatively impact our financial condition and reduce our
overall profitability.
Our quarterly earnings could be affected by the seasonality of our
motorsports events.
Our business is seasonal because we rely on outdoor events scheduled
primarily in the spring and summer for a substantial portion of our revenues.
We derive a substantial portion of our motorsports revenues from admissions and
event-related revenue attributable to five NASCAR-sanctioned events at Dover,
Delaware, which are currently held in June and September. As a result, our
revenues and quarterly earnings may vary which could impact our overall
profitability and cause volatility in the market price of our common stock.
Risks Related to Gaming
The revocation, suspension or modification of our gaming licenses would
adversely affect our gaming business.
The Delaware State Lottery Office and the Delaware Harness Racing Commission
regulate our gaming operations. Our license from the Delaware Harness Racing
Commission must be renewed on an annual basis. To keep our license for video
lottery (slot) machine gaming, we must remain licensed for harness horse racing
by the Delaware Harness Racing Commission and conduct at least 80 live race
days each racing season, subject to the availability of harness race horses.
The Delaware Harness Racing Commission has broad discretion to reject any
application for a license or suspend or revoke a license once it is issued. The
Director of the Delaware State Lottery Office has broad discretion to revoke,
suspend or modifiy the terms of a license. Any modification or termination of
existing licensing regulations or any revocation, suspension or modification of
our licenses could adversely affect our business, financial condition and
overall profitability.
Our gaming and harness horse racing activities are subject to extensive
government regulation and any additional government regulation and taxation of
gaming and harness horse racing activities could substantially reduce our
revenue.
Video lottery (slot) machine gaming, harness horse racing and pari-mutuel
wagering are subject to extensive government regulation. Delaware law regulates
the percentage of commission we are entitled to receive from our gaming
revenues, which comprises a significant portion of our overall revenues. The
State of Delaware granted us a license to conduct video lottery (slot) machine
operations and a license to conduct harness horse races and pari-mutuel
wagering. The laws under which these licenses are granted could be modified or
repealed at any time and we could be required to terminate our gaming
operations. If we are required to terminate our gaming operations or if the
amount of the commission we receive from the State of Delaware for conducting
our gaming operations is decreased, our business operations and overall
profitability would be significantly impaired.
We do not own our video lottery (slot) machines and related technology.
We do not own or lease the video lottery (slot) machines or central computer
systems used in connection with our video lottery gaming operations. The
Director of the Delaware State Lottery Office enters into contracts directly
with the providers of the video lottery (slot) machines and computer systems.
The State of Delaware purchases or leases all equipment and the Director
licenses all technology providers. Our operations could be disrupted if a
licensed technology provider violates its agreement with the State or ceases to
be licensed for any reason. Such an event would be outside of our control and
could adversely affect our gaming revenues.
9
<PAGE>
Our gaming activities compete directly with other gaming facilities and other
sports events and entertainment businesses.
We compete in local and regional markets with horse tracks, off-track betting
parlors, state run lotteries, casinos and other gaming facilities. Many of our
competitors have resources that are greater than ours. We also compete locally
with other sports and entertainment businesses, many of which have greater
resources than ours. We cannot be certain that we will maintain our market
share or compete more effectively with our competitors. The legalization of
additional casino or other gaming venues in states close to Delaware,
particularly Maryland, Pennsylvania or New Jersey, could negatively impact our
gaming business. From time to time, legislation is proposed for adoption in
these states which, if enacted, would further expand state gambling and
wagering opportunities at racetracks, including video lottery (slot) machines.
Enactment of such legislation could increase our competition and could
adversely affect our business, financial condition and overall profitability.
Other Risks
Our new facilities face many uncertainties.
Our growth strategy includes the acquisition and development of new
facilities, including our proposed Nashville superspeedway complex and our new
hotel in Dover, Delaware. Our ability to execute our growth strategy will
depend on a number of factors, including:
. with respect to the Nashville superspeedway, our ability to obtain one
or more sanctioning agreements to promote Winston Cup Series, Busch
Grand National Series and other major events,
. the cooperation of local government officials,
. our capital resources,
. our ability to control our construction and operating costs, and
. our ability to hire and retain qualified personnel.
Our inability to implement our expansion plans for any reason could
negatively impact our business. In addition, expenses associated with
developing, constructing and opening a new facility could have a significant
negative effect on our financial condition and overall profitability. Moreover,
if we do not have sufficient cash available to fund our expansion plans, we
cannot be certain that we will be able to borrow funds on commercially
reasonable terms.
Control of Dover Downs.
Without giving effect to the underwriters' option to purchase shares from the
selling stockholder, upon the completion of this offering, John W. Rollins,
Sr., our Chairman of the Board, will own no shares of our outstanding common
stock, approximately 47.5% of our outstanding Class A common stock and
approximately 29.4% of our total outstanding capital stock. All of our current
officers and directors as a group, including John W. Rollins, Sr., will own
approximately 1.1% of our outstanding common stock, approximately 87.7% of our
outstanding Class A common stock and approximately 55.5% of our total
outstanding capital stock. Therefore, approximately 44.7% of the total voting
power in our company will be controlled by John W. Rollins, Sr. and
approximately 82.8% of the total voting power in our company will be controlled
by all of our officers and directors, as a group, including John W. Rollins,
Sr.
As a result, John W. Rollins, Sr. will continue to control the outcome of
most important matters submitted to our stockholders including the election of
directors. Collectively, our current officers and directors, including Mr.
Rollins, may be able to prevent or cause a change in control of our company,
even if the transaction would be deemed beneficial to our stockholders. You
will have no ability to meaningfully influence the outcome of any significant
matters affecting our company.
10
<PAGE>
Delaware State Law restricts the transferability of our shares of capital
stock.
Under Delaware law, a change of ownership of a licensed lottery agent
automatically terminates the agent's license 90 days after the change of
ownership occurs, unless the Director of the Delaware State Lottery Office
issues a new license to the new owners. Change of ownership may occur if any
new individual or entity acquires 10% or more of the licensed agent or if more
than 20% of the legal or beneficial interest in the licensed agent is
transferred. The Delaware State Lottery Commission may require extensive
background investigations of any new owner acquiring a 10% or greater voting
interest in a licensed agent, including criminal background checks.
Our By-Laws require that (a) any holders of our stock found to be
disqualified, unsuitable or not possessing the qualifications required by the
appropriate gaming authority, must dispose of their stock and (b) holders of
our capital stock intending to acquire 10% or more of our outstanding stock
must first obtain prior written approval from the Delaware State Lottery
Office. The provisions of Delaware law which are triggered by a change in
ownership of our capital stock and the provisions contained in our By-Laws
could severely limit the transferability of our capital stock. Such limited
transferability could diminish both supply and demand for our common stock and
negatively impact, or depress, the price of our common stock.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of common stock
offered by us are estimated to be approximately $29.4 million, assuming a
public offering price of $15.625 per share and after deducting estimated
underwriting fees and expenses of this offering set forth on the cover page of
this prospectus. We intend to use the net proceeds we receive from this
offering to reduce indebtedness that we have incurred under our existing bank
loan agreement and for general corporate purposes.
Our unsecured three-year bank loan agreement provides a $125.0 million bank
line of credit for seasonal funding needs, capital improvements and other
general corporate purposes. At January 31, 2000, $36.1 million of borrowings
were outstanding under the line of credit at an effective interest rate of 6.9%
per annum. The facility expires on November 1, 2002.
Pending the use of our net proceeds as described above, these funds will be
invested in short-term securities or deposited in short-term bank accounts at
prevailing market rates of interest.
We will not receive any proceeds from the sale of common stock by the selling
stockholder.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
"DVD." The following table sets forth, for the periods indicated, the high and
low closing sale prices for our common stock as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended June 30, 1998:
First Quarter.................................................. $10.56 $8.38
Second Quarter................................................. 11.75 9.69
Third Quarter.................................................. 15.00 10.69
Fourth Quarter................................................. 16.81 14.19
Year Ended June 30, 1999:
First Quarter.................................................. $16.56 $12.44
Second Quarter................................................. 13.88 10.19
Third Quarter.................................................. 15.50 12.25
Fourth Quarter................................................. 19.44 14.88
Year Ending June 30, 2000:
First Quarter.................................................. $17.94 $13.50
Second Quarter................................................. 20.00 13.63
</TABLE>
On February 7, 2000, the closing sale price per share of our common stock was
$15.63. As of January 31, 2000, there were 11,746,391 shares of common stock
outstanding, and approximately 1,082 stockholders of record. The above
information has been adjusted to reflect a two-for-one stock split paid as a
stock dividend effective September 15, 1998.
DIVIDEND POLICY
We have historically paid quarterly dividends on our common stock and our
Class A common stock. Future dividends, if any, will depend on our future
earnings, capital requirements and financial condition, as well as other
factors our Board of Directors may deem relevant. Accordingly, there can be no
assurance that future dividends will be declared. No dividends can be paid on
our Class A common stock unless an equal amount, or in the board's discretion a
greater amount, of dividends are declared and paid on our common stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999, and
as adjusted to give effect to the sale of the 2,000,000 shares of common stock
offered by us, the conversion by the selling stockholder of his 650,000 shares
of our Class A common stock into 650,000 shares of our common stock, and the
application of our estimated net proceeds therefrom as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
December 31, 1999
-----------------
As
Actual Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Long-term debt............................................... $53,625 $24,250
Shareholders' equity:
Common Stock, $.10 par value; 75,000,000 shares authorized;
11,735,348 shares issued and outstanding; 14,385,348
shares as adjusted........................................ 1,173 1,438
Class A common stock, $.10 par value; 55,000,000 shares
authorized; 24,166,210 shares issued and outstanding;
23,516,210 shares as adjusted............................. 2,417 2,352
Additional paid-in capital................................. 99,865 129,040
Retained earnings.......................................... 79,951 79,951
-------- --------
Total shareholders' equity............................... 183,406 212,781
-------- --------
Total capitalization..................................... $237,031 $237,031
======== ========
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data for the five
fiscal years ended June 30, 1999 has been derived from our audited consolidated
financial statements. The financial statements for the fiscal year ended June
30, 1995 were audited by Siegfried Schieffer & Seitz, independent certified
public accountants. The financial statements for the four fiscal years ended
June 30, 1999 were audited by KPMG LLP, independent certified public
accountants. The consolidated balance sheets as of June 30, 1998 and 1999 and
the related statements of earnings and cash flows for each of the years in the
three-year period ended June 30, 1999 and related auditors' report are
contained elsewhere in this prospectus. The earnings data for the years ended
June 30, 1995 and 1996 and the balance sheet data as of June 30, 1995, 1996 and
1997 have been derived from audited consolidated financial statements not
included herein. The selected financial data for the six months ended December
31, 1998 and 1999 have been derived from our unaudited financial statements
which, in the opinion of management, include all adjustments necessary for a
fair presentation of the information set forth therein. The results of
operations for the six months ended December 31, 1999 are not necessarily
indicative of the results for the full fiscal year ending June 30, 2000. The
following selected consolidated financial data should be read in conjunction
with our Consolidated Financial Statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30, December 31,
--------------------------------------------- ----------------
1995 1996 1997 1998 1999 1998 1999
------- -------- ------- ------- -------- ------- -------
(in thousands, except per share amounts) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings
Data:
Revenues:
Motorsports........... $16,282 $18,110 $20,516 $25,874 $68,683 $27,825 $33,652
Gaming(1)............. 1,250 31,980 81,162 115,071 139,249 64,480 82,192
------- -------- ------- ------- -------- ------- -------
Total revenues...... 17,532 50,090 101,678 140,945 207,932 92,305 115,844
Expenses:
Operating............. 7,397 30,699 68,559 96,875 142,498 63,969 81,192
Depreciation and
amortization......... 1,043 1,469 2,084 2,707 7,098 3,628 3,938
General and
administrative....... 1,705 2,073 3,065 4,410 11,213 5,591 6,229
------- -------- ------- ------- -------- ------- -------
Total expenses...... 10,145 34,241 73,708 103,992 160,809 73,188 91,359
Operating earnings...... 7,387 15,849 27,970 36,953 47,123 19,117 24,485
Interest expense
(income)............... 148 256 (269) (702) 1,352 744 844
------- -------- ------- ------- -------- ------- -------
Earnings before income
taxes.................. 7,239 15,593 28,239 37,655 45,771 18,373 23,641
Income taxes............ 2,955 6,397 11,767 15,742 18,880 7,582 9,870
------- -------- ------- ------- -------- ------- -------
Net earnings............ $4,284 $9,196 $16,472 $21,913 $26,891 $10,791 $13,771
======= ======== ======= ======= ======== ======= =======
Basic earnings per
share (2).............. $0.16 $0.34 $0.55 $0.72 $0.76 $0.30 $0.38
======= ======== ======= ======= ======== ======= =======
Diluted earnings per
share (2).............. $0.15 $0.32 $0.54 $0.70 $0.74 $0.30 $0.38
======= ======== ======= ======= ======== ======= =======
Dividends per
share (2).............. $-- $-- $0.08 $0.16 $0.175 $0.085 $0.09
Balance Sheet Data:
Working capital
(deficit).............. $(2,419) $(11,147) $4,805 $3,609 $(10,201) $(4,582) $(7,282)
Total assets............ 25,422 42,311 71,261 95,777 255,212 219,336 278,727
Long-term debt.......... 698 766 760 741 36,725 23,544 53,625
Total shareholders'
equity................. 14,225 23,715 54,300 71,365 172,658 159,562 183,406
</TABLE>
- --------
(1) Our video lottery (slot) casino opened on December 29, 1995. Gaming
revenues prior to December 29, 1995 solely related to horse racing
activities.
(2) Earnings and dividends per share amounts prior to 1999 have been adjusted
to reflect a two-for-one stock split paid in the form of a stock dividend
effective September 15, 1998.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As you read the following, you should also carefully review our consolidated
financial statements and related notes included elsewhere in this prospectus.
General
Our results of operations are grouped into two segments: motorsports and
gaming. Motorsports revenues include admissions, parking, concessions,
souvenirs, broadcast rights, sponsorships and other revenues associated with
our motorsports events. Gaming revenues include video lottery (slot) machine
revenues, pari-mutuel wagering revenues from live and simulcast horse races and
other revenues associated with our video lottery (slot) machine, horse racing
and simulcasting operations.
In our video lottery (slot) machine 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 our financial statements
as gaming revenue. The Delaware State Lottery Office sweeps the winnings from
the video lottery (slot) machine operations, collects the State's share of the
winnings and the amount due to the providers of the video lottery machines and
associated computer systems, collects the amount allocable to purses for
harness horse racing, and remits the remainder to us as our commission for
acting as a licensed agent. Pari-mutuel wagering revenues refer to income
received from betting on live, on-site harness horse racing and from wagering
on simulcast races of thoroughbred and harness horse racing held across North
America. The wagering by the public on the horse races is referred to as the
handle. From the handle, a substantial portion is returned to the wagering
public, we retain the residual and it is recorded in our financial statements
as gaming revenues. Simulcasting is the transmission of live horse racing by
television, cable or satellite signal from one racetrack 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.
Results of Operations
Our Six Months Ended December 31, 1999 Compared With Our Six Months Ended
December 31, 1998
Our revenues increased by $23,539,000, or 25.5%, to $115,844,000 for the six
months ended December 31, 1999. Our gaming revenues increased by $17,712,000,
or 27.5%, as a result of having an average of 1,555 machines during the first
six months of fiscal 2000 compared with an average of 1,066 machines during the
first six months of fiscal 1999, and also from the results of expanded
marketing and promotional activities related to our video lottery casino. Our
motorsports revenues increased by $5,827,000, or 20.9%, to $33,652,000.
Approximately $1,280,000 of the increase resulted from increased attendance,
$573,000 from increased ticket prices, and $3,021,000 from increased
sponsorship, concession and broadcast revenues for our fall NASCAR weekend at
Dover Downs International Speedway. The remainder of our revenue increase was
due primarily to the addition of a Busch Grand National Series event at our
Memphis Motorsports Park and an increase in admissions revenues for the Busch
Grand National Series event at Gateway International Raceway. The increases in
our motorsports revenues were offset somewhat by a decrease in our revenues
related to the Indy Racing League event at Dover Downs International Speedway
in the first fiscal quarter.
Our operating expenses increased by $17,223,000 reflecting the higher
revenues. Amounts retained by the State of Delaware, fees to the manager who
operates the video lottery (slot) machine casino, and the amount collected by
the State of Delaware for payment to the vendors under contract with the State
of Delaware who provide the video lottery (slot) machines and associated
computer systems, increased by $7,226,000 in the first six months of fiscal
2000. Amounts allocated from the video lottery (slot) machine operation for
harness horse racing purses were $9,036,000 in the first six months of fiscal
2000 compared with $7,094,000 in the first six months of fiscal 1999.
15
<PAGE>
Our motorsports operating expenses increased primarily due to a $1,069,000
increase in the purse obligation expenses related to the fall NASCAR weekend at
Dover Downs International Speedway and the addition of a Busch Grand National
Series event at Memphis Motorsports Park in October 1999.
Our depreciation and amortization increased by $310,000 due to capital
expenditures related to our video lottery (slot) machine and motorsports
facilities expansion during the third and fourth quarters of fiscal 1999.
Our general and administrative expenses increased by $638,000 to $6,229,000
from $5,591,000 in the first six months of 1999 due to an increase in wages and
related employee benefits.
Our effective income tax rates for the six-month periods ended December 31,
1999 and 1998 were 41.8% and 41.3%.
Our net earnings increased by $2,980,000 as a result of increased play in the
casino, higher attendance and related revenues as well as an increase in the
broadcast rights fees for the fall NASCAR weekend race at Dover Downs
International Speedway, and the addition of a Busch Grand National Series event
at our Memphis Motorsports Park in the second quarter of fiscal 2000.
Our Fiscal Year 1999 Compared With Our Fiscal Year 1998
Our revenues increased by $66,987,000, or 47.5%, to $207,932,000 as a result
of growth in our historical business and our acquisition of Grand Prix
Association of Long Beach, Inc. on July 1, 1998.
Our gaming revenues increased by $24,178,000, or 21.0%, to $139,249,000, as a
result of having an average of 1,191 machines in fiscal 1999 compared with an
average of 1,000 machines in fiscal 1998, and expanded marketing and
promotional activities related to our video lottery (slot) machine casino.
Our motorsports revenues increased by $42,809,000, or 165.5%, to $68,683,000.
Approximately $2,432,000 of the revenue increase resulted from increased
attendance, $637,000 from increased ticket prices and $1,598,000 from adding an
IRL event at our Dover Downs International Speedway. Approximately $2,309,000
of the increase resulted from the inclusion of the operating results of
Nashville Speedway USA in our consolidated results for 12 months in fiscal 1999
compared to six months in fiscal 1998, and $32,837,000 from the acquisition of
Grand Prix Association of Long Beach. The remainder of the increase resulted
from increased sponsorship, concessions and marketing-related revenues at our
Dover Downs International Speedway.
Our operating expenses increased by $45,623,000 reflecting these higher
revenues. Amounts retained by the State of Delaware, including amounts
collected for payment to the vendors under contract with the State who provide
the video lottery (slot) machines and associated computer systems and fees to
the manager who operates our video lottery (slot) machine casino, increased by
$9,004,000 in fiscal 1999. Amounts allocated from the video lottery operation
for harness horse racing purses were $15,173,000 in fiscal 1999 compared with
$12,721,000 in fiscal 1998. Additional advertising, promotional and customer
complimentary costs of $2,557,000 were our other significant gaming-related
operating cost increases.
Our motorsports operating expenses increased due primarily to a $1,139,000
increase in purse and sanction fee expenses and $1,666,000 from adding an IRL
event at our Dover Downs International Speedway, and $1,533,000 from the
inclusion of the operating results of Nashville Speedway USA in our
consolidated results for 12 months in fiscal 1999 compared to six months in
fiscal 1998. The remainder of the increase is primarily the result of the
acquisition of Grand Prix Association of Long Beach.
Our depreciation and amortization increased by $4,391,000 due to capital
expenditures related to our motorsports facilities and casino expansion and the
depreciation of facilities and amortization of goodwill related to the
acquisition of Grand Prix Association of Long Beach.
16
<PAGE>
Our general and administrative expenses increased by $6,803,000 to
$11,213,000 from $4,410,000, of which $6,341,000 is the result of our
acquisition of Grand Prix Association of Long Beach.
Our interest expense was $1,352,000 in fiscal 1999 compared to $702,000 of
interest income in fiscal 1998. The interest expense resulted from increased
borrowings under our bank loan agreement and interest payments made relating to
the SWIDA loan.
Our effective income tax rates for the fiscal years ended June 30, 1999 and
1998 were 41.2% and 41.8%.
Our net earnings increased by $4,978,000 due to the expansion of our video
lottery (slot) machine operations, increased marketing efforts in our casino,
higher attendance and the growth in the number of motorsports events we
present, offset by increased interest and amortization expense from our Grand
Prix Association of Long Beach acquisition.
Liquidity and Capital Resources
General
Our cash flows from operations for the six months ended December 31, 1999 and
1998 were $8,442,000 and $154,000. This increase was due primarily to our
increased earnings before depreciation and amortization and the timing of
payments for harness horse racing purses, construction-related payables and
certain tax payments.
On November 1, 1999, we closed on a $125.0 million revolving bank credit
agreement. The terms of the new agreement are essentially the same as those
contained in the previous agreement. We had outstanding borrowings of $32.5
million under the credit facility at December 31, 1999. Interest on these
borrowings is, at our option, based upon either (i) LIBOR plus .75% or (ii) the
base rate (the greater of the prime rate or the federal funds rate, plus .5%)
minus 1%. During the first six months of fiscal 2000, we capitalized $699,000
of interest cost related to the construction of major facilities. The
capitalized interest is amortized over the estimated useful life of the asset
to which it relates.
In September 1999, the Sports Authority of the County of Wilson, Tennessee
issued its Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999,
in the amount of $25.9 million. The proceeds will be used to acquire, construct
and develop certain public infrastructure improvements in Wilson County,
Tennessee which will be beneficial to the operation of our superspeedway
complex we are developing through our 100% owned subsidiary, Nashville Speedway
USA. Interest only payments are required until September 1, 2002 and will be
made from a capitalized interest fund established from bond proceeds. After the
opening of our Nashville superspeedway complex, the bonds will be payable
solely from certain taxes generated from that facility. If the superspeedway
complex taxes are insufficient to cover the payment of principal and interest
on the bonds, payments will be made under a $26,326,000 letter of credit issued
by several banks. We have agreed to reimburse the banks for amounts paid by
them under the letter of credit.
We believe that cash flows from operations and our borrowing capacity under
our bank loan agreement will satisfy our cash requirements for the remainder of
fiscal 2000.
Capital Expenditures
Our capital expenditures for the six months ended December 31, 1999 were
$29,033,000. Approximately $11,342,000 of these expenditures related to the
expansion of and improvements to our auto racing facilities in Dover, Delaware,
Millington, Tennessee (near Memphis, Tennessee), and Madison, Illinois (near
St. Louis, Missouri); approximately $5,472,000 related to the expansion of our
casino facility and construction of our hotel in Dover, Delaware; and
approximately $11,493,000 related to the acquisition of land and other
construction costs for our new Nashville superspeedway complex.
17
<PAGE>
We expect to make approximately $48 million of capital expenditures for
approved projects during the remainder of the fiscal year ending June 30, 2000.
These expenditures will be made primarily to increase our grandstand seating
capacity at existing facilities and to fund construction of our hotel
development in Dover, Delaware and our new Nashville superspeedway complex.
Seasonality and Quarterly Results
We derive a substantial portion of our total revenues from admissions and
event-related revenue attributable to our major motorsports events which are
currently held from April through October. As a result, our business is highly
seasonal. The seasonality of our business is offset to some degree by our year-
round video lottery (slot) machine gaming operations and year-round
simulcasting.
The following table presents certain unaudited financial data for each of our
prior ten fiscal quarters (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Quarter Ended
--------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings
Data:
Revenues:
Motorsports........... $ 11,198 $ 47 $ 949 $ 13,680 $ 21,155 $ 6,670 $ 1,271 $ 39,587 $ 28,610 $ 5,042
Gaming................ 27,623 25,915 30,786 30,747 33,499 30,981 35,405 39,364 42,691 39,501
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues........ $ 38,821 $ 25,962 $ 31,735 $ 44,427 $ 54,654 $ 37,651 $ 36,676 $ 78,951 $ 71,301 $ 44,543
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Operating earnings..... $ 13,234 $ 4,242 $ 5,471 $ 14,006 $ 14,466 $ 4,651 $ 4,223 $ 23,783 $ 19,645 $ 4,840
Net earnings........... $ 7,833 $ 2,518 $ 3,295 $ 8,267 $ 8,278 $ 2,513 $ 2,207 $ 13,893 $ 11,244 $ 2,527
Basic earnings per
share................. $ 0.26 $ 0.08 $ 0.11 $ 0.27 $ 0.23 $ 0.07 $ 0.06 $ 0.40 $ 0.31 $ 0.07
Diluted earnings per
share................. $ 0.25 $ 0.08 $ 0.11 $ 0.26 $ 0.23 $ 0.07 $ 0.06 $ 0.38 $ 0.31 $ 0.07
</TABLE>
Inflation
We do not believe that our financial performance has been significantly
impacted by inflation.
Disclosures About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to the increase in the amount of interest expense we must pay with respect to
our bank loan agreement, which is tied to variable market rates.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to
have a significant impact on our results of operations, financial position or
cash flows.
Year 2000 Compliance
As of the date of this prospectus, our business operations have not been
materially impacted by Year 2000 matters.
18
<PAGE>
AN IMPORTANT NOTE ABOUT OUR FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in the prospectus and in documents
incorporated by reference in this prospectus within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, relating to our financial condition,
profitability, liquidity, resources, business outlook, proposed acquisitions,
market forces, corporate strategies, consumer preferences, contractual
commitments, capital requirements and other matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. To comply with the terms of the safe harbor, we note that a variety
of factors could cause our actual results and experience to differ
substantially from the anticipated results or other expectations expressed in
our forward-looking statements. When words and expressions such as: "believes,"
"expects," "anticipates," "estimates," "plans," "intends," "objectives,"
"goals," "aims," "projects," "forecasts," "possible," "seeks," "may," "could,"
"should," "might," "likely," "enable" or similar words or expressions are used
in this prospectus, as well as statements containing phrases such as "in our
view," "there can be no assurance," "although no assurance can be given" or
"there is no way to anticipate with certainty," forward-looking statements are
being made in all of these instances. These forward-looking statements speak as
of the date of this prospectus.
Various risks and uncertainties may affect the operation, performance,
development and results of our business and could cause future outcomes to
differ materially from those set forth in our forward-looking statements,
including the following factors: our growth strategies; our development and
potential acquisition of new facilities; anticipated trends in the motorsports
and gaming industries; patron demographics; our ability to enter into
additional contracts with sponsors, broadcast media and race event sanctioning
bodies; our relationships with sponsors; general market and economic
conditions; our ability to finance our future business requirements; the
availability of adequate levels of insurance; the ability to successfully
integrate acquired companies and businesses; management retention and
development; changes in Federal, state, and local laws and regulations,
including environmental and gaming license regulations; the affect of weather
conditions on our outdoor event attendance; as well as the risks, uncertainties
and other factors described from time to time in our SEC filings and reports.
We undertake no obligation to publicly update or revise any forward-looking
statements as a result of future developments, events and conditions outside of
our control. New risk factors emerge from time to time and it is not possible
for us to predict all such risk factors, nor can we assess the impact of all
such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ significantly from
those forecast in any forward-looking statements. Given these risks and
uncertainties, investors should not overly rely or attach undue weight to our
forward-looking statements as an indication of our actual future results.
19
<PAGE>
BUSINESS
We are a diversified entertainment company with significant motorsports and
gaming operations.
Motorsports
We are a leading promoter of motorsports events in the United States. We have
experienced a dramatic increase in motorsports revenue. In 1999, approximately
91% of our motorsports revenue was derived from admissions, skybox rentals,
sponsorships, concessions and novelty sales and broadcast rights at NASCAR-
sanctioned events. The following chart sets forth our revenues derived from
motorsports for the past four fiscal years:
Motorsports Revenue
(in thousands)
Fiscal Year
1996 $18,110
1997 $20,516
1998 $25,874
1999 $68,683
Our Motorsports Venues
The following table sets forth certain information relating to each of our
motorsports venues at January 31, 2000:
<TABLE>
<CAPTION>
Approximate
Seating Track/Course
Venue Name Location Capacity Length
---------- -------------- ----------- ------------
<S> <C> <C> <C>
Dover Downs
International
Speedway............... Dover, DE 122,000 1.00 miles
Gateway International
Raceway................ Madison, IL 70,000 1.25 miles
Grand Prix of Long
Beach.................. Long Beach, CA 62,000 1.97 miles
Memphis Motorsports
Park................... Millington, TN 26,000 .75 miles
Nashville Speedway USA.. Nashville, TN 15,000 .60 miles
</TABLE>
Dover Downs International Speedway
We have presented NASCAR-sanctioned racing events for 31 consecutive years at
Dover Downs International Speedway and we currently conduct five major NASCAR-
sanctioned events annually at this venue. Two races are in the Winston Cup
Series, two races are in the Busch Grand National Series and one is in the
NASCAR Craftsman Truck Series.
Each of the Busch Grand National Series events at Dover Downs is conducted on
the day before a Winston Cup event. Dover Downs is one of only six speedways in
the country that presents two Winston Cup events and two Busch Grand National
Series events each year and one of only three with a combined Winston Cup,
Busch Grand National and Craftsman Truck Series weekend. The June and September
dates have historically allowed Dover Downs to hold the first and last Winston
Cup events in the Maryland to Maine region each year.
20
<PAGE>
The auto racing track is a high-banked, one-mile long, concrete superspeedway
with a current seating capacity of approximately 122,000. Construction is
underway to increase capacity to 135,000 for the 2000 racing season. Unlike
some superspeedways, substantially all grandstand and skybox seats offer an
unobstructed view of the entire track. The concrete racing surface makes the
auto racing track the only concrete superspeedway (one mile or greater in
length) that conducts NASCAR-sanctioned events.
Gateway International Raceway
Gateway International Raceway has conducted NASCAR-, CART- and NHRA-
sanctioned events since its opening in May 1997. The auto racing facility
includes a 1.25-mile oval track and road course with current seating capacity
of 70,000 and a national caliber drag strip capable of seating approximately
30,000 people. The facility, which was equipped with lights for nighttime
racing in 1999, is located on approximately 416 acres of land in Madison,
Illinois, five miles from the St. Louis Arch. We acquired Gateway International
Raceway in July 1998.
Grand Prix of Long Beach
For the past 25 years, the Grand Prix Association of Long Beach has
organized and promoted the CART-sanctioned Grand Prix of Long Beach, an annual
temporary circuit professional motorsports event run in the city streets of
Long Beach, California. The Grand Prix of Long Beach has the second highest
paid attendance of any open wheel Indy-style car race, second only to the
Indianapolis 500. The Grand Prix of Long Beach weekend has attracted in excess
of 200,000 spectators in each of the past six years, and is currently broadcast
to more than 125 countries throughout the world. We acquired Grand Prix
Association of Long Beach, Inc. in July 1998.
Memphis Motorsports Park
Memphis Motorsports Park has hosted NASCAR- and NHRA-sanctioned events since
its opening in June 1998. The tri-oval track was recently expanded to bring its
seating capacity to approximately 26,000 seats and luxury suites were added for
the inaugural Busch Grand National Series event held in October 1999. The drag
strip also hosts an NHRA national event and has a seating capacity in excess of
25,000. We acquired Memphis Motorsports Park in July 1998.
Nashville Speedway USA
Nashville Speedway USA hosted its first automotive race in 1904, making it
one of the oldest tracks in the country. The facility currently hosts events in
three of NASCAR's top national series--the Busch Grand National Series, the
Craftsman Truck Series and the Slim Jim All Pro Series. Based on attendance,
the track's Saturday night NASCAR Racing Series is regarded as one of the most
successful weekly programs in the country. We acquired Nashville Speedway USA
in January 1998. We expect the new Nashville superspeedway to open during the
2001 race season with a strong schedule of events, including the NASCAR
national events currently held at Nashville Speedway USA.
21
<PAGE>
Our Major Racing Events for 2000
<TABLE>
<CAPTION>
Venue Series Event Date
- ----- ------ ----- ----
<S> <C> <C> <C>
Nashville NASCAR Busch Grand National BellSouth 320 April 8
Speedway USA
Grand Prix of CART FedEx Championship Toyota Grand Prix of Long Beach April 16
Long Beach
Gateway NASCAR Craftsman Truck Missouri-Illinois Dodge Dealers May 7
International "Ram Tough" 200 presented by Pepsi
Raceway
Memphis NASCAR Craftsman Truck Memphis 200 May 13
Motorsports
Park
Dover Downs NASCAR Busch Grand National MBNA Platinum 200 June 3
International
Speedway
Dover Downs NASCAR Winston Cup MBNA Platinum 400 June 4
International
Speedway
Gateway NHRA NHRA Sears Craftsman Nationals June 24
International
Raceway
Gateway NASCAR Busch Grand National CARQUEST Auto Parts 250 July 29
International
Raceway
Nashville NASCAR Craftsman Truck Federated Auto Parts 250 August 12
Speedway USA
Gateway CART FedEx Championship Motorola 300 September 17
International
Raceway
Dover Downs NASCAR Craftsman Truck MBNA Palladian Travel 200 September 22
International
Speedway
Dover Downs NASCAR Busch Grand National MBNA.com 200 September 23
International
Speedway
Dover Downs NASCAR Winston Cup MBNA.com 400 September 24
International
Speedway
Memphis NHRA NHRA AutoZone Nationals October 8
Motorsports Presented by Pennzoil
Park
Memphis NASCAR Busch Grand National Sam's Town 250 October 29
Motorsports
Park
</TABLE>
Overview of Sanctioning Bodies
NASCAR. NASCAR is widely recognized as the premier official sanctioning body
of professional stock car racing in the United States. NASCAR regulates its
membership (including drivers, their crews, team owners and track operators),
the composition of race cars and the sanctioning of races. It sanctions events
with one-year agreements with track operators, each of which specifies the race
date, the sanctioning fee and the purse. NASCAR officials control qualifying
procedures, the line-up of the cars, the start of the race, the control of cars
throughout the race, the election to stop or delay a race, "pit" activity,
"flagging," the positioning of cars, the assessment of lap and time penalties
and the completion of the race. NASCAR also administers, monitors and promotes
the championship point systems for its Winston Cup Series, Busch Grand National
Series and Craftsman Truck Series events. These point systems were designed to
establish the championship drivers in each series.
CART. CART, an open wheel racing series formed by Indy team owners in 1978,
owns, operates and sanctions the CART Championship, which in 1999 consisted of
20 races staged in five countries. CART events are staged on superspeedways,
ovals, temporary street courses and permanent road courses.
NHRA. The National Hot Rod Association is the world's largest motorsports
sanctioning body, featuring national championship drag racing at 23 NHRA Series
events throughout the United States.
Economics of Motorsports
The primary participants in the business of motorsports are spectators,
sponsors, track operators, drivers, team members and team owners.
Spectators. According to the 1998 Goodyear Racing Attendance Report,
approximately 9 million spectators attended the 1998 Winston Cup Series, Busch
Grand National Series and Craftsman Truck Series events. Moreover, according to
Nielsen Market Research, approximately 123 million people tuned to televised
Winston Cup Series events in 1999. According to Nielsen Media Research,
approximately 39% of NASCAR spectators are women and 66% are between the ages
of 18 and 44. We believe that this demographic profile of
22
<PAGE>
the growing base of spectators has considerable appeal to track operators,
sponsors and advertisers. We believe that NASCAR spectators are loyal to both
the sport of motor racing and to the sponsors of the sport.
Sponsors. Sponsors are active in all phases of professional motorsports. In
addition to directly supporting racing teams through the funding of certain
costs of their operations, sponsors support track operators by paying fees
associated with specific name events such as the "Toyota Grand Prix of Long
Beach." In addition, premier racing events such as "MBNA Platinum 400" at Dover
frequently have multiple "official corporate sponsors." In return, sponsors
receive advertising exposure through television and radio coverage, newspapers,
race programs, brochures and advertising at the track on race day.
Track Operators. Track operators like us market and promote events at their
facilities. Their principal revenue sources generally include admissions;
television and radio broadcast fees; sponsorship fees; the sale of merchandise
such as souvenirs, collectibles and apparel; food and beverage concessions;
hospitality fees paid for catering receptions and private parties; luxury suite
and hospitality village rentals; parking; and advertising on track signage and
in souvenir racing programs. Sanction agreements require race track operators
to pay fees to the relevant sanctioning body for each sanctioned event
conducted, including sanction fees and prize money.
Drivers and Team Members. Although a majority of drivers contract
independently with team owners, certain drivers own their own teams. Drivers
receive income from contracts with team owners, sponsorship fees and prize
money. Successful drivers may also receive income from personal endorsement
fees and souvenir sales. The success and personality of a driver can be an
important marketing advantage for team owners because it can help attract
corporate sponsorships and generate sales for officially licensed merchandise.
The efforts of each driver are supported by a number of other team members, all
of whom are supervised by a crew chief.
Team Owners. In most instances, team owners bear the financial risk of
placing their teams in competition. Team owners contract with drivers, acquire
racing vehicles and support equipment, hire pit crews and mechanics, and
syndicate sponsorship of their teams.
Gaming
Our gaming operations are located at our flagship property in Dover,
Delaware. Our Dover facility is a multi-purpose gaming and entertainment
complex housing an 80,000 square foot Las Vegas style casino with approximately
1,650 video lottery (slot) machines, managed by Caesars World Gaming
Development Corporation. Dover Downs Raceway, a 5/8 mile harness horse
racetrack with a state-of-the-art simulcasting parlor, is located adjacent to
the casino.
We have experienced dramatic increases in gaming revenue. In 1999,
approximately 96% of our gaming revenue was attributable to our video lottery
(slot) machine casino. The following chart sets forth our revenues derived from
gaming for the past four fiscal years:
Gaming Revenue
Fiscal Year
1996 $31,980
1997 $81,162
1998 $115,071
1999 $139,249
23
<PAGE>
Dover Downs Slots
Our video lottery (slot) machine casino opened its doors in December 1995
with 500 video lottery (slot) machines. Due to its popularity, the video
lottery (slot) machine casino has expanded several times and the number of
machines has steadily increased to its current level of approximately 1,650.
The most recent expansion of our gaming operations is expected to be
completed by April 2000. The Las Vegas style casino has been expanded to 80,000
square feet and will have 2,000 video lottery (slot) machines when complete.
The video lottery (slot) machines range from the increasingly popular nickel
machines to $20 machines in the newly created Premium Slots area. Additional
amenities include the Garden Cafe, which becomes a lounge with live
entertainment every evening, and the all-you-can-eat buffet in the Winners
Circle Dining Room.
The Delaware State Lottery Office administers and controls our video lottery
(slot) machine operations. We are a licensed agent authorized to conduct video
lottery operations under the Delaware State Lottery Code. We are one of only
three locations permitted to do so in the State of Delaware. We are permitted
by law to set our payout to customers between 87% and 95%. Prior approval from
the Director of the Delaware State Lottery Office would be required for any
deviation from these payout rates. Since the introduction of our video lottery
(slot) machine operations, we have maintained an average payout of
approximately 91%.
We have a long-term management agreement with Caesars World Gaming
Development Corporation. Under the agreement, Caesars is our exclusive agent to
supervise, manage and operate our video lottery (slot) machine casino. Caesars
has been licensed by the Delaware State Lottery Office.
We are also developing a luxury hotel facility adjacent to our Dover gaming
operations to attract new patrons and lengthen the stay of current patrons.
Dover Downs Raceway
Dover Downs Raceway has presented pari-mutuel harness racing events for 31
consecutive years. The harness horse racing track is a five-eighth mile track
and is lighted for nighttime operations. The track is located inside the one-
mile auto racing superspeedway. Live harness races conducted at Dover Downs are
simulcast to tracks and other off-track betting locations across North America
on each of our 120 live race dates. During 1999, our races were transmitted to
more than 400 tracks and off-track betting locations.
Dover Downs Raceway has facilities for pari-mutuel wagering on both live
harness horse racing and on simulcast thoroughbred and harness horse racing
received from numerous tracks across North America. Within the main grandstand
is the simulcast parlor where patrons can wager on harness and thoroughbred
races received by satellite into Dover Downs year round. Television monitors
throughout the parlor area provide views of all races simultaneously and the
parlor's betting windows are connected to a central computer allowing bets to
be received on all races from all tracks.
Harness racing in the State of Delaware is governed by the Delaware Harness
Racing Commission. We hold a license from the Commission authorizing us to hold
harness race meetings on our premises and to offer pari-mutuel wagering on live
and simulcast horse races.
Competition
Motorsports
Our racing events compete with other racing events sanctioned by various
racing bodies and with other sports and recreational events scheduled on the
same dates. Racing events sanctioned by different organizations are often held
on the same dates at separate tracks. The quality of the competition, type of
racing event, caliber of the event, sight lines, ticket pricing, location, and
customer conveniences, among other things, distinguish the motorsports
facilities.
24
<PAGE>
The two speedways closest to Dover Downs International Speedway that
currently sponsor Winston Cup races are in Richmond, Virginia (approximately
four hours to the South) and Pocono International Raceway in Long Pond,
Pennsylvania (approximately three and a half hours to the North). Nazareth
Speedway in Nazareth, Pennsylvania (approximately two hours to the North)
currently conducts a Busch Grand National Series, Craftsman Truck Series and
CART series race.
For the past 25 years, the Grand Prix Association of Long Beach, Inc. has
been organizing and promoting the Grand Prix of Long Beach, an annual temporary
circuit professional motorsports event in Long Beach, California. The closest
events to the Grand Prix event are CART- and NASCAR-sanctioned events at the
California Speedway in Fontana, California, approximately 60 miles from Long
Beach.
The speedway closest to Gateway International Raceway is Indianapolis Motor
Speedway (approximately four hours to the east), which currently conducts one
Winston Cup race and one Indy Racing League (IRL) race, as well as a recently
added Formula One event.
The speedways closest to our current Nashville Speedway are the Atlanta Motor
Speedway (approximately three hours to the southeast) and Talladega
Superspeedway (approximately three and one-half hours to the south). Atlanta
Motor Speedway currently hosts two Winston Cup races, one Busch Grand National
Series race and one IRL race. Talladega Superspeedway currently hosts two
Winston Cup races and one Busch Grand National Series race.
The speedway closest to Memphis Motorsports Park is Talladega Superspeedway
(approximately five and one-half hours to the southeast).
Based on historical data, we do not believe that any of the competing
facilities significantly impact our operations, although they may impact our
ability to secure additional events in the future.
Our motorsports events also compete with other spectator-oriented sporting
events and other leisure, entertainment and recreational activities, including
professional football, basketball and baseball.
Gaming
The legalization of additional casino and other gaming venues in states close
to Delaware, particularly Maryland, Pennsylvania or New Jersey, may have a
significant impact on our business. From time to time, legislation has been
introduced in these states that would further expand gambling opportunities,
including video lottery (slot) machines at horse-tracks.
At present, video lottery (slot) machines are only permitted at two other
locations in Delaware: Delaware Park and Harrington Raceway. The neighboring
states of Pennsylvania and Maryland do not presently permit video lottery
(slot) machine operations. Pennsylvania, Maryland and New Jersey all have
state-run lotteries. Atlantic City, New Jersey is located approximately 100
miles from Dover Downs and offers a full range of gaming products.
Competition in horse racing is varied since racetracks in the surrounding
area differ in many respects. Some tracks only offer thoroughbred or harness
horse racing; others have both. Tracks have live racing seasons that may or may
not overlap with neighboring tracks. Depending on the purse structure, tracks
that are farther apart may compete with each other more for quality horses than
for patrons.
Live harness racing also competes with simulcasts of thoroughbred and harness
racing. All racetracks in the region are involved with simulcasting. In
addition, a number of off-track betting parlors compete with track simulcasting
activities. With respect to the simulcasting of our live harness races to
tracks and other locations, our simulcast signals are in direct competition
with live races at the receiving track and other races being simulcast to the
receiving location.
25
<PAGE>
Within the State of Delaware, Dover Downs faces little direct live
competition from the State's other two tracks. Harrington Raceway, a south
central Delaware fairgrounds track, conducts harness horse racing periodically
between May and November. There is no overlap presently with Dover Downs' live
race season. Delaware Park, a northern Delaware track, conducts thoroughbred
horse racing from April through mid-November. Its race season only overlaps
with our season for approximately five to six weeks each year.
The neighboring states of Pennsylvania, Maryland and New Jersey all have
harness and thoroughbred racing and simulcasting. Dover Downs competes with
Rosecroft Raceway in Maryland, Philadelphia Park in Pennsylvania, Garden State
Park and The Meadowlands in New Jersey and a number of other racetracks in the
surrounding area. We also receive simulcast harness and thoroughbred races from
approximately 30 racetracks, including the tracks noted above.
In addition, our gaming activities compete with other leisure, entertainment
and recreational activities.
Employees
On January 31, 2000, we had approximately 608 full-time employees and
approximately 212 part-time employees. Our employees include corporate
executive, marketing, administrative, clerical, pari-mutuel tellers, gaming
operations, security, admissions, maintenance and parking personnel. We hire
temporary employees to assist during periods of peak attendance at our auto
racing and harness horse racing events. Some of our employees at Gateway
International Raceway are represented by a labor union. Owners, drivers and
trainers of horses participating in harness race meetings are represented by a
horsemen's association. We believe that we enjoy a good relationship with our
employees including employees represented by a union. We may also engage
consultants from time to time to provide us with advisory services.
Insurance
We maintain insurance against the risks that are customarily associated with
our businesses. Our policies are in amounts and have deductibles that are
customary in our business. Our policies currently provide business and
commercial coverages, including workers' compensation, third party liability,
property damage, boiler and machinery, and business interruption. We comply
with insurance and bonding requirements as required by regulatory authorities
and our agreements, such as our agreements with NASCAR, Caesars, or various
sponsors.
Patents and Trademarks
We have various trademark rights related to our motorsports events and gaming
activities, including rights in names or logos of all of our motorsports venues
and our gaming attractions in Dover, Delaware. Our policy is to protect our
intellectual property rights vigorously, through litigation if necessary.
Litigation
A group made up of Wilson County and Rutherford County, Tennessee residents
has filed a complaint in the Chancery Court for Wilson County, Tennessee
contesting the rezoning of the land upon which the new Nashville superspeedway
complex will be situated. This litigation, if successful, would prevent, or at
least significantly postpone, the development of the facility. We believe the
rezoning was done properly. We are vigorously contesting the litigation and,
based on the advice of counsel, believe that the litigation is unlikely to
succeed on its merits. We are also a party to ordinary routine litigation
incidental to our business. We do not believe that the resolution of any of
these matters is likely to have a serious negative effect on our financial
condition or profitability.
26
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to our
directors and executive officers as of January 31, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------------------------------------------------
<S> <C> <C>
John W. Rollins, Sr..... 83 Chairman of the Board
Henry B. Tippie......... 73 Vice Chairman of the Board
Denis McGlynn........... 54 President and Chief Executive Officer and Director
Edward J. Sutor......... 50 Executive Vice President
Timothy R. Horne........ 33 Vice President--Finance and Chief Financial Officer
Robert M. Comollo....... 52 Treasurer
Klaus M. Belohoubek..... 40 Vice President--General Counsel and Secretary
Eugene V. Weaver........ 67 Director
John W. Rollins, Jr..... 57 Director
R. Randall Rollins...... 68 Director
Patrick J. Bagley....... 52 Director
Melvin L. Joseph........ 78 Director
Jeffrey W. Rollins...... 35 Director
Christopher R. Pook..... 58 Director
</TABLE>
Set forth below are descriptions of the backgrounds of our directors and
executive officers. Except, as otherwise indicated, the directors and executive
officers have held the following positions for more than five years.
John W. Rollins, Sr. has served as a director since 1967 and as Chairman of
the Board since 1996. Mr. Rollins is also Chairman of the Board of Rollins
Truck Leasing Corp., a company engaged in the business of truck leasing, and a
director of Matlack Systems, Inc., a transportation services company. Mr.
Rollins also serves on the Board of Directors of Rollins, Inc., a consumer
services company engaged in residential and commercial termite and pest
control, Safety-Kleen Corp., an industrial waste disposal company, and RPC,
Inc., a company engaged in oil and gas field services and boat manufacturing.
Henry B. Tippie has served as our Vice Chairman of the Board since 1996. Mr.
Tippie also serves as the Vice Chairman of the Board of Rollins Truck Leasing
Corp. and as a director of Matlack Systems, Inc. He is also the Chief Executive
Officer of Tippie Services, Inc., a management services company. Mr. Tippie
also serves on the Board of Directors of Rollins, Inc., Safety-Kleen Corp. and
RPC, Inc.
Denis McGlynn has served as our Chief Executive Officer since 1996. He has
been an employee since 1972. Since 1979, Mr. McGlynn has been our President and
a member of our Board of Directors.
Edward J. Sutor became our Executive Vice President in March of 1999. From
1983 until 1999, Mr. Sutor served as Senior Vice President of Finance of
Caesars World, Inc. in Atlantic City.
Timothy R. Horne became our Vice President--Finance in November of 1996. From
1988 until 1996, Mr. Horne was employed by KPMG LLP, where he most recently
served as an assurance senior manager.
Robert M. Comollo has served as our Treasurer for 18 years.
Klaus M. Belohoubek has been our Vice President--General Counsel and
Secretary since 1999 and has represented us in various capacities since 1990,
most recently as our Assistant General Counsel. Mr. Belohoubek also serves as
Vice President--General Counsel and Secretary to Rollins Truck Leasing Corp.
and to Matlack Systems, Inc.
Eugene V. Weaver has served as a member of our Board of Directors since 1971,
and has held various financial positions with Dover Downs from 1970 through
1999. Mr. Weaver also serves on the Board of Directors of WSFS Financial Corp.,
a financial institution.
27
<PAGE>
John W. Rollins, Jr. has served as a member of our Board of Directors since
1996. Mr. Rollins is also President, Chief Executive Officer and director of
Rollins Truck Leasing Corp. and he is the Chairman of the Board of Matlack
Systems, Inc. Mr. Rollins also serves on the Board of Directors of Safety-Kleen
Corp.
R. Randall Rollins has served as a member of our Board of Directors since
1996. Mr. Rollins is also the Chairman of the Board and Chief Executive Officer
of Rollins, Inc., and also serves as Chairman of the Board and Chief Executive
Officer of RPC, Inc. Mr. Rollins also serves on the Board of Directors of
SunTrust Banks Inc. and SunTrust Banks of Georgia, both financial institutions.
Patrick J. Bagley has served as a member of our Board of Directors since
1996. Mr. Bagley is also Vice President--Finance, Treasurer and a director of
Rollins Truck Leasing Corp. and Matlack Systems, Inc.
Melvin L. Joseph has served as a member of our Board of Directors since 1969.
Mr. Joseph is also the Vice President and Director of Auto Racing of Dover
Downs International Speedway, Inc., one of our subsidiaries. He is also the
President of Melvin Joseph Construction Company, a construction company.
Jeffrey W. Rollins has served as a member of our Board of Directors since
1993. Mr. Rollins has been the Vice President--Development of Brandywine Center
Management, LLC, a management company, since 1997. Previously, he was Vice
President of the Eastern Region of Rollins Environmental, Inc., now a
subsidiary of Safety-Kleen Corp.
Christopher R. Pook has served as a member of our Board of Directors since
1998. He is also the President and Chief Executive Officer of Grand Prix
Association of Long Beach, Inc., our subsidiary.
28
<PAGE>
SELLING STOCKHOLDER
The table below sets forth, with respect to John W. Rollins, Sr., the selling
stockholder, certain information with respect to his beneficial ownership of
our common stock as of January 31, 2000, assuming the conversion of all shares
of Class A common stock owned by Mr. Rollins into shares of common stock, and
as adjusted to reflect the sale by Mr. Rollins of the shares of common stock he
is offering for sale. The number of shares of common stock owned after the
offering by Mr. Rollins set forth in the table below assumes the conversion by
Mr. Rollins of all of his shares of Class A Common Stock into common stock. We
believe that he has sole voting and investment power of his shares, except as
otherwise stated below.
<TABLE>
<CAPTION>
Shares of
Shares of Common Shares of
Common Stock Owned Stock Common Stock Owned
Prior to the Offering Offered After the Offering
---------------------- --------- ----------------------
Percent of Percent of
Outstanding Outstanding
Number Shares Number Shares
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
John W. Rollins, Sr..... 11,811,960 50.1% 650,000 11,161,960 43.7%
</TABLE>
John W. Rollins, Sr. has been the Chairman of our Board of Directors since
1996, and a director and principal stockholder since 1967. Mr. Rollins is also
Chairman of the Board of Rollins Truck Leasing Corp. and a director of Matlack
Systems, Inc. He has held these positions for more than 10 years.
Mr. Rollins will convert his shares of our Class A common stock into shares
of our common stock as needed for him to sell his shares of our common stock in
this offering. The number of shares owned by Mr. Rollins does not include
107,250 shares of Class A common stock owned by Mr. Rollins' wife, as to which
he disclaims any beneficial interest, and does not include 26,000 shares of
common stock held by Mr. Rollins' wife as custodian for his minor children, as
to which Mr. Rollins disclaims any beneficial interest.
Of the 650,000 shares of our common stock to be sold in this offering, Mr.
Rollins owns 500,000 shares directly and 150,000 shares are owned by a
corporation that is 100% owned by Mr. Rollins. These 150,000 shares are the
only shares of our capital stock owned by that corporation. Accordingly, it
will own no shares of our capital stock after this offering. The 650,000 shares
listed in the above table do not include up to 397,500 shares of common stock
that Mr. Rollins would own upon conversion of the additional shares of Class A
common stock that would be converted to satisfy the option he has granted to
the underwriters to cover unfilled customer orders in this offering.
29
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement dated March
, 2000, the underwriters named below, through the representatives, Raymond
James & Associates, Inc., and J.C. Bradford & Co., have severally agreed to
purchase from us the respective number of shares of common stock set forth
opposite their names below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
Raymond James & Associates, Inc................................
J.C. Bradford & Co.............................................
---------
Total........................................................ 2,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
significant negative change in our business and the receipt of certain
certificates, opinions and letters from us and our attorneys and independent
accountants. The nature of the underwriters' obligation is such that they are
committed to purchase all shares of common stock offered hereby if any of the
shares are purchased.
The selling stockholder in this offering has granted an option to the
underwriters, exercisable for 30 days after the date of this prospectus, to
purchase up to an aggregate of 397,500 shares of our common stock at the public
offering price, less the underwriting discounts and commissions set forth on
the cover page of this prospectus. The underwriters may exercise this option
solely to cover unfilled customer orders, if any, in connection with the sale
of our common stock. If the underwriters exercise this option, each underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares of our common stock proportionate to the underwriter's
initial amount set forth in the table above.
The following table summarizes the underwriting discounts and commissions to
be paid by us to the underwriters and the expenses payable by us for each share
of our common stock and in total. This information is presented assuming either
no exercise or full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
Without With
Per Share Option Option
--------- ------- ------
<S> <C> <C> <C>
Underwriting Discounts
and Commissions payable
by us.................. $ $ $
Expenses payable by us.. $ $ $
</TABLE>
We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at that price
less a concession not in excess of $ per share. The underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. The offering of the shares of common stock is made for
delivery when, as and if accepted by the underwriters and subject to prior sale
and to withdrawal, cancellation or modification of this offering without
notice. The underwriters reserve the right to reject an order for the purchase
of shares in whole or in part.
We and our most senior executive officers and directors have agreed that for
a period of 90 days after the date of this prospectus, that we and they will
not, without the prior written consent of Raymond James & Associates, Inc. and
J.C. Bradford & Co., directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or
exchangeable or exercisable for shares of our common stock, whether now
owned or acquired after the date of this prospectus by any such person
or with respect to which any such person acquires after the date of this
prospectus the
30
<PAGE>
power of disposition, or file any registration statement under the
Securities Act with respect to any of the foregoing; or
. enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of shares of our common stock whether any such
swap or transaction is to be settled by delivery of our common stock or
other securities, in cash or otherwise.
The foregoing restrictions, however, do not apply to:
. the shares of our common stock being offered by us in the offering;
. any grant of options by us for our common stock under our stock option
plans;
. any shares of our common stock issued by us pursuant to the exercise of
stock options currently outstanding or granted under our stock option
plans; or
. transfers of our common stock to charitable organizations and sales of
our common stock, in each case constituting not more than 2% of the
shares of our common stock owned by our most senior officers and
directors.
Until the offering of the shares of common stock is completed, applicable
rules of the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase the
common stock. As an exception to these rules, the underwriters may engage in
certain transactions that stabilize the price of the common stock. These
transactions may include short sales, stabilizing transactions and purchases
to cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares of common stock than they are
required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by
the underwriters without notice at any time. These transactions may be
effected on the New York Stock Exchange, or otherwise.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments which the underwriters may be required to make in respect thereof.
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 131,000,000 shares of capital stock consisting of
75,000,000 shares of common stock, $.10 par value; 55,000,000 shares of Class
A common stock, $.10 par value; and 1,000,000 shares of preferred stock, $.10
par value.
Common Stock
At January 31, 2000, there were 11,746,391 shares of our common stock
outstanding which were held of record by 1,082 stockholders. At January 31,
2000, there were 24,166,210 shares of our Class A common stock outstanding
which were held of record by 21 stockholders. No shares of our preferred stock
have been issued and we have no shares of treasury stock.
31
<PAGE>
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. The holders of our Class A common
stock are entitled to 10 votes per share on all matters to be voted upon by our
stockholders, except to the extent that voting as a separate class is required
by applicable law. Our shares of Class A common stock are convertible at any
time into our shares of common stock on a one-for-one basis at the option of
the stockholder. Subject to rights of any preferred stockholder, holders of our
common stock are entitled to receive on a pro rata basis such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available for that purpose. In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to
share on a pro rata basis in all assets remaining after payment of our
liabilities, subject to prior distribution rights of the shares of our
preferred stock, then outstanding. Holders of our common stock have no
preemptive or conversion rights or other subscription rights. All outstanding
shares of our common stock to be issued upon completion of this offering will
be fully paid and nonassessable.
The transfer agent and registrar for our common stock and our Class A common
stock is ChaseMellon Shareholder Services, 450 West 33rd Street, New York, NY
10001. Their telephone number is 212-273-8039.
Preferred Stock
Our Board of Directors has the authority, without action by our stockholders,
to designate and issue preferred stock in one or more series and to designate
the relative participating, optional and other special rights, preferences and
privileges of each series, any or all of which may be superior to and have
priority over the rights of our common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until our Board of Directors determines the
specific rights of the holders of our preferred stock. However, the effects
might include, among other things, restricting dividends on our common stock,
diminishing the voting power of our common stock, impairing the liquidation
rights of our common stock and delaying or preventing a change in control of
Dover Downs without further action by our stockholders. As of the date of this
prospectus, no shares of preferred stock are outstanding and we have no present
plans to issue any shares of preferred stock.
Anti-Takeover Effects of Certain Provisions of Delaware Law and Other
Provisions of our Certificate of Incorporation
We are subject to certain anti-takeover provisions under Delaware law which
are designed to regulate and govern unsolicited attempts to acquire control of
our stock, and our Board of Directors and including the "affiliated
transactions" and "control-share acquisition" provisions of the Delaware
General Corporation Law. In addition to the provisions of Delaware law, our
Certificate of Incorporation generally requires, that transactions between us
and an individual or entity that beneficially owns 20% or more of our
outstanding capital stock must be approved by the holders of at least 75% of
our outstanding capital stock. In addition, certain provisions of our
Certificate of Incorporation and our By-Laws summarized in the following
paragraphs may be deemed to have an anti-takeover effect and may delay, deter
or prevent a tender offer or takeover attempt that a stockholder might consider
in his, her or its best interest, including attempts that could result in
payment in a premium over the market price for the shares held by our
stockholders.
Restrictions on Transferability of our Shares. Under Delaware law, a change
of ownership of a licensed lottery agent automatically terminates the agent's
license 90 days after the change of ownership occurs, unless the Director of
the Delaware State Lottery Office issues a new license to the new owners. A
change of ownership could occur if any new individual or entity acquires 10% or
more of the licensed agent or if more than 20% of the legal or beneficial
interests in the licensed agent is transferred. The Delaware State Lottery
Commission may require extensive background investigations of any new owner
acquiring a 10% or greater voting interest in a licensed agent, including
criminal background checks.
32
<PAGE>
Our By-Laws require that (a) any holders of our stock found to be
disqualified or unsuitable, or not possessing the qualifications required by
the appropriate gaming authority, must dispose of their stock and (b) holders
of our capital stock intending to acquire more than 10% of our outstanding
stock must first obtain prior written approval from the Delaware State Lottery
Office. These provisions of Delaware law which would apply to a change in
ownership of our capital stock and the provisions contained in our By-Laws
could severely limit the transferability of our capital stock and could
negatively impact the price of and demand for our common stock.
Class A Common Stock Transfer Restrictions. Our By-Laws restrict the sale,
transfer or disposition of Class A common stock stockholders and members of
their families. This restriction may be amended only by stockholders owning 75%
or more of the outstanding shares of Class A common stock. All Class A common
stock stockholders retain the ability to convert Class A common stock to common
stock. Our common stock is not subject to this transfer restriction.
Classified Board of Directors. Our Certificate of Incorporation provides that
our Board of Directors must be divided into three classes of directors serving
staggered three-year terms. Our Certificate of Incorporation also provides that
our directors may only be removed for cause and only at a meeting of our
stockholders called for that purpose by the affirmative vote of the holders of
75% or more of our stock entitled to vote at an election of directors. These
provisions, when coupled with the provision of the Certificate of Incorporation
which provides that only our Board of Directors can increase the size of our
Board of Directors, are designed to prevent a stockholder from removing
incumbent directors and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Authorized But Unissued Shares. The authorized but unissued shares of our
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
equity capital, corporate acquisitions and to provide stock for issuance under
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock may enable the board of directors to issue
shares to persons with plans and strategies for us aligned with or similar to
those of current management which could make more difficult or deter an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of our management.
Stockholder Meetings. Our Certificate of Incorporation provides that special
meetings of our stockholders can only be called by the Chairman of our Board of
Directors, Vice Chairman of our Board of Directors, the President or the
Chairman of the Executive Committee of our Board of Directors. This provision
may prevent our stockholders from authorizing a change in our Board of
Directors. This provision of our Certificate of Incorporation can only be
amended by the affirmative vote of the holders of 75% of our outstanding
capital stock.
Stockholder Rights Plan (Poison Pill).
We adopted a stockholder rights plan in 1996 and amended the plan in 1998.
The rights are attached to and trade in tandem with our common stock. The
rights, unless earlier redeemed by our Board of Directors, will detach and
trade separately from our common stock upon the occurrence of certain events
such as the unsolicited acquisition by a third party of beneficial ownership of
10% or more of our outstanding combined common stock and Class A common stock
or the announcement by a third party of the intent to commence a tender or
exchange offer for 10% or more of our outstanding combined common stock and
Class A common stock. After the rights have detached, the holders of such
rights would generally have the ability to purchase such number of either
shares of our common stock or stock of an acquiror of our company having a
market value equal to twice the exercise price of the right being exercised,
thereby causing substantial dilution to a person or group of persons attempting
to acquire control of our company. The rights may serve as a significant
deterrent to unsolicited attempts to acquire control of us, including
transactions involving a premium to the market price of our stock. The rights
expire on June 13, 2006, unless earlier redeemed.
33
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock to be issued by us in this
offering and certain additional legal matters relating to this offering will be
passed upon for us by Greenberg Traurig, LLP (New York, New York). The validity
of the shares of common stock to be sold by the selling stockholder and certain
additional matters relating to this offering will be passed upon by Klaus M.
Belohoubek, Esq., our Vice President-General Counsel. Certain legal matters
relating to this offering will be passed upon for the underwriters by Akerman,
Senterfitt & Eidson, P.A. (Ft. Lauderdale, Florida). Mr. Belohoubek owns
beneficially 4,500 shares of our common stock and owns directly options to
purchase 25,500 shares of that stock.
EXPERTS
The consolidated financial statements of Dover Downs Entertainment, Inc. as
of June 30, 1998 and 1999, and for each of the years in the three-year period
ended June 30, 1999, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring to these documents. The information
incorporated by reference is considered to be part of this prospectus, and
later information that we file with the Commission will automatically update
and supercede this information. We incorporate by reference the documents
listed below and any future filings made with the Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we sell
all of the common stock.
. Our Annual Report on Form 10-K for the fiscal year ended June 30, 1999;
. Our Quarterly Reports on Form 10-Q for the periods ended September 30,
1999 and December 31, 1999;
. Our Current Report on Form 8-K, filed on August 2, 1999;
. Our definitive proxy statement on Schedule 14A, filed on September 24,
1999; and
. The description of our common stock and the description of common stock
purchase rights with respect to our common stock contained in our
Registration Statements on Form 8-A filed on September 19, 1996 pursuant
to Section 12 of the Exchange Act and all amendments thereto and reports
filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: 1131 North DuPont Highway, Dover,
Delaware 19901, Attention: Timothy R. Horne, Vice President--Finance,
Telephone: (302) 857-3292.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference in this prospectus
modifies, supersedes or replaces such statement. Any statement so modified,
superseded or replaced shall not be deemed, except as so modified, superseded
or replaced, to constitute a part of this prospectus.
34
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
---------
<S> <C>
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Statement of Earnings for the three months and six
months ended December 31, 1998 and December 31, 1999.............. F-2
Consolidated Balance Sheet as of June 30, 1999 and December 31,
1999.............................................................. F-3
Consolidated Statement of Cash Flows for the six months ended
December 31, 1998 and December 31, 1999........................... F-4
Notes to the Consolidated Financial Statements..................... F-5-F-6
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report on Consolidated Financial Statements.. F-7
Consolidated Statement of Earnings for the years ended June 30,
1997, 1998 and 1999............................................... F-8
Consolidated Balance Sheet as of June 30, 1998 and 1999............ F-9
Consolidated Statement of Cash Flows for the years ended June 30,
1997, 1998 and 1999............................................... F-10
Notes to the Consolidated Financial Statements..................... F-11-F-19
</TABLE>
F-1
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- ------------------------
1998 1999 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Motorsports................ $ 6,670,000 $ 5,042,000 $27,825,000 $ 33,652,000
Gaming..................... 30,981,000 39,501,000 64,480,000 82,192,000
----------- ----------- ----------- ------------
37,651,000 44,543,000 92,305,000 115,844,000
----------- ----------- ----------- ------------
Expenses:
Operating.................. 28,631,000 34,824,000 63,969,000 81,192,000
Depreciation and
amortization.............. 1,832,000 1,973,000 3,628,000 3,938,000
General and
administrative............ 2,537,000 2,906,000 5,591,000 6,229,000
----------- ----------- ----------- ------------
33,000,000 39,703,000 73,188,000 91,359,000
----------- ----------- ----------- ------------
Operating earnings........... 4,651,000 4,840,000 19,117,000 24,485,000
Interest expense, net........ 355,000 418,000 744,000 844,000
----------- ----------- ----------- ------------
Earnings before income
taxes....................... 4,296,000 4,422,000 18,373,000 23,641,000
Income taxes................. 1,783,000 1,895,000 7,582,000 9,870,000
----------- ----------- ----------- ------------
Net earnings................. $ 2,513,000 $ 2,527,000 $10,791,000 $ 13,771,000
=========== =========== =========== ============
Earnings per common share
--Basic.................... $ .07 $ .07 $ .30 $ .38
=========== =========== =========== ============
--Diluted.................. $ .07 $ .07 $ .30 $ .38
=========== =========== =========== ============
Average shares outstanding
--Basic.................... 35,553,000 35,902,000 35,544,000 35,852,000
--Diluted.................. 36,510,000 36,730,000 36,564,000 36,713,000
Dividends paid per common
share....................... $ .045 $ .045 $ .085 $ .09
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-2
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1999
------------- -----------------
(audited) (unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 10,847,000 $ 4,100,000
Accounts receivable.......................... 6,706,000 7,267,000
Due from State of Delaware................... 2,932,000 6,841,000
Inventories.................................. 581,000 492,000
Prepaid income taxes......................... -- 1,397,000
Prepaid expenses and other................... 4,456,000 3,710,000
Deferred income taxes........................ 327,000 327,000
------------ ------------
Total current assets....................... 25,849,000 24,134,000
Property, plant and equipment, net............. 173,913,000 199,794,000
Other assets, net.............................. 1,453,000 1,401,000
Goodwill, net.................................. 53,997,000 53,398,000
------------ ------------
Total assets............................... $255,212,000 $278,727,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 4,629,000 $ 3,796,000
Purses due horsemen.......................... 3,147,000 7,776,000
Accrued liabilities.......................... 9,407,000 7,650,000
Income taxes payable......................... 2,726,000 --
Current portion of long-term debt............ 235,000 335,000
Deferred revenue............................. 15,906,000 11,859,000
------------ ------------
Total current liabilities.................. 36,050,000 31,416,000
Long-term debt................................. 36,725,000 53,625,000
Other liabilities.............................. 172,000 174,000
Deferred income taxes.......................... 9,607,000 10,106,000
Shareholders' Equity:
Preferred stock, $.10 par value; 1,000,000
shares authorized; issued and outstanding:
none
Common stock, $.10 par value; 75,000,000
shares authorized; issued and outstanding:
June--11,403,684; December--11,735,348 ..... 1,140,000 1,173,000
Class A common stock, $.10 par value;
55,000,000 shares authorized; issued and
outstanding: June--24,262,510; December--
24,166,210.................................. 2,426,000 2,417,000
Additional paid-in capital................... 99,683,000 99,865,000
Retained earnings............................ 69,409,000 79,951,000
------------ ------------
Total shareholders' equity................. 172,658,000 183,406,000
------------ ------------
Total liabilities and shareholders'
equity.................................... $255,212,000 $278,727,000
============ ============
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-3
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 10,791,000 $ 13,771,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................... 3,628,000 3,938,000
(Increase) decrease in assets:
Accounts receivable........................... 777,000 (561,000)
Due from State of Delaware.................... (4,149,000) (3,909,000)
Inventories................................... 124,000 89,000
Prepaid expenses and other.................... 658,000 746,000
Increase (decrease) in liabilities:
Accounts payable.............................. (2,895,000) (833,000)
Purses due horsemen........................... 3,044,000 4,629,000
Accrued liabilities........................... (3,174,000) (1,757,000)
Current and deferred income taxes............. (5,292,000) (3,624,000)
Deferred revenue.............................. (3,358,000) (4,047,000)
------------ ------------
Net cash provided by operating activities... 154,000 8,442,000
------------ ------------
Cash flows from investing activities:
Capital expenditures.............................. (14,034,000) (29,033,000)
Other............................................. -- (125,000)
Cash acquired in business acquisition............. 1,490,000 --
------------ ------------
Net cash used in investing activities....... (12,544,000) (29,158,000)
------------ ------------
Cash flows from financing activities:
Dividends paid.................................... (3,013,000) (3,229,000)
Borrowings on revolving debt, net................. 6,000,000 17,000,000
Repayment of long-term debt....................... (1,081,000) --
Loan repayments................................... 165,000 --
Proceeds of stock options exercised and other..... 11,000 198,000
------------ ------------
Net cash provided by financing activities... 2,082,000 13,969,000
------------ ------------
Net decrease in cash and cash equivalents......... (10,308,000) (6,747,000)
Cash and cash equivalents, beginning of period.... 18,694,000 10,847,000
------------ ------------
Cash and cash equivalents, end of period.......... $ 8,386,000 $ 4,100,000
============ ============
Supplemental information:
Interest paid................................... $ 24,000 $ 409,000
Income taxes paid............................... $ 13,818,000 $ 13,494,000
Non-cash investing activities:
Stock issued for business acquisition........... $ 80,241,000 --
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-4
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, but do
not include all of the information and footnotes required for complete
financial statements. The statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the latest
annual report on Form 10-K for Dover Downs Entertainment, Inc. and its wholly
owned subsidiaries. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
results of operations, financial position and cash flows have been included.
Operating results for the three months and six months ended December 31, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2000.
Revenue Recognition
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.
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS........................... 35,553,000 35,902,000 35,544,000 35,852,000
Effect of Options................... 957,000 828,000 1,020,000 861,000
---------- ---------- ---------- ----------
Diluted EPS......................... 36,510,000 36,730,000 36,564,000 36,713,000
========== ========== ========== ==========
</TABLE>
No adjustments to net income available to common shareholders were required
during the periods presented.
F-5
<PAGE>
DOVER DOWNS ENTERTAINMENT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Business Segment Information
The Company has two reportable segments, motorsports and gaming. The business
is operated and defined based on the products and services provided by these
segments. Certain operations within the motorsports segment have been
aggregated for purposes of the following disclosures:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------ ------------------------
1998 1999 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Motorsports............... $ 6,670,000 $ 5,042,000 $27,825,000 $ 33,652,000
Gaming.................... 30,981,000 39,501,000 64,480,000 82,192,000
----------- ----------- ----------- ------------
Consolidated Revenues... $37,651,000 $44,543,000 $92,305,000 $115,844,000
=========== =========== =========== ============
Operating Earnings (Loss):
Motorsports............... $(1,950,000) $(3,478,000) $ 5,278,000 $ 6,861,000
Gaming.................... 6,601,000 8,318,000 13,839,000 17,624,000
----------- ----------- ----------- ------------
Consolidated Operating
Earnings............... $ 4,651,000 $ 4,840,000 $19,117,000 $ 24,485,000
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1999
------------- -----------------
<S> <C> <C>
Identifiable Assets:
Motorsports................................... $209,540,000 $227,184,000
Gaming........................................ 45,672,000 51,543,000
------------ ------------
Consolidated Assets......................... $255,212,000 $278,727,000
============ ============
</TABLE>
F-6
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors,
Dover Downs Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Dover Downs
Entertainment, Inc. and subsidiaries as of June 30, 1998 and 1999, and the
related consolidated statements of earnings and cash flows for each of the
years in the three-year period ended June 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dover Downs
Entertainment, Inc. and subsidiaries as of June 30, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Philadelphia, Pennsylvania
July 23, 1999
F-7
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Motorsports......................... $ 20,516,000 $ 25,874,000 $ 68,683,000
Gaming.............................. 81,162,000 115,071,000 139,249,000
------------ ------------ ------------
101,678,000 140,945,000 207,932,000
------------ ------------ ------------
Expenses:
Operating........................... 68,559,000 96,875,000 142,498,000
Depreciation and amortization....... 2,084,000 2,707,000 7,098,000
General and administrative.......... 3,065,000 4,410,000 11,213,000
------------ ------------ ------------
73,708,000 103,992,000 160,809,000
------------ ------------ ------------
Operating earnings.................... 27,970,000 36,953,000 47,123,000
Interest expense (income)............. (269,000) (702,000) 1,352,000
------------ ------------ ------------
Earnings before income taxes.......... 28,239,000 37,655,000 45,771,000
Income taxes.......................... 11,767,000 15,742,000 18,880,000
------------ ------------ ------------
Net earnings.......................... $ 16,472,000 $ 21,913,000 $ 26,891,000
============ ============ ============
Earnings per common share:
Basic............................... $ .55 $ .72 $ .76
============ ============ ============
Diluted............................. $ .54 $ .70 $ .74
============ ============ ============
Average shares outstanding:
Basic............................... 29,712,000 30,492,000 35,566,000
Diluted............................. 30,550,000 31,206,000 36,585,000
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-8
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $18,694,000 $ 10,847,000
Accounts receivable............................... 2,818,000 6,706,000
Due from State of Delaware........................ 2,099,000 2,932,000
Inventories....................................... 310,000 581,000
Prepaid expenses and other........................ 2,319,000 4,456,000
Deferred income taxes............................. 328,000 327,000
----------- ------------
Total current assets............................ 26,568,000 25,849,000
Property, plant and equipment, at cost:
Land.............................................. 10,563,000 29,519,000
Casino facility................................... 11,548,000 22,921,000
Racing facilities................................. 44,877,000 113,202,000
Furniture, fixtures and equipment................. 6,444,000 24,390,000
Construction in progress.......................... 799,000 7,902,000
----------- ------------
74,231,000 197,934,000
Less accumulated depreciation................... (18,456,000) (24,021,000)
----------- ------------
55,775,000 173,913,000
----------- ------------
Other assets, net................................... 10,540,000 1,453,000
Goodwill, net....................................... 2,894,000 53,997,000
----------- ------------
Total assets.................................... $95,777,000 $255,212,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 2,343,000 $ 4,629,000
Purses due horsemen............................... 1,885,000 3,147,000
Accrued liabilities............................... 5,006,000 9,407,000
Income taxes payable.............................. 3,951,000 2,726,000
Current portion of long-term debt................. 19,000 235,000
Deferred revenue.................................. 9,755,000 15,906,000
----------- ------------
Total current liabilities....................... 22,959,000 36,050,000
Long-term debt...................................... 741,000 36,725,000
Other liabilities................................... -- 172,000
Deferred income taxes............................... 712,000 9,607,000
Commitments (see Notes to the Consolidated Financial
Statements)
Shareholders' equity:
Preferred stock, $.10 par value; 1,000,000 shares
authorized; issued and outstanding: none
Common stock, $.10 par value; 75,000,000 shares
authorized; issued and outstanding: 1998-
5,997,900; 1999-11,403,684 ...................... 300,000 1,140,000
Class A common stock, $.10 par value; 55,000,000
shares authorized; issued and outstanding: 1998-
24,498,760 shares; 1999-24,262,510 shares; ...... 1,225,000 2,426,000
Additional paid-in capital........................ 21,109,000 99,683,000
Retained earnings................................. 48,731,000 69,409,000
----------- ------------
Total shareholders' equity...................... 71,365,000 172,658,000
----------- ------------
Total liabilities and shareholders' equity...... $95,777,000 $255,212,000
=========== ============
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-9
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................... $16,472,000 $21,913,000 $26,891,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization.......... 2,084,000 2,707,000 7,098,000
Loss on disposition of property........ -- 3,000 --
(Increase) decrease in assets, net of
effect of acquisition:
Accounts receivable.................. (392,000) (1,180,000) (1,645,000)
Due from State of Delaware........... (1,082,000) (116,000) (833,000)
Inventories.......................... (46,000) 92,000 (22,000)
Prepaid expenses and other........... (242,000) (1,539,000) (2,044,000)
Other assets......................... -- -- (155,000)
Increase (decrease) in liabilities, net
of effect of acquisition:
Accounts payable..................... 671,000 335,000 (450,000)
Purses due horsemen.................. (49,000) 498,000 1,262,000
Accrued liabilities.................. (88,000) 2,719,000 464,000
Current and deferred income taxes.... (267,000) 1,346,000 1,387,000
Deferred revenue..................... 1,539,000 2,213,000 2,855,000
----------- ----------- -----------
Net cash provided by operating
activities........................... 18,600,000 28,991,000 34,808,000
----------- ----------- -----------
Cash flows from investing activities:
Investment in Grand Prix Association of
Long Beach............................ -- (10,540,000) --
Acquisition of business, net of cash
acquired.............................. -- (2,889,000) --
Capital expenditures................... (16,841,000) (7,504,000) (50,707,000)
Cash acquired in business acquisition.. -- -- 1,490,000
----------- ----------- -----------
Net cash used in investing
activities........................... (16,841,000) (20,933,000) (49,217,000)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings (repayments) on revolving
debt.................................. (3,500,000) -- 13,161,000
Repayment of long-term debt............ (9,000) (19,000) (760,000)
Loan repayments........................ -- -- 207,000
Net proceeds from initial public
offering.............................. 16,360,000 -- --
Dividends paid......................... (2,429,000) (4,878,000) (6,213,000)
Proceeds from stock options exercised,
including related tax benefit......... 182,000 30,000 167,000
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. 10,604,000 (4,867,000) 6,562,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 12,363,000 3,191,000 (7,847,000)
Cash and cash equivalents, beginning of
year................................... 3,140,000 15,503,000 18,694,000
----------- ----------- -----------
Cash and cash equivalents, end of year.. $15,503,000 $18,694,000 $10,847,000
=========== =========== ===========
Supplemental information:
Interest paid.......................... $ 168,000 $ 61,000 $ 2,474,000
----------- ----------- -----------
Income taxes paid...................... $12,034,000 $14,395,000 $18,231,000
----------- ----------- -----------
Non-cash investing and financing
activities:
Land acquired.......................... $ -- $ -- $ 4,707,000
Cash paid.............................. -- -- (3,054,000)
----------- ----------- -----------
Land traded............................ $ -- $ -- $ 1,653,000
=========== =========== ===========
Stock issued in connection with
acquisition........................... $ -- $ -- $80,241,000
=========== =========== ===========
</TABLE>
The Notes to the Consolidated Financial Statements are an integral part of
these statements.
F-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--Business Operations
Dover Downs Entertainment, Inc. (Dover Downs or the Company) is a leading
promoter of motorsports events in the United States. The Company operates five
motorsports tracks (four permanent facilities and one temporary circuit) in
four states, promoting 15 major events annually in the four premier sanctioning
bodies in motorsports--the National Association for Stock Car Auto Racing
(NASCAR), Championship Auto Racing Teams (CART), the Indy Racing League (IRL)
and the National Hot Rod Association (NHRA).
Dover Downs also owns and operates the Dover Downs Raceway harness racing
track and a 65,000 square foot video lottery (slot) casino at a multi-purpose
gaming and entertainment complex in Dover, Delaware. The facility is located in
close proximity to the major metropolitan areas of Philadelphia, Baltimore and
Washington, D.C.
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.
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--Acquisition
On July 1, 1998, the Company completed its acquisition of Grand Prix
Association of Long Beach (Grand Prix) through the merger of a wholly owned
subsidiary of the Company with and into Grand Prix with Grand Prix surviving as
a wholly owned subsidiary of the Company. Grand Prix developed and operates the
Grand Prix of Long Beach, an annual temporary circuit event which has been run
in the streets of Long Beach, California for 25 years, and owns permanent
motorsports facilities in Madison, Illinois (near St. Louis, Missouri) and in
Millington, Tennessee (near Memphis, Tennessee). The purchase price was
comprised of the conversion of the outstanding Grand Prix common stock into
2,518,229 shares (5,036,458 shares after the stock split) of the Company's
stock and assumption by the Company of the outstanding stock options of Grand
Prix. On March 27, 1998, the Company acquired 680,000 shares of Grand Prix
common stock at $15.50 per share in cash pursuant to two separate stock
purchase agreements, at which time the Company owned approximately 14.6% of the
outstanding Grand Prix common stock. The cost of these purchases was recorded
as a long-term investment at June 30, 1998. The acquisition qualified as a tax
free exchange and was accounted for using the purchase method of accounting for
business combinations. The excess of the purchase price over fair market value
of the underlying assets of $52,551,000 is being amortized on a straight-line
basis over 40 years.
The following summarized unaudited pro-forma statement of earnings
information gives effect to the Grand Prix transaction as though it had
occurred on July 1, 1997, after giving effect to certain adjustments, primarily
the amortization of goodwill and additional depreciation expense. The pro-forma
financial information, which is for informational purposes only, is based upon
certain assumptions and estimates and does not necessarily reflect the results
that would have occurred had the transaction taken place at the beginning of
the period presented, nor are they necessarily indicative of future
consolidated results.
<TABLE>
<CAPTION>
For the year ended
June 30, 1998
------------------
<S> <C>
Revenues.............. $170,972,000
Net earnings.......... $ 19,974,000
Earnings per diluted
share................ $ .55
</TABLE>
F-11
<PAGE>
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, commissions from
pari-mutuel wagering and other miscellaneous gaming-related income. Payments to
the State of Delaware pursuant to the lottery legislation are reported in
operating expenses.
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 for (i) the State's share of the winnings, (ii)
remittance to the providers of the video lottery machines and associated
computer systems, and (iii) harness horse racing purses.
Advertising costs-The costs of advertising, promotion and marketing programs
are charged to operations as incurred.
Earnings per share-The number of weighted average shares used in computing
basic and diluted earnings per share (EPS) are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS....... 29,712,000 30,492,000 35,566,000
Effect of
options........ 838,000 714,000 1,019,000
---------- ---------- ----------
Diluted EPS..... 30,550,000 31,206,000 36,585,000
========== ========== ==========
</TABLE>
Cash and cash equivalents-The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Inventories-Inventories, primarily food, beverage and novelty items, are
stated at the lower of cost or market with cost being determined on the first-
in, first-out (FIFO) basis.
Property, plant and equipment-Property, plant and equipment is stated at
cost. Depreciation is computed on a straight-line basis over the following
estimated useful lives:
<TABLE>
<S> <C>
Racing and casino
facilities 10--40 years
Furniture, fixtures and
equipment 5--10 years
</TABLE>
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is amortized over the estimated useful
life of the asset to which it relates. In 1999, $682,000 of interest cost was
capitalized. No interest was capitalized in 1997 or 1998.
Goodwill-Goodwill represents the excess of the purchase price over the fair
value of net assets acquired and is being amortized using the straight-line
method over a period of 40 years.
Income taxes-Deferred income taxes are provided in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 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.
F-12
<PAGE>
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 value of financial instruments-The carrying amount reported in the
balance sheet for current assets and current liabilities approximates their
fair value because of the short maturity of these instruments. The carrying
value of long-term debt at June 30, 1999 approximates its fair value based on
interest rates available on similar borrowings.
Accounting for stock options-The Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation", on July 1, 1996. SFAS No. 123
defines a fair-value based method of accounting for stock-based compensation
plans, however, it allows the continued use of the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". The Company has elected to continue to use the intrinsic value
method.
Recent accounting pronouncements-The Company does not expect the adoption of
recently issued accounting pronouncements to have a significant impact on its
results of operations, financial position or cash flows.
NOTE 4--Indebtedness
Long-term debt is as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
1998 1999
-------- -----------
<S> <C> <C>
Note payable to bank..................................... $ -- $15,500,000
SWIDA loan for Gateway redevelopment..................... -- 21,460,000
Note payable............................................. 760,000 --
-------- -----------
760,000 36,960,000
Less: current portion.................................... (19,000) (235,000)
-------- -----------
$741,000 $36,725,000
======== ===========
</TABLE>
On March 31, 1999, the Company entered into a $50,000,000 long-term,
unsecured, revolving credit agreement with certain financial institutions.
Interest is based, at the Company's option, upon (i) LIBOR plus .75% or (ii)
the base rate (the greater of the prime rate or the federal funds rate plus
.5%) minus 1%. The agreement, which expires in March 2002, is for seasonal
funding needs, capital improvements and other general corporate purposes. The
agreement contains certain restrictive covenants and requires the Company to
maintain certain financial ratios. At June 30, 1999, $15,500,000 was
outstanding under this line of credit at a weighted average interest rate of
6.05%.
A subsidiary of the Company entered into an agreement (the "SWIDA loan") with
Southwestern Illinois Development Authority ("SWIDA") to receive the proceeds
from the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway
International Motorsports Corporation Project)", a Municipal Bond Offering, 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 the Company's subsidiary for the purpose of the redevelopment, construction
and expansion of Gateway International Raceway, and the proceeds of the SWIDA
loan were irrevocably committed to complete 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 Company has established
certain restricted cash funds to meet
F-13
<PAGE>
debt service as required by the SWIDA loan, which are held by the trustee (BNY
Trust Company of Missouri). At June 30, 1999, $548,000 of the Company's cash
balance is restricted by the SWIDA loan. A standby letter of credit for
$2,502,000 also was obtained to secure debt service. 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 the Company's subsidiary 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.
The scheduled maturities of long-term debt outstanding at June 30, 1999 are
as follows: 2000-$235,000; 2001-$685,000; 2002-$16,135,000; 2003-$685,000;
2004-$745,000; and thereafter-$18,475,000.
NOTE 5--Income Taxes
The current and deferred income tax provisions (benefit) are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 9,207,000 $12,544,000 $13,277,000
State.................................... 2,498,000 3,296,000 3,929,000
----------- ----------- -----------
11,705,000 15,840,000 17,206,000
Deferred:
Federal.................................. 49,000 (78,000) 1,599,000
State.................................... 13,000 (20,000) 75,000
----------- ----------- -----------
62,000 (98,000) 1,674,000
----------- ----------- -----------
Total income taxes......................... $11,767,000 $15,742,000 $18,880,000
=========== =========== ===========
</TABLE>
Deferred income taxes relate to the temporary differences between financial
accounting income and taxable income and are primarily attributable to
differences between the book and tax basis of property, plant and equipment and
net operating loss carryforwards. The Company believes that it is more likely
than not that the deferred tax assets will be realized based upon reversals of
existing taxable temporary differences and future income.
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 1998 1999
------ ------ ------
<S> <C> <C> <C>
Federal tax at statutory rate........................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit..................... 5.7% 5.7% 5.7%
Other................................................... 1.0% 1.1% .5%
------ ------ ------
Effective income tax rate............................. 41.7% 41.8% 41.2%
====== ====== ======
</TABLE>
NOTE 6--Pension Plan
Benefits provided by the Dover Downs Entertainment, Inc. Pension Plan 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.
F-14
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................... $531,000 $ 925,000
Service cost............................................... 132,000 306,000
Interest cost.............................................. 53,000 79,000
Amendments................................................. -- 122,000
Actuarial loss............................................. 211,000 26,000
Benefits paid.............................................. (2,000) (33,000)
-------- ---------
Benefit obligation at end of year.......................... 925,000 1,425,000
Change in plan assets:
Fair value of plan assets at beginning of year............. 464,000 688,000
Actual return on plan assets............................... 104,000 273,000
Employer contribution...................................... 122,000 386,000
Benefits paid.............................................. (2,000) (33,000)
-------- ---------
Fair value of plan assets at end of year................... 688,000 1,314,000
Funded status.............................................. (237,000) (111,000)
Unrecognized net loss/(gain)............................... 111,000 (74,000)
Unrecognized prior service cost............................ 173,000 277,000
-------- ---------
Prepaid pension cost....................................... $ 47,000 $ 92,000
======== =========
</TABLE>
At June 30, 1999, the assets of the plan were invested 68% in equity funds,
24% in intermediate bond funds and the balance in other short-term interest-
bearing accounts. The discount rate in 1998 and 1999 was 7.5% and 8.0%,
respectively. The assumed rate of compensation increase was 5% in both years.
The expected long-term rate of return on assets was 9% for 1998 and 1999.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
Service cost...................................... $61,000 $132,000 $ 306,000
Interest cost..................................... 32,000 53,000 79,000
Return on plan assets............................. (68,000) (104,000) (273,000)
Net amortization.................................. 16,000 32,000 13,000
Deferral of net gain.............................. 36,000 63,000 201,000
------- -------- ---------
$77,000 $176,000 $ 326,000
======= ======== =========
</TABLE>
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.
F-15
<PAGE>
NOTE 7--Shareholders' Equity
Changes in the components of shareholder's equity are as follows:
<TABLE>
<CAPTION>
$.10 Par
$.10 Par Value
Value Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30, 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,
$.08 per share.............. -- -- -- (2,429,000)
Exercise of stock options.... -- 22,000 160,000 --
Conversion of Class A
shares...................... 6,000 (6,000) -- --
---------- ---------- ----------- -----------
Balance at June 30, 1997..... 294,000 1,229,000 21,081,000 31,696,000
Net earnings................. -- -- -- 21,913,000
Dividends on common stock,
$.16 per share.............. -- -- -- (4,878,000)
Exercise of stock options.... -- 2,000 28,000 --
Conversion of Class A
shares...................... 6,000 (6,000) -- --
---------- ---------- ----------- -----------
Balance at June 30, 1998..... 300,000 1,225,000 21,109,000 48,731,000
Net earnings................. -- -- -- 26,891,000
Dividends on common stock,
$.18 per share.............. -- -- -- (6,213,000)
Exercise of stock options.... 4,000 8,000 155,000 --
Grand Prix acquisition....... 252,000 -- 80,196,000 --
Two-for-one split............ 556,000 1,221,000 (1,777,000) --
Conversion of Class A
shares...................... 28,000 (28,000) -- --
---------- ---------- ----------- -----------
Balance at June 30, 1999..... $1,140,000 $2,426,000 $99,683,000 $69,409,000
========== ========== =========== ===========
</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.
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 July 31, 1998, the Board of Directors authorized a two-for-one stock split
to be distributed September 15, 1998. All share and per share information
included in the accompanying consolidated financial statements and notes
thereto have been adjusted to give retroactive effect to this stock split.
On October 3, 1996, the Company completed its initial public offering. The
Company issued 1,075,000 shares (2,150,000 shares after the stock split) 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
F-16
<PAGE>
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--1.02%, risk-free interest
rate--6%, an expected life of six and one-half years and volatility of 25%. Had
compensation cost been recognized in accordance with SFAS No. 123, the
Company's diluted earnings per share disclosed in the accompanying financial
statements would be reduced by less than $.01 per share in 1998 and 1999.
Option activity was as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Number of options:
Outstanding at beginning of year............... 1,170,000 945,528 1,035,528
Granted........................................ 225,528 135,000 734,562
Exercised...................................... (450,000) (45,000) (127,684)
--------- --------- ---------
Outstanding at June 30......................... 945,528 1,035,528 1,642,406
========= ========= =========
At June 30:
Options available for grant.................... 1,274,472 1,139,472 404,910
Options exercisable............................ 45,000 262,000 932,545
Weighted Average Exercise Price:
Options granted............................... $ 8.57 $ 11.58 $ 4.66
Options exercised............................. $ .41 $ .67 $ 1.32
Options outstanding........................... $ 2.55 $ 3.38 $ 4.38
Options exercisable........................... $ .67 $ 1.78 $ 1.59
</TABLE>
Included in the 734,562 options and the weighted average exercise price for
options granted in 1999 are 512,062 options relating to the Grand Prix
Association of Long Beach acquisition. The Grand Prix options were converted
into Dover Downs options at an exercise price of $.87 per share.
NOTE 8--Related Party Transactions
During the years ended June 30, 1997, 1998 and 1999, the Company purchased
certain paving, site work and construction services involving total payments of
$584,000, $375,000 and $432,000 from a company wholly-owned by an
employee/director. The Company purchased administrative services from Rollins
Truck Leasing Corp. and affiliated companies in 1997, 1998 and 1999. The total
cost of these services, which have been included in general and administrative
expenses in the Consolidated Statement of Earnings, was $178,000, $283,000 and
$380,000 in 1997, 1998 and 1999, respectively.
In connection with the development of a new racing facility in Wilson County,
Tennessee, a subsidiary of the Company purchased options to acquire certain
properties being considered as possible locations for the facility. During
1999, a development site was chosen and it was determined that some of the
properties under option would not be needed. Prior to the options expiring, an
officer/director of the Company expressed an interest in purchasing several of
the properties that were not needed for development. The Company assigned its
options to the officer/director who subsequently purchased the property. At
June 30, 1999, $219,000 was due from this officer/director to reimburse the
Company for the cost of the options and certain surveying, engineering and
legal costs incurred by the Company. This amount was repaid in July 1999.
F-17
<PAGE>
At the date of the acquisition of Grand Prix Association of Long Beach,
$299,000 was due to Grand Prix from certain shareholders/officers for
outstanding loans made for the purpose of purchasing Grand Prix common stock.
As of June 30, 1999, $92,000 was outstanding and is due December 1, 1999 from a
current director of the Company.
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 has two reportable segments, motorsports and gaming. The business
is operated and defined based on the products and services provided by these
segments. Certain operations within the motorsports segment have been
aggregated for purposes of the following disclosures:
<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 expenditures.................. 9,496,000 7,345,000 16,841,000
Depreciation and amortization......... $ 981,000 $ 1,103,000 $ 2,084,000
------------ ------------- -------------
Year ended June 30, 1998
Revenue............................... $ 25,874,000 $ 115,071,000 $ 140,945,000
Operating earnings.................... 12,506,000 24,447,000 36,953,000
Identifiable assets at year-end....... 57,739,000 38,038,000 95,777,000
Capital expenditures.................. 6,085,000 1,419,000 7,504,000
Depreciation and amortization......... $ 1,237,000 $ 1,470,000 $ 2,707,000
------------ ------------- -------------
Year ended June 30, 1999
Revenue............................... $ 68,683,000 $ 139,249,000 $ 207,932,000
Operating earnings.................... 17,197,000 29,926,000 47,123,000
Identifiable assets at year-end....... 209,540,000 45,672,000 255,212,000
Capital expenditures.................. 36,209,000 14,498,000 50,707,000
Depreciation and amortization......... 5,829,000 1,269,000 7,098,000
Interest expense...................... $ 1,267,000 $ 85,000 $ 1,352,000
------------ ------------- -------------
</TABLE>
NOTE 10--Commitments
The Company leases the racetrack at the Tennessee State Fairgrounds pursuant
to a lease expiring in 2008. Total rental expense charged to the Company is a
function of the profitability of the Nashville operation and was $66,000 for
the six months ended June 30, 1998 and $210,000 for the year ended June 30,
1999.
The Company leases certain property at the Madison, Illinois facility with
leases expiring at various dates through 2070. The leases are subject to annual
adjustments based on increases in the consumer price index. Total rental
payments charged to operations for these leases amounted to $222,000 for the
year ended June 30, 1999. The minimum lease payments due under these leases are
as follows:
<TABLE>
<S> <C>
2000................................... $ 237,000
2001................................... 227,000
2002................................... 214,000
2003................................... 214,000
2004................................... 214,000
Thereafter............................. 4,510,000
</TABLE>
F-18
<PAGE>
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 expired in December
1998 and Caesars exercised the first of 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 fees for such services were $5,185,000 in fiscal
1997, $7,094,000 in fiscal 1998 and $6,983,000 in fiscal 1999. Amounts owed to
Caesars at June 30, 1998 and 1999 totaled $1,246,000 and $1,147,000,
respectively and are included in accrued liabilities. The Company also has
expensed and accrued additional amounts which Caesars claims are due as a
result of the recent casino expansions, but which the Company does not believe
are owed to Caesars.
The Company has entered into several sanctioning agreements to conduct
various motorsports events at Dover Downs International Speedway and the
Nashville Speedway, as well as at newly acquired venues in Long Beach,
California; Madison, Illinois and Millington, Tennessee. The Company has held
NASCAR-sanctioned events for 31 consecutive years and its subsidiary, Grand
Prix Association of Long Beach, has operated the Grand Prix of Long Beach for
25 consecutive years. Nonrenewal of a NASCAR event license or the CART
agreement for the Long Beach event would have a material adverse effect on the
Company's financial condition and results of operations.
NOTE 11--Quarterly Results--in thousands, except per share data (unaudited)
<TABLE>
<CAPTION>
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
1998
Revenues............................ $38,821 $25,962 $31,735 $44,427
Gross profit........................ 14,301 5,236 6,649 15,177
Net earnings........................ 7,833 2,518 3,295 8,267
Earnings per common share
(diluted).......................... $ .25 $ .08 $ .11 $ .26
1999
Revenues............................ $54,654 $37,651 $36,676 $78,951
Gross profit........................ 17,520 7,188 6,851 26,777
Net earnings........................ 8,278 2,513 2,207 13,893
Earnings per common share
(diluted).......................... $ .23 $ .07 $ .06 $ .38
</TABLE>
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not and the underwriters have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not and the
underwriters are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition,
results of operations and prospects may have changed since that date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information................................................... i
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
An Important Note About Our Forward-Looking Statements................... 19
Business................................................................. 20
Management............................................................... 27
Selling Stockholder...................................................... 29
Underwriting............................................................. 30
Description of Capital Stock............................................. 31
Legal Matters............................................................ 34
Experts.................................................................. 34
Incorporation of Certain Documents by Reference.......................... 34
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,650,000 Shares
[Logo]
DOVER DOWNS
ENTERTAINMENT, INC.
Common Stock
----------------
PROSPECTUS
----------------
Raymond James &
Associates, Inc.
J.C. Bradford & Co.
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, NASD filing fee and NYSE additional listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 12,369.80
NASD filing fee.................................................... 5,185.53
NYSE additional listing fee........................................ 7,000.00
Printing and engraving costs....................................... 100,000.00
Legal fees and expenses............................................ 50,000.00
Accounting fees and expenses....................................... 25,000.00
Transfer agent and registrar fees.................................. 2,000.00
Miscellaneous expenses............................................. 50,000.00
-----------
Total............................................................ $251,555.33
===========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she 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 action or proceeding, had no
cause to believe his or her conduct was unlawful.
Section 145(b) of the General Corporation Law provides that a Delaware
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person acted in any of the capacities set forth above,
against expenses actually and reasonably incurred by him or her in connection
with the defense or settlement of such action or suit if he or she acted under
similar standards as set forth above, except that no indemnification may 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 unless and only to the
extent that the court in which such action or suit was brought shall determine
that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.
Section 145 of the General Corporation Law further provides that to the
extent a director or officer of a corporation has been successful on the merits
or otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses actually and
reasonably incurred by him or her in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights
to which the indemnified party may be entitled; and that the corporation may
purchase and maintain insurance on behalf of such person against any liability
asserted against him or her or incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liabilities under such
Section 145.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members
of its board of directors or governing body for monetary damages for breach of
a director's fiduciary duty. However, no such provision may eliminate or limit
the liability of a director for breaching his or her duty of loyalty, failing
to act in good faith, engaging in intentional misconduct or knowingly violating
a law, paying a dividend or approving a stock repurchase or redemption which
was illegal, or obtaining an improper personal benefit. A provision of this
type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty.
Article TENTH of the Company's Certificate of Incorporation eliminates the
personal liability of directors and/or officers to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided that such elimination of the personal liability of a director and/or
officer of the Company does not apply to (i) any breach of such person's duty
of loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) actions prohibited under Section 174 of the General Corporation Law
(i.e., liabilities imposed upon directors who vote for or assent to the
unlawful payment of dividends, unlawful repurchases or redemption of stock,
unlawful distribution of assets of the Company to the stockholders without the
prior payment or discharge of the Company's debts or obligations, or unlawful
making or guaranteeing of loans to directors and/or officers), or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, Article VII of the Company's By-Laws provide that the Company shall
indemnify its corporate personnel, directors and officers to the fullest extent
permitted by the General Corporation Law, as amended from time to time.
The Company has in force insurance policies under which its directors and
officers are insured (with limits of $15 million per occurrence and $15 million
in the aggregate) against certain liabilities resulting from actions, suits or
proceedings to which they are parties by reason of being or having been
directors or officers of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
as disclosed above, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.(1)
3.2 Amendment to Certificate of Incorporation, dated June 30,
1998.(2)
3.3 Amended and Restated By-Laws.
4.1 Specimen Form of Common Stock Certificate.(1)
4.2 Rights Agreement dated as of June 14, 1996 between Dover Downs
Entertainment, Inc. and ChaseMellon Shareholder Services
L.L.C.(1)
4.3 Amendment No. 1 to Rights Agreement.(3)
*5.1 Opinion of Greenberg Traurig, LLP.
*5.2 Opinion of Klaus M. Belohoubek, Esq., Vice President-General
Counsel and Secretary.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Greenberg Traurig, LLP (contained in Exhibit 5.1).
*23.3 Consent of Klaus M. Belohoubek, Esq., Vice President-General
Counsel and Secretary (contained in Exhibit 5.2).
25.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
II-2
<PAGE>
- --------
* Filed herewith electronically.
(1) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Registration Statement on Form S-1 (Registration No. 333-08147) on
July 15, 1996.
(2) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Annual Report on Form 10-K for the fiscal year ended June 30, 1998
on September 1, 1998.
(3) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
on April 28, 1998.
(b) Financial Statement Schedules:
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the consolidated
financial statements or notes thereto.
Item 17. Undertakings
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, 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 fling 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.
2. The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Dover, Delaware on the 16th day
of February, 2000.
Dover Downs Entertainment, Inc.
/s/Denis McGlynn
By: _________________________________
Denis McGlynn
President and Chief Executive
Officer
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>
* Chairman of the Board February 16, 2000
______________________________________
John W. Rollins, Sr.
* Vice Chairman of the Board February 16, 2000
______________________________________
Henry B. Tippie
* President, Chief Executive February 16, 2000
______________________________________ Officer and Director
Denis McGlynn (principal executive
officer)
* Vice President--Finance February 16, 2000
______________________________________ and Chief Financial
Timothy R. Horne Officer (principal
financial officer and
principal accounting
officer)
* Director February 16, 2000
______________________________________
Eugene W. Weaver
* Director February 16, 2000
______________________________________
John W. Rollins, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director February 16, 2000
______________________________________
R. Randall Rollins
* Director February 16, 2000
______________________________________
Patrick J. Bagley
* Director February 16, 2000
______________________________________
Melvin L. Joseph
* Director February 16, 2000
______________________________________
Jeffrey W. Rollins
* Director February 16, 2000
______________________________________
Christopher R. Pook
*By /s/ Klaus M. Belohoubek
______________________________________
Klaus M. Belohoubek
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation, as amended.(1)
3.2 Amendment to Certificate of Incorporation, dated June 30, 1998.(2)
3.3 Amended and Restated By-Laws.
4.1 Specimen Form of Common Stock Certificate.(1)
4.2 Rights Agreement dated as of June 14, 1996 between Dover Downs
Entertainment, Inc. and Chase Mellon Shareholder Services L.L.C.(1)
4.3 Amendment No. 1 to Rights Agreement.(3)
*5.1 Opinion of Greenberg Traurig, LLP.
*5.2 Opinion of Klaus M. Belohoubek, Esq., Vice President-General Counsel
and Secretary.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Greenberg Traurig, LLP (contained in Exhibit 5.1).
*23.2 Consent of Klaus M. Belohoubek, Esq. (contained in Exhibit 5.2).
25.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Filed herewith electronically.
(1) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Registration Statement on Form S-1 (Registration No. 333-08147) on
July 15, 1996.
(2) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Annual Report on Form 10-K for the fiscal year ended June 30, 1998
on September 1, 1998.
(3) Incorporated herein by reference. Filed with the Commission as an exhibit
to our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
on April 28, 1998.
II-6
<PAGE>
EXHIBIT 1.1
-----------
2,650,000 SHARES*
DOVER DOWNS ENTERTAINMENT, INC.
COMMON STOCK
_____________________________
UNDERWRITING AGREEMENT
St. Petersburg, Florida
March ___, 2000
Raymond James & Associates, Inc.
J.C. Bradford & Co.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
Dover Downs Entertainment, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the several Underwriters named in Schedule I hereto (the "Underwriters"), and
certain stockholders of the Company named in Schedule II hereto (the "Selling
-----------
Stockholders") severally and not jointly propose to sell to the Underwriters, an
aggregate of 2,650,000 shares of the Company's Common Stock, par value $.10 per
share (the "Firm Shares"), of which (a) 2,000,000 Firm Shares are to be issued
and sold by the Company, and (b) 650,000 Firm Shares are to be sold by the
Selling Stockholders, each Selling Stockholder selling the number of Firm Shares
set forth opposite such Selling Stockholder's name on Schedule II hereto. In
-----------
addition, the Selling Stockholders have agreed to sell to the Underwriters, upon
the terms and conditions set forth herein, up to an additional 397,500 shares
(the "Additional Shares") of the Company's Common Stock to cover over-allotments
by the Underwriters, if any. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreement with you and the
other several Underwriters, on whose behalf you are acting, in connection with
the several purchases of the Shares from the Company.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder
- ------------------
* Plus an additional 397,500 shares subject to Underwriters'
over-allotment option.
<PAGE>
(collectively, the "Act"), a registration statement on Form S-3 (File No.
333-30060), including a prospectus subject to completion, relating to the
Shares. Such registration statement, as amended at the time when it becomes
effective and as thereafter amended by any post-effective amendment, is referred
to in this Agreement as the "Registration Statement." The prospectus in the
form included in the Registration Statement or, if the prospectus included in
the Registration Statement omits certain information in reliance upon Rule 430A
under the Act and such information is thereafter included in a prospectus filed
with the Commission pursuant to Rule 424(b) under the Act or as part of a
post-effective amendment to the Registration Statement after the Registration
Statement becomes effective, the prospectus as so filed, is referred to in this
Agreement as the "Prospectus." If the Company elects to rely on Rule 434 under
the Act, all references to the Prospectus shall be deemed to include, without
limitation, the form of prospectus and the term sheet contemplated by Rule 434,
taken together, provided to the Underwriters by the Company in reliance on Rule
434 under the Act (the "Rule 434 Prospectus"). If the Company files another
registration statement with the Commission to register a portion of the Shares
pursuant to Rule 462(b) under the Act (the "Rule 462 Registration Statement"),
then any reference to "Registration Statement" herein shall be deemed to include
the registration statement on Form S-3 (File No. 333-30060) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the Act. The prospectus subject to completion in the form included
in the Registration Statement at the time of the initial filing of such
Registration Statement with the Commission and as such prospectus is amended
from time to time until the date of the Prospectus are collectively referred to
in this Agreement as the "Prepricing Prospectus." Any reference in this
Agreement to the Registration Statement, any Prepricing Prospectus or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date
of the Registration Statement, such Prepricing Prospectus or the Prospectus, as
the case may be, and any reference to any amendment or supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") which, upon
filing, are incorporated by reference therein, as required by paragraph (b) of
Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means
the documents which at the time are incorporated by reference in the
Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
-------------------------------
the Firm Shares to the Underwriters and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, each Underwriter agrees, severally and
not jointly, to purchase from the Company at a purchase price of $____________
per Share (the "purchase price per Share"), the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
The Selling Stockholders hereby also agree to sell to the Underwriters, and
upon the basis of the representations, warranties and agreements of the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right for 30 days from the date of
the Prospectus to purchase from the Selling Stockholders up to 397,500
Additional Shares at the purchase price per Share for the Firm Shares. The
Additional Shares may
-2-
<PAGE>
be purchased solely for the purpose of covering over- allotments, if any, made
in connection with the offering of the Firm Shares. If any Additional Shares
are to be purchased, each Underwriter, severally and not jointly, agrees to
purchase the number of Additional Shares (subject to such adjustments as you may
determine to avoid fractional shares) which bears the same proportion to the
total number of Additional Shares to be purchased by the Underwriters as the
number of Shares set forth opposite the name of such Underwriter in Schedule I
hereto bears to the total number of Shares.
3. Terms of Public Offering. The Company has been advised by you that
------------------------
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
-------------------------------------------
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida at 10:00 a.m., St. Petersburg, Florida time, on March ___,
2000 (the "Closing Date"). The place of closing for the Firm Shares and the
Closing Date may be varied by agreement between the Representative and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m.,
Florida time, on such date or dates (the "Additional Closing Date") (which may
be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than three nor later than ten business days after the
giving of the notice hereinafter referred to) as shall be specified in a written
notice, from you on behalf of the Underwriters to the Company and the Selling
Stockholders, of the Underwriters' determination to purchase a number, specified
in such notice, of Additional Shares. Such notice may be given to the Company
by you at any time within 30 days after the date of the Prospectus. The place
of closing for the Additional Shares and the Additional Closing Date may be
varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., Florida time, not later than the second
full business day preceding the Closing Date or the Additional Closing Date, as
the case may be. Such certificates shall be made available to you in St.
Petersburg, Florida for inspection and packaging not later than 9:30 a.m.,
Florida time, on the business day immediately preceding the Closing Date or the
Additional Closing Date, as the case may be. The certificates evidencing the
Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Additional Closing Date, as the case
may be, against payment of the purchase price therefore by wire transfer of
immediately available funds to accounts specified in writing, not later than the
close of business on the day next preceding the Closing Date or the Additional
Closing Date, as the case may be, by the Company and the Selling Stockholders.
Payment for the Firm Shares sold by the Company hereunder shall be delivered by
the Representative to the Company.
-3-
<PAGE>
5. Covenants and Agreements.
------------------------
5.1 Of the Company. The Company covenants and agrees with the several
--------------
Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective, if it has not already
become effective, and will advise you promptly and, if requested by you, will
confirm such advice in writing (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective, (ii)
if Rule 430A under the Act is employed, when the Prospectus has been timely
filed pursuant to Rule 424(b) under the Act, (iii) of any request by the
Commission for amendments or supplements to the Registration Statement, any
Prepricing Prospectus or the Prospectus or for additional information, (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction or the initiation of any proceeding for
such purposes, and (v) within the period of time referred to in Section 5(e)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of any event that
comes to the attention of the Company that makes any statement made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue in any material respect or that requires the making of any additions
thereto or changes therein in order to make the statements therein (in the case
of the Prospectus, in light of the circumstances under which they were made) not
misleading in any material respect, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time. If the Company elects to rely on Rule 434 under the Act,
the Company will provide the Underwriters with copies of the form of Rule 434
Prospectus (including copies of a term sheet that complies with the requirements
of Rule 434 under the Act), in such number as the Underwriters may reasonably
request, and file with the Commission in accordance with Rule 424(b) of the Act
the form of Prospectus complying with Rule 434(b)(2) of the Act before the close
of business on the first business day immediately following the date hereof. If
the Company elects not to rely on Rule 434 under the Act, the Company will
provide the Underwriters with copies of the form of Prospectus, in such number
as the Underwriters may reasonably request, and file with the Commission such
Prospectus in accordance with Rule 424(b) of the Act before the close of
business on the first business day immediately following the date hereof.
(b) The Company will furnish to you, without charge, two signed
duplicate originals of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits thereto, and will also furnish to you, without charge, such number of
conformed copies of the Registration Statement as originally filed and of each
amendment thereto as you may reasonably request.
(c) The Company will not file any Rule 462(b) Registration Statement
or any amendment to the Registration Statement or make any amendment or
supplement to the Prospectus unless (i) you shall have previously been advised
thereof and been given a reasonable opportunity
-4-
<PAGE>
to review such filing, amendment or supplement, and (ii) you have not reasonably
objected to such filing, amendment or supplement after being so advised.
(d) Prior to the execution and delivery of this Agreement, the Company
has delivered or will deliver to you, without charge, in such quantities as you
have requested or may hereafter reasonably request, copies of each form of the
Prepricing Prospectus. Consistent with the provisions of Section 5(e) hereof,
the Company consents to the use, in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by dealers, prior to the date
of the Prospectus, of each Prepricing Prospectus so furnished by the Company.
(e) As soon after the execution and delivery of this Agreement as is
practicable and thereafter from time to time for such period as in the
reasonable opinion of counsel for the Underwriters a prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or a dealer,
and for so long a period as you may request for the distribution of the Shares,
the Company will deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
they may reasonably request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If at any time prior to the later of (i) the completion of the distribution of
the Shares pursuant to the offering contemplated by the Registration Statement
or (ii) the expiration of prospectus delivery requirements with respect to the
Shares under Section 4(3) of the Act and Rule 174 thereunder, any event shall
occur that in the judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to supplement or amend the Prospectus to
comply with the Act or any other law, the Company will forthwith prepare and,
subject to Sections 5(a) and 5(c) hereof, file with the Commission and use its
best efforts to cause to become effective as promptly as possible an appropriate
supplement or amendment thereto, and will furnish to each Underwriter who has
previously requested Prospectuses, without charge, a reasonable number of copies
thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other documents
as may be reasonably necessary in order to effect and maintain such registration
or qualification for so long as required to complete the distribution of the
Shares; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in suits, other than
those arising out of the offering or sale of the Shares, as contemplated by this
Agreement and the Prospectus, in any
-5-
<PAGE>
jurisdiction where it is now so subject. In the event that the qualification of
the Shares in any jurisdiction is suspended, the Company shall so advise you
promptly in writing.
(g) The Company will make generally available to its security holders
a consolidated earnings statement (in form complying with the provisions of Rule
158) which need not be audited, covering a twelve-month period commencing after
the effective date of the Registration Statement and the Rule 462 Registration
Statement, if any, and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(h) During the period ending three years from the date hereof, the
Company will furnish to you and, upon your request, to each of the other
Underwriters, (i) as soon as available, a copy of each proxy statement,
quarterly or annual report or other report of the Company mailed to stockholders
or filed with the Commission, the National Association of Securities Dealers,
Inc. (the "NASD") or The Nasdaq Stock Market or any national securities exchange
and (ii) from time to time such other information concerning the Company as you
may reasonably request.
(i) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provision hereof (except pursuant to a termination
under Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any inability, failure or refusal on the part of the
Company to perform in all material respects any agreement herein or to comply in
all material respects with any of the terms or provisions hereof or to fulfill
in all material respects any of the conditions of this Agreement, the Company
agrees to reimburse you and the other Underwriters for all out-of-pocket
expenses (including travel expenses and reasonable fees and expenses of counsel
for the Underwriters but excluding wages and salaries paid by you) reasonably
incurred by you in connection herewith.
(j) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder in accordance in all material respects with
the statements under the caption "Use of Proceeds" in the Prospectus.
(k) If Rule 430A under the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act.
(l) For a period of 90 days after the date of the Prospectus first
filed pursuant to Rule 424(b) under the Act, without your prior written consent,
the Company will not, directly or indirectly, issue, sell, offer or contract to
sell or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock (collectively, "Company Securities") or any rights to purchase Company
Securities, except to the Underwriters pursuant to this Agreement and except for
grants of options pursuant to the Company's 1991 Stock Option Plan and 1996
Stock Option Plan.
(m) Prior to the Closing Date or the Additional Closing Date, as the
case may be, the Company will furnish to you, as promptly as possible, copies of
any unaudited interim
-6-
<PAGE>
consolidated financial statements of the Company and its subsidiaries for any
period subsequent to the periods covered by the financial statements appearing
in the Prospectus.
(n) The Company will comply with all provisions of any undertakings
contained in Part II of the Registration Statement pursuant to Regulation S-K.
(o) The Company will not at any time, directly or indirectly take any
action designed, or which might reasonably be expected to cause or result in, or
which will constitute, stabilization or manipulation of the price of the shares
of Common Stock to facilitate the sale or resale of any of the Shares.
(p) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of each state where necessary to
permit market making transactions and secondary trading, and will comply with
such Blue Sky laws and will continue such qualifications, registrations and
exemptions in effect for a period of five years the date hereof.
(q) The Company will timely file with the New York Stock Exchange
("NYSE") all documents and notices required by the NYSE of companies that have
or will issue securities that are traded on the NYSE.
5.2 Of Each Selling Stockholder. Each Selling Stockholder covenants and
---------------------------
agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will execute and deliver a Lock-Up
Agreement, in the form of Exhibit A attached hereto ("Lock-Up Agreement").
(b) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise the Underwriters prior to the Closing Date if any statements to be
made on behalf of such Selling Stockholder in the certificate contemplated by
Section 9(l) hereof would be inaccurate if made as of the Closing Date.
(c) On the Closing Date, all stock transfer and other taxes (other
than income taxes) which are required to be paid in connection with the sale and
transfer of the Firm Shares to be sold by such Selling Stockholder to the
Underwriters hereunder will have been fully paid for by such Selling Stockholder
and all laws imposing such taxes will have been fully complied with.
(d) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder, with respect
to the transactions herein contemplated, such Selling Stockholder shall deliver
to you at least two days prior to the Closing Date a properly completed and
executed United States Treasury Department Substitute Form W-9.
-7-
<PAGE>
6. Representations and Warranties.
------------------------------
6.1 Of the Company. The Company hereby represents and warrants to each
--------------
Underwriter on the date hereof, and shall be deemed to represent and warrant to
each Underwriter on the Closing Date and the Additional Closing Date, that:
(a) The Company satisfies all of the requirements of the Act for use
of Form S-3 for the offering of Shares contemplated hereby. Each Prepricing
Prospectus included as part of the Registration Statement as originally field or
as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a)
under the Act, complied as to form when so filed in all material respects with
the provisions of the Act, except that this representation and warranty does not
apply to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you, or any Selling Stockholder,
expressly for use therein. The Commission has not issued any order preventing
or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement (including any Rule 462 Registration
Statement), in the form in which it becomes effective and also in such form as
it may be when any post-effective amendment thereto shall become effective, and
the Prospectus, and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act, will comply as to form in all
material respects with the provisions of the Act and will not at any such times
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the Prospectus (or
any amendment or supplement thereto) made in reliance upon and in conformity
with information: relating to any Underwriter furnished to the Company in
writing by or on behalf of any Underwriter through you expressly for use
therein; or furnished to the Company in writing by or on behalf of any Selling
Stockholder expressly for use therein.
(c) The capitalization of the Company is and will be as set forth in
the Prospectus as of the date set forth therein. All the outstanding shares of
Common Stock of the Company have been, and as of the Closing Date will be, duly
authorized and validly issued, are fully paid and nonassessable and are free of
any preemptive or similar rights; except for directors qualifying shares, if
any, and except as set forth in the Prospectus, the Company is not a party to or
bound by any outstanding options, warrants or similar rights to subscribe for,
or contractual obligations to issue, sell, transfer or acquire, any of its
capital stock or any securities convertible into or exchangeable for any of such
capital stock; the Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and delivered to
the Underwriters against full payment therefor in accordance with the terms
hereof will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights; the capital stock of the Company conforms to the
description thereof in the Registration Statement and the Prospectus (or any
amendment or supplement thereto); and the delivery of certificates for the
Shares against payment therefor pursuant to the terms of this Agreement, will
pass valid title to the Shares, free and clear of any claim,
-8-
<PAGE>
encumbrance or defect in title, to the several Underwriters purchasing such
shares in good faith and without notice of any lien, claim or encumbrance. The
certificates for the Shares are in valid and sufficient form.
(d) Each of the Company and its subsidiaries is a corporation duly
organized and validly existing as a corporation in good standing under the laws
of the state of its incorporation with full corporate power and authority to
own, lease and operate its properties and to conduct its business as presently
conducted and as described in the Registration Statement and the Prospectus (and
any amendment or supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure to so register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth, results of operations of the Company
and its subsidiaries (a "Material Adverse Effect").
(e) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and are owned by the Company free and clear of any security
interests, liens, encumbrances, equities or claims. The Company does not have
any subsidiaries and does not own a material interest in or control, directly or
indirectly, any other corporation, partnership, joint venture, association,
trust or other business organization, except as set forth in Exhibit 21 to the
Company's Annual Report on Form 10-K for its fiscal year ended June 30, 1999,
which is incorporated by reference into the Registration Statement. As used in
this Agreement, subsidiaries shall mean direct and indirect subsidiaries of the
Company.
(f) There are no legal or governmental proceedings pending or, to the
best knowledge of the Company, threatened, against the Company or its
subsidiaries or to which the Company or its subsidiaries or any of their
properties are subject, that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) but are not
described as required. Except as described in the Prospectus, there is no
action, suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the best knowledge of the Company, threatened, against or involving the
Company or its subsidiaries, which might individually or in the aggregate
prevent or adversely affect the transactions contemplated by this Agreement or
result in a Material Adverse Effect, nor to the Company's knowledge, is there
any basis for any such action, suit, inquiry, proceeding, or investigation.
There are no agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement that are not described, filed or incorporated by
reference in the Registration Statement and the Prospectus as required by the
Act. All such contracts to which the Company or any of its subsidiaries is a
party have been duly authorized, executed and delivered by the Company or the
applicable subsidiary, constitute valid and binding agreements of the Company or
the applicable subsidiary and are enforceable against the Company or the
applicable subsidiary in accordance with the terms thereof, except as
enforceability thereof may be limited by (A) the application of bankruptcy,
reorganization, insolvency and other laws affecting creditors' rights generally,
and (B) equitable principles being
-9-
<PAGE>
applied at the discretion of a court before which any proceeding may be brought.
Neither the Company nor the applicable subsidiary has received notice or been
made aware that any other party is in breach of or default to the Company under
any of such contracts.
(g) Neither the Company nor any of its subsidiaries is (i) in
violation of (aa) its articles of incorporation or bylaws, (bb) any law,
ordinance, administrative or governmental rule or regulation applicable to the
Company or any of its subsidiaries the violation of which would have a Material
Adverse Effect, or (cc) of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries; or (ii) in
default in any material respect in the performance of any obligation, agreement
or condition contained in (aa) any bond, debenture, note or any other evidence
of indebtedness, or (bb) any agreement, indenture, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which any of their
properties may be bound, which default would have a Material Adverse Effect; and
there does not exist any state of facts which constitutes an event of default on
the part of the Company or any of its subsidiaries as defined in such documents
or which, with notice or lapse of time or both, would constitute such an event
of default.
(h) The Company's execution and delivery of this Agreement and the
performance by the Company of its obligations under this Agreement have been
duly and validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company, and this Agreement constitutes a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights generally
or by general equitable principles and public policy exceptions, and except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws.
(i) Neither the issuance and sale of the Shares by the Company, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby or thereby
(i) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
for the registration of the Shares under the Act, the registration of the Common
Stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and compliance with the securities or Blue Sky laws of various
jurisdictions, all of which will be, or have been, effected in accordance with
this Agreement and except for the NASD's clearance of the underwriting terms of
the offering contemplated hereby as required under the NASD's Rules of Fair
Practice), (ii) conflicts with or will conflict with or constitutes or will
constitute a breach of, or a default under, the articles of incorporation or
bylaws of the Company or any agreement, indenture, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which any of its
properties may be bound, (iii) violates any statute, law, regulation, ruling,
filing, judgment, injunction, order or decree applicable to the Company or any
of its subsidiaries or any of their properties, or (iv) results in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company.
-10-
<PAGE>
(j) Except as described in the Prospectus, and except for options to
purchase common stock issued pursuant to the Company's 1991 Stock Option Plan
and 1996 Stock Option Plan, neither the Company nor any of its subsidiaries has
outstanding and at the Closing Date (and the Additional Closing Date, if
applicable) will not have outstanding any options to purchase, or any warrants
to subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock or any
such warrants or convertible securities or obligations. No holder of securities
of the Company has rights to the registration of any securities of the Company
as a result of or in connection with the filing of the Registration Statement or
the consummation of the transactions contemplated hereby that have not been
satisfied or heretofore waived in writing.
(k) KPMG LLP, the certified public accountants who have certified the
financial statements filed as part of the Registration Statement and the
Prospectus (or any amendment or supplement thereto), are independent public
accountants as required by the Act.
(l) The financial statements, together with related schedules and
notes, included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the financial condition,
results of operations and cash flows of the Company on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and date set forth
in the Registration Statement and Prospectus (and any amendment or supplement
thereto) is accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company. No other
financial statements or schedules are required to be included in the
Registration Statement.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), (i)
neither the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, indirect, direct or contingent, or entered into any
transaction which is not in the ordinary course of business; (ii) neither the
Company nor any of its subsidiaries has sustained any material loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance; (iii) neither
the Company nor any of its subsidiaries has paid or declared any dividends or
other distributions with respect to its capital stock and the Company is not in
default under the terms of any class of capital stock of the Company or any
outstanding debt obligations; (iv) there has not been any change in the
authorized or outstanding capital stock of the Company or any material change in
the indebtedness of the Company (other than in the ordinary course of business);
and (v) there has not been any material adverse change, or any development
involving or which may reasonably be expected to result in a material adverse
change, in the condition (financial or otherwise), business, properties, net
worth or result of operations of the Company.
-11-
<PAGE>
(n) Each of the Company and its subsidiaries has good and valid title
to all property (real and personal) described in the Prospectus as being owned
by it, free and clear of all liens, claims, security interests or other
encumbrances except (i) such as are described in the financial statements
included in, or elsewhere in, the Prospectus or (ii) such as are not materially
burdensome and do not interfere in any material respect with the use of the
property or the conduct of the business of the Company. All property (real and
personal) held under lease by the Company and its subsidiaries is held by it
under valid, subsisting and enforceable leases with only such exceptions as in
the aggregate are not materially burdensome and do not interfere in any material
respect with the conduct of the business of the Company or its subsidiaries.
(o) The Company has not distributed and will not distribute, and has
not authorized the Underwriters to distribute, any offering material in
connection with the offering and sale of the Shares other than the Prepricing
Prospectus, the Prospectus, or other offering material, if any, as permitted by
the Act.
(p) Other than excepted activity pursuant to Regulation M under the
Exchange Act, the Company has not taken, directly or indirectly, any action
which constituted, or any action designed, or which might reasonably be expected
to cause or result in or constitute, under the Act or otherwise, stabilization
or manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares or for any other purpose.
(q) The Company is not an "investment company," an "affiliated person"
of, or "promoter" or "principal underwriter" for an investment company within
the meaning of the Investment Company Act of 1940, as amended.
(r) Each of the Company and its subsidiaries has all permits,
licenses, franchises, approvals, consents and authorizations of governmental or
regulatory authorities (hereinafter "permit" or "permits") as are necessary to
own its properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus, except where the failure to have obtained any such permit has not
and will not have a Material Adverse Effect; each of the Company and its
subsidiaries has operated and is operating its business in material compliance
with and not in material violation of all of its obligations with respect to
each such permit and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination of any such permit or
result in any other material impairment of the rights of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, such permits contain no
restrictions that are materially burdensome to the Company or any of its
subsidiaries.
(s) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded
-12-
<PAGE>
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(t) Neither the Company nor any of its subsidiaries, since each has
been a subsidiary of the Company, nor, to the Company's knowledge, any employee
or agent of the Company or any of its subsidiaries, has, directly or indirectly,
(i) made any unlawful contribution to any candidate for political office, or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal, state or foreign governmental official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof or
applicable foreign jurisdictions.
(u) The Company and its subsidiaries are (i) in compliance with any
and all applicable federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or other approvals would not,
singly or in the aggregate, have a Material Adverse Effect. Except as set forth
in the Prospectus, neither the Company nor any of its subsidiaries has been
named as a "potentially responsible party" under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended ("CERCLA").
(v) The Company owns and has full right, title and interest in and to,
or has valid licenses to use, each material trade name, trademark or service
mark under which the Company conducts all or any material part of its business,
and the Company has not voluntarily created any lien or encumbrance on, or
granted any right or license with respect to, any such trade name, trademark or
service mark; there is no claim pending against the Company with respect to any
trade name, trademark or service mark and the Company has not received notice or
otherwise become aware that any trade name, trademark or service mark which it
uses or has used in the conduct of its business infringes upon or conflicts with
the rights of any third party.
(w) The Shares have been duly authorized for trading on the NYSE under
the symbol "DVD," subject to official notice of issuance of the Shares being
sold by the Company, and upon consummation of the offering contemplated hereby
the Company will be in compliance with the designation and maintenance criteria
applicable to NYSE issuers.
(x) The Company and each of its subsidiaries have filed all tax
returns required to be filed (other than certain state or local tax returns, as
to which the failure to file, singly or in the aggregate, would not have a
Material Adverse Effect), which returns are complete and correct, and neither
the Company nor any subsidiary is in default in the payment of any taxes which
were payable pursuant to said returns or any assessments with respect thereto,
other than defaults that, singly or in the aggregate, would not have a Material
Adverse Effect. Except as disclosed in the
-13-
<PAGE>
Prospectus, all deficiencies asserted as a result of any federal, state, local
or foreign tax audits have been paid or finally settled and no issue has been
raised in any such audit which, by application of the same or similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so audited. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state,
local or foreign tax return for any period. On the Closing Date, and Additional
Closing Date, if any, all stock transfer and other taxes which are required to
be paid in connection with the sale of the shares to be sold by the Company to
the Underwriters will have been fully paid by the Company and all laws imposing
such taxes will have been complied with.
(y) Except as set forth in the Prospectus, there are no transactions
with "affiliates" (as defined in Rule 405 promulgated under the Act) or any
officer, director or security holder of the Company (whether or not an
affiliate) which are required by the Act and the applicable rules and
regulations thereunder to be disclosed in the Registration Statement.
(z) The Company has procured Lock-Up Agreements from each of the
Company's most senior executive officers and directors and the Selling
Stockholders.
(aa) Neither the Company nor any of its subsidiaries (i) conduct
business or have affiliates which conduct business in or with Cuba, (ii) plan to
commence doing business in or with Cuba after the effective date of the
Registration Statement or (iii) are required by Florida law to report a material
change in information previously reported to the State of Florida regarding
business conducted in or with Cuba.
(bb) No officer, director, nominee for director or shareholder of the
Company has a direct or indirect affiliation or association with any member of
the NASD.
6.2 Of the Selling Stockholders. Each Selling Stockholder hereby,
---------------------------
represents and warrants, severally as to itself and not jointly, to each
Underwriter on the date hereof, and shall be deemed to represent and warrant to
each Underwriter on the Closing Date and the Additional Closing Date, that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and valid title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement and the Custody Agreement and
Power of Attorney signed by such Selling Stockholder and Klaus M. Belohoubek, as
Custodian, relating to the deposit of the Shares to be sold by such Selling
Stockholder and appointing certain individuals as such Selling Stockholder's
attorneys-in-fact (the "Attorneys") to the extent set forth therein (the
"Custody Agreement and Power of Attorney") and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder in the manner provided
herein.
-14-
<PAGE>
(c) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder. The Custody Agreement and Power of
Attorney of such Selling Stockholder has been duly authorized, executed and
delivered by such Selling Stockholder and is a valid and binding agreement of
such Selling Stockholder, enforceable as to such Selling Stockholder in
accordance with its terms, except to the extent enforceability may be limited by
laws relating to creditors' rights generally or by general equitable principals,
and except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws and, pursuant to such Power of Attorney, such
Selling Stockholder has, among other things, authorized the Attorneys, or any
one of them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document that they, or any one of them, may deem
necessary or desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement.
(d) The execution, delivery and performance by such Selling
Stockholder of this Agreement and the Custody Agreement and Power of Attorney of
such Selling Stockholder by or on behalf of such Selling Stockholder, the
compliance by such Selling Stockholder with all the provisions hereof and
thereof and the consummation by such Selling Stockholder of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(e) The information in the Prospectus under the caption "Selling
Stockholders" which specifically relates to such Selling Stockholder does not,
and will not on the Closing Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(f) At any prior to the Closing Date, if there is any change in the
information referred to in Section 6.2(e), such Selling Stockholder will
immediately notify you of such change.
(g) Except for activity which is permissible pursuant to Regulation M
under the Exchange Act, such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and valid title to such
Shares will pass to the
-15-
<PAGE>
Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever.
7. Expenses. Whether or not the transactions contemplated hereby are
--------
consummated or this Agreement becomes effective or is terminated, the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement and the
Prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof and of any Prepricing Prospectus to the Underwriters and
dealers; (ii) the printing and delivery (including, without limitation, postage,
air freight charges and charges for counting and packaging) of such copies of
the Registration Statement, the Prospectus, each Prepricing Prospectus, the Blue
Sky memoranda, the Master Agreement Among Underwriters, this Agreement, the
Selected Dealers Agreement and all amendments or supplements to any of them as
may be reasonably requested for use in connection with the offering and sale of
the Shares; (iii) consistent with the provisions of Section 5.1(e), all expenses
in connection with the qualification of the Shares for offering and sale under
state securities laws or Blue Sky laws, including reasonable attorneys' fees and
out-of-pocket expenses of the counsel for the Underwriters in connection
therewith; (iv) the filing fees incident to securing any required review by the
NASD of the fairness of the terms of the sale of the Shares and the reasonable
fees and disbursements of the Underwriters' counsel relating thereto; (v) the
cost of preparing stock certificates; (vi) the costs and charges of any transfer
agent or registrar; (vii) the cost of the tax stamps, if any, in connection with
the issuance and delivery of the Shares to the respective Underwriters; (viii)
all other fees, costs and expenses referred to in Item 14 of the Registration
Statement, (ix) the transportation, lodging, graphics and other expenses
incidental to the Company's preparation for and participation in the "roadshow"
for the offering contemplated hereby, and (x) all other costs and expenses
incident to the performance of the obligations of the Company hereunder which
are not otherwise specifically provided for in this Section 7. Notwithstanding
the foregoing, in the event that the proposed offering is terminated for the
reasons set forth in Section 5.1(i) hereof, the Company agrees to reimburse the
Underwriters as provided in Section 5.1(i).
8. Indemnification and Contribution. Subject to the limitations in this
--------------------------------
paragraph below, the Company agrees to indemnify and hold harmless you and each
other Underwriter, the directors, officers, employees and agents of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses,
including, without limitation, reasonable costs of investigation and attorneys'
fees and expenses (collectively, ("Damages") arising out of or based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any Prepricing Prospectus or in the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, except to the extent
that any such Damages arise out of or are based upon an untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
furnished in writing to the Company by or on behalf of any Underwriter, or by or
on behalf of the Selling Stockholders, as
-16-
<PAGE>
the case may be, through you expressly for use in connection therewith, or (ii)
any inaccuracy in or breach of the representations and warranties of the Company
contained herein or any failure of the Company to perform its obligations
hereunder or under law; provided, however, that with respect to any untrue
-------- -------
statement or omission made in any Prepricing Prospectus, the indemnity agreement
contained in this paragraph shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter or to any officer,
director, employee or agent of any Underwriter) from whom the person asserting
any such Damages purchased the Shares concerned if both (y) a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such Shares to such person as required by the Act,
and (z) the untrue statement or omission in the Prepricing Prospectus was
corrected in the Prospectus. This indemnification shall be in addition to any
liability that the Company may otherwise have.
Subject to the limitations in this paragraph below, each Selling
Stockholder, severally and not jointly, agrees to indemnify and hold harmless
you and each other Underwriter, the directors, officers, employees and agents of
each Underwriter, and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses,
including, without limitation, reasonable costs of investigation and attorneys'
fees and expenses (collectively, ("Damages") arising out of or based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any Prepricing Prospectus or in the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, except to the extent
that any such Damages arise out of or are based upon an untrue statement or
omission or alleged untrue statement or omission which has been made therein or
omitted therefrom in reliance upon and in conformity with the information
furnished in writing to the Company by or on behalf of any Underwriter through
you expressly for use in connection therewith, or (ii) any inaccuracy in or
breach of the representations and warranties of such Selling Stockholder
contained herein or any failure of such Selling Stockholder to perform its
obligations hereunder or under law; provided, however, that with respect to any
-------- -------
untrue statement or omission made in any Prepricing Prospectus, the indemnity
agreement contained in this paragraph shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter or to
any officer, director, employee or agent of any Underwriter) from whom the
person asserting any such Damages purchased the Shares concerned if both (y) a
copy of the Prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such Shares to such person as required by
the Act, and (z) the untrue statement or omission in the Prepricing Prospectus
was corrected in the Prospectus. This indemnification shall be in addition to
any liability that the Selling Stockholders or any Selling Stockholder may
otherwise have. Notwithstanding anything to the contrary herein, in no event
shall any Selling Stockholder's obligation under this Section exceed the total
net proceeds from the offering received by such Selling Stockholder (computed
without deduction for any taxes on such amount.)
In addition to their other obligations under this Section 8, each of the
Company and the Selling Stockholders, severally and not jointly, agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based
-17-
<PAGE>
upon any statement or omission, or any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders herein or failure to
perform their respective obligations hereunder, all as set forth in this Section
8, the party against whom indemnification is being sought will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other out-of-pocket
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding (to the extent documented by
reasonably itemized invoices therefor), notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligation
of the Company or a Selling Stockholder to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the person(s) from whom it was received, together
with interest compounded daily determined on the basis of the base lending rate
announced from time to time by The Wall Street Journal (the "Prime Rate"). Any
such interim reimbursement payments which are not made to the Underwriters
within 30 days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
jointly and severally against the Company and the Selling Stockholders, such
Underwriter or such controlling person shall promptly notify in writing the
party(s) against whom indemnification is being sought (the "indemnifying party"
or "indemnifying parties"), and such indemnifying party(s) shall assume the
defense thereof, including the employment of counsel reasonably acceptable to
such Underwriter or such controlling person and the payment of all reasonable
fees and expenses incurred by such counsel. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person,
unless (i) the indemnifying party(s) has (have) agreed in writing to pay such
fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume
the defense and employ counsel reasonably acceptable to the Underwriter or such
controlling person or (iii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying party(s), and such Underwriter or such controlling person shall
have been advised by its counsel that one or more legal defenses may be
available to the Underwriter which may not be available to the Company or the
Selling Stockholders, or that representation of such indemnified party and any
indemnifying party(s) by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party(s) shall not have
the right to assume the defense of such action on behalf of such Underwriter or
such controlling person (but the Company and the Selling Stockholders, as
applicable, shall not be liable for the fees and expenses of more than one
counsel for the Underwriters and such controlling persons)). The indemnifying
party(s) shall not be liable for any settlement of any such action effected
without its (their several) written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
the indemnifying party(s) agrees to indemnify and hold harmless any Underwriter
and any such controlling person from and against any loss, claim, damage,
liability
-18-
<PAGE>
or expense by reason of such settlement or judgment, but in the case of a
judgment only to the extent stated in the immediately preceding paragraph.
Each Underwriter agrees, severally and jointly, to indemnify and hold
harmless the Selling Stockholders and the Company, their respective directors,
and their respective officers who sign the Registration Statement, and any
person who controls the Selling Stockholders or the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing several indemnity from the Company and the Selling Stockholders
to each Underwriter, but only with respect to information furnished in writing
by or on behalf or such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action or claim shall be brought or
asserted against the Selling Stockholders or the Company, any of their
respective directors, any of their respective officers, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph, such
Underwriter shall have the rights and duties given to the Company and the
Selling Stockholders by the immediately preceding paragraph (except that if the
Company and the Selling Stockholders shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Selling
Stockholders and the Company, its directors, any such officers, and any such
controlling persons, shall have the rights and duties given to the Underwriters
by the immediately preceding paragraph.
If the indemnification provided for in this Section 8 is unavailable or
insufficient for any reason whatsoever to an indemnified party under the first,
second or fourth paragraph of this Section 8 in respect of any Damages referred
to therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such Damages (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Stockholders,
respectively, on the one hand, and the Underwriters on the other hand, from the
offering and sale of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative and several fault of the Company and the Selling Stockholders
on the one hand, and the Underwriters on the other hand, in connection with the
statements or omissions that resulted in such Damages as well as any other
relevant equitable considerations. The relative and several benefits received
by the Company and the Selling Stockholders on the one hand, and the
Underwriters on the other hand, shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus; provided that, in the event that the Underwriters shall have
purchased any Additional Shares hereunder, any determination of the relative
benefits received by the Selling Stockholders or the Underwriters from the
offering of the Shares shall include the net proceeds (before deducting
expenses) received by the Selling Stockholders, and the underwriting discounts
and commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page
-19-
<PAGE>
of the Prospectus. The relative fault of the Company and the Selling
Stockholders on the one hand, and the Underwriters on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 was
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take into account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the Damages referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price to the public of the Shares underwritten by it and distributed to the
public exceeds the amount of any Damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 10 hereof) and not joint.
Notwithstanding the second paragraph of this Section 8, any Damages for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as Damages are incurred after receipt of reasonably itemized invoices therefor.
The indemnity, contribution and reimbursement agreements contained in this
Section 8 and the several, and not joint, representations and warranties of the
Company and the Selling Stockholders set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter,
the Company, its directors or officers or any person controlling the Company,
(ii) acceptance of any Shares and payment therefor hereunder and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Selling Stockholders, the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of this indemnity, contribution and reimbursement agreements
contained in this Section 8.
It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in the second paragraph of this
Section 8, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration
must be commenced by service of a written demand for arbitration or written
notice of intention to arbitrate, therein electing the arbitration tribunal. In
the event the party demanding
-20-
<PAGE>
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in the second and fifth
paragraphs of this Section 8, and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by the
provisions of the second paragraph of this Section 8.
9. Conditions of Underwriters' Obligations. The several obligations of
---------------------------------------
the Underwriters to purchase the Firm Shares hereunder subject to the following
conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 noon, New York City time, on the date hereof, or at such later date
and time as shall be consented to in writing by you, and all filings required by
Rules 424(b), 430A and 462 under the Act shall have been timely made.
(b) You shall be reasonably satisfied that since the respective dates
as of which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the Company or
any material change in the indebtedness (other than in the ordinary course of
business) of the Company, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material oral or written agreement
or other transaction shall have been entered into by the Company which is not in
the ordinary course of business or which could reasonable be expected to result
in a material reduction in the future earnings of the Company, (iii) no loss or
damage (whether or not insured) to the property of the Company shall have been
sustained which had or could reasonably be expected to have a Material Adverse
Effect, (iv) no legal or governmental action, suit or proceeding affecting the
Company or any of its properties which is material to the Company or which
affects or could reasonably be expected to affect the transactions contemplated
by this Agreement shall have been instituted or threatened, and (v) there shall
not have been any material change in the condition (financial or otherwise),
business, management, results of operations of the Company or its subsidiaries
which makes it impractical or inadvisable in your judgment to proceed with the
public offering or purchase the Shares as contemplated hereby.
(c) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Klaus M. Belohoubek, counsel to the Company,
substantially to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware, with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), and
is duly registered or otherwise qualified to conduct its business as a
foreign corporation and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires
such registration or qualification, except where the failure to so register
or qualify does not have a Material Adverse Effect.
-21-
<PAGE>
(ii) Each of the subsidiaries is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto); and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does not
have a Material Adverse Effect; and all of the outstanding shares of
capital stock of each of the subsidiaries have been duly authorized and
validly issued, and are fully paid and nonassessable, and are owned of
record, and to such counsel's knowledge, beneficially, by the Company
directly, or indirectly through one of the other subsidiaries, free and
clear of any perfected security interest, or any other security interest,
lien, adverse claim, equity or other encumbrance.
(iii) The capitalization of the Company conforms in all material
respects to the description thereof contained in the Prospectus under the
caption "Capitalization". Except as set forth in the Prospectus, the
Company is not a party to or bound by any outstanding options, warrants or
similar rights to subscribe for, or contractual obligations to issue, sell,
transfer or acquire, any of its capital stock or any securities convertible
into or exchangeable for any of such capital stock.
(iv) All shares of capital stock of the Company outstanding prior
to the issuance of the Shares to be issued and sold by the Company
hereunder, have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights that entitle
or will entitle any person to acquire any Shares upon the issuance thereof
by the Company, and no such rights will exist as of the Closing Date. To
such counsel's knowledge, all offers and sales of the Company's securities
have been made in compliance in all material respects with the registration
requirements of the Act and other applicable state securities laws or
regulations or applicable exemptions therefrom.
(v) To the knowledge of such counsel after reasonable inquiry,
the Company is not in default in the performance of any obligation,
agreement or condition contained in any bond, indenture, note or other
evidence of indebtedness or any other agreement or obligation of the
Company, where the default would have, individually or in the aggregate, a
Material Adverse Effect.
(vi) Neither the offer, sale or delivery of the Shares by the
Company, the execution, delivery or performance by the Company of this
Agreement, compliance by the Company with all provisions hereof nor
consummation by the Company of the transactions contemplated hereby (A)
conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any material agreement, indenture, lease or other
instrument to which the Company is a party or by which any of its
properties is bound, or (B) creates or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company.
-22-
<PAGE>
(vii) The properties described in the Prospectus as held under
lease by the Company are held under duly executed leases.
(viii) Except as described in the Registration Statement or
Prospectus, there is no action, suit, inquiry, proceeding, or investigation
by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the knowledge of such
counsel, threatened, against or involving the Company or its subsidiaries,
or the properties of either the Company or any of its subsidiaries: (A)
which might individually or in the aggregate prevent or adversely affect
the transactions contemplated by this Agreement or result in a Material
Adverse Effect, nor, to the knowledge of such counsel, is there any basis
for any such action, suit, inquiry, proceeding, or investigation; or (B)
that are required to be described in the Registration Statement or
Prospectus (or any amendment or supplement thereto) that are not described
as required therein.
(ix) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments described or referred
to in the Registration Statement and the Prospectus, and such agreements,
contracts (and forms of contracts), indentures, leases or other documents
or instruments are fairly summarized or disclosed in all material respects
therein, and filed as exhibits thereto as required, and such counsel does
not know of any agreements, contracts, indentures, leases or other
documents or instruments required to be so summarized or disclosed or filed
which have not been so summarized or disclosed or filed.
(x) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official is required on the
part of the Company (except such as have been obtained under the Act or
such as may be required under state securities or Blue Sky laws governing
the purchase and distribution of the Shares) for the valid issuance and
sale of the Shares to the Underwriters under this Agreement.
(xi) The Company satisfies all of the requirements of the Act for
use of Form S-3 for the offering of Shares contemplated by this Agreement.
In rendering such opinion, counsel may rely, to the extent he deems
such reliance proper, as to matters of fact upon certificates of officers
of the Company and of government officials, provided that counsel shall
state their belief that they and you are justified in relying thereon.
Copies of all such certificates shall be furnished to you and your counsel
on the Closing Date.
In addition to the opinion set forth above, such counsel shall state
that during the course of his participation in the preparation of the
Registration Statement and the Prospectus and the amendments thereto,
nothing has come to the attention of such counsel which has caused him to
believe or given him reason to believe that the Registration Statement or
the Prospectus or any amendment thereto (except for the financial
statements and other financial, accounting and statistical information, or
industry data attributed to an identified source,
-23-
<PAGE>
contained therein or omitted therefrom as to which no opinion need be
expressed), at the date thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Registration Statement or the Prospectus as of the date of the opinion
(except as aforesaid), contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Klaus M. Belohoubek, counsel to the Selling
Stockholders, substantially to the effect that:
(i) The Selling Stockholders have all requisite power and
authority to enter into this Agreement and to issue, sell and deliver
the Shares to be sold by them to the Underwriters as provided herein,
and this Agreement has been duly authorized, executed and delivered by
the Selling Stockholders and is a valid, legal and binding agreement
of the Selling Stockholders enforceable against the Selling
Stockholders in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws relating to
or affecting enforcement of creditors' rights generally or by general
equitable principles, and except to the extent enforceability of the
provisions relating to indemnity and contribution for liabilities
under the Act may be limited by or under the Act, or by public policy.
(ii) The Shares to be issued and sold to the Underwriters by the
Selling Stockholders hereunder have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, (A) such Shares will be validly
issued, fully paid and nonassessable and free of any preemptive or
similar that entitle or will entitle any person to acquire any Shares
upon the sale thereof by the Selling Stockholders, and (B) good and
valid title to such Shares, free and clear of any claim, encumbrance
or defect in title of any nature (other than any arising by or through
the Underwriters), will pass to each Underwriter that has purchased
any portion of such Shares in good faith and without knowledge of any
such claim, encumbrance or defect.
(iii) Neither the offer, sale or delivery of the Shares by the
Selling Stockholders, the execution, delivery or performance by the Selling
Stockholders of this Agreement, compliance by the Selling Stockholders with
all provisions hereof nor consummation by the Selling Stockholders of the
transactions contemplated hereby (A) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, any
material agreement, indenture, lease or other instrument to which such
Selling Stockholder is a party or by which any of their properties is
bound, or (B) creates or will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of such Selling
Stockholder.
(iv) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body,
-24-
<PAGE>
agency or official is required on the part of the Selling Stockholders
(except such as have been obtained under the Act or such as may be required
under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid sale of the Shares to the
Underwriters by the Selling Stockholders under this Agreement.
(e) You shall have received on the Closing Date (and the Additional Closing
Date, if any) an opinion of Greenberg Traurig, LLP., special counsel to the
Company, substantially to the effect that:
(i) The Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, such Shares will be validly issued, fully paid and nonassessable
and free of any preemptive or similar rights under the Company's
Certificate of Incorporation, as amended, or Bylaws, as amended and
restated, that entitle or will entitle any person to acquire any Shares
upon the issuance thereof by the Company.
(ii) The form of certificates for the Shares conforms in all
material respects to the requirements of the applicable corporate laws of
the State of Delaware.
(iii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission.
(iv) The Company has all requisite corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares to
be sold by it to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company and is a
valid, legal and binding agreement of the Company enforceable against the
Company in accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally or by general equitable
principles, and except to the extent enforceability of the provisions
relating to indemnity and contribution for liabilities under the Act may be
limited by or under the Act, or by public policy.
(v) Neither the offer, sale or delivery of the Shares by the
Company, the execution, delivery or performance of this Agreement by the
Company, compliance by the Company with all provisions hereof nor
consummation by the Company of the transactions contemplated hereby (A)
conflicts with or constitutes a breach of, or a default under, the
certificate of incorporation or bylaws, or (B) violates any existing law,
statute, regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree of New
York law, Florida law, the laws of the United States or the provisions of
the Delaware General Corporation law which is applicable to the Company or
any of its properties and of which such counsel is aware.
-25-
<PAGE>
(vi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official is required on the
part of the Company (except such as have been obtained under the Act, such
as may be required under state securities or Blue Sky laws governing the
purchase and distribution of the Shares or such as may be required under
state or federal gaming laws) for the valid issuance and sale of the Shares
to the Underwriters under this Agreement.
(vii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and
the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any
opinion) comply as to form in all material respects with the requirements
of the Act. Without limiting the generality of the foregoing, any Rule 434
Prospectus conforms in all material respects with the requirements of Rule
434 under the Act.
(viii) The authorized and the outstanding capital stock of the
Company conforms in all material respects to the description thereof
contained in the Prospectus under the caption "Description of Capital
Stock."
(ix) The descriptions in the Prospectus of statutes, regulations
or legal or governmental proceedings, insofar as they purport to summarize
certain of the provisions thereof, are accurate and fairly present the
information required to be presented by the Act and the rules and
regulations thereunder.
(x) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940,
as amended.
In rendering such opinion, such counsel shall not be required to
express any opinion with respect to any Incorporated Documents and may
rely, to the extent he deems such reliance proper, as to matters of fact
upon certificates of officers of the Company and of government officials,
provided that counsel shall state their belief that they and you are
justified in relying thereon. Copies of all such certificates shall be
furnished to you and your counsel on the Closing Date.
In rendering such opinion, in each case where such opinion is
qualified by "the knowledge of such counsel" or "known to such counsel",
such counsel may rely as to matters of fact upon certificates of executive
and other officers and employees of the Company as you and such counsel
shall deem are appropriate and such other procedures as you and such
counsel shall mutually agree; provided, however, in each such case, such
counsel shall state that it has no knowledge contrary to the information
contained in such certificates or developed by such procedures and knows of
no reason why you should not reasonably rely upon the information contained
in such certificates or developed by such procedures. Such counsel may
state in such opinion that its knowledge is limited to the knowledge of its
-26-
<PAGE>
attorneys and other representatives and employees that have given attention
to the Company's matters in connection with the transactions contemplated
by this Agreement.
In addition to the opinion set forth above, such counsel shall state
that during the course of their participation in the preparation of the
Registration Statement and the Prospectus and the amendments thereto,
nothing has come to the attention of such counsel which has caused them to
believe or given them reason to believe that the Registration Statement or
the Prospectus or any amendment thereto (except for the financial
statements and other financial, accounting and statistical information, or
industry data attributed to an identified source, contained therein or
omitted therefrom as to which no opinion need be expressed), at the date
thereof, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Registration Statement or
the Prospectus as of the date of the opinion (except as aforesaid),
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) You shall have received on the Closing Date an opinion of Akerman,
Senterfitt & Eidson, P.A., as counsel for the Underwriters, dated the Closing
Date with respect to the issuance and sale of the Shares, the Registration
Statement and other related matters as you may reasonably request, and the
Company and its counsel shall have furnished to your counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(g) You shall have received letters addressed to you and dated the
date hereof and the Closing Date (and the Additional Closing Date, if any) from
(i) the firm of KPMG LLP, independent certified public accountants, and (ii) the
Chief Financial Officer of the Company, substantially in the forms heretofore
approved by you.
(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or, to the knowledge of the Company, shall be
threatened or contemplated by the Commission at or prior to the Closing Date;
(ii) no order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such purpose
shall be pending or, to the knowledge of the Company, threatened or contemplated
by the Commission or the authorities of any jurisdiction; (iii) any request for
additional information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff of
the Commission or such authorities; (iv) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to you and you did not object thereto
in good faith; and (v) all of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(except for such representations and warranties qualified by materiality, which
representations and warranties shall be true and correct in all respects) on and
as of the date hereof and on and as of the Closing Date as if made on and as of
the Closing Date, and you shall have received a certificate, dated the Closing
-27-
<PAGE>
Date and signed by the chief executive officer and the chief financial officer
of the Company (or such other officers as are acceptable to you) to the effect
set forth in this Section 9(h) and in Sections 9(b) and 9(i) hereof.
(i) The Company shall not have failed in any material respect at or
prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(j) The Company shall have furnished or caused to have been furnished
to you such further certificates and documents as you shall have reasonably
requested.
(k) At or prior to the Closing Date, you shall have received Lock-Up
Agreements from each of the Company's senior executive officers and directors,
and the Selling Stockholders.
(l) At or prior to the effective date of the Registration Statement,
you shall have received a letter from the Corporate Financing Department of the
NASD confirming that such Department has determined to raise no objections with
respect to the fairness or reasonableness of the underwriting terms and
arrangements of the offering contemplated hereby.
(m) You shall be satisfied that, and you shall have received a
certificate dated the Closing Date, from each Selling Stockholder to the effect
that, as of the Closing Date: (i) the representations and warranties made by
such Selling Stockholders herein are true and correct in all material respect on
the Closing Date; and (ii) such Selling Stockholder has complied with all
obligations and satisfied all conditions which are required to be performed or
satisfied on his or its part at or prior to the Closing Date.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Additional Closing
Date of the conditions set forth in this Section 9, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in this Section 9 shall be dated as of the
Additional Closing Date and the opinions called for by paragraphs (c) and (e)
shall be revised to reflect the sale of Additional Shares.
If any of the conditions hereinabove provided for in this Section 9 shall
not have been satisfied when and as required by this Agreement, this Agreement
may be terminated by you by notifying the Company of such termination in writing
or by telegram at or prior to such Closing Date, but you shall be entitled to
waive any of such conditions.
10. Effective Date of Agreement. This Agreement shall become effective
---------------------------
upon the later of (a) the execution and delivery hereof by the parties hereto,
and (b) release of notification of the
-28-
<PAGE>
effectiveness of the Registration Statement by the Commission; provided,
however, that the provisions of Sections 7, and 8 shall at all times be
effective.
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Firm Shares, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I hereto bears to the aggregate number
of Firm Shares set forth opposite the names of all non-defaulting Underwriters
or in such other proportion as you may specify in the Agreement Among
Underwriters, to purchase the Firm Shares which such defaulting Underwriter or
Underwriters agreed, but failed to refuse to purchase. If any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares and arrangements satisfactory
to you and the Company for the purchase of such Firm Shares are not made within
48 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement.
11. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or the Additional Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, in your sole judgment,
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the NYSE, (ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange or NASDAQ/NMS shall have been suspended
or materially limited, or minimum or maximum prices shall have been generally
established on such exchange, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon trading
in securities generally by any such exchange or by order of the Commission or
any court or other governmental authority, (iii) a general moratorium on
commercial banking activities shall have been declared by either federal or New
York State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions or other material event
the effect of which on the financial markets of the United States is such as to
make it, in your judgment, impracticable or inadvisable to market the Shares or
to enforce contracts for the sale of the Shares. Notice of such cancellation
shall be promptly given to the Company and its counsel by telegraph, telecopy or
telephone and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The Company acknowledges
-----------------------------------------
that (i) the paragraph immediately following footnote (2) on the cover page of
the Prospectus, and (ii) the FOURTH, FIFTH and EIGHTH paragraphs under the
caption "Underwriting" in any Prepricing Prospectus,
-29-
<PAGE>
constitute the only information furnished by or on behalf of the Underwriters
through you or on your behalf as such information is referred to in Sections
6.1(a), 6.1(b) and 8 hereof.
13. Miscellaneous. Except as otherwise provided in Section 5 and 11
-------------
hereof, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (i) to the Company to the office of the
Company at 2200 Concord Pike, Wilmington, Delaware 19803, Att: Klaus M.
Belohoubek, Esq. (With a copy to Greenberg Traurig LLP, The Met Life Building,
200 Park Avenue, New York, New York 10166, Att: Clifford E. Neimeth, Esq., or
(iii) if to you, as Representative of the Underwriters, to Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: Craig A. Ascari, Managing Director (with copy to Akerman, Senterfitt
& Eidson, P.A., 350 East Las Olas Boulevard, Ft. Lauderdale, Florida 33301, Att:
Donn Beloff, Esq.).
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company and its respective directors and officers and the
Selling Stockholders.
14. Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of Florida without reference
to choice of law principles thereunder.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
The Company, the Selling Stockholders and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect to any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
-30-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
Dover Downs Entertainment, Inc.
By:_______________________________________________
President and Chief Executive Officer
Solely with respect to Sections 6.2 and 8 of this
Agreement, the Selling Stockholders Named in
Schedule II Hereto, Acting Severally
By:_______________________________________________
Attorney-in-Fact
CONFIRMED as of the date first above mentioned,
on behalf of the Representatives and the other
several Underwriters named in Schedule I hereto.
RAYMOND JAMES & ASSOCIATES, INC.
By:___________________________________
Authorized Representative
-31-
<PAGE>
SCHEDULE I
Number of
Name Firm Shares
- --------------------------------------------------- ---------------
Raymond James & Associates.........................
J.C. Bradford & Co. ...............................
TOTAL ............................................. 2,650,000
-32-
<PAGE>
SCHEDULE II
Schedule of Selling Stockholders
Number of
Firm Shares
Stockholder to be Sold
----------- -----------
Total
-33-
<PAGE>
EXHIBIT A
February __, 2000
DOVER DOWNS ENTERTAINMENT, INC.
2200 Concord Pike
Wilmington, Delaware 190803
RAYMOND JAMES & ASSOCIATES, INC.
J.C. BRADFORD & CO.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
RE: DOVER DOWNS ENTERTAINMENT, INC. (THE "COMPANY") - RESTRICTION ON STOCK
----------------------------------------------------------------------
SALES
-----
Dear Sirs:
This letter is delivered to you pursuant to the Underwriting Agreement (the
"Underwriting Agreement") to be entered into by the Company, as issuer, and
Raymond James & Associates, Inc. and J.C. Bradford & Co., the representatives
(the "Representatives") of certain underwriters (the "Underwriters") to be named
therein. Upon the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters intend to effect a public offering of Common Stock,
par value $.10 per share, of the Company (the "Common Stock"), as described in
and contemplated by the registration statement of the Company on Form S-3, File
No. 333-30060 (the "Registration Statement"), as filed with the Securities and
Exchange Commission on February 10, 2000.
The undersigned recognizes that it is in the best financial interests of
the undersigned, as an officer or director, and owner of stock, options,
warrants or other securities of the Company (the "Company Securities"), that the
Company complete the proposed Offering.
The undersigned further recognizes that the Company Securities held by the
undersigned are, or may be, subject to certain restrictions on transferability,
including those imposed by United States federal securities laws.
Notwithstanding these restrictions, the undersigned has agreed to enter into
this letter agreement to further assure the Underwriters that the Company
Securities of the undersigned, now held or hereafter acquired, will not enter
the public market at a time that might impair the underwriting effort.
Therefore, as an inducement to the Underwriters to execute the Underwriting
Agreement, the undersigned hereby acknowledges and agrees that the undersigned
will not (i) offer, sell, contract to sell, pledge, grant any option to purchase
or otherwise dispose of (collectively, a "Disposition") any shares of the
Company's capital stock, or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or otherwise acquire, any shares of
the Company's capital stock held by the undersigned or acquired by the
undersigned after the date hereof, or which
-34-
<PAGE>
may be deemed to be beneficially owned by the undersigned (collectively, the
"Lock-Up Shares"), pursuant to the Rules and Regulations promulgated under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, for a period commencing on the date hereof and ending 90 days after the
date of the Company's Prospectus first filed pursuant to Rule 424(b) under the
Act, inclusive (the "Lock-Up Period"), without the prior written consent of
Raymond James & Associates, Inc., or (ii) exercise or seek to exercise or
effectuate in any manner any rights of any nature that the undersigned has or
may have hereafter to require the Company to register under the Act the
undersigned's sale, transfer or other disposition of any of the Lock-Up Shares
or other securities of the Company held by the undersigned, or to otherwise
participate as a selling securityholder in any manner in any registration
effected by the Company under the Act, including under the Registration
Statement, during the Lock-Up Period. The foregoing restrictions are expressly
agreed to preclude the undersigned from engaging in any hedging, collar (whether
or not for any consideration) or other transaction which is designed to or
reasonably expected to lead or result in a Disposition of Lock-Up Shares during
the Lock-Up Period, even if such Lock-Up Shares would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option or reversal or cancellation thereof) with respect to any Lock-Up
Shares or with respect to any security (other than a broad-based market basket
or index) that includes, relates to or derives any significant part of its value
from Lock-Up Shares.
Notwithstanding the agreement not to make any Disposition during the Lock-
Up Period, you have agreed that the foregoing restrictions shall not apply to:
(1) the Company Securities being offering in the prospectus included in the
Registration Statement;
(2) any grant or exercise of options pursuant to the Company's 1991 Stock
Option Plan or 1996 Stock Option Plan; or
(3) Dispositions of Company Securities to charitable organizations and
sales of Company Securities, in each case constituting not more than 2%
of the Company Securities owned by the me.
It is understood that, if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the Shares, you will release the
undersigned from the obligations under this letter agreement.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of Lock-Up
Shares if such transfer would constitute a violation or breach of this letter.
This letter shall be binding on the undersigned and the respective successors,
heirs, personal representatives and assigns of the undersigned. Capitalized
terms used but not defined herein have the respective meanings assigned to such
terms in the Underwriting Agreement.
Very truly yours,
Signature of Securityholder
-35-
<PAGE>
Exhibit 23.1
------------
Consent
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" and under the heading "Selected Consolidated
Financial Data" in the prospectus.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 16, 2000
<PAGE>
EXHIBIT 5.1
-----------
[GREENBERG TRAURIG, LLP LETTERHEAD]
February __, 2000
Board of Directors
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, Delaware 19901
Re: Registration Statement on Form S-3 (No. 333-30060)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Dover Downs Entertainment, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") to be filed
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of up to 2,000,000 shares (the "Shares") of the Company's common
stock, par value $.10 per share (the "Common Stock").
In connection with this opinion, we have examined the Registration
Statement, the Company's Certificate of Incorporation, as amended, By-laws, as
amended, and records of the proceedings and actions of the Board of Directors of
the Company in respect of these transactions, and such other documents and
records as we have deemed relevant. In our examinations, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and the conformity with the originals of all documents submitted
to us as copies. In addition, we have made such other examinations of law and
of fact as we have deemed appropriate in order to form a basis for the opinion
hereinafter expressed.
We have been informed by the Company that the Shares will be issued, and
the certificates evidencing the same will be duly delivered, against receipt of
the consideration stipulated therefor, which will not be less than the par value
of the Shares.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued, delivered and paid for in accordance with the
foregoing assumptions, will be validly issued, fully paid and non-assessable.
The opinion set forth above is limited to the Delaware General Corporation
Law, as amended. Moreover, we note that as special counsel to the Company, our
representation of the Company is necessarily limited to such specific and
discrete matters referred from time to time to our firm by representatives of
the Company. Accordingly, we neither have nor should you infer from our
representation of the Company in this particular instance that we have any
knowledge of the Company's affairs or transactions other than as expressly set
forth in this opinion letter.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving this opinion and consent, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/Greenberg Traurig, LLP
------------------------------
Greenberg Traurig, LLP
<PAGE>
EXHIBIT 5.2
-----------
[LETTERHEAD OF KLAUS M. BELOHOUBEK, ESQ.]
February __, 2000
Board of Directors
Dover Downs Entertainment, Inc.
2200 Concord Pike
Wilmington, Delaware 19901
Re: Registration Statement on Form S-3 (No. 333-30060)
--------------------------------------------------
Ladies and Gentlemen:
As Vice President-General Counsel and Secretary of Dover Downs
Entertainment, Inc., a Delaware corporation (the "Company"), I have participated
in the preparation of a Registration Statement on Form S-3 (the "Registration
Statement") to be filed under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of (i) up to 650,000 shares (the
"Initial Shares") of the Company's common stock, par value $.10 per share (the
"Common Stock"), and (ii) up to 397,500 shares additional shares of Common Stock
to cover over-allotments, if any (together with the Initial Shares, the
"Shares"), to be offered by a certain selling stockholder (the "Selling
Stockholder").
In connection with this opinion, I have examined the Registration
Statement, the Company's Certificate of Incorporation, as amended, By-laws, as
amended, and records of the proceedings and actions of the Board of Directors of
the Company in respect of these transactions, and such other documents and
records as I have deemed relevant. In my examinations, I have assumed the
genuineness of all signatures, the authenticity of all documents submitted to me
as originals, and the conformity with the originals of all documents submitted
to me as copies. In addition, I have made such other examinations of law and of
fact as I have deemed appropriate in order to form a basis for the opinion
hereinafter expressed.
Based on the foregoing, I am of the opinion that the Shares to be sold by
the Selling Stockholder have been duly authorized and, when issued, delivered
and paid for in accordance with the foregoing assumptions, will be validly
issued, fully paid and non-assessable.
The opinion set forth above is limited to the Delaware General Corporation
Law, as amended.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this opinion and consent, I do not thereby admit that I am acting within
the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/Klaus M. Belohoubek, Esq.
----------------------------
Klaus M. Belohoubek, Esq.
