-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IW3lf+m14lso2tfppjNiRqJw/0veTtHVP8L3jvCwU9Xjeadxe2dt8IVf1dh8SMYz cjVG7tnSpuPKAj7PwHSKrw== 0000930661-02-000808.txt : 20020415 0000930661-02-000808.hdr.sgml : 20020415 ACCESSION NUMBER: 0000930661-02-000808 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOVER DOWNS ENTERTAINMENT INC CENTRAL INDEX KEY: 0001017673 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 510357525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11929 FILM NUMBER: 02581229 BUSINESS ADDRESS: STREET 1: 1131 N DUPONT HIGHWAY CITY: DOVER STATE: DE ZIP: 19901 BUSINESS PHONE: 3027644600 MAIL ADDRESS: STREET 1: 2200 CONCORD PIKE CITY: WILMINGTON STATE: DE ZIP: 19803 10-K 1 d10k.txt FORM 10-K FOR DOVER DOWNS ENTERTAINMENT, INC - -------------------------------------------------------------------------------- United States Securities and Exchange Commission Washington, D.C. 20549 - -------------------------------------------------------------------------------- Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001 Commission file number 1-11929 ------------------------------ Dover Downs Entertainment, Inc. (Exact name of registrant as specified in its charter) Delaware 51-0357525 (State or Other Jurisdiction (I.R.S. Employer of Incorporation) Identification Number) 1131 North DuPont Highway, Dover, Delaware 19901 (Address of principal executive offices) (302) 674-4600 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Exchange on Which Registered -------------- ------------------------------------ Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $221,693,919 as of February 28, 2002. As of February 28, 2002, the number of shares of each class of the Registrant's common stock outstanding is as follows: Common Stock - 14,284,252 shares Class A Common Stock - 23,769,085 shares Documents Incorporated by Reference ----------------------------------- Portions of the Registrant's Proxy Statement in connection with the Annual Meeting of Stockholders to be held May 22, 2002 are incorporated by reference into Part III, Items 10 through 13 of this report. 1 Part I References in this document to "we," "our," "us," "DVD," "Dover Downs" or "the Company" mean Dover Downs Entertainment, Inc. and its wholly-owned subsidiaries. Item 1. Business - ---------------- Dover Downs, Inc. was incorporated in 1967 and began motorsports and harness horse racing operations in 1969. As a result of several restructurings, Dover Downs, Inc. became a wholly-owned subsidiary of DVD, and transferred all of the motorsports operations to Dover International Speedway, Inc. Consequently, Dover Downs, Inc. became the operating entity for all of DVD's gaming operations. Our video lottery (slot) machine casino opened 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 slot machines has steadily increased to its current level of 2,000. On March 7, 2002, DVD announced that the tax-free spin-off of Dover Downs, Inc., its gaming business, is expected to be effective March 31, 2002. The Company will change its name to Dover Motorsports, Inc. and focus on the fixed facility and temporary circuit motorsports operations. To accomplish the spin-off DVD has contributed 100 percent of the issued and outstanding common stock of Dover Downs, Inc. to Dover Downs Gaming & Entertainment, Inc. (Gaming & Entertainment), a newly formed wholly-owned subsidiary of DVD. On the effective date of the spin-off, DVD will distribute all of the capital stock of Gaming & Entertainment to DVD stockholders on a pro-rata basis. Holders of DVD common stock or Class A common stock will receive 0.7 shares of Gaming & Entertainment common stock or Class A common stock for each share of DVD common stock or Class A common stock owned at the close of business on March 18, 2002, the record date for the spin-off. Each share of common stock or Class A common stock to be distributed will be accompanied by one stock purchase right. Accordingly, the operations of this business have been reflected as a discontinued operation in the accompanying consolidated financial statements. The Company's continuing operations subsequent to the spin-off will consist solely of its motorsports activities. Dover Downs is a leading promoter of motorsports events in the United States. Based upon attendance and television viewership, motorsports is one of the most popular and fastest growing spectator sports in the United States. The Company operates five motorsports tracks (four permanent facilities and one temporary circuit) in four states and promoted 16 major events during 2001 in four of the 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). The Company owns and operates Dover International Speedway in Dover, Delaware, the new Nashville Superspeedway complex near Nashville, Tennessee, Gateway International Raceway near St. Louis, Missouri and Memphis Motorsports Park near Memphis, Tennessee. The Company organizes and promotes the Toyota Grand Prix of Long Beach in Long Beach, California, and the Grand Prix of Denver in Denver, Colorado, beginning with the inaugural event scheduled for September 2002. The Company has also entered into agreements with the City of St. Petersburg in Florida and with CART to organize and promote the Grand Prix of St. Petersburg. The inaugural event is expected to be held in February 2003. Dover International Speedway We have presented NASCAR-sanctioned racing events for 33 consecutive years at Dover International Speedway and currently conduct five major NASCAR-sanctioned events at the facility annually. Two races are in the Winston Cup professional stock car racing circuit, two races are in the Busch Series, Grand National Division (Busch Series) racing circuit and one race is in the Craftsman Truck Series racing circuit. Each of the Busch Series events and the Craftsman Truck Series event at Dover International Speedway are conducted on the days before a Winston Cup event. Dover International Speedway is one of only seven speedways in the country that presents two Winston Cup events and two Busch Series events each year. Additionally, the Company is one of only six tracks to host three major NASCAR events at one facility on the same weekend. The June and September dates have historically allowed Dover International Speedway to hold the first and last Winston Cup events in the Maryland to Maine region each year. 2 Dover International Speedway is a high-banked, one-mile long, concrete superspeedway with a seating capacity for the 2001 season of approximately 140,000. 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 Winston Cup Series events. Nashville Superspeedway The Company acquired Nashville Speedway, USA on January 2, 1998. To accommodate the demand for major motorsports in the Nashville area, the Company constructed a new superspeedway and motorsports complex in Wilson County, Tennessee. The 1.33-mile concrete superspeedway has 25,000 permanent grandstand seats with an infrastructure in place to expand to 150,000 seats as demand requires. Additionally, the first phase of construction included lights at the superspeedway to allow for nighttime racing and the foundation work for a dirt track, short track and drag strip, which may be completed in the future. The new Nashville Superspeedway opened in April 2001 with a strong schedule of events, including a NASCAR Busch Series event, a NASCAR Craftsman Truck Series event, an IRL event and other regional and national touring events. Nashville Superspeedway has also signed an agreement with NASCAR to promote an additional Busch Series event in June 2002. Grand Prix Association of Long Beach The Company acquired Grand Prix Association of Long Beach, Inc. (Grand Prix) on July 1, 1998. For the past 27 years, Grand Prix has organized and promoted the CART-sanctioned Grand Prix of Long Beach, an annual temporary circuit professional motorsports event run in the streets of Long Beach, California. The Grand Prix of Long Beach has the second highest paid attendance of any Indy-style car race, second only to the Indianapolis 500. Grand Prix will also organize and promote the Grand Prix of Denver in Denver, Colorado. The Grand Prix of Denver will be a CART-sanctioned event, with the inaugural event scheduled for September 2002. Grand Prix has also entered into agreements with the City of St. Petersburg in Florida and with CART to organize and promote the Grand Prix of St. Petersburg. The inaugural event is expected to be held in February 2003. Gateway International Raceway Gateway International Raceway (Gateway), acquired in the Grand Prix acquisition, promoted four major events in 2001. These events were sanctioned by NASCAR, IRL and NHRA. The facility also hosts a number of regional and national touring events. The auto racing facility includes a 1.25-mile paved oval track with 55,000 permanent seats, a national-caliber drag strip capable of seating approximately 30,000 people and a road course. The facility, which is equipped with lights for nighttime racing, is located in Madison, Illinois, approximately five miles from the St. Louis Arch. Memphis Motorsports Park Memphis Motorsports Park (Memphis), also acquired in the Grand Prix acquisition, promoted three major events in 2001. These events were sanctioned by NASCAR and NHRA. The facility also hosts a number of regional and national touring events. The auto racing facility includes a 3/4-mile paved tri-oval track with 16,000 permanent seats, a national-caliber drag strip capable of seating approximated 25,000 people , a 1/4-mile dirt track and a road course. The facility is located in Millington, Tennessee, approximately 10 miles from Memphis, Tennessee. 3 Broadcasting Rights In recent years, television coverage and corporate sponsorship have increased dramatically for NASCAR-sanctioned events. All NASCAR Winston Cup and Busch Series events sponsored by the Company are currently televised nationally. According to NASCAR, major national corporate sponsorship of NASCAR-sanctioned events (which currently includes over 70 Fortune 500 companies) also continues to increase significantly. DVD's sponsors include such companies as Anheuser Busch, Dietz and Watson, Dodge, Ford, Kroger, MBNA, Pepsi, Pfizer and RJR Nabisco. NASCAR retains the television, audio and other electronic media rights for Winston Cup and Busch Series events and has a six-year television rights agreement with the NBC and Turner networks and an eight-year agreement with Fox and its FX cable network. NASCAR has announced that the industry-wide domestic television broadcast revenues were approximately $259 million for the 2001 race season and will increase at an average annual rate of approximately 17% through the 2006 racing season. Under the terms of its sanction agreements, NASCAR retains 10% of the gross broadcast rights fees allocated to each NASCAR Winston Cup or Busch Series event as a component of its sanction fees and remits the remaining 90% to the event promoter. The event promoter continues to pay 25% of the gross broadcast rights fees to the event as part of the awards to the competitors. Competition The Company's 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. Seasonality DVD derives a substantial portion of its total revenues from admissions and event-related revenue attributable to its major motorsports events held from April through October. As a result, DVD's business is highly seasonal. Inflation Inflation has not had a material effect on DVD's operations. If inflation increases, we will attempt to increase our prices to offset our increased expenses. No assurance can be given, however, that we will be able to adequately increase our prices in response to inflation. Employees As of December 31, 2001, DVD had approximately 739 full-time employees and 150 part-time employees. 114 full-time employees and 15 part-time employees are in the continuing operations. The remainder of the employees are in the discontinued operation. We hire temporary employees to assist during our motorsports racing season. Item 2. Properties - ------------------ Dover International Speedway Properties Our motorsports superspeedway (Dover International Speedway) is located in Dover, Delaware, on approximately 747 acres of land owned by the Company. Properties owned by Gaming & Entertainment include; Dover Downs Slots--an 80,000 square foot casino, the Dover Downs Raceway harness racing grandstands, and betting and simulcasting parlors, and the Dover Downs Hotel and Conference Center, all of which are located adjacent to our motorsports superspeedway in Dover, Delaware. Use of the 5/8-mile harness racing track is under an easement granted by DVD which does not require the payment of any rent. Under the terms of the easement Gaming & Entertainment has exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The harness track is located on property owned by DVD and is on the 4 inside of DVD's one mile motorsports superspeedway. The indoor grandstands will be used by DVD free of charge in connection with its motorsports events and are owned by Gaming & Entertainment. DVD also leases its principal executive office space from Gaming & Entertainment. Various easements and agreements relative to access, utilities and parking have also been entered into between DVD and Gaming & Entertainment. Nashville Fairgrounds Property The Nashville Fairgrounds racetrack is located on 12 acres of land in Nashville, Tennessee and was leased from the Metropolitan Board of Fair Commissioners through September 2007. Effective December 28, 2001, Nashville Speedway, USA assigned its lease of this facility to a third party. As a result, the Company's operations at this facility ceased. Nashville Superspeedway Property Nashville Superspeedway is located on approximately 1,465 acres of land owned by the Company in Wilson County and Rutherford County, Tennessee, approximately 30 miles from downtown Nashville, Tennessee. Long Beach Properties Grand Prix owns its office at 3000 Pacific Avenue, Long Beach, California, which consists of approximately 82,000 square feet of land and a building with approximately 50,000 square feet of office and warehouse space. Grand Prix leases a 750-square foot ticket office in downtown Long Beach for the sale of tickets and leases storage facilities in Long Beach for its equipment and structures. Gateway International Raceway Property Gateway International Raceway is located on approximately 416 acres of land in Madison, Illinois, five miles from the St. Louis Arch. The Company owns approximately 123 acres and has three long-term leases (expiring in 2011, 2025 and 2070) for an additional 259 acres, with purchase options. The Company is also a party to a ten-year lease (with four five-year renewals) of 20 acres for the purpose of providing overflow parking for major events on a neighboring golf course, and a five-year lease of approximately 14 acres for major event parking. The Company has granted a first mortgage lien on all the real property owned and a security interest in all property leased by the Company at Gateway to Southwestern Illinois Development Authority (SWIDA) as security for the repayment of principal and interest on its $21.5 million loan from SWIDA. Memphis Motorsports Park Property Memphis Motorsports Park is located on approximately 350 acres of land owned by the Company approximately ten miles northeast of downtown Memphis, Tennessee. The facility is encumbered by a first trust deed to First Tennessee Bank for the purpose of securing a standby letter of credit issued by First Tennessee Bank to Gateway International Motorsports Corporation to satisfy its debt service reserve fund obligation to SWIDA. Item 3. Legal Proceedings - ------------------------- We are a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a serious negative effect on our results of operations, financial condition or cash flows. Item 4. Submission Of Matters To A Vote Of Security Holders - ----------------------------------------------------------- None. 5 Part II Item 5. Market For The Registrant's Common Stock And Related Stockholder Matters - -------------------------------------------------------------------------------- The Company's common stock is listed on the New York Stock Exchange under the ticker symbol "DVD." There is no public trading market for DVD Class A common stock. However, Class A common stock is freely convertible at any time into shares of common stock on a one-for-one basis at the option of the stockholder. As of February 28, 2002, there were 14,284,252 shares of common stock and 23,769,085 shares of Class A common stock outstanding. There were 1,256 holders of record for common stock and 17 holders of record for Class A common stock. The range of share prices for the Company's common stock on the New York Stock Exchange for the year ended December 31, 2001, the six-month period ended December 31, 2000 and the fiscal year ended June 30, 2000 are as follows: Quarter Ended: High Low -------------- ---- --- September 30, 1999 $ 17.94 $ 13.50 December 31, 1999 20.00 13.63 March 31, 2000 17.81 11.06 June 30, 2000 14.00 11.19 September 30, 2000 13.75 9.88 December 31, 2000 12.88 10.50 March 31, 2001 12.55 10.50 June 30, 2001 15.40 11.80 September 30, 2001 15.20 11.69 December 31, 2001 16.87 11.73 Dividends of $0.045 per share were declared for each fiscal quarter in the year ended December 31, 2001, the six-month period ended December 31, 2000 and the fiscal year ended June 30, 2000. For comparison purposes, after the tax-free spin-off of Gaming & Entertainment to the Company's stockholders, the historical market value of the Company's common stock will be less meaningful since the historical values included Gaming & Entertainment. Similarly, a comparison of the historical dividend payout to future dividends should factor in the effect of the spin-off. 6 Item 6. Selected Financial Data - ------------------------------- The following table summarizes certain selected historical and pro forma financial data and should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this document. The pro forma consolidated balance sheet data has been derived from the consolidated balance sheet as of December 31, 2001 and 2000, and June 30, 2000, and has been prepared to give effect to the spin-off transaction as of the respective balance sheet date. Management believes that no pro forma adjustments, other than the reclassification of the net assets of the discontinued operation, are required to the historical balance sheets presented below. The pro forma statement of earnings data presents the consolidated results of operations of DVD assuming the spin-off transaction occurred as of the beginning of the applicable period. Management believes that no pro forma adjustments, other than the elimination of discontinued operations, are required to the historical statement of earnings presented below. Neither the historical financial information nor the pro forma data presented below is necessarily indicative of the results of operations or financial position that DVD would have reported if it had operated exclusive of the discontinued operation during the periods presented or in the future. Five Year Selected Financial Data
Year Ended Six Months Ended December 31, December 31, Year Ended June 30, -------------------- ------------------ --------------------------------------------------- Pro Pro Pro Forma Forma Forma 2001 2001 2000 2000 2000 2000 1999(a) 1998 1997 --------- --------- -------- -------- -------- -------- -------- -------- ------ (unaudited) (unaudited) (unaudited) (unaudited) Statement of Earnings Data (in thousands): Revenues.......................... $ 86,551 $ 86,551 $ 39,045 $ 39,045 $ 77,311 $ 77,311 $ 68,683 $ 25,874 $ 20,516 Expenses: Operating....................... 50,882 50,882 21,573 21,573 41,984 41,984 37,138 10,462 7,583 Depreciation and amortization... 10,023 10,023 4,001 4,001 6,671 6,671 5,829 1,470 981 General and administrative...... 11,408 11,408 4,661 4,661 8,578 8,578 8,519 1,436 873 -------- --------- -------- -------- -------- -------- -------- -------- -------- Total expenses................ 72,313 72,313 30,235 30,235 57,233 57,233 51,486 13,368 9,437 Operating earnings................ 14,238 14,238 8,810 8,810 20,078 20,078 17,197 12,506 11,079 Interest expense (income), net.... 1,614 1,614 9 9 924 924 1,267 (702) (969) -------- --------- -------- -------- -------- -------- -------- -------- -------- Earnings from continuing operations before income taxes.... 12,624 12,624 8,801 8,801 19,154 19,154 15,930 13,208 12,048 Income taxes...................... 5,753 5,753 3,945 3,945 8,181 8,181 6,735 5,742 5,160 -------- --------- -------- -------- -------- -------- -------- -------- -------- Earnings from continuing operations........................ 6,871 6,871 4,856 4,856 10,973 10,973 9,195 7,466 6,888 Earnings from discontinued operation, net of income taxes.... - 21,095 - 11,056 - 20,952 17,696 14,447 9,584 -------- --------- -------- -------- -------- -------- -------- -------- -------- Net earnings...................... $ 6,871 $ 27,966 $ 4,856 $ 15,912 $ 10,973 $ 31,925 $ 26,891 $ 21,913 $ 16,472 ======== ========= ======== ======== ======== ======== ======== ======== ======== Earnings per share - basic (b): Earnings from continuing operations...................... $ 0.18 $ 0.18 $ 0.13 $ 0.13 $ 0.30 $ 0.30 $ 0.26 $ 0.25 $ 0.23 Earnings from discontinued operation ...................... - 0.56 - 0.29 - 0.58 0.50 0.47 0.32 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net earnings.................... $ 0.18 $ 0.74 $ 0.13 $ 0.42 $ 0.30 $ 0.88 $ 0.76 $ 0.72 $ 0.55 ====== ====== ====== ====== ====== ====== ====== ====== ====== Earnings per share - diluted (b): Earnings from continuing operations...................... $ 0.18 $ 0.18 $ 0.13 $ 0.13 $ 0.30 $ 0.30 $ 0.25 $ 0.24 $ 0.23 Earnings from discontinued operation....................... - 0.55 - 0.29 - 0.56 0.49 0.46 0.31 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net earnings.................... $ 0.18 $ 0.73 $ 0.13 $ 0.42 $ 0.30 $ 0.86 $ 0.74 $ 0.70 $ 0.54 ====== ====== ====== ====== ====== ====== ====== ====== ====== December 31, December 31, June 30, -------------------- ------------------ ---------------------------------------------------- Pro Pro Pro Forma Forma Forma 2001 2001 2000 2000 2000 2000 1999 1998 1997 --------- --------- -------- -------- -------- -------- -------- -------- ------- (unaudited) (unaudited) (unaudited) (unaudited) Balance Sheet Data (in thousands): Working capital (deficit)......... $(110,807) $(110,807) $(12,218) $(42,769) $(12,416) $(44,931) $(30,097) $(11,323) (c) Property and equipment, net....... 245,143 245,143 235,189 235,189 189,245 189,245 143,781 38,868 (c) Total assets...................... 314,903 417,556 299,537 381,095 264,156 334,658 261,742 92,710 (c) Total stockholders' equity........ $ 141,866 $ 244,519 $179,375 $230,382 $179,804 $217,791 $172,658 $71,365 (c)
(a) The Grand Prix Association of Long Beach, Inc. was acquired on July 1, 1998. (b) Prior year per share amounts have been adjusted to give retroactive effect to a two-for-one stock split distributed on September 15, 1998. (c) Not readily available. 7 Item 7. Management's Discussion And Analysis Of Financial Condition And Results - ------------------------------------------------------------------------------- Of Operations ------------- The following discussion is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. For purposes of comparing the year ended December 31, 2001 and the six-month period ended December 31, 2000 with the same periods from the prior year, the Company has relied upon consolidated financial statements that are not presented elsewhere in this document. On July 25, 2001, the Board of Directors of the Company resolved to pursue the separation of its gaming and motorsports business segments into two publicly owned companies. On March 7, 2002, DVD announced that the tax-free spin-off of Dover Downs, Inc., its gaming business, is expected to be effective March 31, 2002. Accordingly, the operations of this business have been reflected as a discontinued operation and excluded from consolidated revenues and expenses for all years in the accompanying consolidated financial statements and our discussions herein. Results of Operations Year Ended December 31, 2001 vs. Year Ended December 31, 2000 Revenues increased by $3,847,000, or 4.7%, to $86,551,000, primarily the result of events at the new Nashville Superspeedway and record attendance and increased broadcast revenue for the Company's NASCAR Winston Cup events at Dover International Speedway. The aforementioned increases in motorsports revenue were offset by decreased attendance at certain motorsports events at the Company's other facilities and unusually inclement weather that negatively impacted nine of the sixteen major motorsports events promoted by the Company during the year ended December 31, 2001. Operating expenses increased $6,894,000, or 15.7%, for 2001 compared with 2000, primarily the result of events promoted for the first time at the new Nashville Superspeedway, which opened in April 2001, and pre-opening expenses related to the inaugural Grand Prix of Denver scheduled to occur in September 2002. Depreciation and amortization expense increased by $2,441,000 primarily due to the opening of the Nashville Superspeedway complex in April 2001 and the addition of grandstand seats at Dover International Speedway in June 2001. General and administrative expenses increased by $2,302,000 to $11,408,000 from $9,106,000 in 2000, primarily due to the opening of the Nashville Superspeedway complex in April 2001. Net interest expense increased by $1,498,000 primarily as a result of the Company capitalizing $1,531,000 of interest related to the construction of major facilities in 2001 compared with $3,045,000 in 2000. Capitalization of interest on the new Nashville Superspeedway ceased when the facility opened in April 2001. The Company's effective income tax rates for the years ended December 31, 2001 and 2000 were 45.6% and 43.0%, respectively. The increase resulted primarily from lower earnings from continuing operations before income taxes magnifying the impact of goodwill amortization that is not deductible for income tax purposes. Earnings from continuing operations decreased by $5,627,000, primarily as a result of unusually inclement weather negatively impacting attendance at nine of the major motorsports events promoted by the Company during 2001, and increased depreciation, interest and general and administrative expenses related to the opening of the Nashville Superspeedway in April 2001, offset by increased earnings from Dover International Speedway. 8 Earnings from discontinued operation (net of income taxes) were $21,095,000 in 2001 as compared to $21,568,000 in 2000. The decrease of $473,000, or 2.2%, was primarily due to increased general and administrative costs from pre-opening expenses related to the Dover Downs Hotel and Conference Center and increased interest expense related to the construction of the Dover Downs Hotel and Conference Center, offset by increased play in the casino. Also, prior year operating expenses were reduced by $2,475,000 as a result of the Company reversing a portion of prior accruals for disputed management fees. Six Months Ended December 31, 2000 Compared With Six Months Ended December 31, 1999 Revenues increased by $5,393,000, or 16.0%, to $39,045,000. Approximately $465,000 of the revenue increase resulted from increased attendance, $222,000 from increased ticket prices and $2,889,000 from increased sponsorship and broadcast revenues from the NASCAR-sanctioned events at Dover International Speedway. The remainder of the revenue increase is primarily from adding a Craftsman Truck Series event to the Dover fall NASCAR weekend and the scheduling of the CART event at Gateway International Raceway in September 2000 compared with May 1999. The aforementioned increases in revenues were offset somewhat by the Company's decision not to promote an IRL event at Dover International Speedway during the six-month period ended December 31, 2000, and the scheduling of the Craftsman Truck Series event at Gateway International Raceway in May 2000 compared with September 1999. Operating expenses increased by $2,005,000 principally due to the addition of a Craftsman Truck Series event to the Dover fall NASCAR weekend, the scheduling of the CART event at Gateway International Raceway in September 2000 compared with May 1999 and pre-opening expenses attributable to Nashville Superspeedway. The aforementioned increases in operating expenses were offset somewhat by the Company's decision not to promote an IRL event at Dover International Speedway during the six-month period ended December 31, 2000 and the scheduling of the Craftsman Truck Series event at Gateway International Raceway in May 2000 compared with September 1999. Depreciation and amortization increased by $911,000, or 29.5%, from capital expenditures related to the Company's various motorsports facilities completed during the six-month period ended December 31, 2000 and the year ended June 30, 2000. General and administrative expenses increased by $528,000 to $4,661,000 from $4,133,000, primarily due to expenses of approximately $500,000 attributable to Nashville Superspeedway pre-opening costs and a legal settlement. Net interest expense was $9,000 during the six-month period ended December 31, 2000 compared with $817,000 during the six-month period ended December 31, 1999. The Company capitalized $1,890,000 and $658,000 of interest during the six-month periods ended December 31, 2000 and 1999, respectively, related to the construction of major facilities. Our effective income tax rates were 44.8% and 44.9% for the six-month periods ended December 31, 2000 and 1999, respectively. Earnings from continuing operations increased by $1,527,000 primarily due to higher attendance and related revenues as well as an increase in the broadcast rights fees for the NASCAR-sanctioned motorsports events presented at Dover International Speedway and the scheduling of the CART-sanctioned event at Gateway International Raceway. Earnings from discontinued operation (net of income taxes) were $11,056,000 in the six-month period ended December 31, 2000 as compared to $10,442,000 in the six-month period ended December 31, 1999. The increase of $614,000, or 5.9%, was primarily due to increased play in the casino and the reversal of a portion of prior accruals for disputed management fees related to our casino operations. 9 Fiscal Year 2000 Compared With Fiscal Year 1999 Revenues increased by $8,628,000, or 12.6%, to $77,311,000. Approximately $2,214,000 of the revenue increase resulted from increased attendance and $995,000 from increased ticket prices for the NASCAR-sanctioned events at Dover International Speedway. The remainder of the increase was principally from increased broadcast rights fees, sponsorship, concessions and marketing-related revenues at Dover International Speedway and the addition of a Busch Series event at Memphis Motorsports Park in the second quarter of fiscal 2000. The aforementioned increases in revenues were offset somewhat by the rescheduling of the CART-sanctioned event at Gateway International Raceway to September 2000 compared with May 1999. Operating expenses increased by $4,846,000 principally due to a $2,319,000 increase in purse and sanction fee expenses at Dover International Speedway, and from the addition of a Busch Series event at Memphis Motorsports Park in the second quarter of fiscal 2000, offset by the rescheduling of the CART-sanctioned event at Gateway International Raceway. Depreciation and amortization increased by $842,000, or 14.4%, due to capital expenditures related to the Company's various motorsports facilities completed in fiscal 2000 and 1999. General and administrative expenses increased by $59,000 to $8,578,000 from $8,519,000, primarily due to the growth at the Company's various motorsports facilities. As a percentage of total revenues, the Company's general and administrative costs decreased to 11.1% from 12.4% in fiscal 1999. Net interest expense was $924,000 in fiscal 2000 compared to $1,267,000 in fiscal 1999. The decreased interest expense resulted from borrowings on the Company's revolving credit agreement, offset by the capitalization of $1,814,000 and $414,000 of interest in fiscal 2000 and 1999, respectively, related to the construction of major facilities. Our effective income tax rates were 42.7% and 42.3% for the fiscal years ended June 30, 2000 and 1999, respectively. Earnings from continuing operations increased by $1,778,000, primarily due to higher attendance and related revenues as well as an increase in the broadcast rights fees for the NASCAR-sanctioned motorsports events presented at Dover International Speedway and the addition of a Busch Series event at Memphis Motorsports Park, offset by the rescheduling of the CART-sanctioned event at Gateway International Raceway from May to September. Earnings from discontinued operation (net of income taxes) were $20,952,000 for the fiscal year ended June 30, 2000 as compared to $17,696,000 for the fiscal year ended June 30, 1999. The increase of $3,256,000, or 18.4%, was primarily due to increased levels of play in the casino. Liquidity and Capital Resources Net cash provided by continuing operations was $16,002,000 for the year ended December 31, 2001 compared to $35,229,000 for the year ended December 31, 2000. The decrease in 2001 as compared to 2000 was primarily due to a decrease in earnings from continuing operations before depreciation and amortization expense from $20,080,000 in 2000 to $16,894,000 in 2001, and the timing of certain construction payments related to the new Nashville Superspeedway and the timing of income tax payments. Net cash used in investing activities was $18,539,000 for the year ended December 31, 2001 compared to $76,264,000 for the year ended December 31, 2000. The decrease in 2001 as compared to 2000 was primarily due to the completion of the new Nashville Superspeedway project in April 2001. Net cash provided by financing activities increased from $38,808,000 for the year ended December 31, 2000 to $44,608,000 for the year ended December 31, 2001. The increase in 2001 as compared to 2000 was primarily due to additional borrowings under our revolving credit agreement primarily to fund construction costs related to the Dover Downs Hotel and Conference Center which is being constructed by Dover Downs, Inc. The repayment of monies advanced to Dover Downs, Inc. is addressed below. 10 The Company expects that its net cash flow from operating activities and funds available from its credit facility will be sufficient to provide for our working capital needs and capital spending requirements in calendar 2002, as well as any cash dividends the board of directors may decide to declare. At December 31, 2001, the Company had two credit facilities with a total capacity of $150,000,000. Amounts outstanding at December 31, 2001 were $110,610,000, and after consideration of standby letters of credit outstanding, the amount available pursuant to the two facilities was approximately $13,000,000. The $25,000,000 credit facility expires on June 15, 2002 and the $125,000,000 credit facility expires on September 30, 2002. The Company has signed a new $105,000,000 credit facility expected to expire on December 31, 2004, but the effectiveness of that agreement is contingent upon the completion of the tax-free spin-off of the Company's gaming operations, and as a result, the amounts outstanding under the Company's $150,000,000 facilities at December 31, 2001 have been classified as short-term. The new credit facility contains minimum net worth, fixed charge coverage and maximum leverage covenant requirements that the Company must comply with in order to avoid the requirement for early payment of the credit facility. Material adverse changes in the Company's results of operations would impact our ability to maintain financial ratios necessary to satisfy these requirements. DVD's existing $150,000,000 credit facilities are guaranteed by Dover Downs, Inc. and all of its other subsidiaries. The new $105,000,000 credit facility does not include Dover Downs, Inc. as it will be spun-off. Prior to the new facility becoming effective, $45 million of the amount outstanding under the existing DVD credit facilities will be paid down through a new $55 million credit facility which has been established by Gaming & Entertainment. Additionally, at December 31, 2001 Gaming & Entertainment owed DVD $7.8 million primarily representing the payment of certain costs by Dover Downs for Gaming & Entertainment and borrowings under Dover Downs' credit facility maintained for the benefit of Dover Downs and all of its subsidiaries. Dover Downs and Gaming & Entertainment have agreed to cancel any remaining intercompany balances and adjust Dover Downs' stockholders' equity by an equal amount at the date of the spin-off. As such, the intercompany balance is reflected as a reduction to stockholders' equity in the accompanying consolidated balance sheet. Related Party Transactions During the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999, the Company purchased certain paving, site work and construction services involving total payments of $572,000, $187,000, $432,000 and $432,000 from a company wholly-owned by an employee/director. During the six-month period ended December 31, 2000, the Company purchased an aircraft from a company wholly-owned by the aforementioned employee/director for $6,029,000. The Company purchased administrative services from Rollins Truck Leasing Corp. and affiliated companies (RTLC), which were related to the Company through common ownership, during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999. The total cost of these services, which have been included in general and administrative expenses in the consolidated statement of earnings, was $6,000, $20,000, $37,000 and $30,000, respectively. Gaming & Entertainment purchased administrative services from RTLC during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999. The total cost of these services, which have been included in earnings from discontinued operation in the consolidated statement of earnings, was $71,000, $233,000, $420,000 and $350,000, respectively. RTLC ceased to provide these services effective in April 2001. During the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999, Gaming & Entertainment allocated corporate costs of $2,307,000, $828,000, $1,640,000 and $1,414,000, respectively, to Dover Downs. The allocation was based on both an allocation to the business that directly incurred the costs and an analysis of each company's share of the costs. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been separate, independent entities and had otherwise managed these functions; however, management believes that these costs are reasonable. 11 Subsequent to the spin-off, use of Gaming & Entertainment's 5/8-mile harness racing track will be under an easement granted by Dover Downs which does not require the payment of any rent. Under the terms of the easement Gaming & Entertainment has exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The harness track is located on property owned by Dover Downs and is on the inside of Dover Downs' motorsports superspeedway. The indoor grandstands will be used by the Company free of charge in connection with its motorsports events and are owned by Gaming & Entertainment. Dover Downs also leases its principal executive office space from Gaming & Entertainment. Various easements and agreements relative to access, utilities and parking have also been entered into between the Company and Gaming & Entertainment. The Transition Support Services Agreement provides for each of Dover Downs and Gaming & Entertainment to provide each other with certain administrative and operational services subsequent to the spin-off. The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. 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 December 31, 2001, $92,000 was outstanding from a current director of the Company. This remaining balance was repaid in full in January 2002. Contractual Obligations The Company has issued a standby letter of credit to guarantee Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, issued by the Sports Authority of Wilson, Tennessee in the amount of $25,900,000. The proceeds from the bonds were used to acquire, construct and develop certain public infrastructure improvements in Wilson County, Tennessee. Interest only payments are required until September 1, 2002, and will be made from a capitalized interest fund established from the bond proceeds. The principal payments range from $400,000 in September 2002 to $1,600,000 in 2029. When the capitalized interest fund is depleted, which is estimated to be in or around July of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes generated from the facility. If the taxes are insufficient to cover the payment of principal and interest on the bonds, payments will be made pursuant to the aforementioned letter of credit. The Company believes that the sales and incremental property taxes generated from the facility will satisfy the debt service requirements of the bonds. However, if the debt service is not satisfied from the aforementioned sources, the bonds would become a liability of the Company. If we fail to maintain the letter of credit which secures the bonds or we allow an uncured default to exist under our reimbursement agreement relative to the letter of credit, the bonds would be immediately redeemable. The Company has entered into several sanctioning agreements to conduct motorsports events at its various venues. The Company has held NASCAR-sanctioned events for 33 consecutive years and its subsidiary, Grand Prix Association of Long Beach, has operated the Grand Prix of Long Beach for 27 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. At December 31, 2001, the Company had two credit facilities with a total capacity of $150,000,000. 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 $25,000,000 credit facility expires on June 15, 2002 and the $125,000,000 credit facility expires on September 30, 2002. The agreements are for seasonal funding needs, capital improvements and other general corporate purposes. At December 31, 2001, the Company was in compliance with all terms of the facilities and there was $110,610,000 outstanding at a weighted average interest rate of 3.04%. Under the terms of the credit facilities, approximately $13,000,000 of additional borrowings were available to the Company at December 31, 2001. 12 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 debt service as required by the SWIDA loan, which are held by the trustee (BNY Trust Company of Missouri). At December 31, 2001, $3,161,000 of the Company's cash balance is restricted by the SWIDA loan. A standby letter of credit for $2,502,000, which is secured by a Trust Deed on the Company's facilities in Memphis, Tennessee, also was obtained to satisfy debt service reserve fund obligations. 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 and payment of interest. The scheduled maturities of long-term debt outstanding at December 31, 2001 are as follows: 2002-$111,245,000; 2003-$685,000; 2004-$745,000; 2005-$805,000; 2006-$875,000; and thereafter-$16,795,000. Critical Accounting Policies The accounting policies described below are those the Company considers critical in preparing its consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used. The descriptions below are summarized and have been simplified for clarity. Goodwill The Company has made acquisitions in the past that included goodwill. Under generally accepted accounting principles in effect through December 31, 2001, these assets were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives. Effective in 2002, goodwill will no longer be amortized but will be subject to an annual (or under certain circumstances more frequent) impairment test based on its estimated fair value. Estimated fair value is typically less than values based on undiscounted operating earnings because fair value estimates include a discount factor in valuing future cash flows. There are many assumptions and estimates underlying the determination of an impairment loss. Another estimate using different, but still reasonable, assumptions could produce a significantly different result. Therefore, additional impairment losses could be recorded in the future. Accrued Pension Cost The benefits provided by the Company's pension plans are based on years of service and employee's renumeration over their employment with the Company. The Company establishes accrued pension costs in accordance with the provisions of Statement No. 87, Employers' Accounting for Pensions. Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for discount rate, assumed rate of compensation increase, and expected long-term rate of return on assets. Changes in these estimates would impact the amounts that the Company records in its consolidated financial statements. 13 Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company adopted the provisions of this statement during 2001, and it did not have a material impact on our results of operations, financial position or cash flows. In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement 142. The Company has elected to adopt the provisions of Statement 142 effective January 1, 2002, at which time the Company will cease to record amortization expense on its goodwill. The adoption of Statement 142 will result in a $1,454,000 reduction of amortization expense in 2002. We expect to complete our analysis of any potential impairment of our goodwill as a result of adopting this standard by the end of the second quarter of 2002. In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Statement No. 143 requires that the fair value of liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss on settlement. We are required and plan to adopt the provisions of Statement No. 143 in 2003. To accomplish this, we must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. We have not yet completed our analysis of the impact of adoption of this standard. In October 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. We adopted the provisions of Statement No. 144 effective January 1, 2002. The adoption of Statement No. 144 did not have a significant impact on our results of operations, financial position or cash flows. Factors That May Affect Operating Results; Forward-Looking Statements In addition to historical information, this Annual Report on Form 10-K includes forward-looking statements within the meaning of 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, legal matters, 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 document, as well as statements 14 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. 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 industry; 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, including consumer and corporate spending sentiment; our ability to finance 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 regulations; the affect of weather conditions on outdoor event attendance; military actions; air travel; national or local catastrophic events; 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 or conditions. 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. Our Relationship With Sanctioning Bodies Is Vital To Our Success In Motorsports Our continued success in motorsports is dependent upon keeping a good working relationship with the governing bodies of motorsports that sanction national racing events. These governing bodies include NASCAR, CART, IRL and NHRA. The governing bodies regularly issue and award sanctioned events and their issuance depends, in large part, on maintaining good working relationships with the sanctioning bodies. Many events are sanctioned on an annual basis. By awarding a sanctioned event or a series of sanctioned events, the sanctioning bodies do not warrant, either expressly or by implication, nor are they responsible for, the financial success of any sanctioned event. Moreover, no existing sanction agreement, unless expressly provided for in the agreement, can be construed to require the sanctioning body to enter into a sanction agreement or to issue a sanction for any other event in the future. Our inability to obtain additional sanctioned events in the future and to maintain sanction agreements at current levels would likely result in lower than anticipated revenues from admissions, sponsorships, hospitality, concessions, and merchandise, which could have a material adverse effect on our business, financial condition and results of operations. We Rely On Sponsorship Contracts To Generate Revenues We receive a substantial portion of our annual revenues from sponsorship agreements, including the sponsorship of our various events, our permanent venues, "official product" sponsorships, billboards, signage and skyboxes. Loss of our title sponsors or other major sponsorship agreements or failure to secure such sponsorship agreements in the future could have a material adverse effect on our business, financial condition and results of operations. Increased Government Regulation Of Sponsors And Restrictions On Advertising Could Substantially Reduce Our Advertising Revenue We receive a significant portion of our revenue from sponsorship and advertising by various companies. Tobacco and liquor companies have traditionally sponsored motorsports events. In June 1997, major tobacco companies entered into an agreement with federal negotiators and various states attorneys general whereby the tobacco companies agreed to give up certain advertising and promotional activity in exchange for liability limits in pending and future lawsuits. New laws or settlements could have a material adverse effect on the tobacco and liquor industry motorsports sponsorship and advertising expenditures. Government regulations and restrictions on advertising by tobacco companies, liquor companies and other potential sponsors could adversely impact revenues as well as the revenues of the motorsports industry as a whole. While we believe that the popularity of motorsports would allow us to secure alternate sponsors, there is no assurance that alternate sponsors could be obtained. 15 Our Motorsports Events Face Intense Competition For Attendance, Television Viewership And Sponsorship We compete with other auto speedways for the patronage of motor racing spectators as well as for promotions and sponsorships. Moreover, racing events sanctioned by different organizations are often held on the same dates at different tracks. 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. In addition, all of our events compete with other sports and recreational events scheduled on the same dates. 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 Street Races Depend On City Permits And Good Relationships With City Officials In order to conduct the Grand Prix of Long Beach, we must obtain an annual permit from the City of Long Beach to hold the race on city streets. Although Grand Prix has operated a racing event on the streets of Long Beach for twenty-seven years, there can be no assurance that this event will continue to be held or be successful. Similarly, the Grand Prix events we have planned for Denver, Colorado and St. Petersburg, Florida require that we obtain a variety of licenses and permits. Our ability to conduct street races requires that we maintain excellent relationships with the host city and its officials. Grand Prix's Ability To Meet Payment Obligations Under A Loan Agreement With An Illinois Government Agency Depends On Revenues From Gateway In order to finance the redevelopment of Gateway International Raceway, Grand Prix entered into a loan agreement with the Southwest Illinois Development Authority, which agreed to fund a loan to Grand Prix by issuing municipal bonds in the aggregate principal amount of $21,500,000. The bonds are unconditionally guaranteed by Grand Prix. Grand Prix issued a 20-year $21,500,000 promissory note to SWIDA which bears interest at an effective rate of approximately 9.1% per annum. Payments on the SWIDA loan are intended to be made primarily from the revenues from the operations of Gateway. Although Grand Prix is current on its obligation and expects to meet its future debt payment obligations out of the revenues from Gateway, and although Grand Prix will receive certain assistance from the City of Madison, Illinois in the form of a tax increment finance fund which should assist it in meeting its debt burdens, there can be no assurance that earnings from the future operations of Gateway will be sufficient to meet Grand Prix's debt service obligations. A default under the SWIDA loan could have a material adverse effect on our business, financial condition and results of operations. The Sales Tax And Property Tax Revenues To Service The Revenue Bonds For Infrastructure Improvements At Nashville May Be Inadequate In September 1999, the Sports Authority of Wilson County, Tennessee issued $25,900,000 in revenue bonds to build local infrastructure improvements which will benefit the operation of the new Nashville Superspeedway complex. Interest only payments are required until September 1, 2002 and will be made from a capitalized interest fund established from bond proceeds. When the capitalized interest fund is depleted, which is estimated to be in or around July of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes generated from the facility. In the event the taxes are insufficient to cover the payment of principal and interest on the bonds, payments will be made under a $26,326,000 irrevocable direct-pay letter of credit issued by several banks pursuant to a reimbursement and security agreement under which we have agreed to reimburse the banks for drawings made under the letter of credit. Such an event could have a material adverse effect on our business, financial condition and results of operations. 16 The Seasonality Of Our Motorsports Events Increases The Variability Of Quarterly Earnings Our business has been, and is expected to remain, seasonal given that it depends on our outdoor events for a substantial portion of 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 May and September. This has been offset to some degree by our other motorsports events, but quarterly earnings will vary. Our Insurance May Not Be Adequate To Cover Catastrophic Incidents We maintain insurance policies that provide coverage within limits that are sufficient, in the opinion of management, to protect us from material financial loss incurred in the ordinary course of business. We also purchase special event insurance for motorsports events to protect against race-related liability. However, there can be no assurance that this insurance will be adequate at all times and in all circumstances. If we are held liable for damages beyond the scope of our insurance coverage, including punitive damages, our business, financial condition and results of operations could be materially and adversely affected. Bad Weather Can Have An Adverse Financial Impact On Our Motorsports Events We sponsor and promote outdoor motorsports events. Weather conditions affect sales of tickets, concessions and souvenirs, among other things at these events. Although we sell many tickets well in advance of the outdoor events and these tickets are non-refundable, poor weather conditions may adversely affect additional ticket sales, concessions and souvenirs, which could have an adverse effect on our business, financial condition and results of operations. We do not currently maintain weather-related insurance for major events. Due to the importance of clear visibility and safe driving conditions to motorsports racing events, outdoor racing events may be significantly affected by weather patterns and seasonal weather changes. Any unanticipated weather changes could impact our ability to stage events. This could have a material adverse effect on our business, financial condition and results of operations. Item 7A. Quantitative And Qualitative Disclosure About Market Risk - ------------------------------------------------------------------ The carrying values of DVD's long-term debt approximates its fair value at December 31, 2001 and 2000. DVD is exposed to market risks related to fluctuations in interest rates for its variable rate borrowings of $110,610,000 at December 31, 2001 under its revolving credit facilities. A change in interest rates of one percent on the balance outstanding at December 31, 2001 would cause a change in total annual interest costs of $1,106,000. 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 $25,900,000. The proceeds were used to acquire, construct and develop certain public infrastructure improvements in Wilson County, Tennessee, which will be beneficial to the operation of the superspeedway complex the Company constructed through its wholly-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. When the capitalized interest fund is depleted, which is estimated to be in or around July of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes (the taxes) generated from the facility. If the 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 on behalf of the Company by several banks. Item 8. Financial Statements And Supplementary Data - --------------------------------------------------- DVD's consolidated financial statements and the Independent Auditors' Report included in this report are shown on the Index to Consolidated Financial Statements on page 22. 17 Item 9. Disagreements With Accountants On Accounting And Financial Disclosure - ----------------------------------------------------------------------------- None. Part III Item 10. Directors And Executive Officers Of The Registrant - ----------------------------------------------------------- Except as presented below, the information called for by this Item 10 is incorporated by reference to the DVD Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on May 22, 2002. Executive Officers of the Registrant. As of December 31, 2001, the executive officers of the registrant were: Name Position Age Term of Office - ---- -------- --- -------------- Klaus M. Belohoubek Vice President-General Counsel 42 7/99 to date and Secretary Robert M. Comollo Treasurer 54 11/81 to date Timothy R. Horne Vice President-Finance and 35 11/96 to date Chief Financial Officer Denis McGlynn President and 56 11/79 to date Chief Executive Officer Edward J. Sutor Executive Vice President 52 3/99 to date Klaus M. Belohoubek has been Vice President-General Counsel and Secretary since 1999 and has represented the Company in various capacities since 1990. Mr. Belohoubek will also serve as Vice President-General Counsel and Secretary of Gaming & Entertainment immediately following the spin-off. Mr. Belohoubek also has served as Vice President-General Counsel and Secretary to Rollins Truck Leasing Corp. Robert M. Comollo has been employed by the Company for 21 years, of which 20 years have been in the capacity of Treasurer. Mr. Comollo will also serve as Treasurer of Gaming & Entertainment immediately following the spin-off. Timothy R. Horne became Vice President-Finance and Chief Financial Officer in November of 1996. Mr. Horne was previously employed by KPMG LLP. Mr. Horne will also serve as Vice President-Finance and Chief Financial Officer of Gaming & Entertainment immediately following the spin-off. Denis McGlynn has served as the Company's President and Chief Executive Officer for 22 years. Mr. McGlynn will also serve as President and Chief Executive Officer to Gaming & Entertainment immediately following the spin-off. Edward J. Sutor became Executive Vice President in March of 1999. From 1983 until 1999, Mr. Sutor served as Senior Vice President of Finance at Caesars Atlantic City. Mr. Sutor will work exclusively for Gaming & Entertainment immediately following the spin-off as its Executive Vice President. The Company's Chairman of the Board, Henry B. Tippie, is a non-employee director and, therefore, not an executive officer of the Company. Mr. Tippie has served DVD in that capacity, or as Vice Chairman of the Board, for over 5 years. Mr. Tippie will also serve as Chairman of the Board to Gaming & Entertainment as a non-employee director immediately following the spin-off. 18 Item 11. Executive Compensation - ------------------------------- The information called for by this Item 11 is incorporated by reference to the DVD Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on May 22, 2002. Item 12. Security Ownership Of Certain Beneficial Owners And Management - ----------------------------------------------------------------------- The information called for by this Item 12 is incorporated by reference to the DVD Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on May 22, 2002. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- The information called for by this Item 13 is incorporated by reference to the DVD Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on May 22, 2002. Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K - ------------------------------------------------------------------------ (a)(1) Financial Statements - See accompanying Index to Consolidated Financial Statements on page 22. (2) Financial Statement Schedules - None. (3) Exhibits: 2.1 Share Exchange Agreement and Plan of Reorganization dated June 14, 1996 between Dover Downs Entertainment, Inc., Dover Downs, Inc., Dover Downs International Speedway, Inc. and the shareholders of Dover Downs, Inc. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 2.2 Agreement and Plan of Merger, dated as of March 26, 1998, by and among Dover Downs Entertainment, Inc. FOG Acquisition Corp., and Grand Prix Association of Long Beach as filed with the Company's Registration Statement Number 333-53077 on Form S-4 on May 19, 1998, is incorporated herein by reference. 2.3 Amended and Restated Agreement Regarding Distribution and Plan of Reorganization, dated as of February 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 3.1 Restated Certificate of Incorporation of Dover Downs Entertainment, Inc., dated March 10, 2000 as filed with the Company's Quarterly Report on Form 10-Q dated April 28, 2000, is incorporated herein by reference. 3.2 Amended and Restated By-laws of Dover Downs Entertainment, Inc. dated March 1, 2002. 4.1 Rights Agreement dated as of June 14, 1996 between Dover Downs Entertainment, Inc. and ChaseMellon Shareholder Services, L.L.C. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.1 Amended and Restated Credit Agreement Among Dover Downs Entertainment, Inc., the Several Banks and Other Financial Institutions Party Thereto and PNC Bank, Delaware as Agent Dated as of November 1, 1999, as filed with the Company's Quarterly Report on Form 10-Q dated November 5, 1999, is incorporated herein by reference. 19 10.2 Reimbursement and Security Agreement Between Dover Downs Entertainment, Inc., Nashville Speedway USA, Inc. and PNC Bank, Delaware dated as of September 1, 1999 as filed with the Company's Quarterly Report on Form 10-Q dated November 5, 1999, is incorporated herein by reference. 10.3 Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars World Gaming Development Corporation dated May 10, 1995 as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.4 First Amendment to Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars World Gaming Development Corporation dated October 25, 1996 as filed with the Company's Form 10-K dated February 27, 2001, is incorporated herein by reference. 10.5 Second Amendment to Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars World Gaming Development Corporation dated December 29, 2000 as filed with the Company's Form 10-K dated February 27, 2001, is incorporated herein by reference. 10.6 Dover Downs Entertainment, Inc. 1996 Stock Option Plan as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.7 Dover Downs Entertainment, Inc. 1991 Stock Option Plan as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.8 Employee Benefits Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.9 Transition Support Services Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.10 Tax Sharing Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.11 Real Property Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.12 Credit Agreement among Dover Downs Entertainment, Inc. and PNC Bank, Delaware, as agent, dated as of February 20, 2002. 10.13 Guaranty and Suretyship Agreement by and between Dover Downs International Speedway, Inc., Dover Downs Properties, Inc., Gateway International Motorsports Corporation, Gateway International Services Corporation, Grand Prix Association of Long Beach, Inc., Memphis International Motorsports Corporation, M & N Services Corp, Nashville Speedway, USA, Inc., and PNC Bank, Delaware, as agent, dated as of February 20, 2002. 21.1 Subsidiaries 20 23.1 Consent of Independent Accountants (b) Reports on Form 8-K The Company filed two Form 8-Ks, one on January 16, 2002 and the second on March 7, 2002, both relative to the spin-off of Dover Downs, Inc., the gaming business of DVD, to the Company's stockholders. Signatures ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: March 21, 2002 Dover Downs Entertainment, Inc. -------------- ------------------------------- Registrant BY: /s/ Denis McGlynn ------------------------------------- Denis McGlynn President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ Timothy R. Horne Vice President-Finance and March 21, 2002 - ------------------------------- Chief Financial Officer Timothy R. Horne /s/ Henry B. Tippie Chairman of the Board March 21, 2002 - ------------------------------- Henry B. Tippie /s/ John W. Rollins, Jr. Director March 21, 2002 - ------------------------------- John W. Rollins, Jr. /s/ Patrick J. Bagley Director March 21, 2002 - ------------------------------- Patrick J. Bagley /s/ Jeffrey W. Rollins Director March 21, 2002 - ------------------------------- Jeffrey W. Rollins /s/ Melvin L. Joseph Director March 21, 2002 - ------------------------------- Melvin L. Joseph /s/ R. Randall Rollins Director March 21, 2002 - ------------------------------- R. Randall Rollins /s/ Eugene W. Weaver Director March 21, 2002 - ------------------------------- Eugene W. Weaver 21 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Independent Auditors' Report on Consolidated Financial Statements......... 23 Consolidated Statement of Earnings for the year ended December 31, 2001, the six-months ended December 31, 2000 and the years ended June 30, 2000 and 1999............................................................. 24 Consolidated Balance Sheet at December 31, 2001 and 2000, and June 30, 2000...................................................................... 25 Consolidated Statement of Cash Flows for the year ended December 31, 2001, the six-months ended December 31, 2000 and the years ended June 30, 2000 and 1999............................................................. 26 Notes to the Consolidated Financial Statements............................ 27 22 INDEPENDENT AUDITORS' REPORT The Stockholders 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 December 31, 2001 and 2000, and June 30, 2000, and the related consolidated statements of earnings and cash flows for the year ended December 31, 2001, the six-months ended December 31, 2000 and each of the years in the two-year period ended June 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial position of Dover Downs Entertainment, Inc. and subsidiaries as of December 31, 2001 and 2000, and June 30, 2000, and the results of their operations and their cash flows for the year ended December 31, 2001, the six-months ended December 31, 2000 and each of the years in the two-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Philadelphia, Pennsylvania February 19, 2002 23 DOVER DOWNS ENTERTAINMENT, INC. CONSOLIDATED STATEMENT OF EARNINGS
Year ended Six months ended Year ended June 30, December 31, December 31, --------------------------- 2001 2000 2000 1999 ------------ ------------ ------------ ------------ Revenues .................................. $ 86,551,000 $ 39,045,000 $ 77,311,000 $ 68,683,000 Expenses: Operating ............................ 50,882,000 21,573,000 41,984,000 37,138,000 Depreciation and amortization ........ 10,023,000 4,001,000 6,671,000 5,829,000 General and administrative ........... 11,408,000 4,661,000 8,578,000 8,519,000 ------------ ------------ ------------ ------------ 72,313,000 30,235,000 57,233,000 51,486,000 ------------ ------------ ------------ ------------ Operating earnings ........................ 14,238,000 8,810,000 20,078,000 17,197,000 Interest income ........................... 107,000 175,000 313,000 701,000 Interest expense, net ..................... (1,721,000) (184,000) (1,237,000) (1,968,000) ------------ ------------ ------------ ------------ Earnings from continuing operations before income taxes ............................ 12,624,000 8,801,000 19,154,000 15,930,000 Income taxes .............................. 5,753,000 3,945,000 8,181,000 6,735,000 ------------ ------------ ------------ ------------ Earnings from continuing operations ....... 6,871,000 4,856,000 10,973,000 9,195,000 Earnings from discontinued operation, net of income taxes of $14,499,000 in 2001, $7,577,000 for the six months ended December 31, 2000, $14,366,000 in 2000 and $12,145,000 in 1999 ................. 21,095,000 11,056,000 20,952,000 17,696,000 ------------ ------------ ------------ ------------ Net earnings .............................. $ 27,966,000 $ 15,912,000 $ 31,925,000 $ 26,891,000 ============ ============ ============ ============ Earnings per common share - basic: Earnings from continuing operations ... $ 0.18 $ 0.13 $ 0.30 $ 0.26 Earnings from discontinued operation .. 0.56 0.29 0.58 0.50 ------------ ------------ ------------ ------------ Net earnings .......................... $ 0.74 $ 0.42 $ 0.88 $ 0.76 ============ ============ ============ ============ Earnings per common share - diluted: Earnings from continuing operations ... $ 0.18 $ 0.13 $ 0.30 $ 0.25 Earnings from discontinued operation .. 0.55 0.29 0.56 0.49 ------------ ------------ ------------ ------------ Net earnings .......................... $ 0.73 $ 0.42 $ 0.86 $ 0.74 ============ ============ ============ ============
The Notes to the Consolidated Financial Statements are an integral part of these statements. 24 DOVER DOWNS ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEET
December 31, ------------------------- June 30, 2001 2000 2000 ----------- ----------- ------------ ASSETS Current assets: Cash and cash equivalents...................................... $ 6,109,000 $ 2,379,000 $ 6,085,000 Accounts receivable............................................ 4,170,000 5,055,000 10,517,000 Inventories.................................................... 423,000 333,000 341,000 Prepaid expenses and other..................................... 3,127,000 3,091,000 3,707,000 Income taxes receivable........................................ 3,819,000 -- -- Deferred income taxes.......................................... 120,000 132,000 137,000 ------------ ------------ ------------ Total current assets...................................... 17,768,000 10,990,000 20,787,000 Property and equipment, net......................................... 245,143,000 235,189,000 189,245,000 Other assets, net................................................... 1,503,000 1,415,000 1,453,000 Goodwill, net....................................................... 50,489,000 51,943,000 52,671,000 Net assets of discontinued operation................................ 102,653,000 81,558,000 70,502,000 ------------ ------------ ------------ Total assets.............................................. $417,556,000 $381,095,000 $334,658,000 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................... $ 1,024,000 $ 5,363,000 $ 8,479,000 Accrued liabilities............................................ 3,394,000 2,005,000 4,437,000 Payable to Dover Downs Gaming & Entertainment, Inc. ........... -- 30,551,000 32,515,000 Income taxes payable........................................... -- 1,378,000 2,225,000 Current portion of long-term debt.............................. 635,000 585,000 585,000 Notes payable to bank.......................................... 110,610,000 -- -- Deferred revenue............................................... 12,912,000 13,877,000 17,477,000 ------------ ------------ ------------ Total current liabilities................................. 128,575,000 53,759,000 65,718,000 Notes payable to bank............................................... -- 58,750,000 15,000,000 Long-term debt...................................................... 19,905,000 20,540,000 20,540,000 Other liabilities................................................... 131,000 156,000 174,000 Deferred income taxes............................................... 24,426,000 17,508,000 15,435,000 Commitments and contingencies (see Notes to the Consolidated Financial Statements) Stockholders' 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: December 2001-14,284,252 shares; December 2000-14,052,092 shares; June 2000-13,796,500 shares.............. 1,428,000 1,405,000 1,380,000 Class A common stock, $.10 par value; 55,000,000 shares authorized; issued and outstanding: December 2001-23,769,085 shares; December 2000-23,857,885 shares; June 2000-24,054,985 shares........................................................... 2,376,000 2,385,000 2,405,000 Additional paid-in capital.......................................... 120,080,000 119,303,000 119,222,000 Retained earnings................................................... 128,425,000 107,289,000 94,784,000 ------------ ------------ ------------ 252,309,000 230,382,000 217,791,000 Receivable from Dover Downs Gaming & Entertainment, Inc. ........... (7,790,000) -- -- ------------ ------------ ------------ Total stockholders' equity................................ 244,519,000 230,382,000 217,791,000 ------------ ------------ ------------ Total liabilities and stockholders' equity................ $417,556,000 $381,095,000 $334,658,000 ============ ============ ============
The Notes to the Consolidated Financial Statements are an integral part of these statements. 25 DOVER DOWNS ENTERTAINMENT, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Six months ended Years ended June 30, December 31, December 31, ----------------------------- 2001 2000 2000 1999 ------------- ------------- ------------- ------------ Cash flows from operating activities: Net earnings................................... $ 27,966,000 $ 15,912,000 $ 31,925,000 $ 26,891,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............. 10,023,000 4,001,000 6,671,000 5,829,000 Earnings from discontinued operation, net (21,095,000) (11,056,000) (20,952,000) (17,696,000) Tax benefit of options exercised.......... 531,000 -- -- -- (Increase) decrease in assets, net of effect of acquisition: Accounts receivable.................... 885,000 5,462,000 (4,692,000) (1,378,000) Inventories............................ (90,000) 8,000 45,000 (42,000) Prepaid expenses and other............. (36,000) 616,000 (133,000) (1,984,000) Increase (decrease) in liabilities, net of effect of acquisition: Accounts payable....................... (4,339,000) (3,116,000) 5,082,000 (292,000) Accrued liabilities.................... 1,389,000 (2,432,000) (15,000) (269,000) Current and deferred income taxes...... 1,733,000 1,231,000 6,194,000 1,320,000 Deferred revenue....................... (965,000) (3,600,000) 1,667,000 2,759,000 ------------- ------------- ------------- ------------ Net cash provided by continuing operations........ 16,002,000 7,026,000 25,792,000 15,138,000 ------------- ------------- ------------- ------------ Cash flows from investing activities: Capital expenditures........................... (18,445,000) (49,179,000) (50,592,000) (36,212,000) Cash acquired in business acquisition.......... -- -- -- 1,490,000 Other.......................................... (94,000) -- (125,000) -- ------------- ------------- ------------- ------------ Net cash used in investing activities of continuing operations.......................... (18,539,000) (49,179,000) (50,717,000) (34,722,000) ------------- ------------- ------------- ------------ Cash flows from financing activities: Borrowings from revolving debt................ 639,295,000 155,350,000 152,494,000 42,500,000 Repayments of revolving debt.................. (587,435,000) (111,600,000) (152,994,000) (29,339,000) Repayments of long-term debt.................. (585,000) -- (335,000) (760,000) Loan repayments............................... -- -- -- 207,000 Net proceeds from public offering............. -- -- 19,185,000 -- Dividends paid................................ (6,830,000) (3,407,000) (6,550,000) (6,213,000) Proceeds from stock options exercised......... 260,000 86,000 573,000 167,000 Other assets and liabilities.................. (97,000) (18,000) (90,000) (155,000) ------------- ------------- ------------- ------------ Net cash provided by financing activities of continuing operations ......................... 44,608,000 40,411,000 12,283,000 6,407,000 ------------- ------------- ------------- ------------ Net cash (used in) provided by discontinued operation...................................... (38,341,000) (1,964,000) 15,648,000 11,827,000 ------------- ------------- ------------- ------------ Net increase (decrease) in cash and cash equivalents.................................... 3,730,000 (3,706,000) 3,006,000 (1,350,000) Cash and cash equivalents, beginning of period.... 2,379,000 6,085,000 3,079,000 4,429,000 ------------- ------------- ------------- ------------ Cash and cash equivalents, end of period.......... $ 6,109,000 $ 2,379,000 $ 6,085,000 $ 3,079,000 ------------- ------------- ------------- ------------ Supplemental information: Interest paid.................................. $ 4,044,000 $ 238,000 $ 1,515,000 $ 1,762,000 ------------- ------------- ------------- ------------ Income taxes paid.............................. $ 4,020,000 $ 2,714,000 $ 3,939,000 $ 6,153,000 ------------- ------------- ------------- ------------ 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 ============
The Notes to the Consolidated Financial Statements are an integral part of these statements. 26 DOVER DOWNS ENTERTAINMENT, INC. 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 and promoted 16 major events during 2001 in four of the 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). The Company owns and operates Dover International Speedway in Dover, Delaware, the new Nashville Superspeedway complex near Nashville, Tennessee, Gateway International Raceway near St. Louis, Missouri and Memphis Motorsports Park near Memphis, Tennessee. The Company organizes and promotes the Toyota Grand Prix of Long Beach in Long Beach, California, and the Grand Prix of Denver in Denver, Colorado, beginning with the inaugural event scheduled for September 2002. The Company has also entered into agreements with the City of St. Petersburg in Florida and with CART to organize and promote the Grand Prix of St. Petersburg. The inaugural event is expected to be held in February 2003. On March 7, 2002, the Company announced that the tax-free spin-off of Dover Downs, Inc., its gaming business, is expected to be effective March 31, 2002. The Company will change its name to Dover Motorsports, Inc. and focus on the fixed facility and temporary circuit motorsports operations. To accomplish the spin-off, the Company has contributed 100 percent of the issued and outstanding common stock of Dover Downs, Inc. to Dover Downs Gaming & Entertainment, Inc. (Gaming & Entertainment), a newly formed wholly-owned subsidiary of the Company. On the effective date of the spin-off, the Company will distribute all of the capital stock of Gaming & Entertainment to the Company's stockholders on a pro-rata basis. Holders of the Company's common stock or Class A common stock, will receive 0.7 shares of Gaming & Entertainment common stock or Class A common stock for each share of the Company's common stock or Class A common stock owned at the close of business on March 18, 2002, the record date for the spin-off. Each share of common stock or Class A common stock to be distributed will be accompanied by one stock purchase right. Accordingly, the operations of this business have been reflected as a discontinued operation in the accompanying consolidating financial statements. The Company's continuing operations subsequent to the spin-off will consist solely of its motorsports activities. Based on an Internal Revenue Service Private Letter ruling, the spin-off will be tax-free to Dover Downs and its stockholders, except for cash received for any fractional shares. Immediately after the spin-off, the Company will not own any shares of Gaming & Entertainment, and Gaming & Entertainment will be an independent public company. The actual number of shares of Gaming & Entertainment stock to be distributed will depend on the number of shares of Dover Downs stock outstanding on the record date. See NOTE 4 - Discontinued Operations for further discussion. NOTE 2 - Acquisition On July 1, 1998, the Company completed its acquisition of Grand Prix Association of Long Beach, Inc. (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. The purchase price was comprised of the conversion of the outstanding Grand Prix common stock into 5,036,458 shares of the Company's stock and assumption by the Company of the outstanding stock options of Grand Prix. 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 was $52,551,000. 27 NOTE 3 - Summary of Significant Accounting Policies Basis of consolidation and presentation-The accompanying consolidated financial statements include the accounts of Dover Downs and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated. 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 of items for resale are stated at the lower of cost or market with cost being determined on the first-in, first-out basis. Property and equipment-Property and equipment are stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method over the following estimated useful lives: Facilities 10 - 40 years Furniture, fixtures and equipment 5 - 10 years The carrying values of property and equipment are evaluated for impairment based upon expected future undiscounted cash flows. If events or circumstances indicate that the carrying value of an asset may not be recoverable, an impairment loss would be recognized equal to the difference between the carrying value of the asset and its fair value. 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. During the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999, the Company incurred $3,252,000, $2,074,000, $3,051,000 and $2,382,000 of interest cost of which $1,531,000, $1,890,000, $1,814,000 and $414,000, respectively, was capitalized. Goodwill-Goodwill resulting from acquisitions prior to July 1, 2001 represents the excess of the purchase price over the fair value of net assets acquired and was amortized using the straight-line method principally over a period of 40 years. Amortization expense for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999 was $1,454,000, $728,000, $1,451,000 and $1,448,000, respectively. At December 31, 2001 and 2000, and June 30, 2000, accumulated amortization was $5,156,000, $3,702,000 and $2,974,000, respectively. Recoverability of goodwill is assessed using estimated undiscounted future cash flows. Income taxes-Deferred income taxes are provided in accordance with the provisions of Statement of Financial Accounting Standards (Statement) 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. Revenue and expense recognition-Revenues, including admissions, broadcasting rights, sponsorships, concessions, luxury suite rentals, and commissions and souvenirs, and certain direct expenses pertaining to specific events are deferred until the event is held. Deferred expenses primarily include race purses and sanctioning fees remitted to NASCAR or other sanctioning bodies. Advertising costs-The costs of general advertising, promotion and marketing programs are charged to operations as incurred. Preopening costs-Preopening costs represent the direct salaries and other operating costs incurred by the Company prior to opening new permanent or temporary facilities. The Company accounts for start-up activities under provisions of the AICPA Statement of Position 98-5, Reporting on the Costs of Start-Up Activities, which requires costs of start-up activities to be expensed as incurred. 28 Earnings per share-Basic and diluted earnings per share (EPS) are calculated in accordance with Statement No. 128, Earnings Per Share. The number of weighted average shares used in computing basic and diluted EPS are as follows:
Six months Year ended ended Year ended June 30, December 31, December 31, ---------------------------- 2001 2000 2000 1999 ------------ ------------ ------------ ----------- Basic EPS 37,955,000 37,872,000 36,482,000 35,566,000 Effect of options 299,000 208,000 844,000 1,019,000 ------------- ------------ ------------ ----------- Diluted EPS 38,254,000 38,080,000 37,326,000 36,585,000 ============= ============ ============ ===========
Accounting for stock options-The Company accounts for stock options in accordance with Statement No. 123, Accounting for Stock-Based Compensation. Statement 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. 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, 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 December 31, 2001 approximates its fair value based on interest rates available on similar borrowings. Segment information-Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, has been adopted by the Company for all periods presented in these consolidated financial statements. Statement No. 131 establishes guidelines for public companies in determining operating segments based on those used for internal reporting to management. Based on these guidelines, the Company reports information under a single motorsports segment. Recent accounting pronouncements-In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, Business Combinations. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company adopted the provisions of this statement during 2001, and it did not have a material impact on our results of operations, financial position or cash flows. In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement No. 142. The Company has elected to adopt the provisions of Statement No. 142 effective January 1, 2002, at which time the Company will cease to record amortization expense on its goodwill. The adoption of Statement No. 142 will result in a $1,454,000 reduction of amortization expense in 2002 as compared to 2001. We expect to complete our analysis of any potential impairment of our goodwill as a result of adopting this standard by the end of the second quarter of 2002. In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. 29 Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, we will recognize a gain or loss on settlement. We are required and plan to adopt the provisions of Statement No. 143 in 2003. To accomplish this, we must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. We have not yet completed our analysis of the impact of adoption of this standard. In October 2001, the FASB issued Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. We adopted the provisions of Statement No. 144 effective January 1, 2002. The adoption of Statement No. 144 did not have a significant impact on our results of operations, financial position or cash flows. Fiscal year-On January 19, 2001, the Company changed its fiscal year-end from June 30 to December 31. The six-month period ended December 31, 2000 transitioned the Company's reporting period to the new fiscal year-end. Summarized statement of earnings information is as follows:
Six months ended Year ended December 31, December 31, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) Revenues $39,045,000 $33,652,000 $82,704,000 $74,510,000 Operating earnings 8,810,000 6,860,000 22,028,000 18,780,000 Earnings from continuing operations 4,856,000 3,331,000 12,498,000 9,902,000 Earnings from discontinued operation 11,056,000 10,440,000 21,568,000 19,969,000 ----------- ----------- ----------- ----------- Net earnings $15,912,000 $13,771,000 $34,066,000 $29,871,000 =========== =========== =========== =========== Earnings per share - basic: Earnings from continuing operations $ 0.13 $ 0.09 $ 0.33 $ 0.28 Earnings from discontinued operation 0.29 0.29 0.58 0.56 ----------- ----------- ----------- ----------- Net earnings $ 0.42 $ 0.38 $ 0.91 $ 0.84 =========== =========== =========== =========== Earnings per share - diluted: Earnings from continuing operations $ 0.13 $ 0.09 $ 0.33 $ 0.27 Earnings from discontinued operation 0.29 0.29 0.57 0.55 ----------- ----------- ----------- ----------- Net earnings $ 0.42 $ 0.38 $ 0.90 $ 0.82 =========== =========== =========== ===========
NOTE 4 - Discontinued Operation The gaming segment of Dover Downs has been accounted for as a discontinued operation and, accordingly, the accompanying consolidated financial statements of Dover Downs have been reclassified to report separately the net assets and operating results of this discontinued operation. The historical financial statements also include an allocation of interest expense of $2,645,000, $209,000, $377,000 and $353,000 for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999, respectively, which has been allocated based upon each company's earnings before interest, taxes, depreciation and amortization, income tax payments and capital expenditures. Management believes this is a reasonable method of allocating interest expense. 30 A summary of the net assets of this discontinued operation is as follows:
December 31, ------------------------------- June 30, 2001 2000 2000 ------------ ------------ ------------ Current assets $ 24,485,000 $ 48,701,000 $ 45,489,000 Property, plant and equipment, net 106,772,000 45,156,000 39,648,000 Current liabilities (27,658,000) (11,535,000) (14,003,000) Deferred income taxes (946,000) (764,000) (632,000) ------------ ------------ ------------ Net assets of discontinued operation $102,653,000 $ 81,558,000 $ 70,502,000 ============ ============ ============
A summary of the operating results of this discontinued operation is as follows:
Year ended Six months ended Year ended June 30, December 31, December 31, ---------------------------- 2001 2000 2000 1999 ------------ ----------- ------------ ------------ Revenues $186,722,000 $85,441,000 $168,561,000 $139,249,000 Operating earnings 36,614,000 18,633,000 35,534,000 29,926,000 Earnings before income taxes 35,594,000 18,633,000 35,318,000 29,841,000 Income taxes 14,499,000 7,577,000 14,366,000 12,145,000 ------------ ----------- ------------ ------------ Net earnings $ 21,095,000 $11,056,000 $ 20,952,000 $ 17,696,000 ============ =========== ============ ============
In conjunction with the spin-off, Dover Downs and Gaming & Entertainment have entered into various agreements that address the allocation of assets and liabilities between the two companies and that define the companies' relationship after the separation. These are the Agreement Regarding Distribution and Plan of Reorganization, the Real Property Agreement, the Employee Benefits Agreement, the Transition Support Services Agreement, and the Tax Sharing Agreement. The Plan of Reorganization sets forth the principal corporate transactions required to effect the separation of the gaming business from the motorsports business, the continuation of the gaming business following such separation, including the allocation between Dover Downs and Gaming & Entertainment of certain assets and liabilities, and the distribution of shares of Gaming & Entertainment common stock and Class A common stock. After the spin-off, all assets and liabilities relating to the gaming business shall be owned and assumed by Gaming & Entertainment or its subsidiaries, and all assets and liabilities relating to the motorsports business shall be owned and assumed by Dover Downs or its subsidiaries. The Real Property Agreement governs certain real property transfers, leases and easements affecting our Dover, Delaware facility. The Employee Benefits Agreement provides for the transition from employee benefits under plans or programs sponsored by Dover Downs to those sponsored by Gaming & Entertainment. In connection with the spin-off and pursuant to the terms of the Employee Benefits Agreement, Dover Downs will transfer to Gaming & Entertainment the assets and liabilities associated with Dover Downs' defined benefit pension plan and the 401(k) plan currently sponsored by Dover Downs with respect to employees who become employees of Gaming & Entertainment (or remain employed by Dover Downs, Inc.) after the spin-off. The Transition Support Services Agreement provides for each of Dover Downs and Gaming & Entertainment to provide each other with certain administrative and operational services. The party receiving the services will be required to pay for them within 30 business days after receipt of an invoice at rates agreed upon by Dover Downs and Gaming & Entertainment. Each party will provide these services until terminated by the party receiving the service or by the party providing the service after the expiration of a one year transition period. 31 The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. With respect to any period ending on or before the spin-off or any tax period in which the spin-off occurs, Dover Downs will: o continue to be the sole and exclusive agent for Gaming & Entertainment in all matters relating to the income, franchise, property, sales and use tax liabilities of Gaming & Entertainment; o subject to Gaming & Entertainment's obligation to pay for items relating to its gaming business, bear any costs relating to tax audits, including tax assessments and any related interest and penalties and any legal, litigation, accounting or consulting expenses; o continue to have the sole and exclusive responsibility for the preparation and filing of combined federal and combined state income tax returns; and o subject to the right and authority of Gaming & Entertainment to direct Dover Downs in the defense or prosecution of the portion of a tax contest directly and exclusively related to any Gaming & Entertainment tax adjustment, generally have the powers, in Dover Downs' sole discretion, to contest or compromise any claim or refund on Gaming & Entertainment's behalf. NOTE 5 - Intercompany Balances At December 31, 2001, Gaming & Entertainment owed Dover Downs $7.8 million. This balance will fluctuate prior to the spin-off and primarily represents the payment of certain costs by Dover Downs for Gaming & Entertainment and borrowings under Dover Downs' credit facility maintained for the benefit of Dover Downs and all of its subsidiaries. Dover Downs and Gaming & Entertainment have agreed to cancel any remaining intercompany balances and adjust Dover Downs' stockholders' equity by an equal amount at the date of the spin-off. As such, the intercompany balance is reflected as a reduction to stockholders' equity in the accompanying consolidated balance sheet. NOTE 6 - Property and Equipment Property and equipment consists of the following as of December 31:
December 31, -------------------------- June 30, 2001 2000 2000 ------------ ----------- ------------ Land.................................... $ 27,792,000 $ 28,660,000 $ 28,644,000 Racing facilities....................... 228,867,000 147,094,000 141,429,000 Furniture, fixtures and equipment....... 16,126,000 14,875,000 8,367,000 Construction in progress................ 261,000 64,078,000 27,115,000 ------------ ------------ ------------ 273,046,000 254,707,000 205,555,000 Less accumulated depreciation...... (27,903,000) (19,518,000) (16,310,000) ------------ ------------ ------------ $245,143,000 $235,189,000 $189,245,000 ============ ============ ============
Depreciation expense was $8,490,000, $3,235,000, $5,129,000 and $4,289,000 for the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999, respectively. 32 NOTE 7 - Indebtedness Long-term debt is as follows: December 31, ------------------------------- June 30, 2001 2000 2000 ------------------------------- ------------- Notes payable to bank $ 110,610,000 $ 58,750,000 $ 15,000,000 SWIDA loan 20,540,000 21,125,000 21,125,000 -------------- ------------- ------------- 131,150,000 79,875,000 36,125,000 Less: current portion (111,245,000) (585,000) (585,000) -------------- ------------- ------------- $ 19,905,000 $ 79,290,000 $ 35,540,000 ============== ============= ============= At December 31, 2001, the Company had two credit facilities with a total capacity of $150,000,000. 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 $25,000,000 credit facility expires on June 15, 2002 and the $125,000,000 credit facility expires on September 30, 2002. The agreements are for seasonal funding needs, capital improvements and other general corporate purposes. At December 31, 2001, the Company was in compliance with all terms of the facilities and there was $110,610,000 outstanding at a weighted average interest rate of 3.04%. Under the terms of the credit facilities, approximately $13,000,000 of additional borrowings were available to the Company at December 31, 2001. The Company has signed a new $105,000,000 credit facility expected to expire on December 31, 2004, but the effectiveness of that agreement is contingent upon the completion of the tax-free spin-off of the Company's gaming operations, and as a result, the amounts outstanding under the Company's $150,000,000 facilities at December 31, 2001 have been classified as short-term. The new credit facility contains minimum net worth, fixed charge coverage and maximum leverage covenant requirements that the Company must comply with in order to avoid the requirement for early payment of the credit facility. Material adverse changes in the Company's results of operation would impact our ability to maintain financial ratios necessary to satisfy these requirements. The Company's existing $150,000,000 credit facilities are guaranteed by Dover Downs, Inc. and all of its other subsidiaries. The new $105,000,000 credit facility does not include Dover Downs, Inc., as it will be spun-off. Prior to the new facility becoming effective, $45 million of the amount outstanding under the existing Dover Downs credit facilities will be paid down through a new $55 million credit facility which has been established by Gaming & Entertainment. 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 debt service as required by the SWIDA loan, which are held by the trustee (BNY Trust Company of Missouri). At December 31, 2001, $3,161,000 of the Company's cash balance is restricted by the SWIDA loan. Satisfy a standby letter of credit for $2,502,000, which is secured by a Trust Deed on the Company's facilities in Memphis, Tennessee, also was obtained to satisfy debt service reserve fund obligations. 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 and payment of interest. 33 The scheduled maturities of long-term debt outstanding at December 31, 2001 are as follows: 2002-$111,245,000; 2003-$685,000; 2004-$745,000; 2005-$805,000; 2006-$875,000; and thereafter-$16,795,000. NOTE 8 - Income Taxes The current and deferred income tax provisions (benefits) from continuing operations are as follows: Year ended Six months ended Years ended June 30, December 31, December 31, ------------------------ 2001 2000 2000 1999 ------------ ------------ ---------- ---------- Current: Federal $(1,263,000) $ 822,000 $ 308,000 $3,839,000 State 1,916,000 1,045,000 1,707,000 1,360,000 ----------- ---------- ---------- ---------- 653,000 1,867,000 2,015,000 5,199,000 Deferred: Federal 5,670,000 2,103,000 6,092,000 1,491,000 State (570,000) (25,000) 74,000 45,000 ----------- ---------- ---------- ---------- 5,100,000 2,078,000 6,166,000 1,536,000 ----------- ---------- ---------- ---------- Total income taxes $ 5,753,000 $3,945,000 $8,181,000 $6,735,000 =========== ========== ========== ========== 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 and equipment and net operating loss carryforwards (expiring through 2021). 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:
Year ended Six months ended Years ended June 30, December 31, December 31, -------------------- 2001 2000 2000 1999 ------------ ---------------- ---- ---- Federal tax at statutory rate 35.0% 35.0% 35.0% 35.0% State taxes, net of federal benefit 6.8% 7.5% 6.0% 5.7% Non-deductible goodwill and other 3.8% 2.3% 1.7% 1.6% ----- ----- ----- ----- Effective income tax rate 45.6% 44.8% 42.7% 42.3% ===== ===== ===== =====
NOTE 9 - 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. 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. 34 The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheet:
December 31, June 30, -------------------------- ---------- 2001 2000 2000 ----------- ----------- ---------- Change in benefit obligation: Benefit obligation at beginning of period $ 3,114,000 $ 2,458,000 $ 1,819,000 Service cost 569,000 242,000 399,000 Interest cost 232,000 99,000 154,000 Transfer from Rollins Truck Leasing Plan 736,000 - - Actuarial loss 336,000 326,000 121,000 Benefits paid (54,000) (11,000) (35,000) ----------- ----------- ----------- Benefit obligation at end of period 4,933,000 3,114,000 2,458,000 Change in plan assets: Fair value of plan assets at beginning of period 1,762,000 2,409,000 1,673,000 Actual return/(loss) on plan assets 77,000 (636,000) 238,000 Transfer from Rollins Truck Leasing Plan 835,000 - - Employer contribution 250,000 - 533,000 Benefits paid (54,000) (11,000) (35,000) ----------- ----------- ----------- Fair value of plan assets at end of period 2,870,000 1,762,000 2,409,000 Funded status (2,063,000) (1,352,000) (49,000) Unrecognized net loss/(gain) 1,263,000 979,000 (88,000) Unrecognized prior service cost 454,000 530,000 263,000 ----------- ----------- ----------- (Accrued)/prepaid pension cost $ (346,000) $ 157,000 $ 126,000 =========== =========== ===========
At December 31, 2001, the assets of the plan were invested 43% in equity funds, 24% in intermediate bond funds and the remainder in money market funds. The discount rate for the year ended December 31, 2001 was 7%, the six months ended December 31, 2000 was 7.5%, and for the years ended June 30, 2000 and 1999 was 8%. The assumed rate of compensation increase was 5% and the expected long-term rate of return on assets was 9% for all periods presented. The components of net periodic pension cost are as follows:
Year ended Six months ended Years ended June 30, December 31, December 31, --------------------- 2001 2000 2000 1999 ------------ ---------------- --------- -------- Service cost $ 569,000 $ 242,000 $ 399,000 $ 328,000 Interest cost 232,000 99,000 154,000 104,000 Expected return on plan assets (174,000) (106,000) (160,000) (82,000) Recognized net actuarial loss 50,000 - - 10,000 Net amortization 32,000 16,000 32,000 23,000 --------- --------- --------- --------- $ 709,000 $ 251,000 $ 425,000 $ 383,000 ========= ========= ========= =========
Total retirement plan cost attributable to Gaming & Entertainment, which is included in the net periodic benefit cost above, was $502,000, $143,000, $286,000 and $241,000 during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999, respectively. The Company also maintains a defined contribution 401(k) plan which permits participation by substantially all employees. Pursuant to the terms of the Employee Benefits Agreement entered into between the Company and Gaming & Entertainment, the Company will transfer to Gaming & Entertainment the assets and liabilities associated with the Company's defined benefit pension plans and 401(k) plan with respect to employees who are Gaming & Entertainment employees after the spin-off. 35 NOTE 10 - Stockholders' Equity Changes in the components of stockholders' equity are as follows:
$.10 Par $.10 Par Value Value Class A Additional Common Common Paid-in Retained Stock Stock Capital Earnings -------------- ------------- ------------- ------------- 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, $.175 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 Net earnings 31,925,000 Issuance of common stock, net 150,000 19,035,000 Dividends on common stock, $.18 per share (6,550,000) Exercise of stock options 11,000 58,000 504,000 Conversion of Class A shares 79,000 (79,000) -------------- ------------- ------------- ------------- Balance at June 30, 2000 1,380,000 2,405,000 119,222,000 94,784,000 Net earnings (six months) 15,912,000 Dividends on common stock, $.09 per share (3,407,000) Exercise of stock options 5,000 81,000 Conversion of Class A shares 20,000 (20,000) -------------- ------------- ------------- ------------- Balance at December 31, 2000 1,405,000 2,385,000 119,303,000 107,289,000 Net earnings 27,966,000 Dividends on common stock, $.18 per share (6,830,000) Exercise of stock options 14,000 246,000 Tax benefit of exercised stock options 531,000 Conversion of Class A shares 9,000 (9,000) -------------- ------------- ------------- ------------- Balance at December 31, 2001 $ 1,428,000 $ 2,376,000 $ 120,080,000 $ 128,425,000 ============== ============= ============= =============
Holders of Common Stock have one vote per share and holders of Class A Common Stock have ten votes per share. There is no cumulative voting. 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. 36 The Company has adopted a Rights Plan with respect to its Common Stock and Class A Common Stock which includes the distribution of Rights to holders of such stock. The Rights entitle the holder, upon the occurrence of certain events, to purchase additional stock of the Company. The Rights are exercisable if a person, company or group acquires 10% or more of the outstanding 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 $.005. On March 3, 2000, Dover Downs completed the issuance of 1,500,000 additional shares of Common Stock through a public offering resulting in net proceeds to the Company of $19,185,000. The Company used the net proceeds of the offering to pay down a portion of its borrowings under its revolving line of credit facility. 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. The Company has a stock option plan 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. The stock options have eight-year terms and generally vest equally over a period of six years from the date of grant. Historically, certain Gaming & Entertainment employees have participated in the Dover Downs stock option plan. In conjunction with the spin-off, Gaming & Entertainment has adopted a stock option plan under which 1,500,000 shares of common stock have been reserved for issuance to Gaming & Entertainment employees. Following the spin-off, outstanding stock option grants under the Dover Downs plan held by Gaming & Entertainment employees will be replaced with Gaming & Entertainment stock option grants. The Gaming & Entertainment grants will have the same relative ratio of the exercise price to market value and the same vesting provisions, option periods and other applicable terms and conditions as the Dover Downs stock option grants being replaced. At December 31, 2001, there were approximately 293,514 Dover Downs stock option grants held by Gaming & Entertainment employees subject to replacement with Gaming & Entertainment stock option grants. Gaming & Entertainment cannot determine the exact number of shares of its common stock that will be subject to substitute grant until after the spin-off. 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: December, June, -------------- -------------- 2001 2000 2000 1999 ---- ---- ---- ---- Risk-free interest rate 4.30% 5.75% 6% 6% Volatility 38% 46% 47% 25% Expected dividend yield 1.18% 1.27% 1.35% 1.02% Expected life (in years) 6.5 6.5 6.5 6.5 The weighted-average fair value of options granted during the year ended December 31, 2001, the six-month period ended December 31, 2000, and the years ended June 30, 2000 and 1999 was $4.70, $5.37, $5.58 and $4.73, respectively. 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 approximately $.02 in 2001, $.01 per share in the six-month period ended December 31, 2000, $.02 per share in fiscal 2000, and $.01 per share in fiscal 1999. 37 Option activity was as follows:
December 31, June 30, --------------------------- ------------------------- 2001 2000 2000 1999 ---------- ---------- ---------- ---------- Number of options: Outstanding at beginning of period 1,156,030 1,154,522 1,642,406 1,035,528 Granted 65,000 60,000 218,000 734,562 Exercised (137,788) (58,492) (680,884) (127,684) Expired (120,500) - (25,000) - ---------- ---------- ---------- ---------- Outstanding at end of period 962,742 1,156,030 1,154,522 1,642,406 ========== ========== ========== ========== At period end: Options available for grant 207,410 151,910 211,910 404,910 Options exercisable 512,790 562,998 563,243 932,545 Weighted Average Exercise Price: Options granted $ 11.55 $ 11.18 $ 11.48 $ 4.66 Options exercised $ 1.87 $ 1.52 $ .83 $ 1.32 Options outstanding $ 8.76 $ 8.19 $ 7.70 $ 4.38 Options exercisable $ 6.23 $ 4.56 $ 3.63 $ 1.59
At December 31, 2001, the range of exercise prices of outstanding options was $0.87-$16.19. 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 11 - Related Party Transactions During the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999, the Company purchased certain paving, site work and construction services involving total payments of $572,000, $187,000, $432,000 and $432,000 from a company wholly-owned by an employee/director. During the six-month period ended December 31, 2000, the Company purchased an aircraft from a company wholly-owned by the aforementioned employee/director for $6,029,000. The Company purchased administrative services from Rollins Truck Leasing Corp. and affiliated companies (RTLC), which were related to the Company through common ownership, during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999. The total cost of these services, which have been included in general and administrative expenses in the Consolidated Statement of Earnings, was $6,000, $20,000, $37,000 and $30,000, respectively. Gaming & Entertainment purchased administrative services from RTLC during the year ended December 31, 2001, the six-month period ended December 31, 2000 and the years ended June 30, 2000 and 1999. The total cost of these services, which have been included in earnings from discontinued operation in the Consolidated Statement of Earnings, was $71,000, $233,000, $420,000 and $350,000, respectively. RTLC ceased to provide these services effective in April 2001. During the year ended December 31, 2001, the six months ended December 31, 2000 and the years ended June 30, 2000 and 1999, Gaming & Entertainment allocated corporate costs of $2,307,000, $828,000, $1,640,000 and $1,414,000, respectively, to Dover Downs. The allocation was based on both an allocation to the business that directly incurred the costs and an analysis of each company's share of the costs. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been separate, independent entities and had otherwise managed these functions; however, management believes that these costs are reasonable. 38 Subsequent to the spin-off, use of Gaming & Entertainment's 5/8-mile harness racing track will be under an easement granted by Dover Downs which does not require the payment of any rent. Under the terms of the easement Gaming & Entertainment has exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The harness track is located on property owned by Dover Downs and is on the inside of Dover Downs' one-mile motorsports speedway. The indoor grandstands will be used by the Company free of charge in connection with its motorsports events and are owned by Gaming & Entertainment. Dover Downs also leases its principal executive office space from Gaming & Entertainment. Various easements and agreements relative to access, utilities and parking have also been entered into between the Company and Gaming & Entertainment. The Transition Support Services Agreement provides for each of Dover Downs and Gaming & Entertainment to provide each other with certain administrative and operational services subsequent to the spin-off. The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. Refer to Note 4 - Discontinued Operations for further discussion. 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 December 31, 2001, $92,000 was outstanding from a current director of the Company. This remaining balance was repaid in full in January 2002. NOTE 12 - Commitments and Contingencies Prior to December 28, 2001, Nashville Speedway, USA, a wholly-owned subsidiary of the Company, leased the racetrack at the Tennessee State Fairgrounds pursuant to a lease expiring September 30, 2007, or earlier on September 30, 2002 at the Company's option. Effective December 28, 2001, Nashville Speedway, USA assigned its lease of this facility to a third party. As a result, the Company's operations at this facility ceased. Total rental expense charged to the Company was a function of the profitability of the Nashville operation conducted at the fairgrounds. There was no rent expense for the year ended December 31, 2001 or the six-month period ended December 31, 2000. For the years ended June 30, 2000 and 1999, $46,000 and $210,000, respectively, was charged to rent expense. 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 $243,000 for the year ended December 31, 2001, $122,000 for the six-month period ended December 31, 2000, and $236,000 and $222,000 for the years ended June 30, 2000 and 1999, respectively. The minimum lease payments due under these leases are as follows: 2002 $ 224,000 2003 224,000 2004 224,000 2005 224,000 2006 224,000 Thereafter $4,255,000 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 $25,900,000. The proceeds were used to acquire, construct and develop certain public infrastructure improvements in Wilson County, Tennessee, which will be beneficial to the operation of the superspeedway complex the Company constructed through 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. When the capitalized interest fund is depleted, which is estimated to be in or around July of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes (the taxes) generated from the facility. If the 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 on behalf of the Company by several banks and the bonds would become a liability of the Company. 39 The Company received a notice of proposed tax adjustment for the years 1997 through 2000 related to a state sales and use tax audit. The Company is vigorously contesting the notice. Final proposed adjustments have not been received for these years. Management believes that the ultimate outcome of the audit will not have a material adverse impact on the Company's results of operations, financial position or cash flows. The Company is from time to time a party to ordinary routine litigation incidental to its business. Management does not believe that the resolution of any of these matters is likely to have a serious adverse effect on our results of operations, financial condition or cash flows. NOTE 13 - Quarterly Results - in thousands, except per share data (unaudited)
March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Year Ended December 31, 2001 Revenues $ 1,076 $46,506 $35,891 $ 3,078 Operating (loss) earnings (5,659) 16,301 11,301 (7,705) (Loss) earnings from continuing operations (3,347) 8,954 6,093 (4,829) Earnings from discontinued operation 5,729 5,414 5,298 4,654 ------- ------- ------- ------- Net earnings (loss) $ 2,382 $14,368 $11,391 $ (175) Net earnings (loss) per share - basic: Continuing operations $ (.09) $ .24 $ .16 $ (.13) Discontinued operation .15 .14 .14 .13 ------- -------- -------- ------- Total $ .06 $ .38 $ .30 $ - Net earnings (loss) per share - diluted: Continuing operations $ (.09) $ .24 $ .16 $ (.13) Discontinued operation .15 .14 .14 .13 ------- ------- ------- ------- Total $ .06 $ .38 $ .30 $ - Six Months Ended December 31, 2000 Revenues $ - $ - $33,951 $ 5,094 Operating earnings (loss) - - 13,121 (4,311) Earnings (loss) from continuing operations - - 7,664 (2,808) Earnings from discontinued operation - - 5,551 5,505 ------- ------- ------- ------- Net earnings $ - $ - $13,215 $ 2,697 Net earnings (loss) per share - basic: Continuing operations $ - $ - $ .20 $ (.07) Discontinued operation - - .15 .14 ------- ------- ------- ------- Total $ - $ - $ .35 $ .07 Net earnings (loss) per share - diluted: Continuing operations $ - $ - $ .20 $ (.07) Discontinued operation - - .15 .14 ------- ------- ------- ------- Total $ - $ - $ .35 $ .07
40
September 30 December 31 March 31 June 30 ------------ ----------- -------- ------- Year Ended June 30, 2000 Revenues $28,610 $ 5,042 $ 1,071 $42,588 Operating earnings (loss) 10,339 (3,479) (4,324) 17,542 Earnings (loss) from continuing operations 5,663 (2,332) (2,809) 10,451 Earnings from discontinued operation 5,581 4,859 5,140 5,372 ------- ------- ------- ------- Net earnings $11,244 $ 2,527 $ 2,331 $15,823 Net earnings (loss) per share - basic: Continuing operations $ .16 $ (.06) $ (.08) $ .28 Discontinued operation .15 .13 .14 .14 ------- ------- ------- ------- Total $ .31 $ .07 $ .06 $ .42 Net earnings (loss) per share - diluted: Continuing operations $ .16 $ (.06) $ (.08) $ .28 Discontinued operation .15 .13 .14 .14 ------- ------- ------- ------- Total $ .31 $ .07 $ .06 $ .42
Per share data amounts for the quarters have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period. 41 EX-3.2 3 dex32.txt BY LAWS OF DOVER DOWNS ENTERTAINMENT, INC Amended and Exhibit 3.2 Restated as of March 1, 2002 BY-LAWS ------- OF -- DOVER DOWNS ENTERTAINMENT, INC. ------------------------------- ------------------------------------------------ ARTICLE I --------- THE CORPORATION --------------- Section 1.1 Name. The title of this Corporation is Dover Downs ----------- ---- Entertainment, Inc. Section 1.2 Office. The registered office of this Corporation shall be ----------- ------ located at P. O. Box 843, Dover, Delaware, or at such other place as the Board of Directors may designate in accordance with Section 133 of the Delaware Corporation Law. Section 1.3 Seal. The corporate seal of the Corporation shall have ----------- ---- inscribed thereon the name of the Corporation and the year of its creation (1994) and the words "Incorporated Delaware". Amended and Restated as of March 1, 2002 ARTICLE II ---------- STOCKHOLDERS ------------ Section 2.1 Annual Meeting. The annual meeting of stockholders shall ----------- -------------- be held at such place within or without the State of Delaware as the Board of Directors from time to time determine. Section 2.2 Special Meetings. Special meetings of stockholders for any ----------- ---------------- purpose or purposes may be called at any time by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee or the President and not by any other person. Section 2.3 Notice of Meetings. Whenever stockholders are required or ----------- ------------------ permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 2.4 Adjournments. Any meeting of the stockholders, annual or ----------- ------------ special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2 Amended and Restated as of March 1, 2002 Section 2.5 Quorum. At each meeting of stockholders, except where ----------- ------ otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.4 of these by-laws until a quorum shall attend. Section 2.6 Organization. Meetings of stockholders shall be presided ----------- ------------ over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.7 Voting; Proxies. Unless otherwise provided in the ----------- --------------- certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock of Common Stock and ten votes for each share of Class A Common Stock held by such shareholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A stockholder entitled to vote may authorize a proxy by means of a writing, by telephone, by the Internet, by other forms of electronic transmission or by any other manner permitted by law. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in 3 Amended and Restated as of March 1, 2002 person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the certificate of incorporation or these by-laws) the Board of Directors may require a larger vote upon any election or question. Section 2.8 Fixing Date for Determination of Stockholders of Record. ----------- ------------------------------------------------------- In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion of exchange or stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of 4 Amended and Restated as of March 1, 2002 stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall ----------- ------------------------------------- prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 2.10 Action by Consent Of Stockholders. Unless prohibited by ------------ --------------------------------- law or the rules and regulations of any national securities exchange on which securities of the Corporation are listed, action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and stockholders shall have the power to consent in writing, without a meeting, to the taking of any action. Section 2.11 Notice of Stockholder Business at Stockholder Meeting. At ------------ ----------------------------------------------------- the annual meeting or any special meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be a proper subject for stockholder action under the Delaware General Corporation Law and must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the 5 Amended and Restated as of March 1, 2002 direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section and who shall be entitled to vote at the meeting. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation and received in the form required by this Section and (a) with respect to an annual meeting, not less than ninety days prior to the anniversary of the prior year's annual meeting of stockholders, or (b) with respect to a special meeting, not less than seven days following the day on which notice of the special meeting has been mailed to stockholders or public disclosure of such meeting was first made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting, (b) as to the stockholder giving such notice (i) the name and address, as they appear on the Corporation's stock ledger, of such stockholder, (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder, and (iii) if the stockholder intends to solicit proxies in support of such stockholder's proposal, a representation to that effect; and (c) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a meeting, except in compliance with the procedures set forth in this Section. Stockholders shall also be required to comply with all applicable requirements of the Securities Exchange Act of 1934 and any national securities exchange on which the Corporation's shares shall be listed. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in compliance with the provisions of this Section, and 6 Amended and Restated as of March 1, 2002 if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 7 Amended and Restated as of March 1, 2002 ARTICLE III ----------- BOARD OF DIRECTORS ------------------ Section 3.1 Number; Qualifications. The Board of Directors shall ----------- ---------------------- consist of up to the number of directors provided for in the Corporation's Certificate of Incorporation. At the time of nomination, a Director must own not less than 500 shares of common stock in the Corporation. Section 3.2 Election; Resignation; Removal; Vacancies. At each annual ----------- ----------------------------------------- meeting of stockholders, the stockholders shall elect Directors to replace those Directors whose terms then expire. Any Director may resign at any time upon written notice to the Corporation. Stockholders may remove Directors only for cause. Any vacancy occurring in the Board of Directors for any cause may be filled only by the Board of Directors, acting by vote of a majority of the Directors then in office, although less than quorum. Each Director so elected shall hold office until the expiration of the term of office of the Director whom he has replaced. Section 3.3 Notice Of Nomination Of Directors. Nominations for the ----------- --------------------------------- election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. Nominations by a shareholder shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation and received in the form required by these By-laws not less than ninety days prior to the anniversary of the prior year's annual meeting of stockholders or not less than seven days following the day on which notice of any special meeting has been mailed to stockholders calling for the election of directors. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee for the past five years and (iii) evidence of such nominee's 8 Amended and Restated as of March 1, 2002 qualification under Section 3.1 to these By-laws. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.4 Non-Discrimination Statement. Consistent with the ----------- ---------------------------- Corporation's equal employment opportunity policy, nominations for the election of directors shall be made by the Board of Directors and accepted from stockholders in a manner consistent with these By-Laws and without regard to the nominee's race, color, ethnicity, religion, sex, age, national origin, veteran status, handicap or disability. Section 3.5 Regular Meetings. Regular meetings of the Board of ----------- ---------------- Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 3.6 Special Meetings. Special meetings of the Board of ----------- ---------------- Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee, or by the President. Reasonable notice thereof shall be given by the person calling the meeting, not later than the second day before the date of the special meeting. Section 3.7 Telephonic Meetings Permitted. Members of the Board of ----------- ----------------------------- Directors, or any committee designated by the Board, may participate in any meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. No electronic recording or stenographic transcription of any meeting of the Board or any committee shall be permitted without the consent of a majority of the Board or committee members present at the meeting and no recording or 9 Amended and Restated as of March 1, 2002 transcription made in violation of these By-laws shall be disclosed to any third person, admissible in any proceeding or used in any fashion. Section 3.8 Quorum; Vote Required For Action; Informal Action. At all ----------- ------------------------------------------------- meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.9 Organization. Meetings of the Board of Directors shall be ----------- ------------ presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as a secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.10 Compensation Of Directors. The Directors and members of ------------ ------------------------- standing committees shall receive such fees or salaries as fixed by resolution of the Executive Committee and in addition will receive expenses in connection with attendance or participation in each regular or special meeting. 10 Amended and Restated as of March 1, 2002 ARTICLE IV ---------- COMMITTEES ---------- Section 4.1 Committees. The Board of Directors may, by resolution ----------- ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the certificate of incorporation of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange or all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these by-laws. The Board of Directors shall, at the annual organization meeting thereof, elect an Executive Committee which shall consist of not more than three members, all of whom shall be members of the Board of Directors. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation to the fullest extent permitted by law (as presently allowed under Section 141 (c) to the Delaware General Corporation Law as revised effective July 1, 1996, and 11 Amended and Restated as of March 1, 2002 as may be allowed in the future pursuant to amendments or revisions to applicable law). Any Director may be removed from any committee of the Board with or without cause by the affirmative vote of a majority of the entire Board of Directors. Section 4.2 Committee Rules. Unless the Board of Directors otherwise ----------- --------------- provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these by-laws. 12 Amended and Restated as of March 1, 2002 ARTICLE V --------- OFFICERS -------- Section 5.1 Executive Officers; Election; Qualifications; Term of ----------- ----------------------------------------------------- Office; Resignation; Removal; Vacancies. The officers of the Corporation shall - --------------------------------------- consist of a President, Vice Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other officers as may from time to time be elected or appointed by the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. In the absence of any officer, the Board of Directors may delegate his power and duties to any other officer or to any director for the time being. Section 5.2 Duties Of The Chairman Of The Board. The Chairman of the ----------- ----------------------------------- Board shall preside at all meetings of the shareholders and the Board, shall have general and active management of the business of the Corporation and shall perform such duties as the Board of Directors may prescribe. The Chairman of the Board shall not be deemed an executive officer of the Corporation if he is a non-employee director and shall otherwise be an executive officer of the Corporation only if specifically designated as such by the Board of Directors at the time of his election or appointment. Section 5.3 President. The President shall be the Chief Executive ----------- --------- Officer of the Corporation, may execute in the name of the Corporation all contracts and agreements authorized by the Board or the Executive Committee. He may sign certificates of stock; he shall have general supervision and direction of all the other officers of the Corporation; he shall submit a complete 13 Amended and Restated as of March 1, 2002 report of the operations and condition of the Corporation for the year to the Chairman and to the directors at their regular meetings, and from time to time shall report to the directors all matters which the interest of the Corporation may require to be brought to their notice. He shall have the general powers and duties usually vested in the office of a President of a corporation. Section 5.4 Vice President - Finance. The Vice President - Finance ----------- ------------------------ shall be the Chief Accounting and Chief Financial Officer of the Corporation and shall be responsible to the Board of Directors, the Executive Committee and the President for all financial control and internal audit of the Corporation and its subsidiaries. He shall perform such other duties as may be assigned to him by the Board of Directors, the Executive Committee or the President. Section 5.5 Vice Presidents. The Vice Presidents elected or appointed ----------- --------------- by the Board of Directors shall perform such duties and exercise such powers as may be assigned to them from time to time by the Board of Directors, the Executive Committee or the President. In the absence or disability of the President, the Vice President designated by the Board of Directors, the Executive Committee, or the President shall perform the duties and exercise the powers of the President. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. Section 5.6 Secretary. The Secretary shall be ex-officio Secretary of ----------- --------- the Board of Directors and of the standing committees. He shall attend all sessions of the Board, act as clerk thereof, record all votes and keep the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for the standing committees when required. He shall see that the proper notices are given of all meetings of stockholders and directors, and perform such other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee, the Chairman or the President, and shall be sworn to the faithful discharge of his duties. Section 5.7 Treasurer. The Treasurer shall keep full and accurate ----------- --------- accounts of receipts 14 Amended and Restated as of March 1, 2002 and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or Executive Committee. He shall disburse the funds of the Corporation as may be ordered by the Board, the Executive Committee or the President, taking proper vouchers therefor, and shall render to the President and the Executive Committee and Directors, whenever they may require it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and at the annual organization meeting of the Board a like report for the preceding year. Section 5.8 General Counsel. The General Counsel shall be the legal ----------- --------------- adviser of the Corporation and shall perform such services as the Chairman, President, Board of Directors or Executive Committee may require. 15 Amended and Restated as of March 1, 2002 ARTICLE VI ---------- Stock ----- Section 6.1 Certificates. Every holder of stock shall be entitled to ----------- ------------ have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of ----------- --------------------------------------------------------- New Certificates. The Corporation may issue a new certificate of stock in the - ---------------- place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 16 Amended and Restated as of March 1, 2002 ARTICLE VII ----------- Indemnification --------------- Section 7.1. General. The Company shall indemnify, and advance Expenses ----------- ------- (as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest extent permitted by applicable law in effect on the adoption of these By-Laws, and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Article. Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of ----------- -------------------------------------------------------- The Company. Indemnitee shall be entitled to the indemnification rights - ----------- provided in this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee ----------- --------------------------------------------- shall be entitled to the indemnification rights provided in this Section 7.3 to the fullest extent permitted by law if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against Expenses, 17 Amended and Restated as of March 1, 2002 judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company. Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or ----------- -------------------------------------------------------- Partly Successful. Notwithstanding any other provision of this Article, to - ----------------- the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.5. Indemnification For Expenses Of A Witness. ----------- ----------------------------------------- Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7.6. Advancement Of Expenses. The Company shall advance all ----------- ----------------------- reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to 18 Amended and Restated as of March 1, 2002 repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 7.7. Procedure For Determination Of Entitlement To ----------- --------------------------------------------- Indemnification. - --------------- (a) To obtain indemnification under this Article, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The determination of Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Company of the written request for indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Indemnitee's entitlement to indemnification under any of Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the Board of Directors by a majority vote of a quorum of the Board consisting of Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel (as hereinafter defined), in a written opinion, if (A) a Change of Control (as hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs; or (iii) by the stockholders of the Company; or (iv) as provided in Section 7.8 of this Article. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the Independent Counsel shall be selected as provided in this Section 7.7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change 19 Amended and Restated as of March 1, 2002 of Control shall have occurred, and if so requested by Indemnitee in his written request for indemnification, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 7.13 of this Article, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected shall be disqualified from acting as such. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this Section 7.7(c), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in acting pursuant to Section 7.7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7.7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Section 7.8. Presumptions And Effect Of Certain Proceedings. If a ----------- ---------------------------------------------- Change of Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request for indemnification in accordance with Section 7.7(a) of this Article, and thereafter the Company shall have the burden of proof to overcome that presumption in reaching a determination contrary to that 20 Amended and Restated as of March 1, 2002 presumption. Whether or not a Change of Control shall have occurred, if the person or persons empowered under Section 7.7 of this Article to determine entitlement to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere --------------- or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 7.9. Remedies Of Indemnitee. ----------- ---------------------- (a) In the event that (i) a determination is made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification under this Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6 of this Article, or (iii) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or 21 Amended and Restated as of March 1, 2002 award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7.9 shall be conducted in all respects as a de novo trial, or ------- arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7.9, unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article. (e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 7.13 of this Article) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the 22 Amended and Restated as of March 1, 2002 indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of ------------ -------------------------------------- indemnification and to receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. Notwithstanding any amendment, alteration or repeal of any provision of this Article, Indemnitee shall, unless otherwise prohibited by law, have the rights of indemnification and to receive advancement of Expenses as provided by this Article in respect of any action taken or omitted by Indemnitee in his Corporate Status and in respect of any claim asserted in respect thereof at any time when such provision of this Article was in effect. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators. Section 7.11. Severability. If any provision or provisions of this ------------ ------------ Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 23 Amended and Restated as of March 1, 2002 Section 7.12. Certain Persons Not Entitled To Indemnification Or ------------ -------------------------------------------------- Advancement Of Expenses. Notwithstanding any other provision of this Article, - ----------------------- no person shall be entitled to indemnification or advancement of Expenses under this Article with respect to any Proceeding, or any claim therein, brought or made by him against the Company. Section 7.13. Definitions. For purposes of this Article: ------------ ----------- (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (b) "Corporate Status" describes the status of a person who is or was a director, 24 Amended and Restated as of March 1, 2002 officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Article. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 25 Amended and Restated as of March 1, 2002 7.9 of this Article to enforce his rights under this Article. Section 7.14. Miscellaneous. Use of the masculine pronoun shall be ------------ ------------- deemed to include usage of the feminine pronoun where appropriate. 26 Amended and Restated as of March 1, 2002 ARTICLE VIII ------------ Miscellaneous ------------- Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be ----------- ----------- determined by resolution of the Board of Directors. Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors, ----------- ------------------------------------------------------- And Committees. Any written waiver of notice, signed by the person entitled - -------------- to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 8.3 Interested Directors; Quorum. No contract or transaction ----------- ---------------------------- between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinter ested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to 27 Amended and Restated as of March 1, 2002 the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.4 Attorneys' Fees in Shareholder Actions. No stockholder ----------- -------------------------------------- shall bring any action against the Corporation or any officer or director of the Corporation (in their respective capacities), unless such stockholder and any person controlling such stockholder shall have entered an agreement with the Corporation, reasonably satisfactory to it, requiring the losing party to pay to the prevailing party the attorneys' fees and expenses incurred by the prevailing party in such action. As used in this Section 8.4, the term "person" shall have the meaning given it in Section 13(d) of the Securities Exchange Act of 1934 ("Exchange Act"), and the term "controlling" shall have the meaning given it in Rule 12b-2 under the Exchange Act. This provision shall not apply to any action or claim arising before this provision shall have become effective. Section 8.5 Form Of Records. Any records maintained by the ----------- --------------- Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, tape, disc, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.6 Amendment Of By-Laws. The Board of Directors of the ----------- -------------------- Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation by a vote of a majority of the entire Board. The stockholders may make, alter or repeal any by-law whether or not 28 Amended and Restated as of March 1, 2002 adopted by them, provided however, that any such additional by-laws, alterations or repeal may be adopted only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class), unless such additional by-laws, alterations or repeal shall have been recommended to the stockholders for adoption by a majority of the Board of Directors, in which event such additional by-laws, alterations or repeal may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Section 8.7 Restrictive Gaming Legend. All certificates issued for ----------- ------------------------- Shares of the $.10 par value Common Stock of the Corporation shall bear the following legend: "Any and all shares of Common Stock of the Corporation are held subject to the condition that if (a) any regulatory authority should request, determine or otherwise advise that the holder or owner is disqualified, or unsuitable, must qualify for or obtain a license, or must submit an application and satisfy a review process, including background checks, in order for the Corporation or any subsidiary to obtain or retain a license or a relicense, or otherwise avoid significant penalties or business disadvantage, and (b) such holder or owner shall fail to submit to qualification within fifteen (15) days following such request, determination or advice, or fail to be found qualified or suitable, then (c) such holder or owner, at the request of the Corporation or the appropriate regulatory authority, shall promptly dispose of such holder's or owner's interest in the Corporation's Common Stock and shall be subject to any order of such regulatory body limiting such holder's or owner's rights pending such disposition. Without limiting the foregoing, any 29 Amended and Restated as of March 1, 2002 holder or owner that intends to acquire, directly or indirectly, ten percent (10%) or more of the outstanding common stock of the Corporation (regardless of class or series) shall first notify the Corporation and obtain prior written approval from the Delaware State Lottery Office. Since money damages are inadequate to protect the Corporation, it shall be entitled to injunctive relief to enforce the foregoing provision." Section 8.8 Restrictions on Transfer of Class A Common Stock. ----------- ------------------------------------------------ (a) Restriction. Shares of the Company's Class A Common ----------- Stock (the "Shares") may be sold, transferred or disposed of only in ---- accordance with the following: (i) Shares may be sold or transferred to any other holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; or (ii) Shares may be sold, transferred or pass by intestacy, will or inheritance to: (A) one or more members of the immediate family of a holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; (B) a corporation all of the shares of which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; (C) a trust all of the beneficial interests of 30 Amended and Restated as of March 1, 2002 which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; or (D) a general or limited partnership all of the partnership interests in which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws. (b) Family Member Defined. For purposes of clause (a)(ii) --------------------- above, "members of the immediate family" shall be limited to any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. (c) Evidence of Compliance. Prior to any sale, transfer or ---------------------- disposition of Shares, the holder may be required, at the option of the Company, to furnish appropriate evidence of compliance with these Bylaws, including but not limited to an opinion of counsel. (d) Conversion. Shares may be converted to shares of the ---------- Company's Common Stock and sold, transferred or disposed of without regard to the limitations set forth in clause (a) above. (e) Pledge. The bona fide pledge of Shares as collateral ------ security for indebtedness to the pledgee shall not be deemed to violate clause (a) above, provided that the pledgee provides to the Company a written undertaking not to sell, transfer or dispose of the Shares in violation of these 31 Amended and Restated as of March 1, 2002 Bylaws. (f) Legend. All certificates evidencing the Shares (and ------ replacement certificates issued in their stead) shall be inscribed with the following legend (in addition to any other legends required hereunder or under federal or state securities laws): "The Shares of Class A Common Stock represented by this certificate may be sold, transferred or otherwise disposed of only in accordance with the terms and conditions set forth in the Company's Bylaws, which terms and conditions restrict, and in some instances prohibit, the transfer or other disposition of such Shares and which terms and conditions may only be amended by shareholders owning 75% or more of the outstanding shares of Class A Common Stock. The terms and conditions set forth in the Company's Bylaws are incorporated herein by reference and copies thereof are available for inspection or will be mailed by the Company to any holder without charge within five days after the Company's receipt of a written request therefor." (g) Vote Required to Amend. This Section 8.7 may only be ---------------------- amended by shareholders owning 75% or more of the outstanding Shares. (h) Injunctive Relief. Since money damages would be ----------------- inadequate, the Company or any holder of Shares shall be entitled to injunctive relief to enforce this Section 8.7. 32 EX-10.12 4 dex1012.txt CREDIT AGREEMENT Exhibit 10.12 =============================================================================== CREDIT AGREEMENT among DOVER DOWNS ENTERTAINMENT, INC. and THE BANKS PARTY HERETO and PNC BANK, DELAWARE as Agent DATED AS OF FEBRUARY 20, 2002 $105,000,000 =============================================================================== TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS........................................................1 1.1 Defined Terms....................................................1 ------------- 1.2 Other Definitional Provisions...................................19 ----------------------------- SECTION 2. THE CREDITS.......................................................20 2.1 Revolving Credit Loans..........................................20 ---------------------- 2.2 Revolving Credit Loan Procedures................................20 -------------------------------- 2.3 Swing Line Loans................................................21 ---------------- 2.4 General Provisions Regarding Loans..............................22 ---------------------------------- 2.5 Letters of Credit...............................................23 ----------------- 2.6 Fees............................................................27 ---- 2.7 Notes; Repayment of Revolving Credit Loans......................28 ------------------------------------------ 2.8 Interest on Revolving Credit Loans..............................28 ---------------------------------- 2.9 Default Rate; Inability to Determine Interest Rate..............28 -------------------------------------------------- 2.10 Termination, Reduction and Extension of Commitments.............29 --------------------------------------------------- 2.11 Optional and Mandatory Prepayments of Revolving Credit Loans....30 ------------------------------------------------------------ 2.12 Illegality......................................................31 ---------- 2.13 Requirements of Law.............................................31 ------------------- 2.14 Taxes...........................................................32 ----- 2.15 Indemnity.......................................................34 --------- 2.16 Pro Rata Treatment, etc.........................................34 ----------------------- 2.17 Payments........................................................34 -------- 2.18 Conversion and Continuation Options.............................35 ----------------------------------- 2.19 Use of Proceeds.................................................35 --------------- SECTION 3. REPRESENTATIONS AND WARRANTIES....................................36 3.1 Financial Condition.............................................36 ------------------- 3.2 No Adverse Change...............................................36 ----------------- 3.3 Corporate Existence; Compliance with Law........................36 ---------------------------------------- 3.4 Corporate Power; Authorization; Enforceable Obligations.........37 ------------------------------------------------------- 3.5 No Legal Bar....................................................37 ------------ 3.6 No Material Litigation..........................................37 ---------------------- 3.7 No Default......................................................37 ---------- 3.8 Taxes...........................................................37 ----- 3.9 Federal Regulations.............................................38 ------------------- 3.10 ERISA...........................................................38 ----- i 3.11 Investment Company Act; Public Utility Holding Company Act......39 ---------------------------------------------------------- 3.12 Purpose of Loans; Letters of Credit. ...........................39 ----------------------------------- 3.13 Environmental Matters...........................................39 --------------------- 3.14 No Burdensome Restrictions......................................40 -------------------------- 3.15 Ownership of Borrower and Subsidiaries..........................40 -------------------------------------- 3.16 Patents, Trademarks, etc........................................40 ------------------------ 3.17 Ownership of Property...........................................40 --------------------- 3.18 Licenses, etc...................................................40 ------------- 3.19 Labor Matters...................................................40 ------------- 3.20 Material Contracts..............................................41 ------------------ 3.21 Insurance.......................................................41 --------- 3.22 Senior Debt Status..............................................41 ------------------ 3.23 No Material Misstatements.......................................41 ------------------------- SECTION 4. CONDITIONS PRECEDENT..............................................41 4.1 Conditions to Effectiveness.....................................41 --------------------------- 4.2 Conditions to Each Extension of Credit..........................43 -------------------------------------- SECTION 5. AFFIRMATIVE COVENANTS.............................................44 5.1 Financial Statements............................................44 -------------------- 5.2 Certificates; Other Information.................................45 ------------------------------- 5.3 Payment of Obligations..........................................46 ---------------------- 5.4 Conduct of Business and Maintenance of Existence................46 ------------------------------------------------ 5.5 Maintenance of Property; Insurance..............................46 ---------------------------------- 5.6 Inspection of Property; Books and Records; Discussions..........46 ------------------------------------------------------ 5.7 Notices.........................................................47 ------- 5.8 Environmental Laws..............................................47 ------------------ 5.9 Management Changes..............................................48 ------------------ SECTION 6. NEGATIVE COVENANTS................................................48 6.1 Financial Condition Covenants...................................48 ----------------------------- 6.2 Limitation on Debt. At any time incur, create, assume, or ------------------ suffer to exist any Debt except:................................49 6.3 Limitation on Liens.............................................49 ------------------- 6.4 Limitations on Fundamental Changes..............................50 ---------------------------------- 6.5 Limitation on Sale of Assets....................................50 ---------------------------- 6.6 Limitations on Acquisitions, Investments, Loans and Advances....51 ------------------------------------------------------------ 6.7 Limitation on Distributions.....................................51 --------------------------- 6.8 Transactions with Affiliates....................................51 ---------------------------- 6.9 Fiscal Year.....................................................52 ----------- 6.10 Change in Business..............................................52 ------------------ 6.11 Change of Control...............................................52 ----------------- 6.12 Sale and Leaseback..............................................52 ------------------ 6.13 Limitation on Negative Pledge Clauses...........................52 ------------------------------------- 6.14 Interest Hedge Agreements.......................................52 ------------------------- ii SECTION 7. EVENTS OF DEFAULT.................................................52 7.1 Events of Default...............................................52 ----------------- SECTION 8. THE AGENT.........................................................55 8.1 Appointment.....................................................55 ----------- 8.2 Delegation of Duties............................................55 -------------------- 8.3 Exculpatory Provisions..........................................56 ---------------------- 8.4 Reliance by Agent...............................................56 ----------------- 8.5 Notice of Default...............................................56 ----------------- 8.6 Non-Reliance on Agent and Other Banks...........................57 ------------------------------------- 8.7 Indemnification.................................................57 --------------- 8.8 Agent in its Individual Capacity................................57 -------------------------------- 8.9 Successor Agent.................................................58 --------------- 8.10 Beneficiaries..................................................58 ------------- SECTION 9. MISCELLANEOUS.....................................................58 9.1 Amendments and Waivers..........................................58 ---------------------- 9.2 Notices.........................................................59 ------- 9.3 No Waiver; Cumulative Remedies..................................60 ------------------------------ 9.4 Survival of Representations and Warranties......................60 ------------------------------------------ 9.5 Payment of Expenses and Taxes...................................60 ----------------------------- 9.6 Successors and Assigns..........................................61 ---------------------- 9.7 Disclosure of Information.......................................64 ------------------------- 9.8 Adjustments; Set-off............................................64 -------------------- 9.9 Counterparts....................................................65 ------------ 9.10 Severability....................................................65 ------------ 9.11 Integration.....................................................65 ----------- 9.12 GOVERNING LAW...................................................66 ------------- 9.13 Submission To Jurisdiction; Waivers.............................66 ----------------------------------- 9.14 Acknowledgements................................................66 ---------------- 9.15 WAIVERS OF JURY TRIAL...........................................67 --------------------- iii CREDIT AGREEMENT CREDIT AGREEMENT, dated as of February 20, 2002, among DOVER DOWNS ENTERTAINMENT, INC. (the "Borrower"), the several banks and other financial -------- institutions from time to time parties hereto (the "Banks"), and PNC BANK, ----- DELAWARE, a Delaware state chartered bank, as agent (in such capacity, the "Agent"). ----- BACKGROUND ---------- In consideration of the mutual covenants and agreements herein set forth and for other consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby covenant and agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following ------------- terms shall have the following meanings: "Affiliate": as to any Person, any other Person which, directly or --------- indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and any member, director, officer or employee of any such Person. For purposes of this definition, "control" shall mean the power, directly or indirectly, either to (a) vote 10% or more of the ordinary voting power for the election of directors of such Person or (b) direct or in effect cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement": this Credit Agreement, as amended, supplemented or --------- otherwise modified from time to time. "Applicable Margin": for any Base Rate Loan or LIBOR Loan on any ----------------- date, the percentage per annum set forth below, as applicable, opposite the Leverage Ratio shown on the last Compliance Certificate delivered by the Borrower to the Agent pursuant to subsection 5.2(a) prior to such date: Level Leverage Ratio Base Rate Loan Eurodollar Loan ----- -------------- -------------- --------------- I Less than or equal to 0% 1.25% 2.0 to 1.0 II Greater than 2.0 0% 1.50% to 1.0 but less than or equal to 2.5 to 1.0 III Greater than 2.5 to 1.0 0% 1.75% but less than or equal to 3.0 to 1.0 IV Greater than 3.0 to 1.0 0% 2.00% but less than or equal to 3.25 to 1.0 V Greater than 3.25 to 1.0 0.25% 2.25% but less than or equal to 3.50 to 1.0 VI Greater than 3.50 to 1.0 0.50% 2.50% ; provided, however, that (a) adjustments, if any, to the Applicable -------- ------- Margin resulting from a change in the Leverage Ratio shall be effective five Business Days after the Agent has received a Compliance Certificate, (b) in the event that no Compliance Certificate has been delivered for a fiscal quarter prior to the last date on which it can be delivered without violation of subsection 5.2(a), the Applicable Margin from such date until such Compliance Certificate is actually delivered shall be that applicable under Level VI, (c) in the event that the actual Leverage Ratio for any fiscal quarter is subsequently determined to be greater than that set forth in the Compliance Certificate for such fiscal quarter, the Applicable Margin shall be recalculated for the applicable period based upon such actual Leverage Ratio and (d) anything in this definition to the contrary notwithstanding, until receipt by the Agent of the Compliance Certificate for the fiscal quarter ending June 30, 2002, the Applicable Margin shall be that applicable under Level VI. Any additional interest on the Loans resulting from the operation of clause (c) above shall be payable by the Borrower to the Banks within five (5) days after receipt of a written demand therefor from the Agent. "Application": an application in such form as the Issuing Bank ----------- may specify from time to time, requesting the Issuing Bank to open a Letter of Credit. 2 "Assignment and Acceptance": an assignment and acceptance entered ------------------------- into by a Bank and an assignee, and acknowledged by the Agent, substantially in the form of Exhibit D or such other form as shall be approved by the Agent. "Base Rate": for any day, a rate per annum (rounded upwards, if --------- necessary, to the next 1/100th of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2%. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability of the Agent to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Borrowing": a Borrowing comprised of Base Rate Loans. ------------------- "Base Rate Loans": Revolving Credit Loans bearing interest at any --------------- time under the Base Rate Option. "Base Rate Option": as defined in Section 2.8(a). ---------------- "Borrowing": a Swing Line Loan made by the Swing Line Bank or group --------- of Loans of a single Type made by the Banks on a single date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in Wilmington, Delaware are authorized or required by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in the London interbank market. "Capital Lease": at any time, a lease with respect to which the ------------- lessee is required to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligations": at any time, the amount of the ------------------------- obligations of the Borrower and its Subsidiaries under Capital Leases which would be shown at such time as a liability on a consolidated balance sheet of the Borrower and its consolidated Subsidiaries prepared in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. 3 "Change of Control": an event or series of events by which (a) any ----------------- "person" or "group" (as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) other than the Rollins Family (or their heirs or trusts for any of their benefit or the benefit of any of their family members, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under such Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire without condition, other than passage of time, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 25% of the total voting power of the then outstanding Voting Stock of the Company, or (b) from and after the date hereof, individuals who on the date hereof constitute the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors on the date hereof or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Commitment": as to any Bank, the obligation of such Bank to make ---------- Loans to and/or issue or participate in Letters of Credit issued on behalf of the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I under the caption "Commitments" or in the Assignment and Acceptance pursuant to which such Bank becomes a party to this Agreement, as the same may be permanently terminated, reduced and extended from time to time pursuant to the provisions of Section 2.10 or changed by subsequent assignments pursuant to Section 9.6(b). "Commitment Fee": as defined in Section 2.6(a). -------------- "Commitment Fee Rate": on any date, the percentage per annum set ------------------- forth below, as applicable, opposite the Leverage Ratio shown on the last Compliance Certificate delivered by the Borrower to the Agent pursuant to subsection 5.2(a) prior to such date: 4 Level Leverage Ratio Commitment Fee Rate ----- -------------- ------------------- I Less than or equal to 0.25% 2.0 to 1.0 II Greater than 2.0 0.25% to 1.0 but less than or equal to 2.5 to 1.0 III Greater than 2.5 to 1.0 0.375% but less than or equal to 3.0 to 1.0 IV Greater than 3.0 to 1.0 0.375% but less than or equal to 3.25 to 1.0 V Greater than 3.25 to 1.0 0.375% but less than or equal to 3.50 to 1.0 VI Greater than 3.50 to 1.0 0.50% ; provided, however, that, (a) adjustments, if any, to the Commitment Fee -------- ------- Rate resulting from a change in the Leverage Ratio shall be effective five Business Days after the Agent has received a Compliance Certificate, (b) in the event that no Compliance Certificate has been delivered for a fiscal quarter prior to the last date on which it can be delivered without violation of subsection 5.2(a), the Commitment Fee Rate from such date until such Compliance Certificate is actually delivered shall be that applicable under Level VI, (c) in the event that the actual Leverage Ratio for any fiscal quarter is subsequently determined to be greater than that set forth in the Compliance Certificate for such fiscal quarter, the Commitment Fee Rate shall be recalculated for the applicable period based upon such actual Leverage Ratio and (d) anything in this definition to the contrary notwithstanding, until receipt by the Agent of the Compliance Certificate for the fiscal quarter ending June 30, 2002, the Commitment Fee Rate shall be that applicable under Level VI. Any additional Commitment Fee that is due to the Banks resulting from the operation of clause (c) above shall be payable by the Borrower within five (5) days after receipt of a written demand therefor from the Agent. "Commitment Percentage": as to any Bank at any time, the proportion --------------------- (expressed as a percentage) that such Bank's Commitment bears to the Total Commitment at such time (or, at any time after the Commitments shall have expired or been terminated, the percentage that such Bank's Exposure bears to the Total Exposure at such time). 5 "Commitment Period": the period from and including the Effective ----------------- Date to but not including the Termination Date, or such earlier date on which the Commitments shall terminate as provided herein. "Commonly Controlled Entity": an entity, whether or not -------------------------- incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Compliance Certificate": has the meaning assigned to such term in ---------------------- subsection 5.2(a). "Consolidated EBITDA": for any period of four consecutive fiscal ------------------- quarters, Consolidated Net Income for such period, plus the amount of income taxes (if any), depreciation and amortization expense, and interest expense deducted from earnings in determining such Consolidated Net Income, in each case determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP; provided, that there shall be excluded therefrom (a) any addition for non-operating gains (including, without limitation, extraordinary or unusual gains, gains from discontinuance of operations or gains arising from the sale of capital assets) and (b) any subtraction for non-operating losses during such period (including, without limitation, extraordinary or unusual losses, losses from the discontinuance of operations or losses arising from the sale of capital assets). "Consolidated Funded Debt": at any time, without duplication, the ------------------------ aggregate of all indebtedness of the Borrower and its Subsidiaries for borrowed money including Capitalized Lease Obligations and Contingent Obligations but excluding the obligations, in an amount not to exceed $26,326,000, of the Borrower and its Subsidiaries in respect of the outstanding letter of credit issued in connection with the Wilson County Tax Exempt Revenue Bond in the original principal amount of $_________ and the amount of cash contained in the sinking fund designated for debt service in respect of the Southwestern Illinois Development Authority Taxable Sports Facility Revenue Bonds, Series 1996, all determined on a consolidated basis in accordance with GAAP as of such date. "Consolidated Net Income": for any fiscal period of four consecutive ----------------------- fiscal quarters, net earnings (or loss) after income taxes (if any) for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Debt Service": for any period of four consecutive ------------------------- fiscal quarters, the amount of cash interest expense and payments of principal (excluding payments of principal made on any Loans or on account of principal under any other revolving credit facilities) made by the Borrower and its Subsidiaries during such period, all determined on a consolidated basis in accordance with GAAP. 6 "Consolidated Tangible Net Worth": as of any date of determination, ------------------------------- (a) the aggregate amount of all assets of the Borrower and its Subsidiaries on a consolidated basis at such date as may be properly classified as such in accordance with GAAP, excluding such other assets as are properly classified as intangible assets under GAAP, minus (b) the aggregate amount of all liabilities of the Borrower and its Subsidiaries on a consolidated basis at such date, as may be properly classified as such in accordance with GAAP. "Contingent Obligation": as to any Person, any guarantee of payment --------------------- or performance by such Person of any Debt or other obligation of any other Person, or any agreement to provide financial assurance with respect to the financial condition, or the payment of the obligations of, such other Person (including, without limitation, purchase or repurchase agreements, reimbursement agreements with respect to letters of credit or acceptances, indemnity arrangements, grants of security interests to support the obligations of another Person, keepwell agreements and take-or-pay or through-put arrangements) which has the effect of assuring or holding harmless any third Person against loss with respect to one or more obligations of such third Person; provided, however, the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (b) the maximum amount for which such contingently liable Person may be liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such primary obligation and the maximum amount for which such contingently liable Person may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such contingently liable Person's maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Cross-Default Indebtedness": as defined in Section 7.1(f). -------------------------- "Debt": of any Person at any date means (without duplication): ---- (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices); (b) any other indebtedness which is evidenced by a note, bond, debenture or similar instrument; (c) all Capital Lease Obligations of such Person; 7 (d) all liabilities secured by any Lien on any property owned by such Person whether or not such Person has assumed or otherwise become liable for the payment thereof; (e) all obligations of such Person with respect to Interest Hedge Agreements (calculated on a basis satisfactory to the Agent and in accordance with accepted practice); (f) all Contingent Obligations of such Person, including all obligations of such Person in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person; (g) all obligations of such Person under "synthetic" or similar leases; and (h) withdrawal liabilities of such Person or any Commonly Controlled Entity under a Plan. The Debt of any Person shall include any Debt of any partnership in which such person is a general partner, unless such Debt is nonrecourse to such Person. "Default": any of the events specified in Section 7, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, or any other condition precedent therein set forth, has been satisfied. "Distribution": in respect of any corporation, (a) dividends or ------------ other distributions on Capital Stock of the corporation (except distributions in common stock of such corporation); (b) the redemption or acquisition of Capital Stock of the corporation or of warrants, rights or other options to purchase such stock (except when solely in exchange for common stock of such corporation); and (c) any payment on account of, or the setting apart of any assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any share of any class of Capital Stock of such corporation or any warrants or options to purchase any such stock. "Dollars" and "$": dollars in lawful currency of the United States ------- - of America. "Effective Date": the date that all of the conditions of Section 4.1 -------------- have been met to the satisfaction of the Agent. "Environmental Laws": any and all applicable foreign, Federal, ------------------ state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or binding requirements of any Governmental Authority, or binding Requirement of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of the environment, as now or may at any time hereafter be in effect. 8 "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Euro-Rate Reserve Percentage": the maximum effective percentage in ---------------------------- effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate shall be ------------------------ adjusted with respect to any Eurodollar Loan that is outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Eurodollar Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. "Eurodollar Borrowing": a Borrowing comprised of Eurodollar Loans. -------------------- "Eurodollar Loan": any Revolving Credit Loan bearing interest at any --------------- time under a Eurodollar Rate Option. "Eurodollar Rate": with respect to any Eurodollar Loan for any --------------- Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars quoted by the British Bankers' Association as set forth on Dow Jones Markets Service (formerly known as Telerate) (or appropriate successor or, if British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Agent) display page 3750 (or such other display page on the Dow Jones Markets Service system as may replace display page 3750) two (2) Business Days prior to the first day of such Interest Period for an amount comparable to the principal amount of such Eurodollar Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Eurodollar Rate may also be expressed by the following formula: Average of London interbank offered rates quoted by BBA as shown on Dow Jones Markets Service display page 3750 Eurodollar Rate = or appropriate successor ------------------------------------------------------- 1.00 - Euro-Rate Reserve Percentage "Eurodollar Rate Option": as defined in Section 2.8(b). ---------------------- "Event of Default": any of the events specified in Section 7, ---------------- provided, that any requirement for the giving of notice, the lapse of -------- time, or both, or any other condition, has been satisfied. 9 "Existing Credit Agreements": that certain Amended and Restated -------------------------- Credit Agreement dated as of November 1, 1999 among the Borrower, certain banks and financial institutions from time to time parties thereto and the Agent, and that certain Credit Agreement dated as of September 14, 2001 among the Borrower, certain banks and financial institutions from time to time parties thereto and the Agent, in each case as the same have been amended, supplemented or otherwise modified from time to time. "Existing Letters of Credit": each of the unexpired Letters of -------------------------- Credit issued on behalf of the Borrower by the Issuing Bank which are outstanding on the Effective Date, as described on Schedule II hereto. "Exposure": as to any Bank at any date, an amount equal to the sum -------- of (a) the aggregate principal amount of all Loans made by such Bank then outstanding, (b) such Bank's pro rata share of L/C Obligations then --- ---- outstanding based on its Revolving Credit Commitment Percentage, and (c) the principal amount of such Bank's pro rata share of Swing Line Loans --- ---- then outstanding based on its Revolving Credit Commitment Percentage. "Extensions of Credit": the collective reference to Loans made and -------------------- Letters of Credit issued under this Agreement. "Federal Funds Effective Rate": for any day, the weighted average of ---------------------------- the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fixed Charge Coverage Ratio": at any date of determination, the --------------------------- ratio of (i) Consolidated EBITDA less dividends less cash income tax ---- expense less capital expenditures, in such case for the comparable twelve ---- month period, to (ii) Consolidated Debt Service. "GAAP": at any time with respect to the determination of the ---- character or amount of any asset or liability or item of income or expense, or any consolidation or other accounting computation, generally accepted accounting principles as in effect on the date of, or at the end of the period covered by, the financial statements from which such asset, liability, item of income, or item of expense, is derived, or, in the case of any such computation, as in effect on the date when such computation is required to be determined; provided, however, that in the event of any -------- ------- change in GAAP which would affect the calculation of the Borrower's compliance with any of the covenants contained in Section 6.1, either favorably or unfavorably, the Agent, the Banks and the Borrower will make appropriate adjustments to such covenants. 10 "Governmental Authority": any nation or government, any state or ---------------------- other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor": each of Dover International Speedway, Inc., a Delaware --------- corporation, Dover Downs Properties, Inc., a Delaware corporation, Gateway International Motorsports Corporation, an Illinois corporation, Gateway International Services Corporation, an Illinois corporation, Grand Prix Association of Long Beach, Inc., a California corporation, Memphis International Motorsports Corporation, a Tennessee corporation, M & N Services Corp., a Tennessee corporation, and Nashville Speedway, USA, Inc., a Tennessee corporation, each of which is a direct or indirect wholly-owned Subsidiary of the Borrower, and "Guarantors" shall mean all ---------- such Persons collectively. "Guaranty Agreement": the Guaranty and Suretyship Agreement ------------------ substantially in the form of Exhibit C hereto, executed by the Guarantors --------- in favor of the Agent for the ratable benefit of the Banks. "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Interest Hedge Agreement": any interest rate swap agreement, ------------------------ interest rate cap agreement, interest rate collar agreement, interest rate insurance or any other agreement which is not speculative in nature with all extensions, renewals, amendments, substitutions and replacements to and any of the foregoing, documentation of all of which shall conform to International Swap Dealers Association, Inc. standards. "Interest Payment Date": (a) as to any Base Rate Loan or Swing Line --------------------- Loan, the last day of each March, June, September and December, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loan: --------------- (a) initially the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Agent 11 not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are -------- ---- subject to the following: (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) with respect to Eurodollar Loans, any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iii) an Interest Period that otherwise would extend beyond the Termination Date shall end on the Termination Date; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "ISP98": the International Standby Practices 1998 (ISP98) published ----- by the Institute of International Banking Law & Practice, Inc., as the same may be amended, supplemented or otherwise modified from time to time. "Issuing Bank": PNC Bank, Delaware, as issuer of Letters of Credit ------------ hereunder. "L/C Commitment": the lower of (a) $35,000,000 and (b) the Total -------------- Commitment at such time. "L/C Coverage Requirement": with respect to each Letter of Credit at ------------------------ any time, 100% of the maximum amount available to be drawn thereunder at such time (determined without regard to whether any conditions to drawing could be met at such time). "L/C Obligations": at any time, an amount equal to the sum of (a) --------------- 100% of the maximum amount available to be drawn under all Letters of Credit outstanding at such time (determined without regard to whether any conditions to drawing could be met at such time) and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2.5(e). "L/C Participant": in respect of each Letter of Credit, each Bank --------------- other than the Issuing Bank) in its capacity as the holder of a participating interest in such Letter of Credit. 12 "L/C Payment Date": the last day of each March, June, September and ---------------- December. "Letters of Credit": as defined in Section 2.5(a). ----------------- "Leverage Ratio": at any date of determination, the ratio of -------------- Consolidated Funded Debt on such date to Consolidated EBITDA for the four consecutive fiscal quarters of the Borrower most recently ended prior to such date. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing). "Loans": the collective reference to the Revolving Credit Loans and ----- the Swing Line Loans. "Loan Documents": this Agreement, the Applications, the Notes and -------------- the Guaranty Agreement. "Material Adverse Effect": a material adverse effect on (a) the ----------------------- validity or enforceability of this Agreement or any other Loan Document or the rights or remedies of the Agent or the Banks hereunder or thereunder, b) the business, property, assets, financial condition, results of operations or prospects of the Borrower and its Subsidiaries taken as a whole or (c) the ability of the Borrower to duly and punctually pay its Debts and perform its obligations under the Loan Documents. "Materials of Environmental Concern": any gasoline or petroleum ---------------------------------- including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls, and ureaformaldehyde insulation. "Moody's": Moody's Investors Services, Inc. ------- "Multiemployer Plan": a Plan which is a multiemployer plan as ------------------ defined in Section 4001(a)(3) of ERISA. "Net Proceeds": with respect to the sale or issuance of any Capital ------------ Stock by the Borrower or its Subsidiary, the net amount equal to (a) the aggregate amount received in cash in connection with such sale or issuance minus (b) the fees, commissions and other out-of-pocket expenses incurred ----- by the Borrower or its Subsidiary in connection with such sale or issuance. 13 "Notes": the Revolving Credit Notes and the Swing Line Note. ----- "Participant" as defined in Section 9.6(f). ----------- "PBGC": the Pension Benefit Guaranty Corporation established ---- pursuant to Subtitle A of Title IV of ERISA. "Permitted Acquisition": an acquisition by the Borrower of the --------------------- Capital Stock or assets of a Person (or of any segment or division of a Person) (a) that (i) is in the motorsports industry, if the gross purchase price for such acquisition is less than $15,000,000, and (ii) has a positive total of Consolidated Net Income plus income tax expense, depreciation and amortization expense and interest expense deducted from earnings in determining such Consolidated Net Income for the twelve month period ending on the last day of the most recently completed fiscal quarter or (b) which is otherwise approved by the Required Banks; provided, that at the time that any definitive agreement is entered into -------- in respect of any such acquisition, no Default or Event of Default shall exist or would exist if such acquisition were consummated on such date assuming for purposes of the covenants contained in Section 6.1 that pro --- forma adjustments are made to the financial statements of the Borrower ----- giving effect to such acquisition as if it had occurred on the last day of the Borrower's most recently completed fiscal quarter); provided further, -------- ------- that the prior approval of the Required Banks shall be required for any acquisition, the gross purchase price of which equals or exceeds $10,000,000, proposed to be made by the Borrower during a fiscal year in which the aggregate gross purchase price of Permitted Acquisitions previously made by the Borrower during such fiscal year equals or exceeds $20,000,000. "Permitted Investments": --------------------- (a) direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, provided that such obligations mature within one (1) year from the date of acquisition thereof; (b) certificates of deposit, time deposits or banker's acceptances, maturing within one (1) year from the date of acquisition, with (i) any Bank or (ii) any other bank or trust company organized under the laws of the United States, the unsecured long-term debt obligations of which are rated "A3" or higher by Moody's or "A-" or higher by S&P, and issued, or in the case of banker's acceptance, accepted, by a bank or trust company having capital, surplus and undivided profits aggregating at least Two Hundred Fifty Million Dollars ($250,000,000); (c) commercial paper given the highest rating by either S&P or Moody's maturing not more than two hundred seventy (270) days from the date of creation thereof; 14 (d) mutual funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 that hold themselves out as "money market funds;" (e) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition, having one of the two highest ratings generally obtainable from either S&P or Moody's; (f) commercial paper maturing no more than six months from the date of acquisition thereof and issued by the holding company of (i) any Bank or (ii) any other bank that has (A) combined capital, surplus and undivided profits (less any undivided losses) of not less than $250 million, (B) a Keefe Bank Watch Rating of C or better and (C) commercial paper having a rating of A-2 (or the equivalent) or higher from S&P or P-2 (or the equivalent) or higher from Moody's; and (g) fully collateralized repurchase agreements with a term of not more than ninety days for underlying securities of the type described in paragraphs (a) and (e) of this definition. "Permitted Liens" shall mean: --------------- (a) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (b) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs; (c) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; (d) Good faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (e) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; 15 (f) Any Lien existing on the date of this Agreement and described on Schedule III hereto provided that the principal amount ------------ secured thereby is not hereafter increased and no additional assets become subject to such Lien; (g) Purchase Money Security Interests or Liens created pursuant to Capital Leases; provided, that (x) such Liens shall be created -------- simultaneously with the acquisition of the property which is subject to such Lien, (y) such Liens do not at any time encumber any property other than such property and (z) the Liens are not modified to secure any Debt other than that used to acquire such property; (h) Liens relating to the Debt of the Borrower described in Section 6.2(d) hereof; (i) the following, if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed: (i) claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, provided that the Borrower establishes and maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; and (ii) claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; and (j) Liens relating to judgments which do not constitute an Event of Default under Section 7.1(e). "Person": an individual, partnership, corporation, business trust, ------ joint stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is ---- covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate": the rate of interest per annum announced from time to ---------- time by PNC Bank, Delaware as its prime rate in effect at its principal office in Wilmington, Delaware, each change in the Prime Rate shall be effective on the date such change is announced as effective. "Properties": the collective reference to the facilities and ---------- properties owned, leased or operated by the Borrower or any of its Subsidiaries. 16 "Purchase Money Security Interest": shall mean Liens upon tangible -------------------------------- personal property securing loans to the Borrower or any Subsidiary thereof or deferred payments by the Borrower or any Subsidiary thereof for the purchase of such tangible personal property. "Register": as defined in Section 9.6(d). -------- "Regulation U": Regulation U of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X": Regulation X of the Board of Governors of the ------------ Federal Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Reimbursement Obligation": in respect of each Letter of Credit, the ------------------------ obligation of the Borrower to reimburse the Issuing Bank for all drawings made thereunder in accordance with Section 2.5(e) and the Application related to such Letter of Credit for amounts drawn under such Letter of Credit. "Reorganization": with respect to any Multiemployer Plan, the -------------- condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Sections 4043(c) ---------------- (1), (2), (4), (5), (6), (10) and (13) of ERISA. "Required Banks": at any time, (a) if there are one (1) or two (2) -------------- Banks, Required Banks shall mean all of the Banks and (b) if there are more than two (2) Banks, Required Banks shall mean Banks the Commitment Percentages of which at such time aggregate at least 66.67%. "Requirement of Law": as to any Person, the certificate of ------------------ incorporation, by-laws, operating agreement or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, president or ------------------- chief financial officer of the Borrower. "Revolving Credit Borrowing": a Borrowing consisting of concurrent -------------------------- Revolving Credit Loans from the Banks. "Revolving Credit Borrowing Request": a request by the Borrower for ---------------------------------- the making of Revolving Credit Loans pursuant to Section 2.2 in the form of Exhibit A hereto. --------- 17 "Revolving Credit Commitment Percentage": as to any Bank at any -------------------------------------- time, the proportion (expressed as a percentage) that such Bank's Commitment bears to the Total Commitment at such time (or, at any time after the Commitments shall have expired or been terminated, the percentage which the principal amount of such Bank's Revolving Credit Loans then outstanding bears to the aggregate principal amount of all Revolving Credit Loans then outstanding). "Revolving Credit Loans": as defined in Section 2.1. Each Revolving ---------------------- Credit Loan shall be a Eurodollar Loan or a Base Rate Loan. "Revolving Credit Note": a promissory note of the Borrower in the --------------------- form of Exhibit B-1, as the same may be amended, supplemented or otherwise ----------- modified from time to time. "Rollins Family": the individuals listed on Schedule IV hereto. -------------- ----------- "S&P": Standard & Poor's Rating Group, a division of McGraw-Hill --- Corporation. "Single Employer Plan": any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan. "Subsidiary": as to any Person, (i) any corporation, company or ---------- trust of which 50% or more (by number of shares or number of votes) of the outstanding Capital Stock, interests, shares or similar items of beneficial interest normally entitled to vote for the election of one or more directors, members or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such person or one or more of such Person's Subsidiaries, or any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, and (ii) any corporation, company, trust, partnership or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's subsidiaries. Unless otherwise indicated, all references to a "Subsidiary" or to Subsidiaries" in this Agreement shall refer to a Subsidiary of the Borrower but shall not include Dover Downs, Inc. or Dover Downs Gaming & Entertainment, Inc. "Swing Line Bank": PNC Bank, Delaware, or any other Bank to which --------------- the Swing Line Commitment is assigned pursuant to the terms of Section 9.6. "Swing Line Commitment": the amount set forth opposite the Swing --------------------- Line Bank's name under the heading "Swing Line Commitment" on Schedule I ---------- hereto, as such amount may be reduced pursuant to Section 2.3(f). "Swing Line Loans": has the meaning given to such term in Section ---------------- 2.3(a). 18 "Swing Line Note": has the meaning given to such term in Section 2.3 --------------- (c), as the same may be amended, supplemented or otherwise modified from time to time. "Swing Line Repayment Date": has the meaning given to such term in ------------------------- Section 2.3(b). "Taxes": as defined in Section 2.14. ----- "Termination Date": the earlier of (a) February 19, 2005, or such ---------------- later date to which the Termination Date shall have been extended pursuant to Section 2.10(d) and (b) the date the Commitments are terminated as provided herein. "Total Commitment": at any time, the aggregate amount of the Banks' ---------------- Commitments, as in effect at such time. "Total Commitment Percentage": as to any Bank at any time, the --------------------------- proportion (expressed as a percentage) that such Bank's Commitment bears to the Total Commitment. "Total Exposure": at any time, the aggregate amount of the Banks' -------------- Exposures at such time. "Tranche": the collective reference to (a) Loans, other than Base ------- Rate Loans, of the same type whose Interest Periods begin on the same date and end on the same later date (whether or not such Loans originally were made on the same date) and (b) Base Rate Loans, which shall constitute one Tranche. "Type": when used in respect of any Loan or Borrowing, shall refer ---- to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the Eurodollar Rate and the Base Rate. "Voting Stock": Capital Stock of any class or classes of a Person ------------ the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors (or Persons performing similar functions). 1.2 Other Definitional Provisions. (a) Unless otherwise specified ----------------------------- therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. 19 (c) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (d) The meanings given to terms defined in this Agreement shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. THE CREDITS 2.1 Revolving Credit Loans. (a) Subject to the terms and conditions ---------------------- hereof, each Bank, severally and not jointly, agrees to make revolving credit loans in Dollars (the "Revolving Credit Loans") to the Borrower ---------------------- from time to time during the Commitment Period, in an aggregate principal amount at any time outstanding which, when added to such Bank's Commitment Percentage of (i) the L/C Obligations then outstanding and (ii) the principal amount of Swing Line Loans then outstanding, does not exceed such Bank's Commitment; provided, that at no time shall the sum of (x) the -------- aggregate principal amount of all Loans made by the Banks then outstanding plus (y) the L/C Obligations then outstanding exceed the Total Commitment. The Commitments may be terminated or reduced from time to time pursuant to Section 2.10. Within the foregoing limits, the Borrower may during the Commitment Period borrow, repay and reborrow under the Commitment, subject to the terms, provisions and limitations set forth herein. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with Sections 2.2 and 2.18; provided, that no Loan shall be made as a Eurodollar -------- Loan after the date that is one month prior to the Termination Date. (c) The failure of any Bank to make any Revolving Credit Loan shall not in itself relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). The Loans comprising any Revolving Credit Borrowing shall be (i) with respect to a Base Rate Borrowing, in a minimum aggregate principal amount of $100,000 or a whole multiple thereof or (ii) with respect to a Eurodollar Borrowing, in a minimum aggregate principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof (or, in either case, an aggregate principal amount equal to the remaining balance of the available Commitments). 2.2 Revolving Credit Loan Procedures. In order to request a -------------------------------- Revolving Credit Borrowing, the Borrower shall hand deliver or telecopy (or notify by telephone and promptly confirm by hand delivery or telecopy) to the Agent the information requested by the form of Revolving Credit Borrowing Request attached as Exhibit A hereto (a) in the case of a Eurodollar Borrowing, --------- not later than 12:00 noon, Wilmington time, three Business Days before a proposed 20 Borrowing and (b) in the case of a Base Rate Borrowing, not later than 12:00 noon, Wilmington time, on the day of a proposed Borrowing. Such notice shall be irrevocable and shall in each case specify (i) whether the Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate Borrowing; (ii) the date of such Revolving Credit Borrowing (which shall be a Business Day); (iii) the principal amount of such Borrowing; and (iv) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Revolving Credit Borrowing is specified in any such notice, then the requested Revolving Credit Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Agent shall promptly advise the Banks of any notice given pursuant to this Section 2.2 and of each Bank's portion of the requested Borrowing. 2.3 Swing Line Loans. (a) Subject to the terms and conditions ---------------- hereof, the Swing Line Bank may in its discretion make swing line loans (the "Swing Line Loans") to the Borrower from time to time during the ---------------- Commitment Period in the aggregate up to the amount of the Swing Line Commitment for periods requested by the Borrower and agreed to by the Swing Line Bank; provided, that, no Swing Line Loan shall be made if, after giving -------- ---- effect to the making of such Loan and the simultaneous application of the proceeds thereof, (i) the Total Exposure would exceed the Total Commitment or (ii) a Default or Event of Default shall exist or be continuing. Within the foregoing limits, the Borrower may during the Commitment Period borrow, repay and reborrow under the Swing Line Commitment, subject to and in accordance with the terms and limitations hereof. (b) The Borrower may request a Swing Line Loan to be made on any Business Day. Swing Line Loans shall bear interest at the Base Rate Option. Each request for a Swing Line Loan shall be in writing (or by telephone promptly confirmed in writing) and delivered to the Swing Line Bank not later than 1:00 p.m., Wilmington time, on the Business Day such Swing Line Loan is to be made, specifying in each case (i) the amount to be borrowed, (ii) the requested borrowing date, and (iii) the date such Swing Line Loan is to be repaid, if applicable (the "Swing Line Repayment Date"). The request for such ------------------------- Swing Line Loan shall be irrevocable. Provided that all applicable conditions precedent contained in Section 4.2 hereof have been satisfied, the Swing Line Bank shall, not later than 4:00 p.m., Wilmington time, on the date specified in the Borrower's request for such Swing Line Loan, make such Swing Line Loan by crediting the Borrower's deposit account with the Swing Line Bank. (c) The obligation of the Borrower to repay the Swing Line Loans shall be evidenced by a promissory note of the Borrower dated the date hereof, payable to the order of the Swing Line Bank in the principal amount of the Swing Line Commitment and substantially in the form of Exhibit B-2 (as amended, ----------- supplemented or otherwise modified from time to time, the "Swing Line Note"). --------------- (d) Interest shall accrue on the outstanding principal balance of a Swing Line Loan at the Base Rate Option and shall be payable on each applicable Interest Payment Date and upon the repayment of such Swing Line Loan. 21 (e) A Swing Line Loan shall be repaid on the earlier of (i) the Termination Date and (ii) the Swing Line Repayment Date for such Swing Line Loan, if any. (f) In the event the Commitments are terminated in accordance with Section 2.10 hereof, the Swing Line Commitment shall also be terminated automatically. In the event the Borrower reduces the Total Commitment to less than the Swing Line Commitment, the Swing Line Commitment shall immediately be reduced to an amount equal to the Total Commitment. In the event the Borrower reduces the Total Commitment to less than the outstanding principal amount of the Swing Line Loans, the Borrower shall immediately repay the amount by which the outstanding Swing Line Loans exceed the Swing Line Commitment as so reduced plus accrued interest thereon. (g) At no time shall there be more than one outstanding Swing Line Loan. (h) Each Swing Line Loan shall be in an original principal amount of $100,000 or a whole multiple thereof. (i) The Borrower shall have the right at any time and from time to time to prepay any Swing Line Loan, in whole or in part, without premium or penalty, upon prior written, telecopy or telephonic notice to the Swing Line Bank given no later than 1:00 p.m., Wilmington time, on the date of any proposed prepayment. Each notice of prepayment shall specify the Swing Line Loan to be prepaid and the amount to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such amount on such date, with accrued interest thereon. 2.4 General Provisions Regarding Loans. (a) Subject to Section 2.4 ---------------------------------- (b), each Bank shall make each Revolving Credit Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Agent in Pittsburgh, Pennsylvania not later than 3:00 p.m., Wilmington time, and the Agent shall by 4:00 p.m., Wilmington time, credit the amounts so received to the general deposit account of the Borrower with the Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Banks. Revolving Credit Loans shall be made by the Banks pro rata in --- ---- accordance with Section 2.16. Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's portion of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Borrowing in accordance with this paragraph (a) and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have made such portion available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate; provided, that if such Bank shall not pay such amount within -------- three Business Days of the date of such Borrowing, such overdue amount shall, at 22 the expiration of such three-Business Day period, bear interest at the Base Rate Option. If such Bank repays to the Agent such corresponding amount, such amount shall constitute such Bank's Loan as part of such Borrowing for purposes of this Agreement. (b) The Borrower may refinance all or any part of any Borrowing with any other Borrowing subject to the conditions and limitations set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.3 or 2.7 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Banks to the Agent or by the Agent to the Borrower; provided, however, that (i) if the principal amount -------- ------- extended by a Bank in a refinancing is greater than the principal amount that was extended by such Bank in the Borrowing being refinanced, then such Bank shall pay such difference to the Agent for distribution to the Banks described in (ii) below, (ii) if the principal amount extended by a Bank in the Borrowing being refinanced is greater than the principal amount agreed to be extended by such Bank in the refinancing, the Agent shall return the difference to such Bank out of amounts received pursuant to (i) above, and (iii) to the extent any Bank fails to pay the Agent amounts due from it pursuant to (i) above, any Loan or portion thereof being refinanced with such amounts shall not be deemed repaid in accordance with Section 2.3 or 2.7 and shall be payable by the Borrower without prejudice to the Borrower's rights against any such Bank. (c) Each Bank may at its option fulfill its Commitment hereunder with respect to any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Bank to make such Loan; provided, however, -------- ------- that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the Agreement and the applicable Note. (d) All Borrowings, conversions and continuations of Revolving Credit Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections that, after giving effect thereto, (A) the aggregate principal amount of the Loans comprising each Tranche of Eurodollar Loans shall be equal to $500,000 or a whole multiple of $100,000 in excess thereof and (B) the Borrower shall not have outstanding at any one time more than in the aggregate eight (8) separate Tranches of Loans (including the Base Rate Tranche). (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date. 2.5 Letters of Credit. ----------------- (a) L/C Commitment. (i) Subject to the terms and conditions -------------- hereof, the Issuing Bank, in reliance on the agreements of the other Banks set forth in Section 2.5(d), agrees to issue letters of credit (together with the Existing Letters of Credit, collectively referred to as the "Letters of ---------- Credit") for the account of the Borrower on any Business Day during the - ------ 23 Commitment Period in such form as may be approved from time to time by the Issuing Bank; provided, that no Letter of Credit shall be issued if, after -------- giving effect thereto (A) the amount of the Total Exposure would exceed the amount of the Total Commitment in effect at such time (B) the aggregate amount of the L/C Obligations at such time would exceed the L/C Commitment in effect at such time or (C) a Default or Event of Default shall exist or be continuing. (ii) Each Letter of Credit: (A) shall be denominated in Dollars and shall be a standby letter of credit; and (B) shall be for the account of the Borrower and for the benefit of the Borrower and/or one or more of the Guarantors; (C) shall have an expiration date no later than the Termination Date; and (D) may during the Commitment Period be extended at the sole discretion of the Issuing Bank for additional periods of up to one year each (but in no event to expire later than the Termination Date) upon written request from the Borrower to the Issuing Bank at least 20 days (or such other time period as agreed by the Borrower and the Agent) before the date upon which notice of extension is otherwise required by the terms thereof. (iii) Each Letter of Credit shall be subject to ISP98 and, to the extent not inconsistent therewith, the laws of the State of Delaware. (b) Procedure for Issuance of Letters of Credit. The Borrower ------------------------------------------- may from time to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its office for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank may reasonably request. Upon receipt by the Issuing Bank of any Application, the Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, after determining from the Agent that issuance of the Letter of Credit requested thereby will be within the limits imposed by Section 2.5(a)(i), issue such Letter of Credit not later than ten (10) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto (but in no event shall the Issuing Bank be required to issue any Letter of Credit earlier than five (5) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the Borrower. The Issuing Bank shall promptly after issuing a Letter of Credit furnish copies thereof to the Borrower. 24 (c) L/C Fees, Commissions and Other Charges.(i) The Borrower --------------------------------------- shall pay to the Agent, for the account of the Banks (including the Issuing Bank) pro rata according to their respective Commitment Percentages, a letter --- ---- of credit fee with respect to the aggregate face amount of all Letters of Credit outstanding, computed at the rate equal to the Applicable Margin for LIBOR Loans in effect from time to time (computed on the basis of the actual number of days each Letter of Credit is outstanding in a year of 360 days). The Borrower shall also pay to the Issuing Bank, in respect of each Letter of Credit issued by the Issuing Bank, a fronting fee in an amount not to exceed $250. The fees described in the preceding sentences shall be due and payable quarterly in arrears on each L/C Payment Date and on the Termination Date or such earlier date as the Commitments are terminated, and shall be nonrefundable. (ii) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Bank for such normal and customary costs and expenses as are incurred or charged by the Issuing Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit, in accordance with the schedule of such costs attached hereto as Schedule V. ---------- (iii) The Agent shall, promptly following its receipt thereof, distribute to the Issuing Bank and the Banks all fees and commissions received by the Agent for their respective accounts pursuant to this subsection. (d) L/C Participations. (i) The Issuing Bank irrevocably agrees ------------------ to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk, an undivided interest equal to such L/C Participant's Revolving Credit Commitment Percentage in the Issuing Bank's obligations and rights under each Letter of Credit issued by the Issuing Bank hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit issued by the Issuing Bank for which the Issuing Bank is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the Issuing Bank's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Commitment Percentage of the amount of such draft or any part thereof, which is not so reimbursed. Any action taken or omitted by the Issuing Bank under or in connection with a Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall neither create for the Issuing Bank any resulting liability to any L/C Participant nor constitute a defense to an L/C Participant's obligation to make the payments to the Issuing Bank required by the immediately preceding sentence. (ii) If any amount required to be paid by any L/C Participant to the Issuing Bank pursuant to Section 2.5(d) in respect of any unreimbursed portion of any 25 payment made by the Issuing Bank under any Letter of Credit is not paid to the Issuing Bank on the date such payment is due from such L/C Participant, such L/C Participant shall pay to the Issuing Bank on demand an amount equal to the product of (A) such amount, times (B) the daily average Federal Funds Effective Rate, as quoted by the Issuing Bank, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (C) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. A certificate of the Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (iii) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 2.5(d)(i), the -------- Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including by way of set-off or proceeds of collateral applied thereto by the Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event -------- -------- ------- that any such payment received by the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion thereof previously distributed by the Issuing Bank to it. (e) Reimbursement Obligation of the Borrower. (i) The Borrower ---------------------------------------- agrees to reimburse the Issuing Bank in respect of a Letter of Credit on each date on which the Issuing Bank notifies the Borrower of the date and amount of a draft presented under such Letter of Credit and paid or to be paid by the Issuing Bank for the amount of (A) such draft so paid and (B) any taxes, fees, charges or other direct out of pocket costs or expenses incurred by the Issuing Bank in connection with such payment. Each such payment shall be made to the Issuing Bank at its office listed in Section 9.2 in Dollars and in immediately available funds. (ii) Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the per annum rate of the Base Rate Option plus 2.0% and shall be payable on demand by the Issuing Bank. (f) Obligations Absolute. (i) The obligations of the Borrower -------------------- under this Section 2.5 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Bank or any beneficiary of a Letter of Credit or any other Person. (ii) The Borrower agrees with the Issuing Bank that the Issuing Bank shall not be responsible for, and the Borrower's Reimbursement Obligations under 26 Section 2.5(e) shall not be affected by, among other things, (A) the validity or genuineness of any documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, provided, that reliance upon such documents by the Issuing Bank -------- shall not have constituted gross negligence or willful misconduct by the Issuing Bank or (B) any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other Person to which such Letter of Credit may be transferred or (C) any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. (iii) The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. (iv) The Borrower agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall neither result in any liability of the Issuing Bank to the Borrower nor constitute a defense to the Borrower's obligation to reimburse the Issuing Bank. (g) Letter of Credit Payments. If any draft shall be presented ------------------------- for payment to the Issuing Bank under any Letter of Credit, the Issuing Bank shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Issuing Bank to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. (h) Application. To the extent that any provision of any ----------- Application related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall apply. 2.6 Fees. (a) The Borrower agrees to pay to the Agent for the ---- account of each Bank a commitment fee (a "Commitment Fee") for the period from -------------- and including the first day of the Commitment Period to the Termination Date, computed at a rate per annum equal to the applicable Commitment Fee Rate in effect from time to time, calculated on the basis of a 360 day year for the actual days elapsed, on the average daily amount of the difference between the Commitment of such Bank and its Exposure during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date or such earlier date as the Total Commitment shall be permanently reduced or terminated as provided herein, commencing on the first of such dates to occur after the Effective Date. Each payment by the Borrower on account of the Commitment Fee shall be made pro rata --- ---- according to the Banks' respective Revolving Credit Commitment Percentages. 27 (b) All fees shall be paid on the dates due, in immediately available funds, to the Agent for distribution, if and as appropriate, among the Banks. Once paid, none of the fees shall be refundable under any circumstances. 2.7 Notes; Repayment of Revolving Credit Loans. The Revolving ------------------------------------------ Credit Loans made by each Bank shall be evidenced by a single Revolving Credit Note duly executed on behalf of the Borrower, dated the Effective Date, in substantially the form attached hereto as Exhibit B-1 with the blanks ----------- appropriately filled, payable to such Bank in a principal amount equal to the Commitment of such Bank. Each Note shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.8. The outstanding principal balance of each Revolving Credit Loan, as evidenced by the relevant Note, shall be payable on the Termination Date. The Borrower hereby authorizes the Agent to charge any deposit account of the Borrower maintained with the Agent for any payment when due hereunder or under the Notes. 2.8 Interest on Revolving Credit Loans. (a) Subject to the ---------------------------------- provisions of Section 2.9, each Base Rate Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be) at a rate per annum equal to the Base Rate plus the ---- Applicable Margin (the "Base Rate Option"). (b) Subject to the provisions of Section 2.9, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Loan plus the Applicable Margin ---- (the "Eurodollar Rate Option"). (c) Interest on each Revolving Credit Loan shall be payable on each Interest Payment Date applicable to such Loan; provided, that interest -------- accruing on overdue amounts pursuant to Section 2.9 shall be payable on demand. The Agent's calculation of the Eurodollar Rate and the Base Rate shall be conclusive absent manifest error. 2.9 Default Rate; Inability to Determine Interest Rate. (a) Upon -------------------------------------------------- the occurrence of and during the continuance of an Event of Default under Section 7.1(a) or (g), the outstanding principal amount of the Loans and, to the extent permitted by law, accrued and unpaid interest thereon and any other amount payable hereunder shall bear interest from the date of such occurrence until paid in full (after as well as before judgment) at a rate per annum which is equal to two percent (2%) in excess of the Base Rate Option. Upon the occurrence of and during the continuance of an Event of Default other than under Section 7.1(a) or (g), the outstanding principal amount of the Loans and, to the extent permitted by law, accrued and unpaid interest thereon and any other amount payable hereunder shall bear interest from the date that the Agent shall send notice to the Borrower of the application of the default rate until paid in full (after as well as before judgment) at a rate per annum which is equal to two percent (2%) in excess of the Base Rate Option. The Borrower acknowledges that such increased interest rate reflects, among other things, the fact that such loans or other amounts have become a substantially greater risk given its default status and that the Banks are entitled to additional compensation for such risk. 28 (b) In the event, and on each occasion, that prior to the commencement of any Interest Period for a Eurodollar Loan, the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that dollar deposits in the principal amount of such Eurodollar Loan are not generally available in the London interbank market, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Banks of making or maintaining the principal amount of such Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Agent shall, as soon as practicable thereafter, give written, telegraphic or telephonic notice of such determination to the Borrower and the Banks. After such notice shall have been given and until the circumstances giving rise to such notice no longer exist, each request for a Eurodollar Loan or for conversion to or maintenance of a Eurodollar Loan pursuant to the terms of this Agreement shall be deemed to be a request for a Base Rate Loan. 2.10 Termination, Reduction and Extension of Commitments. (a) The --------------------------------------------------- Total Commitment shall be automatically terminated on the Termination Date. (b) Subject to the last sentence of this paragraph, upon at least five Business Days' prior irrevocable written or telecopy notice to the Agent, the Borrower may at any time in whole permanently terminate, or from time to time permanently reduce, the Total Commitment. Each partial reduction of the Total Commitment shall be in a minimum principal amount of $5,000,000 or in whole multiples thereof, and no such termination or reduction shall be made which would, after giving effect to any prepayments of Revolving Credit Loans on such date reduce the Total Commitment to an amount less than the amount of the Total Exposure. (c) Each reduction in the Total Commitment hereunder shall be made ratably among the Banks in accordance with their respective Commitment Percentages. The Borrower shall pay to the Agent for the account of the relevant Banks, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to the date of such termination or reduction. In connection with any reduction of the Total Commitment, the Borrower shall make any prepayment required under Section 2.11(b). (d) During the period beginning ninety days prior to the then effective Termination Date and ending sixty (60) days prior to such Termination Date, the Borrower may deliver to the Agent (which shall promptly transmit to each Bank) a notice requesting that the Commitments be extended for an additional nine months beyond the Termination Date then in effect. Within forty-five days after its receipt of any such notice, each Bank shall notify the Agent of its willingness or unwillingness to extend its Commitment. Any Bank that shall fail to notify the Agent within such period shall be deemed to have declined to extend its Commitment. If each (but only if each) Bank agrees to extend its Commitment, the Agent shall so notify the Borrower and each Bank, whereupon (i) the respective Commitments of the Banks shall without further act by any party hereto, be extended to the date nine months after the Termination Date then in effect and (ii) the term "Termination Date" shall thereafter mean such date. Any such extension shall be evidenced by a written agreement among the Agent, the Banks and the 29 Borrower, such agreement to be in form and substance acceptable to the Agent and the Banks. In the event that one or more Banks (each a "Non-Electing Bank") ----------------- shall have declined or been deemed to have declined to extend its or their Commitment and Banks holding a majority in amount of the Commitments shall have notified the Agent of their desire to extend their Commitments, the Borrower shall have the right, but not the obligation, at its own expense, upon notice to each such Non-Electing Bank and the Agent, to replace all (but not less than all) such Non-Electing Banks (in accordance with and subject to the restrictions contained in Section 9.6) at any time before the thirtieth (30th) day prior to the Termination Date with one or more assignees (each a "Replacement Bank") willing to purchase all of the Non-Electing Banks' ---------------- interests hereunder and to agree to extend its or their Commitment in accordance with the notice referred to in the first sentence of this paragraph (d). In such event, each Non-Electing Bank shall promptly upon request transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 9.6) all its interests, rights and obligations under this Agreement to the applicable Replacement Bank; provided, however, that (i) no ----------------- such assignment shall conflict with any law or any rule, regulation or order of any Governmental Authority, (ii) the applicable Replacement Bank shall pay to the applicable Non-Electing Bank in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-Electing Bank hereunder and all other amounts accrued for such Non-Electing Bank's account or owed to it hereunder (including Commitment Fees and any unpaid costs or expenses), and (iii) a Non-Electing Bank shall not be required to sell its interests hereunder unless the Borrower has arranged for one or more Replacement Banks to acquire the interests of all other Non-Electing Banks. If, as a result of the foregoing, each Bank (including Replacement Banks, but excluding Non-Electing Banks whose interests have been purchased as provided above) has agreed to extend its Commitment, the Commitments shall be extended as provided in clause (i) of the fourth sentence of this paragraph and the term Termination Date shall have the meaning set forth in clause (ii) in such fourth sentence of this paragraph (d). 2.11 Optional and Mandatory Prepayments of Revolving Credit Loans ------------------------------------------------------------ (a) The Borrower shall have the right at any time and from time to time to prepay any Revolving Credit Borrowing, in whole or in part, without premium or penalty (but in any event subject to Section 2.15), upon prior written, telecopy or telephonic notice to the Agent given no later than 10:30 a.m., Wilmington time, one Business Day before any proposed prepayment; provided, -------- however, that each such partial prepayment shall be in the principal amount of - ------- at least (x) with respect to Base Rate Loans, $100,000 or in whole multiples thereof and (y) with respect to Eurodollar Loans, $500,000 or in whole multiples of $100,000 in excess thereof or, in either case, the entire amount outstanding, whether or not divisible by $100,000. (b) On the date of any reduction of the Total Commitment pursuant to Section 2.10, the Borrower shall pay or prepay so much of the Revolving Credit Borrowings as shall be necessary in order that, after giving effect to such reduction and any such payments, the Total Exposure at such time will not exceed the Total Commitment. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing of Revolving Credit Loans to be prepaid, shall be 30 irrevocable and shall commit the Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein. All prepayments on Eurodollar Loans under this Section shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. 2.12 Illegality. Notwithstanding any other provision herein, if any ---------- change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make or refinance Eurodollar Loans, continue Eurodollar Loans as such and convert or refinance Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Bank such amounts, if any, as may be required pursuant to Section 2.15. 2.13 Requirements of Law. (a) In the event that any change in any ------------------- Requirement of Law or in the interpretation, or application thereof or compliance by any Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Bank in respect thereof (except for taxes covered by Section 2.14 and changes in the rate of tax on the overall net income, gross receipts or revenue of such Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank which is not otherwise included in the determination of the interest rate on such Eurodollar Loan hereunder; or (iii) shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall as promptly as practicable pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable; provided, that -------- the Borrower shall not be liable for any such amounts incurred by such Bank more than 90 days prior to the date of such Bank's notification to the Borrower. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall as promptly as practicable notify the 31 Borrower, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Bank, through the Agent, to the Borrower shall be reasonably detailed and include supporting documentation, and shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) In the event that any Bank shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Borrower (with a copy to the Agent) of a written request therefor, which shall be reasonably detailed and include supporting documentation, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction; provided, that the Borrower shall not be liable -------- for any such amounts incurred by such Bank more than 90 days prior to the date of such Bank's notification to the Borrower. (c) Each Bank agrees that it will use reasonable efforts in order to avoid or to minimize, as the case may be, the payment by the Borrower of any additional amount under Section 2.13(b); provided, however, that no Bank ----------------- shall be obligated to incur any expense, cost or other amount in connection with utilizing such reasonable efforts. (d) Notwithstanding the foregoing Section 2.13(a), (b) and (c), the Borrower shall not be required to pay any additional amounts to any Bank that is not incorporated under the laws of the United States or a state thereof as a result of any change in any Requirement of Law or compliance by such Bank with any request or directive from any central bank or Governmental Authority to the extent that such additional amounts exceed the amounts that would have been payable by the Borrower under Section 2.13(a), (b) or (c) to a Bank incorporated under the laws of the United States or a state thereof. 2.14 Taxes. (a) All payments made by the Borrower under this ----- Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (excluding, net income taxes and franchise or gross receipts taxes imposed in lieu of net income taxes imposed on the Agent or any Bank as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Agent or such Bank (excluding a connection arising solely from the Agent or such Bank having executed, delivered or performed its obligations or received a 32 payment under, or enforced, this Agreement or the Notes)) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be ----- withheld from any amounts payable to the Agent or any Bank hereunder or under the Notes, the amounts so payable to the Agent or such Bank shall be increased to the extent necessary to yield to the Agent or such Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form W-8ECI or W-8BEN or successor applicable form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Bank also agrees to deliver to the Borrower and the Agent two further copies of the said Form W-8ECI or W-8BEN and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower or the Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank so advises the Borrower and the Agent. Such Bank shall certify (i) in the case of a Form W-8ECI or W-8BEN, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. (c) Notwithstanding the foregoing Section 2.14(a) or (b), the Borrower shall not be required to pay any additional amounts pursuant to such Sections (i) to any Bank in respect of United States withholding tax if (A) the obligation to pay such additional amounts would not have arisen but for a failure by such Bank to comply with the requirements of Section 2.14(b) or (B) such Bank shall not have furnished the Borrower with such forms listed in Section 2.14(b) and shall not have taken such other steps as reasonably may be available to it under applicable tax laws and any applicable tax treaty or convention to obtain an exemption from, or reduction (to the lowest applicable rate) of, such United States withholding tax or (ii) to any Bank that is not incorporated under the laws of the United States or a state thereof to the extent that such additional amounts exceed the amounts that would have been payable by the Borrower 33 under Section 2.14(a) or (b) to a Bank incorporated under the laws of the United States or a state thereof. 2.15 Indemnity. (a) The Borrower agrees to indemnify each Bank and to --------- hold each Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (i) default by the Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan, (ii) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (iii) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (iv) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) For the purpose of calculation of all amounts payable to a Bank under this subsection, each Bank shall be deemed to have actually funded its relevant Eurodollar Loan through the purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Eurodollar Loan and having a maturity comparable to the relevant Interest Period; provided, -------- however, that each Bank may fund each of its Eurodollar Loans in any manner it - ------- sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 2.16 Pro Rata Treatment, etc. Except as required under Section ----------------------- 2.12, each Revolving Credit Borrowing, each payment or prepayment of principal of any Revolving Credit Borrowing, each payment of interest on the Revolving Credit Loans, each payment of Letter of Credit fees (other than fees for the account of the Issuing Bank), each reduction of the Commitments, each refinancing of any Borrowing with a Revolving Credit Borrowing of any Type, each payment of Commitment Fees and each conversion of Revolving Credit Loans, shall be made pro rata among the Banks in accordance with their respective --- ---- Commitment Percentages. Each Bank agrees that in computing such Bank's portion of any Borrowing to be made hereunder, the Agent may, in its discretion, round each Bank's percentage of such Borrowing to the next higher or lower whole dollar amount. 2.17 Payments. The Borrower shall make each payment (including -------- principal of or interest on any Loan or any fees or other amounts) hereunder not later than 12:00 (noon), Wilmington time, on the date when due in Dollars to the Agent at its offices specified in Section 9.2 or at such other place as may be designated by the Agent, in immediately available funds. Such payments shall be made without set off or counterclaim of any kind. The Agent shall distribute to the Banks any payments received by the Agent on the date received in like funds as received. (b) Whenever any payment (including principal of or interest on any Loan or any fees or other amounts) hereunder shall become due, or otherwise would occur, on a 34 day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, if applicable. 2.18 Conversion and Continuation Options. The Borrower shall have ----------------------------------- the right at any time upon prior irrevocable notice to the Agent (i) not later than 12:00 noon, Wilmington time, on the Business Day of conversion, to convert any Eurodollar Loan to a Base Rate Loan, (ii) not later than 12:00 noon, Wilmington time, three Business Days prior to conversion or continuation, to (y) convert any Base Rate Loan into a Eurodollar Loan, or (z) to continue any Eurodollar Loan as a Eurodollar Loan for any additional Interest Period and (iii) not later than 12:00 noon, Wilmington time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Loan to another permissible Interest Period, subject in each case to the following: ------- (a) a Eurodollar Loan may not be converted at a time other than the last day of the Interest Period applicable thereto; (b) any portion of a Loan maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Loan; (c) no Eurodollar Loan may be continued as such and no Base Rate Loan may be converted to a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Agent or the Required Banks have determined that such a continuation is not appropriate; (d) any portion of a Eurodollar Loan that cannot be converted into or continued as a Eurodollar Loan by reason of Section 2.18(b) or (c) automatically shall be converted at the end of the Interest Period in effect for such Loan to a Base Rate Loan; and (e) on the last day of any Interest Period for Eurodollar Loans if the Borrower shall have failed to give notice of conversion or continuation as described in this subsection or if such conversion or continuation is not permitted pursuant to this Section 2.18, such Loans shall be converted to Base Rate Loans on the last day of such then expiring Interest Period. Accrued interest on a Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion. 2.19 Use of Proceeds. The Letters of Credit and the proceeds of the --------------- Loans shall be used by the Borrower for working capital and general corporate purposes in the ordinary course of business (including, but not limited to, refinancing existing working capital-related indebtedness and, subject to the other provisions of this Agreement, acquisition financing). 35 SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Agent and the Banks to enter into this Agreement, and to make the Loans and to issue and/or participate in Letters of Credit, the Borrower hereby represents and warrants to the Agent and each Bank that: 3.1 Financial Condition. (a) Audited Financials. The consolidated ------------------- ------------------ balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 2000 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved. Neither the Borrower nor any of its consolidated Subsidiaries had, as of December 31, 2000, any material Contingent Obligation, liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any Interest Hedge Agreement, which is not reflected in the financial statements contained in the Borrower's Annual Report on Form 10-K for the period ended December 31, 2000 or the notes thereto. (b) No Sales. During the period from December 31, 2000, to and -------- including the date of this Agreement there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any Capital Stock of any other Person) material in relation to the financial condition of the Borrower and its consolidated Subsidiaries at December 31, 2000 except for the transaction referred to in Section 6.4(c) hereof. 3.2 No Adverse Change. Since December 31, 2000, there has been no ----------------- development or event nor any prospective development or event which has had or could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. 3.3 Corporate Existence; Compliance with Law. Each of the Borrower ---------------------------------------- and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to be so qualified and/or in good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 36 3.4 Corporate Power; Authorization; Enforceable Obligations. The ------------------------------------------------------- Borrower has the corporate power, authority, and legal right, to make, deliver and perform this Agreement, the Notes and the other Loan Documents to which it is a party and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes and to authorize the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which it is a party. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person (including stockholders and creditors of the Borrower) is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement, the Notes or the other Loan Documents. This Agreement has been, and each Note and other Loan Document will be, duly executed and delivered on behalf of the Borrower. This Agreement constitutes, and each Note and other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar. The execution, delivery and performance of this ------------ Agreement, the Notes and the other Loan Documents by the Borrower, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 3.6 No Material Litigation. No litigation, investigation or ---------------------- proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement, the Notes or the other Loan Documents or any of the transactions contemplated hereby, or (b) as to which there is a reasonable likelihood of an adverse determination and which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 3.7 No Default. Neither the Borrower nor any of its Subsidiaries is ---------- in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.8 Taxes. Each of the Borrower and its Subsidiaries has filed or ----- caused to be filed all tax returns which, to its knowledge, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as 37 the case may be); no tax Lien has been filed against the Borrower or any of its Subsidiaries, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charges. 3.9 Federal Regulations. No part of the proceeds of any Loans ------------------- will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U or for any purpose which violates the provisions of Regulation U. If requested by any Bank or the Agent, the Borrower will furnish to the Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-l referred to in said Regulation U. No part of the proceeds of the loans hereunder will be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X. 3.10 ERISA. (a) Neither a Reportable Event nor an "accumulated ----- funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan, and each Single Employer Plan has compiled in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred and no lien in favor of the PBGC or a Plan has arisen during the five-year period prior to the date as of which this representation is made or deemed made. No other event or condition has occurred or exists with respect to any Plan that could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. (b) The present value of all accrued benefits under each Single Employer Plan in which the Borrower or any Commonly Controlled Entity is a participant (based on those assumptions used to fund the Plans) Did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount in excess of ten percent (10%) of Consolidated Net Worth as of the end of the most recent fiscal year of the Borrower for which financial statements have been delivered to the Banks pursuant to this Agreement. (c) Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, in any such case which could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. (d) To the Borrower's knowledge, no such Multiemployer Plan is in "reorganization" or "insolvent," within the meaning of such terms as used in ERISA. (e) The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Borrower and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are 38 welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of ten percent (10%) of the Borrower's consolidated net worth as of the end of the most recent fiscal year of the Borrower for which financial statements have been delivered to the Banks pursuant to this Agreement. 3.11 Investment Company Act; Public Utility Holding Company Act. ---------------------------------------------------------- Neither the Borrower nor any of its Subsidiaries is (a) an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 3.12 Purpose of Loans; Letters of Credit. The proceeds of the ----------------------------------- Loans and the Letters of Credit shall only be used by the Borrower for the purposes permitted under Section 2.19. 3.13 Environmental Matters. To the best knowledge of the Borrower, --------------------- each of the representations and warranties set forth in paragraphs (a) through (e) of this subsection is true and correct with respect to each parcel of real property owned or operated by the Borrower or any of its Subsidiaries (the "Properties"), except to the extent that the facts and circumstances giving ---------- rise to any such failure to be so true and correct could not reasonably be expected to have a Material Adverse Effect: (a) The Properties do not contain, and have not previously contained, in, on, or under, including, without limitation, the soil and groundwater thereunder, any Materials of Environmental Concern in concentrations which violate Environmental Laws. (b) The Properties and all operations and facilities at the Properties are in compliance with Environmental Laws, and there is no Materials of Environmental Concern contamination or violation of any Environmental Law which would materially interfere with the continued operation of any of the Properties or materially impair the fair saleable value of any thereof. (c) Neither the Borrower nor any of its Subsidiaries has received or is aware of any claim, notice of violation, alleged violation, non-compliance, investigation or advisory action or potential liability regarding environmental matters or compliance of Environmental Law with regard to the Properties which has not been satisfactorily resolved by the Borrower or such Subsidiary, nor is the Borrower or any of its Subsidiaries aware or have reason to believe that any such action is being contemplated, considered or threatened. (d) Materials of Environmental Concern have not been generated, treated, stored, disposed of, at, on or under any of the Properties in violation of Environmental Laws, nor have any Materials of Environmental Concern been transferred from the Properties to 39 any other location except in either case in the ordinary course of business of the Borrower and its Subsidiaries and in material compliance with all Environmental Laws. (e) There are no governmental, administrative actions or judicial proceedings pending or, to the best knowledge of the Borrower, contemplated under any Environmental Laws to which the Borrower or any of its Subsidiaries is or will be named as a party with respect to the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any of the Properties. 3.14 No Burdensome Restrictions. No Requirement of Law or -------------------------- Contractual Obligation of the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 3.15 Ownership of Borrower and Subsidiaries. The beneficial -------------------------------------- ownership of the Capital Stock of the Borrower by its executive officers, directors and 5% shareholders has not changed materially from that set forth in the Borrower's most recent proxy statement as filed with the Securities and Exchange Commission. The Borrower owns all of the issued and outstanding capital stock of each of the Guarantors and, as of the date of this Agreement, the Borrower owns all of the issued and outstanding Capital Stock of each of its Subsidiaries. 3.16 Patents, Trademarks, etc. Each of the Borrower and its ------------------------ Subsidiaries has obtained and holds in full force and effect or is licensed to use all patents, trademarks, servicemarks, trade names, copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted. To the Borrower's best knowledge, no material product, process, method, substance, part or other material presently sold by or employed by the Borrower or any Subsidiary in connection with such business infringes any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person. There is not pending or, to the Borrower's knowledge, overtly threatened any claim or litigation against or affecting the Borrower or any Subsidiary contesting its right to sell or use any such product, process, method, substance, part or other material which could reasonably be expected to have a Material Adverse Effect. 3.17 Ownership of Property. Each of the Borrower and its --------------------- Subsidiaries has good and marketable fee simple title to or valid leasehold interests in all real property owned or leased by it, and good title to all of its personal property subject to no Lien of any kind except Permitted Liens. 3.18 Licenses, etc. Each of the Borrower and its Subsidiaries ------------- has obtained and holds in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, easements, rights of way and other rights, consents and approvals which are necessary for the operation of its business as presently conducted. 3.19 Labor Matters. Except as set forth on Schedule 3.19, as of ------------- ------------- the Effective Date, there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower, and the Borrower has not suffered any strikes, walkouts, work 40 stoppages or other material labor difficulty within the last five years and to the best knowledge of the Borrower, there are none now threatened. 3.20 Material Contracts. All material contracts relating to the ------------------ business operations of the Borrower are valid, binding and enforceable upon the Borrower and, to the Borrower's knowledge, each of the parties thereto in accordance with their respective terms, and there is no material default thereunder, to the Borrower's knowledge, with respect to parties other than the Borrower. 3.21 Insurance. The Borrower currently maintains insurance which --------- meets or exceeds the requirements of Section 5.5. Except as set for on Schedule 3.21, no notice has been given or claim made and no grounds exist to cancel or avoid any insurance policies or other bonds to which the Borrower is a party or to reduce the coverage provided thereby or any replacements thereof. Such policies and bonds or any replacements thereof provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of the Borrower in accordance with prudent business practice in the industry of the Borrowers. 3.22 Senior Debt Status. The obligations of the Borrower under ------------------ this Agreement and the Notes do rank and will rank at least pari passu in ---- ----- priority of payment with all other indebtedness of the Borrower except indebtedness of the Borrower to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of the Borrower which secures indebtedness or other obligations of any Person except for Permitted Liens. 3.23 No Material Misstatements. To the best of the Borrower's ------------------------- knowledge, no information furnished by or on behalf of the Borrower or any Subsidiary to the Agent or any Bank in this Agreement or any Schedule or Exhibit attached hereto, contains any misstatement of fact, or omitted or omits to state any fact necessary to make the statements therein not misleading, where such misstatement or omission would be material to the interests of the Banks with respect to the Borrower's performance of its obligations hereunder. Any projections, forecasts or budgets provided by the Borrower to the Agent or any Bank (other than the financial projections delivered pursuant to Section 5.2(b) hereof) are expressly excluded from this Section and the Borrower makes no representation or warranty as to their accuracy or reliability. With regard to the financial projections delivered pursuant to Section 5.2(b), the Borrower shall be entitled to a cross-reference therein to the forward-looking statements disclaimers contained in its filings with the Securities and Exchange Commission and the benefits of the safe harbor afforded under the Private Securities Litigation Reform Act of 1995. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Effectiveness. The effectiveness of this ---------------------------- Agreement and the agreement of each Bank to make the initial Extension of Credit is subject to the satisfaction of 41 the following conditions precedent immediately prior to or concurrently with such Extension of Credit: (a) Loan Documents. The Agent shall have received (i) -------------- this Agreement, executed and delivered by a duly authorized officer of the Borrower, with a counterpart for each Bank, (ii) for the account of each Bank, a Revolving Credit Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, (iii) for the account of the Swing Line Bank, the Swing Line Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower and (iv) the Guaranty Agreement, executed and delivered by a duly authorized officer of each Guarantor. (b) Corporate Proceedings of the Borrower and the --------------------------------------------- Guarantors. The Agent shall have received a copy of the resolutions or other - ---------- corporate proceedings or action, in form and substance satisfactory to the Agent, (i) taken on behalf of the Borrower authorizing (A) the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which it is a party, and (B) the borrowings contemplated hereunder, and (ii) taken on behalf of each Guarantor authorizing the execution, delivery and performance of the Guaranty Agreement, in each case certified by the secretary or assistant secretary of the Borrower or such Guarantor as of the Effective Date, which certificates shall state that such resolutions, or other corporate proceedings or action thereby certified have not been amended, modified, revoked or rescinded and shall be in form and substance satisfactory to the Agent. (c) Representations and Warranties True; No Default. The ----------------------------------------------- representations and warranties of the Borrower contained in Section 3 hereof shall be true and accurate on and as of the Effective Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and the Borrower shall have performed and complied with all covenants and conditions hereof; and no Event of Default or Default under this Agreement shall have occurred and be continuing or shall exist; and the Borrower shall have delivered to the Agent a certificate to that effect signed by a Responsible Officer. (d) Corporate Documents. The Agent shall have received ------------------- true and complete copies of the articles or certificate of incorporation and bylaws of the Borrower, certified as of the Effective Date as complete and correct copies thereof by the secretary or assistant secretary of the Borrower, or a certificate from the secretary or assistant secretary of the Borrower to the effect that there have been no changes in the articles or certificate of incorporation and bylaws of the Borrower from the copies most recently delivered to the Agent, and a good standing certificate recently issued by the Secretary of State (or the equivalent thereof) of the jurisdiction of incorporation of the Borrower and each Guarantor and of each state in which the Borrower is required to be qualified to transact business. (e) Incumbency. The Agent shall have received (i) a ---------- written certificate dated the Effective Date by the secretary or assistant secretary of the Borrower as to 42 the names and signatures of the officers of the Borrower authorized to sign this Agreement and the other Loan Documents and (ii) a written certificate dated the Effective Date by the secretary or assistant secretary of each Guarantor as to the names and signatures of the officers of such Guarantor authorized to sign the Guaranty Agreement. The Agent may conclusively rely on such certificates until it shall receive a further certificate by the secretary or assistant secretary of the Borrower or any Guarantor amending such prior certificate. (f) Fees and Expenses. The Borrower shall pay or cause to ----------------- be paid to the Agent the fees to be received on the Effective Date referred to herein and the reasonable costs and expenses for which the Agent and the Banks are entitled to be reimbursed. (g) Legal Opinion. The Agent shall have received the ------------- executed legal opinion of Klaus M. Belohoubek, Esquire, General Counsel to the Borrower and the Guarantors, substantially in the form of Exhibit E hereto. --------- Such opinion shall be addressed to the Banks and the Agent and cover such other matters incident to the transactions contemplated by this Agreement as the Agent may reasonably require. (h) Leverage Ratio. On the Effective Date, and after -------------- giving effect to the spin off of the Borrower's gaming operations in the transactions referred to in Section 6.4(c), the Leverage Ratio shall not exceed 3.75 to 1.00, and the Borrower shall have delivered to the Agent evidence thereof satisfactory to the Agent. (i) UCC Filing and Other Searches. The Agent shall have ----------------------------- received the results of such additional Uniform Commercial Code searches made with respect to the Borrower and its Subsidiaries, if any, as the Agent shall require, together with copies of financing statements disclosed by such searches, and the foregoing searches shall disclose no Liens, except for Permitted Liens or, if unpermitted Liens are disclosed, the Agent shall have received satisfactory evidence of the release of such Liens. (j) Further Investigation. The Agent shall have completed --------------------- all investigations or other due diligence regarding the spin off of the Borrower's gaming operations in the transactions referred to in Section 6.4(c) as the Agent deems necessary in its sole discretion. (k) Existing Credit Agreements. On or before the -------------------------- Effective Date, the Existing Credit Agreements shall have been terminated and all Debt thereunder shall have been repaid in full which repayment may be made simultaneously from advances of the Loans as permitted by Section 2.19 hereof. 4.2 Conditions to Each Extension of Credit. The agreement of each -------------------------------------- Bank to make any Extension of Credit requested to be made by it on any date (including, without limitation, the first such Extension of Credit hereunder) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the ------------------------------ representations and warranties (i) made by the Borrower herein or (ii) which are contained in any certificate, 43 document or financial or other statement furnished at any time under or in connection herewith or therewith shall be true and correct in all material respects on and as of such date as if made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein and subject as to any representations or warranties referred to in subsection (ii) above to the exclusions and qualifications referred to in the last two sentences of Section 3.23). (b) No Default. No Default or Event of Default shall have ---------- occurred and be continuing on such date or after giving effect to the Extensions of Credit requested to be made on such date. (c) Additional Matters. All corporate and other ------------------ proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Agent, and the Agent shall have received such other documents in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by the Borrower hereunder or request for the issuance of a Letter of Credit shall constitute a representation and warranty by the Borrower as of the date of such Loan or issuance of such Letter of Credit that the conditions contained in this Section 4.2 have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to any Bank or the Agent hereunder, the Borrower shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to each Bank: -------------------- (a) as soon as available, but in any event not later than 100 days after the close of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its consolidated Subsidiaries, including therein the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year, and related consolidated statement of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP applied on a basis consistently maintained throughout the period involved and with the prior year with such changes therein as shall be approved by the Borrower's independent certified public accountants, such consolidated financial statements to be certified by independent certified public accountants selected by the Borrower from among the five largest accounting firms in the United States on the date of this Agreement or their successors, or otherwise acceptable to the Agent, without a "going concern" or like qualification 44 or any exception or qualification arising out of the restricted or limited nature of the examination made by such accountants; and (b) as soon as available, but in any event not later than 55 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated financial statements of the Borrower and its consolidated Subsidiaries, including therein (i) the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal quarter, (ii) the related consolidated statement of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries, and (iii) the related consolidated statement of changes in financial position of the Borrower and its consolidated Subsidiaries all for the period from the beginning of such fiscal year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the like period of the preceding fiscal year; all in reasonable detail, prepared in accordance with GAAP applied on a basis consistently maintained throughout the period involved and with prior periods. 5.2 Certificates; Other Information. Furnish to each Bank: ------------------------------- (a) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and (b), a certificate of a Responsible Officer (each a "Compliance Certificate"), in the form of Exhibit F ---------- ----------- --------- hereto, showing in detail the calculations demonstrating compliance with Section 6.1 and stating that, to the best of his or her knowledge, the Borrower during such period has kept, observed, performed and fulfilled each and every covenant and condition contained in this Agreement and in the Notes and the other Loan Documents applicable to it and that he or she obtained no knowledge of any Default or Event of Default except as specifically indicated; (b) as soon as available, but in any event not later than 100 days after the end of each fiscal year, (i) detailed capital expenditure budgets of the Borrower and each of its Subsidiaries by quarter and (ii) a forecasted consolidated balance sheet, statement of income and statement of cash flows for the Borrower and its Subsidiaries by quarter in each case for the following fiscal year; (c) promptly upon their becoming available, but in any event not later than 100 days after the end of each fiscal year, any reports including management letters submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit; (d) financial statements, reports, notices or proxy statements distributed by the Borrower to its stockholders on a date no later than three Business Days after the date supplied to such stockholders; and (e) promptly, such additional financial and other information as any Bank or the Agent may from time to time reasonably request. 45 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy ---------------------- at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except (a) when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or a Subsidiary, as the case may be, and (b) where the failure so to pay such indebtedness could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.4 Conduct of Business and Maintenance of Existence. Continue to ------------------------------------------------ engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, trademarks, trade names, licenses, franchises and other authorizations necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not reasonably be expected to have, in the aggregate, a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. Maintain in good repair, ---------------------------------- working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties material or necessary to its business, and from time to time make or cause to be made all appropriate repairs, renewals or replacements thereof. (b) Insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, worker's compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to the extent customary. The Borrower shall deliver at the request of the Agent from time to time a summary schedule indicating all insurance then in force with respect to the Borrower. 5.6 Inspection of Property; Books and Records;Discussions.(a) ---------------------------------------------------- Permit any of the officers or authorized employees or representatives of the Agent or any of the Banks to visit and inspect during normal business hours any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts (including those of its Affiliates) with its officers, all in such detail and at such times and as often as any of the Banks may reasonably request, provided, that each Bank -------- shall provide the Borrower and the Agent with reasonable notice prior to any visit or inspection. (b) Maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Requirements of Law, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 46 5.7 Notices. Promptly give notice to the Agent and each Bank of: ------- (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of the Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of the Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) commencement of any litigation or proceeding affecting the Borrower or any of the Subsidiaries in which the amount involved is $1,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, any Lien in favor of PBGC or any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Single Employer Plan in a distress termination under Section 4041(c) of ERISA or Multiemployer Plan; and (e) an event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 5.8 Environmental Laws. (a) Comply with, and require compliance ------------------ by all tenants and to the extent possible, all subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and require that all tenants and to the extent possible, all subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws except to the extent that failure to so comply or obtain or maintain such documents could not reasonably be expected to have a Material Adverse Effect. (b) Comply with all lawful and binding orders and directives of all Governmental Authorities respecting Environmental Laws except to the extent that failure to so comply could not reasonably be expected to have a Material Adverse Effect. (c) Defend, indemnify and hold harmless the Agent and the Banks, and their respective employees, agents, officers, directors, successors and assigns from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to any violation of or noncompliance with or liability under any 47 Environmental Laws, or any orders, requirements or demands of Governmental Authorities related thereto which in each case relate to or arise in connection with the Borrower or any Subsidiary, any property or assets thereof or any activities relating to any other property or business of a Borrower or any Subsidiary thereof or the enforcement of any rights provided herein or in the other Loan Documents, including, without limitation, attorneys' and consultants' fees, response costs, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of any of the foregoing enumerated parties. This indemnity shall continue in full force and effect regardless of the termination of this Agreement and the payment of the Notes. 5.9 Management Changes. Notify the Agent in writing within thirty ------------------ (30) days after any change of its executive officers. 5.10 Name Change. Following the completion of the transactions ----------- referred to in Section 6.4(c) and the change of the Borrower's name to Dover Motorsports, Inc., the Borrower shall take such action from time to time (including, filing executing and delivering such amendments and other instruments) as shall be reasonably requested by the Agent to give effect to such name change in the Loan Documents. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to any Bank or the Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, without the prior written consent of the Required Banks: 6.1 Financial Condition Covenants. ----------------------------- (a) Leverage Ratio. Permit as of the end of any fiscal -------------- quarter during the periods specified below the Leverage Ratio to exceed that set forth opposite such periods: 48 ------------------------------------------------------- Period Ratio ------ ----- ------------------------------------------------------- March 31, 2002 through June 29, 2002 3.65 to 1 ------------------------------------------------------- June 30, 2002 through September 29, 2002 3.50 to 1 ------------------------------------------------------- September 30, 2002 through December 30, 2002 3.25 to 1 ------------------------------------------------------- December 31, 2002 through March 30, 2003 3.00 to 1 ------------------------------------------------------- March 31, 2003 and thereafter 2.75 to 1 ------------------------------------------------------- (b) Fixed Charge Coverage Ratio. Permit as of the end of --------------------------- any fiscal quarter the Fixed Charge Coverage Ratio to be less than 1.25 to 1. (c) Maintenance of Tangible Net Worth. Permit --------------------------------- Consolidated Tangible Net Worth on any day to be less than (i) ninety percent (90%) of the Consolidated Tangible Net Worth after giving effect to the spin off of the Borrower's gaming operations in the transaction referred to in Section 6.4(c), plus (ii) an amount equal to 25% of the consolidated net income (if positive) of the Borrower and its Subsidiaries for each fiscal quarter ending after March 31, 2002, calculated on a cumulative basis plus (iii) 100% of the Net Proceeds from the issuance after the date hereof of Capital Stock of the Borrower or any Subsidiary thereof, other than to the Borrower or any Subsidiary thereof. 6.2 Limitation on Debt. At any time incur, create, assume, or ------------------ suffer to exist any Debt except: (a) amounts outstanding hereunder or under the other Loan Documents; (b) Debt under Capital Leases or secured by Purchase Money Security Interests (including those in existence on the date hereof) in an aggregate principal amount not exceeding $5,000,000 in any fiscal year; (c) any Debt relating to a Lien identified on Schedule III; and (d) other guarantees, loans or advances made in the ordinary course of business which shall not exceed an aggregate of $2,000,000. 6.3 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens. 49 6.4 Limitations on Fundamental Changes. Enter into any merger, ---------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets except: (a) any Subsidiary of the Borrower, may be merged or consolidated with or into the Borrower (provided, that the Borrower shall be the continuing or surviving corporation) or with or into any one or more wholly-owned Subsidiaries of the Borrower (provided, that the wholly-owned -------- Subsidiary or Subsidiaries shall be the continuing or surviving corporation); (b) any wholly-owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any wholly-owned Subsidiary of the Borrower; and (c) the transactions described in the Registration Statement on Form 10, filed by the Borrower and bearing SEC File No. 001-16791; provided, that immediately after each such transaction and after giving effect - -------- thereto, the Borrower is in compliance with this Agreement and no Default or Event of Default shall be in existence or result from such transaction. 6.5 Limitation on Sale of Assets. Convey, sell, lease, assign, ---------------------------- transfer or otherwise dispose of any of its property, business or assets (including, without limitation, accounts receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of the Borrower's or any Subsidiary's business; (b) transactions involving the sale, license or lease of assets in the ordinary course of business; (c) the sale or discount without recourse of accounts receivable only in connection with the compromise thereof or the assignment of past-due accounts receivable for collection; (d) as permitted by Section 6.4; (e) transfers between the Borrower and its Subsidiaries or between one Subsidiary and another Subsidiary; and (f) in addition to the above Sections 6.5(a) through 6.5(e) inclusive, sales of assets of the Borrower and its Subsidiaries for fair market value, provided, that the aggregate amount of such sales, determined in -------- accordance with GAAP, in any fiscal year does 50 not exceed ten percent (10%) of the Borrower's consolidated assets as at the end of the immediately preceding fiscal quarter. 6.6 Limitations on Acquisitions, Investments, Loans and Advances. ------------------------------------------------------------ Purchase, hold or acquire beneficially any stock, other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make or permit to exist any investment or acquire any interest whatsoever in, any other Person, except: (a) extensions of trade credit to customers in the ordinary course of business; (b) Permitted Investments; (c) loans and advances to employees of the Borrower or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (d) Capital Stock of any Subsidiary; (e) loans and advances by the Borrower to its wholly-owned Subsidiaries; and (f) Permitted Acquisitions. 6.7 Limitation on Distributions. Declare or pay any Distribution --------------------------- (whether in cash or property or obligations of the Borrower or any Subsidiary thereof) in respect of the Borrower or any Subsidiary thereof except: (a) Any wholly-owned Subsidiary may declare and pay dividends or other distributions to the Borrower or any other wholly-owned Subsidiary; and (b) So long as no Default or Event of Default exists or would be caused thereby, the Borrower (i) may declare and pay dividends on its Capital Stock in the ordinary course of business consistent with past practice and (ii) may declare and pay dividends on its Capital Stock in excess of those paid historically; provided, that the amount of any such increase in dividends -------- paid during any fiscal year does not exceed, in the aggregate, 50% of Consolidated Net Income for the previous fiscal year. 6.8 Transactions with Affiliates. Except as expressly permitted ---------------------------- in this Agreement, directly or indirectly enter into any transaction or arrangement whatsoever or make any payment to or otherwise deal with any Affiliate, except, as to all of the foregoing in the ordinary course of and pursuant to the reasonable requirements of the Borrower's or its Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of the Borrower. 51 6.9 Fiscal Year. Permit its fiscal year to end on a day other than ----------- December 31 unless prior written notice thereof has been given to the Agent and the Banks. 6.10 Change in Business. Engage in any business either directly or ------------------ through any Subsidiary except for businesses in which the Borrower or any Subsidiary is engaged in on the date of this Agreement and any businesses related to such existing businesses. 6.11 Change of Control. Permit any Change of Control. ----------------- 6.12 Sale and Leaseback. Enter into any arrangement with any Person ------------------ providing for the leasing by the Borrower or any Subsidiary thereof of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations thereof. 6.13 Limitation on Negative Pledge Clauses. Enter into any agreement ------------------------------------- with any Person other than the Banks which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its properties, assets or revenues, whether now owned or hereafter acquired; provided, that the Borrower or any Subsidiary -------- thereof may enter into such an agreement in connection with a Purchase Money Security Interest or Capital Lease permitted hereunder, provided that such prohibition or limitation is by its terms effective only against the assets subject to such Lien. 6.14 Interest Hedge Agreements. Enter into any interest hedge ------------------------- agreement other than an Interest Hedge Agreement, which in any event will be unsecured, and with respect to which the prior approval of the Agent, which shall not be unreasonably withheld, shall have been obtained. SECTION 7. EVENTS OF DEFAULT 7.1 Events of Default. If any of the following events shall occur ----------------- and be continuing: (a) The Borrower shall fail to pay any principal of any Note or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Borrower shall fail to pay any interest on any Note, or any other amount payable hereunder, within five (5) days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty (i) made or deemed made by the Borrower herein or (ii) which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or 52 deemed made (subject as to any representation or warranty referred to in subsection (ii) above to the exclusions and qualifications contained in the last two sentences of Section 3.23); or (c) The Borrower shall default in the observance or performance of any agreement contained in Section 5.7 or Section 6; or (d) The Borrower or any Subsidiary thereof shall collectively fail to secure an annual franchise from the National Association for Stock Car Auto Racing, Inc. ("NASCAR") for at least two Winston Cup Series events (or at least two events in a comparable successor series if the Winston Cup Series is discontinued); or (e) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (d) of this Section 7.1) or any other Loan Document, and such default shall continue unremedied for a period of 30 days; or (f) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance, subject to any customary deductible, and under which the applicable insurance carrier has acknowledged such full coverage in writing) of $500,000 or more and all such judgments or decrees shall not have been vacated, discharged, settled, satisfied or paid, or stayed or bonded pending appeal, within 60 days from the entry thereof; or (g) A Borrower or any Subsidiary thereof shall (i) default in the payment of any principal of or interest on or any other amount payable on any indebtedness for borrowed money (other than the Notes), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such indebtedness was created and the aggregate amount of such indebtedness in respect of which such default or defaults shall have occurred is at least $100,000 (the "Cross-Default Indebtedness"); or (ii) -------------------------- default in the observance or performance of any other agreement or condition relating to any such Cross-Default Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, with the giving of notice if required, such Cross-Default Indebtedness to become due and payable prior to its stated maturity; or (h) (i) The Borrower or any Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the 53 entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (i) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Single Employer Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity in favor of the PBGC or a Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist in regard to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (j) Any Change of Control shall occur; or (k) Any other event shall have occurred which could reasonably be expected to have a Material Adverse Effect. then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (g) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall automatically and immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Banks, the Agent may, or upon the written request of the Required Banks, the Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Banks, the Agent may, or upon the written request of the Required Banks, the Agent shall, by notice of 54 default to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Notes and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Borrower hereby grants to the Agent, for the benefit of the Issuing Bank, the L/C Participants and the Banks and the Agent, a security interest in such cash collateral to secure all obligations of the Borrower under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the Notes and the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the Notes and the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower. The Borrower shall execute and deliver to the Agent, for the account of the Issuing Bank, the L/C Participants, the Banks and the Agent, such further documents and instruments as the Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. THE AGENT 8.1 Appointment. Each Bank hereby irrevocably designates and ----------- appoints PNC Bank, Delaware as the Agent of such Bank under this Agreement. Each such Bank irrevocably authorizes the Agent, as the agent for such Bank to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. The Agent agrees to act as the Agent on behalf of the Banks to the extent provided in this Agreement. 8.2 Delegation of Duties. The Agent may execute any of its duties -------------------- under this Agreement by or through agents or attorneys-in-fact and shall be entitled to engage and pay for 55 the advice and services of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to the Banks for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither the Agent nor any of its ---------------------- officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct) or (b) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement, any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Notes or the other Loan Documents or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the other Loan Documents, or to inspect the properties, books or records of the Borrower or any Subsidiary. 8.4 Reliance by Agent. The Agent shall be entitled to rely, and ----------------- shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower or any Subsidiary), independent accountants and other experts selected by the Agent. The agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Banks as they deem appropriate or they shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement, the Notes and the other Loan Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 8.5 Notice of Default. The Agent shall not be deemed to have ----------------- knowledge or notice of the occurrence of any Default or Event of Default hereunder unless it has received notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided, that unless and -------- until the Agent shall have received such 56 directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 8.6 Non-Reliance on Agent and Other Banks. Each Bank expressly ------------ acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower or its Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 Indemnification. The Banks agree to indemnify the Agent in its --------------- capacity as such (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided, that no Bank shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section 8.7 shall survive the payment of the Notes and all other amounts payable hereunder. 8.8 Agent in its Individual Capacity. The Agent and its Affiliates -------------------------------- may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though it was not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued or participated in it by it, the 57 Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 8.9 Successor Agent. The Agent may resign as Agent upon 30 days' --------------- notice to the Banks and the Borrower. If the Agent shall resign as Agent under this Agreement, then the Required Banks shall appoint from among the Banks a successor agent for the Banks, which appointment shall be subject to the approval of the Borrower (which approval shall not be unreasonably withheld) and of such successor agent. Any rejection by the Borrower of a successor agent shall specify the reasons for such rejection. Failure of the Borrower to approve or reject a successor agent within ten days following request for approval shall be deemed to constitute approval. Upon such appointment and approval, such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 8.10 Beneficiaries. Except as expressly provided herein, the ------------- provisions of this Section 8 are solely for the benefit of the Agent and the Banks, and the Borrower shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower. SECTION 9. MISCELLANEOUS 9.1 Amendments and Waivers. Neither this Agreement, any Note or any ---------------------- other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Required Banks, the Agent and the Borrower may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes and the other Loan Documents for the purpose of adding any provisions to this Agreement or the Notes or the other Loan Documents or changing in any manner the rights of the Banks or of the Borrower hereunder or thereunder or waiving, on such terms and conditions as the Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no -------- ------- such amendment, supplement or modification shall directly or indirectly (a) reduce the amount or extend the maturity of any Note or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to any Bank hereunder, or change the duration or amount of any Bank's Commitment, in each case without the consent of the Bank affected thereby or (b) amend, modify or waive any provision of this 58 Section 9.1 or reduce the percentages specified in the definition of Required Banks or consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, the Notes and the other Loan Documents, in each case without the written consent of all the Banks, or (c) amend, modify or waive any provision of Section 8 without the written consent of the then Agent, (d) amend, modify or waive any provision of Section 2.3 without the written consent of the then Swing Line Bank or (e) amend, modify or waive any provision of this Agreement relating to any outstanding Letter of Credit without the written consent of the Issuing Bank. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Borrower, the Banks, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Banks and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 9.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by electronic transmission, telecopy transmission or posting on a secured web site), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or the next Business Day if sent by reputable overnight carrier for next day delivery, postage prepaid, or, in the case of telecopy notice, when sent during normal business hours, or in the case of electronic transmission, when received and in the case of posting on a secured web site, upon receipt of (i) notice of such posting and (ii) rights to access such web site, addressed as follows in the case of the Borrower and the Agent, and as set forth in Schedule I in the case of the other parties hereto, ---------- or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes, provided that any such notice, request or demand to or upon the Borrower made by electronic transmission or posting on a secured web site shall also be given by another method permitted under this Section 9.2: The Borrower: Dover Downs Entertainment, Inc. 1131 N. duPont Highway Dover, DE 19903 Attention: Mr. Timothy Horne Telecopy: (302) 734-3142 with a copy to: Dover Downs Entertainment, Inc. 2200 Concord Pike, 15th Floor Wilmington, DE 19803 Attention: Klaus M. Belohoubek, Esquire Telecopy: (302) 426-3555 The Agent, the PNC Bank, Delaware Swing Line Bank 222 Delaware Avenue, 18th Floor or the Issuing Bank: Wilmington, DE 19801 59 Attention: Mr. Theodore Prushinski Vice President Telecopy: (302) 429-2689 with a copy to: PNC Agency Services PNC Bank, National Association One PNC Plaza 22nd Floor Pittsburgh, PA 15222 Attention: Andrea Gibb Telecopy: (412) 762-8672 provided that any notice, request or demand to or upon the Agent, the Banks, - -------- the Swing Line Bank or the Issuing Bank pursuant to Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.10, 2.11 or 2.18 shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement, the Notes and the other Loan Documents. 9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay ----------------------------- or reimburse the Agent for all of its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes, the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent, (b) to pay or reimburse each Bank and the Agent for all of their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents, the Letters of Credit and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Agent and to the several Banks, and (c) to pay, indemnify, and hold each Bank and the Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents, and any 60 such other documents, and (d) to pay, indemnify, and hold each Bank and the Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, and the performance and administration (other than the costs and expenses of administration of each Bank other than the Agent), of this Agreement, the Notes, the other Loan Documents, the Letters of Credit and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder -------- to the Agent or any Bank with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Agent or any such Bank. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 9.6 Successors and Assigns. (a) Except as otherwise provided in ---------------------- Section 9.8(b), whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower, the Agent or the Banks that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of each Bank. (b) Each Bank may, in accordance with applicable law, sell all or a portion of its interests, rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment or, if an Event of Default has occurred, the Swing Line Commitment, and the Loans at the time owing to it and the Notes held by it); provided, however, that (i) -------- ------- each such assignment shall be to a Bank or Affiliate thereof, or, with the consents of the Agent and the Borrower (which consents shall not be unreasonably withheld) to one or more banks or other financial institutions, (ii) so long as the Commitments are in effect, the amount of each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Agent) shall not be less than $5,000,000 (or, if lower, the lesser of (x) the full amount of such Bank's Commitments and (y) such amount as the Borrower and the Agent shall agree in their sole discretion), (iii) the parties to each such assignment shall execute and deliver to the Agent an Assignment and Acceptance, together with the Note or Notes subject to such assignment and a processing and recordation fee of $3,500, (iv) in the case of the assignment of the Swing Line Commitment, may only be made to a Bank which holds a Commitment hereunder and must be of the entire Swing Line Commitment and (v) each such assignment of Loans and all or any portion of a Bank's Commitment shall be of a constant, and not a varying, percentage of the assigning Bank's Commitment and Revolving Credit Loans then outstanding. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.6, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof (unless otherwise agreed by the Agent), (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Bank under this Agreement and (B) the assigning Bank thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under this Agreement 61 and the other Loan Documents, such Bank shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14, 2.15 and 9.5 (to the extent that such Bank's entitlement to such benefits arose out of such Bank's position as a Bank prior to the applicable assignment), as well as to any Commitment Fees accrued for its account and not yet paid). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such assignee Bank and the resulting amounts and percentages held by the Banks arising from the purchase by such assignee Bank of all or a portion of the rights and obligations of such assigning Bank under this Agreement, the Notes and the other Loan Documents. Notwithstanding any provision of this Section 9.6, the consent of the Borrower shall not be required for any assignment which occurs at any time when an Event of Default shall have occurred and be continuing. (c) By executing and delivering an Assignment and Acceptance, the assigning Bank thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Bank warrants that it is the legal and beneficial owner of the interest being assigned thereby, free and clear of any adverse claim, and that its Commitment and/or Commitments and/or Swing Line Commitment, as the case may be, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents, or any other instrument or document furnished pursuant hereto or thereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Bank. (d) The Agent shall maintain at its offices a copy of each Assignment and Acceptance and the names and addresses of the Banks, and the Commitment and/or Swing Line Commitment of, and principal amount of the Loans owing to, each Bank pursuant to the 62 terms hereof from time to time (the "Register"). The entries in the Register -------- shall be conclusive in the absence of manifest error and the Borrower, the Agent and the Banks may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Bank and an assignee together with the Note or Notes subject to such assignment, the processing and recordation fee referred to in paragraph (b) above, the Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Banks. Within five Business Days after receipt of notice, the Borrower, at its own expense, shall execute and deliver to the Agent, in exchange for the surrendered original Note(s), (x) a new Revolving Credit Note to the order of such assignee in an amount equal to the portion of the Commitment assumed by it pursuant to such Assignment and Acceptance and, if applicable, a new Swing Line Note to the order of such assignee in an amount equal to the Swing Line Commitment and, (y) if the assigning Bank has retained a Commitment, a new Revolving Credit Note to the order of such assigning Bank in a principal amount equal to the applicable Commitment retained by it. Such new Notes shall be dated the date of the surrendered Notes which they replace and shall otherwise be in substantially the form of Exhibit B-1 or Exhibit B-2 hereto, as appropriate. Canceled Notes ----------- ----------- shall be returned to the Borrower. (f) Each Bank may without the consent of the Borrower or the Agent sell participations to one or more banks or other entities (each a "Participant") in all or a portion of its rights and obligations under this ----------- Agreement (including all or a portion of its Commitment or Swing Line Commitment and the Loans owing to it and the Notes held by it); provided, -------- however, that (i) such Bank's obligations under this Agreement shall remain - ------- unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Note for all purposes under this Agreement and the other Loan Documents, (iv) the Borrower, the Banks and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents, (v) in any proceeding under the Bankruptcy Code the Bank shall be, to the extent permitted by law, the sole representative with respect to the obligations held in the name of such Bank, whether for its own account or for the account of any Participant and (vi) such Bank shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of this Agreement or the Note or Notes held by such Bank or any other Loan Document, other than any such amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest that forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, or postpones any date fixed for any regularly scheduled payment of principal of, or interest or fees on, any such Loan, or releases any guarantor of such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. 63 (g) The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13, 2.14, 2.15, 2.18 and 9.5 with respect to its participation in the Commitments and the Loans and Letters of Credit outstanding from time to time; provided, that no Participant shall be entitled -------- to receive any greater amount pursuant to such Sections than the assigning Bank would have been entitled to receive in respect of the amount of the participation transferred by such assigning Bank to such Participant had no such transfer occurred. (h) If any Participant of a Bank is organized under the laws of any jurisdiction other than the United States or any state thereof, the assigning Bank, concurrently with the sale of a participating interest to such Participant, shall cause such Participant (i) to represent to the assigning Bank (for the benefit of the assigning Bank, the other Banks, the Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Borrower or the assigning Bank with respect to any payments to be made to such Participant in respect of its participation in the Loans and (ii) to agree (for the benefit of the assigning Bank, the other Banks, the Agent and the Borrower) that it will deliver the tax forms and other documents required to be delivered pursuant to Section 2.14(b) and comply from time to time with all applicable U.S. laws and regulations with respect to withholding tax exemptions. (i) Any Bank may at any time assign all or any portion of its rights under this Agreement and the Notes issued to it to a Federal Reserve Bank; provided that no such assignment shall release a Bank from any of its -------- obligations hereunder. 9.7 Disclosure of Information. Unless otherwise consented to by the ------------------------- Borrower in writing, each of the Banks and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Agreement; provided, that nothing herein shall limit the disclosure of any such -------- information (a) to the extent required by statute, rule, regulation or judicial process, (b) to counsel for any Bank or the Agent, (c) to bank examiners, auditors or accountants, (d) to the Agent or any other Bank, (e) in connection with any litigation to which any one or more of the Banks or the Agent is a party involving the Borrower or any Subsidiary or its or their properties or in any way relating to this Agreement or any other Loan Document or any Loans or Letters of Credit or other obligations of the Borrower to the Agent or any Bank and (f) to any Participant or assignee Bank (or prospective Participant or assignee Bank) so long as such Participant or assignee Bank (or prospective Participant or assignee Bank) agrees to comply with the requirements of this Section. In the event of any disclosure pursuant to clauses (a) or (e) above, the Agent or Bank making such disclosure, as the case may be, shall use its reasonable best efforts to notify the Borrower prior to making such disclosure, and shall cooperate with the Borrower, at the Borrower's expense, in obtaining a protective order if the Borrower so chooses. 9.8 Adjustments; Set-off. (a) If any Bank (a "benefitted Bank") -------------------- shall at any time receive any payment of all or part of its Loans or the Reimbursement Obligation owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or 64 involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7.1(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans or the Reimbursement Obligation owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loans or the Reimbursement Obligation owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or -------- ------- any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Bank so purchasing a portion of another Bank's Loans or Reimbursement Obligations may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies, of the Banks provided by law, upon the occurrence of an Event of Default, each of the Banks shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank to or for the credit or the account of the Borrower. Each of the Banks agrees promptly to notify the Borrower and the Agent after any such set-off and application made by such Bank, provided, that -------- the failure to give such notice shall not affect the validity of such set-off and application. 9.9 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and each of the Banks. 9.10 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.11 Integration. This Agreement represents the agreement of the ----------- Borrower, the Agent and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set forth or referred to herein or in the Notes or the other Loan Documents. 65 9.12 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN ------------- DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE. 9.13 Submission To Jurisdiction; Waivers. The Borrower hereby ----------------------------------- irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, the Notes or the other Loan Documents, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at the address set forth in Section 9.2 or at such other address of which the Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary or punitive or consequential damages. 9.14 Acknowledgements. The Borrower hereby acknowledges that: ---------------- (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the Notes and the other Loan Documents; (b) neither the Agent nor any Bank has any fiduciary relationship to the Borrower, and the relationship between the Agent and the Banks, on one hand, and such Borrower, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Banks or among the Borrower and the Banks. 66 9.15 WAIVERS OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE --------------------- BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN. 67 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. DOVER DOWNS ENTERTAINMENT, INC. By:/s/ Denis McGlynn --------------------------------------- Name: Denis McGlynn Title: President 68 PNC BANK, DELAWARE, as Agent and as a Bank By:/s/ Theodore Prushinski --------------------------------------- Name: Theodore Prushinski Title: Vice President 69 WILMINGTON TRUST COMPANY, as a Bank By: /s/ Michael B. Gast ---------------------------------- Name: Michael B. Gast Title: Vice President 70 ALLFIRST BANK, as a Bank By: /s/ William Keehn ----------------------------------- Name: William Keehn Title: Assistant Vice President 71 WILMINGTON SAVINGS FUND SOCIETY, FSB, as a Bank By: /s/ M. Scott Baylis ------------------------------------ Name: M. Scott Baylis Title: Vice President 72 FIRST UNION NATIONAL BANK, as a Bank By: /s/ Eileen McCrickard ------------------------------------ Name: Eileen McCrickard Title: Vice President 73 NATIONAL CITY BANK, as a Bank By: /s/ Tara M. Handforth ----------------------------------- Name: Tara M. Handforth Title: Assistant Vice President 74 EX-10.13 5 dex1013.txt GUARANTY AND SURETYSHIP AGREEMENT Exhibit 10.13 GUARANTY AND SURETYSHIP AGREEMENT THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty") is made and entered into as of this 20th day of February, 2002, by DOVER INTERNATIONAL SPEEDWAY, INC., a Delaware corporation, DOVER DOWNS PROPERTIES, INC., a Delaware corporation, GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION, an Illinois corporation, GATEWAY INTERNATIONAL SERVICES CORPORATION, an Illinois corporation, GRAND PRIX ASSOCIATION OF LONG BEACH, INC., a California corporation, MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION, a Tennessee corporation, M&N SERVICES CORP., a Tennessee corporation, and NASHVILLE SPEEDWAY, USA, INC., a Tennessee corporation (collectively, the "Guarantor"), with an address at 1131 N. duPont Highway, Dover, DE 19903, in consideration of the extension of credit by the banks and other financial institutions (collectively, the "Banks") from time to time party to the Credit Agreement of even date herewith among the Banks, PNC BANK, DELAWARE, as Agent (the "Agent"), with an address at 222 Delaware Avenue, Wilmington, DE 19801, and DOVER DOWNS ENTERTAINMENT, INC. (the "Borrower"), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. In consideration of the foregoing and in order to induce the Banks to make loans and issue letters of credit to the Borrower under the Credit Agreement from time to time and for other consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Guarantor hereby agrees as follows: 1. Guaranty of Obligations. The Guarantor hereby guarantees, and ----------------------- becomes surety for, the prompt payment and performance of all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Agent and the Banks of any kind or nature, present or future (including, without limitation, any interest accruing thereon after maturity, or after the filing of a petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Guarantor or the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, arising under the Credit Agreement, any Interest Rate Hedge Agreement (as defined in the Credit Agreement) by and between the Borrower and any of the Banks or any Loan Document (as defined in the Credit Agreement), whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, and any amendments, extensions, renewals or increases and all costs and expenses of the Agent and the Banks incurred in the modification, enforcement or collection of any of the foregoing, including reasonable attorneys' fees and expenses (collectively, the "Obligations"). If the Borrower defaults under any such Obligations, the Guarantor will pay the amount due to the Agent and the Banks. 2. Nature of Guaranty; Waivers. This is a guaranty of payment and --------------------------- not of collection and the Agent and the Banks shall not be required, as a condition of the Guarantor's liability, to make any demand upon or to pursue any of its rights against the Borrower, or to pursue any rights which may be available to them with respect to any other person who may be liable for the payment of the Obligations. This is an absolute, unconditional, irrevocable and continuing guaranty and will remain in full force and effect until all of the Obligations have been indefeasibly paid in full, and the Agent and the Banks have terminated this Guaranty. This Guaranty will not be affected by any surrender, exchange, acceptance, compromise or release by the Agent or any Bank of any other party, or any other guaranty or any security held by it for any of the Obligations, by any failure of the Agent or any Bank to take any steps to perfect or maintain its lien or security interest in or to preserve its rights to any security or other collateral for any of the Obligations or any guaranty, or by any irregularity, unenforceability or invalidity of any of the Obligations or any part thereof or any security or other guaranty thereof. The Guarantor's obligations hereunder shall not be affected, modified or impaired by any counterclaim, set-off, deduction or defense based upon any claim the Guarantor may have against the Borrower, the Agent or any Bank, except payment or performance of the Obligations. Notice of acceptance of this Guaranty, notice of extensions of credit to the Borrower from time to time, notice of default, diligence, presentment, notice of dishonor, protest, demand for payment, and any defense based upon the Agent's or any Bank's failure to comply with the notice requirements of the applicable version of Uniform Commercial Code are hereby waived. The Agent and the Banks at any time and from time to time, without notice to or the consent of the Guarantor, and without impairing or releasing, discharging or modifying the Guarantor's liabilities hereunder, may (a) change the manner, place, time or terms of payment or performance of or interest rates on, or other terms relating to, any of the Obligations; (b) renew, substitute, modify, amend or alter, or grant consents or waivers relating to any of the Obligations, any other guaranties, or any security for any Obligations or guaranties; (c) apply any and all payments by whomever paid or however realized including any proceeds of any collateral, to any Obligations of the Borrower in such order, manner and amount as the Agent or any Bank may determine in its sole discretion; (d) deal with any other person with respect to any Obligations in such manner as the Agent or any Bank deems appropriate in its sole discretion; (e) substitute, exchange or release any security or guaranty; or (f) take such actions and exercise such remedies hereunder as provided herein. 3. Repayments or Recovery from Agent or Banks. If any demand is ------------------------------------------ made at any time upon the Agent or any Bank for the repayment or recovery of any amount received by it in payment or on account of any of the Obligations and if the Agent or such Bank repays all or any part of such amount by reason of any judgment, decree or order of any court or administrative body or by reason of any settlement or compromise of any such demand, the Guarantor will be and remain liable hereunder for the amount so repaid or recovered to the same extent as if such amount had never been received originally by the Agent or such Bank. The provisions of this section will be and remain effective notwithstanding any contrary action which may have been taken by the Guarantor in reliance upon such payment, and any such contrary action so taken will be without prejudice to the Agent's or any Bank's rights hereunder and will be deemed to have been conditioned upon such payment having become final and irrevocable. 4. Enforceability of Obligations. No modification, limitation or ----------------------------- discharge of the Obligations arising out of or by virtue of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law will affect, modify, limit or discharge 2 the Guarantor's liability in any manner whatsoever and this Guaranty will remain and continue in full force and effect and will be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted. The Guarantor waives all rights and benefits which might accrue to it by reason of any such proceeding and will be liable to the full extent hereunder, irrespective of any modification, limitation or discharge of the liability of the Borrower that may result from any such proceeding. 5. Events of Default. If any of the following occur (each an "Event ----------------- of Default"): (i) any Event of Default (as defined in the Credit Agreement); (ii) the failure by the Guarantor to perform any of its obligations hereunder; (iii) the falsity, inaccuracy or material breach by the Guarantor of any written warranty, representation or statement made or furnished to the Agent or any Bank by or on behalf of the Guarantor; or (iv) the termination or attempted termination of this Guaranty, then the Guarantor will, on the demand of the Agent or any Bank, immediately deposit with the Agent in U.S. dollars all amounts due or to become due under the Obligations and the Agent will use such funds to repay the Obligations. Upon the occurrence of any Event of Default, the Agent or any Bank in its discretion may exercise with respect to any collateral any one or more of the rights and remedies provided a secured party under the applicable version of the Uniform Commercial Code. 6. Right of Setoff. In addition to all liens upon and rights of --------------- setoff against the money, securities or other property of the Guarantor given to the Agent and the Banks by law, each of the Banks shall have, with respect to the Guarantor's obligations to such Banks under this Guaranty and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Guarantor hereby assigns, conveys, delivers, pledges and transfers to the Agent for the ratable benefit of the Banks all of the Guarantor's right, title and interest in and to, all deposits, moneys, securities and other property of the Guarantor now or hereafter in the possession of or on deposit with, or in transit to any of the Banks, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Guarantor. Every such right of setoff shall be deemed to have occurred immediately upon the occurrence of an Event of Default hereunder without any action of any of the Banks, although each of the Banks may enter such setoff on its respective books and records at a later time. 7. Costs. The Guarantor agrees to pay or reimburse each Bank and ----- the Agent for all of their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Guaranty, including, without limitation, reasonable fees and disbursement of counsel to the Agent and to the several Banks. 8. Postponement of Subrogation. Until the Obligations are --------------------------- indefeasibly paid in full, the Guarantor postpones and subordinates in favor of the Agent for the ratable benefit of the Banks any and all rights which the Guarantor may have to (a) assert any claim against the Borrower based on subrogation rights with respect to payments made hereunder, and (b) any realization on any property of the Borrower, including participation in any marshalling of the Borrower's assets. 3 9. Notices. All notices, demands, requests, consents, approvals and ------- other communications required or permitted hereunder must be in writing and will be effective upon receipt if delivered personally, or if sent by facsimile transmission with confirmation of delivery, or by nationally recognized overnight courier service, to the addresses for the Agent and the Guarantor set forth above or to such other address as one may give to the other in writing for such purpose. 10. Preservation of Rights. No delay or omission on the Agent's or ---------------------- any Bank's part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Agent's or any Bank's action or inaction impair any such right or power. The Agent's and the Banks' rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Agent or any Bank may have under other agreements, at law or in equity. The Agent or any Bank may proceed in any order against the Borrower, the Guarantor or any other obligor of, or collateral securing, the Obligations. 11. Illegality. In case any one or more of the provisions contained ---------- in this Guaranty should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. Changes in Writing. No modification, amendment or waiver of any ------------------ provision of this Guaranty nor consent to any departure by the Guarantor therefrom will be effective unless made in a writing signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantor in any case will entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance. 13. Entire Agreement. This Guaranty (including the documents and ---------------- instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the Guarantor, the Agent and the Banks with respect to the subject matter hereof. 14. Successors and Assigns. This Guaranty will be binding upon and ---------------------- inure to the benefit of the Guarantor, the Agent and the Banks and, other than with respect to Section 6, their respective heirs, executors, administrators, successors and assigns; provided, however, that the Guarantor may not assign -------- ------- this Guaranty in whole or in part without the Agent's prior written consent and the Agent and any Bank at any time may assign this Guaranty in whole or in part. 15. Interpretation. In this Guaranty, unless the Agent and the -------------- Guarantor otherwise agree in writing, the singular includes the plural and the plural the singular; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word "or" shall be deemed to include "and/or", the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; and references to sections or exhibits are to those of this Guaranty unless otherwise indicated. Section headings in this Guaranty are included for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose. If this Guaranty is executed by 4 more than one party as Guarantor, the obligations of such persons or entities will be joint and several. 16. Indemnity. The Guarantor agrees to indemnify each of the Agent, --------- each Bank and its respective directors, officers and employees and each legal entity, if any, who controls the Agent or any Bank (collectively, the "Indemnified Parties") and to hold each Indemnified Party harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement and performance of this Guaranty (all of the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that the Guarantor shall have no -------- ------- obligation hereunder to any Indemnified Party with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of any Indemnified Party. The indemnity agreement contained in this Section shall survive the termination of this Guaranty. 17. Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE RIGHTS ------------------------------ AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE. (b) The Guarantor hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Guarantor at the address set forth above or at such other address of which the Agent shall have been notified pursuant to Section 10 hereof; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary or punitive or consequential damages. 5 18. Authority of Agent. The Guarantor acknowledges that the rights ------------------ and responsibilities of the Agent under this Guaranty with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guaranty shall, as between the Agent and the Banks, be governed by the Credit Agreement and by such other agreement with respect thereto as may exist from time to time among them, but, as between the Agent and the Guarantor, the Agent shall be conclusively presumed to be acting as agent for the Banks with full and valid authority so to act or refrain from acting, and the Guarantor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 19. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND -------------------- UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. The Guarantor acknowledges that it has read and understood all the provisions of this Guaranty, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate. 6 WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby. DOVER INTERNATIONAL SPEEDWAY, INC. Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Vice President - Finance Title: President DOVER DOWNS PROPERTIES, INC. Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Vice President - Finance Title: President GATEWAY INTERNATIONAL MOTORSPORTS CORPORATION Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Treasurer & Chief Financial Title: President Officer GATEWAY INTERNATIONAL SERVICES CORPORATION Attest: /s/ Timothy R. Horne By: /s/ Elia Trowbridge ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Elia Trowbridge Title: Treasurer & Chief Financial Title: President Officer 7 GRAND PRIX ASSOCIATION OF LONG BEACH, INC. Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Treasurer & Chief Financial Title: Chairman of the Board Officer MEMPHIS INTERNATIONAL MOTORSPORTS CORPORATION Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Treasurer & Chief Financial Title: President Officer M&N SERVICES CORP. Attest: /s/ Timothy R. Horne By: /s/ Tony Evans ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Tony Evans Title: Treasurer & Chief Financial Title: Secretary Officer NASHVILLE SPEEDWAY, USA, INC. Attest: /s/ Timothy R. Horne By: /s/ Denis McGlynn ---------------------------------- -------------------------------- Name: Timothy R. Horne Name: Denis McGlynn Title: Treasurer Title: Chairman of the Board 8 EX-21.1 6 dex211.txt SUBSIDIARIES OF REGISTRANTS Exhibit 21.1 Dover Downs Entertainment, Inc. ------------------------------- Subsidiaries of Registrant at December 31, 2001 ----------------------------------------------- Dover Downs Gaming & Entertainment, Inc. Dover Downs, Inc. Dover International Speedway, Inc. Dover Downs Properties, Inc. Nashville Speedway, USA, Inc. Grand Prix Association of Long Beach, Inc. Gateway International Motorsports Corporation Gateway International Services Corporation Memphis International Motorsports Corporation M & N Services Corp EX-23.1 7 dex231.txt ACCOUNTS CONSENT Exhibit 23.1 The Board of Directors and Stockholders Dover Downs Entertainment, Inc. We consent to the incorporation by reference in the registration statement (No. 333-8147) on Form S-8 of Dover Downs Entertainment, Inc. of our report dated February 19, 2002 relating to the consolidated balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as of December 31, 2001 and 2000, and June 30, 2000, and the related consolidated statements of earnings and cash flows for the year ended December 31, 2001, the six-months ended December 31, 2000 and each of the years in the two-year period ended June 30, 2000, which report appears in the December 31, 2001 report on Form 10-K of Dover Downs Entertainment, Inc. KPMG LLP Philadelphia, Pennsylvania March 20, 2002 -----END PRIVACY-ENHANCED MESSAGE-----