-----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, QtkJGYykgsCtfSbpHalr0LOXXatikoQ9TPfiA6GD/tOqVBcEguZ9c2f978PcEbeG NiMUfOIKiNNFJxS8EUDvCA== 0001017673-98-000021.txt : 19980902 0001017673-98-000021.hdr.sgml : 19980902 ACCESSION NUMBER: 0001017673-98-000021 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980901 SROS: NYSE 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: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11929 FILM NUMBER: 98702092 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) / X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1998 or /___/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to _____________ Commission file number 1-11929 DOVER DOWNS ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0357525 (State of Incorporation) (I.R.S. Employer Identification Number) 1131 North DuPont Highway, Dover, Delaware 19901 (Address of principal executive offices) Registrant's telephone number including area code (302) 674-4600 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of exchange on which registered Common Stock, $.10 Par Value NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /___/ The aggregate market value of the voting stock held by non- affiliates of the registrant was $162,220,350.00 as of July 31, 1998. As of July 31, 1998, the number of shares of each class of the Registrant's common stock outstanding is as follows: Common Stock - 5,517,179 shares Class A Common Stock - 12,249,380 shares The following documents are incorporated by reference: Document Part of this form into which incorporated Proxy Statement in connection with Annual Meeting of Shareholders to be held October 30, 1998 III ITEM 1. BUSINESS Dover Downs Entertainment, Inc. (Dover Downs or the Company) owns and operates Dover Downs International Speedway, Dover Downs Raceway and a video lottery casino at a multi-purpose gaming and entertainment complex. The facility is located in close proximity to the major metropolitan areas of Philadelphia, Baltimore and Washington, D.C. on approximately 825 acres of land owned by the Company in Dover, Delaware. Dover Downs International Speedway offers a modern, state-of-the-art, concrete superspeedway for top-rated NASCAR- and IRL-sanctioned auto racing events. Dover Downs Raceway offers traditional pari-mutuel harness horse racing and year-round satellite-linked pari-mutuel wagering on simulcast harness and thoroughbred horse racing from regional and national tracks. The Company also simulcasts live races at Dover Downs to tracks and other off-track betting locations across North America. The Company expanded into video lottery (slot) machine gaming in December of 1995. The video lottery operations are managed by Caesars World Gaming Development Corporation (Caesars). Dover Downs offers a unique gaming and entertainment experience at its Dover, Delaware facility. Management believes it to be the only facility in the country that combines in one location NASCAR Winston Cup/Busch Series stock car racing, Indy car racing, harness horse racing, pari-mutuel wagering on both live and simulcast horse races, and video lottery (slot) machine gaming. The Company also operates Nashville Speedway USA, the motorsports facility at the Tennessee State Fairgrounds in Nashville, Tennessee. Effective July 1, 1998, the Company also operates the Toyota Grand Prix of Long Beach, the second largest Indy race in the country, run in the streets of Long Beach, California, and owns and operates permanent motorsports facilities in Madison, Illinois (near St. Louis) and Millington, Tennessee (near Memphis). NASCAR-sanctioned events, as well as events from many other sanctioning bodies (including CART and NHRA), are held at these facilities. (a) General Development of Business Effective January 2, 1998, the Company acquired all of the outstanding common stock of Nashville Speedway USA, Inc. for $3,000,000. Nashville Speedway USA, Inc. operates and promotes several NASCAR-sanctioned events at the motorsports facility at the Tennessee State Fairgrounds in Nashville, Tennessee. The Company and Grand Prix Association of Long Beach, Inc. ("Grand Prix") entered into an Agreement and Plan of Merger on March 26, 1998, pursuant to which Grand Prix became a wholly owned subsidiary of the Company as of July 1, 1998. The merger was structured as a tax-free exchange and was accounted for using the purchase method of accounting for business combinations whereby each shareholder of Grand Prix received .63 shares of common stock of Dover Downs Entertainment, Inc. for each share of common stock of Grand Prix owned by such shareholder. The Company purchased 680,000 shares of common stock of Grand Prix from two non-management shareholders in March of 1998 for $10,540,000. On March 26, 1998, legislation permitting a maximum of 2,000 video lottery (slot) machines at any of the currently licensed facilities and eliminating the sunset provision for the video lottery operation was passed by the Delaware Senate and subsequently signed into law by the Governor. (b) Financial Information About Industry Segments. The Company's principal operations are grouped into two segments: motorsports and gaming. Financial information concerning these businesses is included on pages 8 through 12 and page 30 of this 1998 Annual Report on Form 10-K. (c) Narrative Description of Business Motorsports Dover Downs has presented NASCAR-sanctioned racing events for 30 consecutive years. The Company currently conducts four major NASCAR- sanctioned events annually at Dover Downs International Speedway. Two races are associated with the Winston Cup professional stock car racing circuit and two races are associated with the Busch Series, Grand National Division racing circuit. Each of the Busch Series events at the Company's tracks is conducted on the day before a Winston Cup event. Dover Downs is one of only six speedways in the country that presents two Winston Cup events and also conducts two Busch Series events each year. The June and September dates have historically allowed Dover Downs to hold the first and last Winston Cup events in the Maryland to Maine region each year. The auto racing track is a high-banked, one mile long, concrete superspeedway. Current seating capacity at Dover Downs is approximately 109,000 seats. Unlike some speedways, substantially all grandstand seats at Dover Downs, including indoor, air-conditioned grandstand and skybox seats, offer an unobstructed view of the entire track. The concrete racing surface makes the auto racing track the only concrete superspeedway (one mile or greater in length) that conducts NASCAR-sanctioned events. In recent years, television coverage and corporate sponsorship have increased for NASCAR-sanctioned events. The Company's NASCAR- sanctioned events are currently televised live by TNN to a nationwide audience and broadcast nationally to a network of over 450 radio stations affiliated with the Motor Racing Network (over 250 stations for Busch Series events). Nashville Speedway USA, which was acquired by the Company on January 2, 1998, currently conducts a NASCAR Busch Series event, a NASCAR Craftsman Truck Series event, a NASCAR Slim Jim All-Pro Series event and weekly shows in the NASCAR Winston Racing Series. The Company plans to build a new racing facility at a site to be determined in the greater Nashville metropolitan area. Gaming Dover Downs has presented pari-mutuel harness racing events for 30 consecutive years. On December 29, 1995, the Company introduced video lottery (slot) machines to its entertainment mix. Under an agreement with Caesars, a leader in the gaming industry, Caesars supervises, manages, markets and operates the Company's video lottery operations. The Las Vegas-style, air-conditioned "video lottery casino" housing the gaming operations was designed and built using expertise from Caesars. On June 16, 1998, the Dover Planning Commission approved the Company's plans for expansion of the casino gaming facility and improvements to the Company's Garden Cafe and simulcasting parlor. Dover Downs is a "Licensed Agent" authorized to conduct video lottery operations under the Delaware State Lottery Code. Pursuant to Delaware's Horse Racing Redevelopment Act enacted in 1994, the Delaware State Lottery Office administers and controls the operation of the video lottery operations. Dover Downs is permitted by law to set its payout to customers between 87% and 95%. Prior approval from the Director of the Delaware State Lottery Office would be required for any payout in excess of 95%. Since inception of its operations on December 29, 1995, Dover Downs has maintained an average payout of 90.1%. By law, video lottery operations in Delaware are limited to the three locations in the State where thoroughbred horse racing or harness horse racing was held in 1993. In addition to the Dover Downs complex in Dover, Delaware, there are only two other locations permitted by law: Delaware Park, a northern Delaware thoroughbred track; and Harrington Raceway, a south central Delaware fairgrounds track. The harness horse racing track is a five-eighths mile track and is lighted for nighttime operations. The track is located inside the one- mile auto racing superspeedway. The configuration offers turns with a wider than normal turning radius and 6 degree banking. This allows trotting and pacing horses to remain in full stride through the turns. The result has been higher than normal speeds attained by horses in competition. With the start of the race season beginning November 1996, live harness races conducted at Dover Downs were simulcast to tracks and other off-track betting locations across North America, and during 1998, were transmitted to more than 330 tracks and off-track betting locations nationwide. The Company has facilities for pari-mutuel wagering on both live harness horse racing and on simulcast thoroughbred and harness horse racing received from numerous tracks across North America. Within the main grandstand is the simulcast parlor where patrons can wager on harness and thoroughbred races received by satellite into Dover Downs. Television monitors throughout the parlor area provide views of all races simultaneously and the parlor's betting windows are tied into a central computer allowing bets to be received on all races from all tracks. With the recent expansion of its simulcasting operations, pari-mutuel wagering is now on a year-round basis. For the fiscal years ended June 30, 1996, 1997, and 1998, the Company had 201, 363 and 363 simulcast racing dates, respectively. Harness racing in the State of Delaware is governed by the Delaware Harness Racing Commission. The Company holds a license from the Commission by which it is authorized to hold harness race meetings on its premises and to make, conduct and sell pools by the use of pari- mutuel machines or totalizators. Pari-mutuel wagering refers to pooled betting or wagering on harness horse racing by means of a totalizator. Through pooled betting, the wagering public, not the track, determines the odds and the payoff. The track retains a percentage of the amount wagered. Simulcasting refers to the transmission of live horse racing by television, cable or satellite signal from one race track to another with pari-mutuel wagering being conducted at the sending and receiving track and a portion of the handle being shared by the sending and receiving tracks. Competition Motorsports The Company's racing events compete with other racing events sanctioned by various racing bodies, such as CART (Championship Auto Racing Teams), IRL (Indy Racing League) and the NHRA (National Hot Rod Association), and with other sports and other recreational events scheduled on the same dates. Racing events sanctioned by different organizations are often held on the same dates at separate tracks, in competition with the NASCAR-sanctioned event dates. In addition, motorsports facilities compete with one another for the patronage of motor racing spectators, and with other sports and entertainment businesses. The quality of the competition, type of racing event, caliber of the events, sight lines, ticket pricing, location, and customer conveniences, among other things, distinguish the motorsports facilities. The two speedways closest to Dover Downs International Speedway that currently sponsor Winston Cup races are in Richmond, Virginia (approximately four hours to the South) and Pocono International Raceway in Long Pond, Pennsylvania (approximately three and a half hours to the North). Nazareth Speedway in Nazareth, Pennsylvania (approximately two hours to the North) currently conducts Busch Series, NASCAR Craftsman Truck and CART races. Based on historical data, management does not believe that any of these facilities significantly impact operations at Dover Downs International Speedway. In recent years, the Company's NASCAR-sanctioned Winston Cup events have all sold out well in advance of the race. The speedways closest to the Nashville Speedway are the Atlanta Motor Speedway (approximately three hours to the southeast) and Talladega Superspeedway (approximately three and one-half hours to the south). Atlanta Motor Speedway hosts two Winston Cup races, two Busch Series races and one IRL race. Talladega Superspeedway hosts two Winston Cup races and one Busch Series race. Based on historical data, management does not believe that any of these facilities significantly impacts operations at the Nashville Speedway, although they may impact the Company's ability to secure additional events in the future. Gaming The legalization of additional casino and other gaming venues in states close to Delaware, particularly Maryland, Pennsylvania and New Jersey, may have a material adverse effect on the Company's business. From time to time, legislation has been introduced in these states that would further expand gambling opportunities, including video lottery (slot) machines at horse-tracks. At present, video lottery (slot) machines are only permitted at two other locations in Delaware: Delaware Park and Harrington Raceway. Delaware Park and Harrington Raceway presently have in operation 1,000 and 702 machines, respectively. The neighboring states of Pennsylvania and Maryland do not presently permit video lottery operations. Pennsylvania, Maryland and New Jersey all have state-run lotteries. Atlantic City, New Jersey is located approximately 100 miles from Dover Downs and a certain amount of market overlap should be expected. Casinos in Atlantic City offer a full range of gaming products. Dover Downs does not expect to compete directly with Atlantic City because of the Company's inability to offer a full range of casino gaming products, but it does expect to capture a portion of the existing Atlantic City slot market in the Dover area, due to the facility's proximity, convenience and multiple attractions. The Company also competes for attendance with a wide range of other entertainment and recreational activities available in the region, including professional and collegiate sporting events. Competition in horse racing is varied since race tracks in the surrounding area differ in many respects. Some tracks only offer thoroughbred or harness horse racing; others have both. Tracks have live racing seasons that may or may not overlap with neighboring tracks. Depending on the purse structure, tracks that are farther apart may compete with each other more for quality horses than for patrons. Live harness racing also competes with simulcasts of thoroughbred and harness racing. All race tracks in the region are involved with simulcasting. In addition, a number of off-track betting parlors compete with track simulcasting activities. With respect to the Company simulcasting its live harness races to tracks and other locations, its simulcast signals are in direct competition with live races at the receiving track and other races being simulcast to the receiving location. Within the State of Delaware, Dover Downs faces little direct live competition from the State's other two tracks. Harrington Raceway, a south central Delaware fairgrounds track, conducts harness horse racing periodically between May and November. There is no overlap presently with Dover Downs' live race season. Delaware Park, a northern Delaware track, conducts thoroughbred horse racing from April through mid- November. Its race season only overlaps with Dover Downs for approximately five to six weeks each year. The neighboring states of Pennsylvania, Maryland and New Jersey all have harness and thoroughbred racing and simulcasting. Dover Downs competes with Rosecroft Raceway in Maryland, Philadelphia Park in Pennsylvania, Garden State Park and The Meadowlands in New Jersey and a number of other race tracks in the surrounding area. The Company also receives simulcast harness and thoroughbred races from approximately 30 race tracks, including the tracks noted above. Seasonality The Company derives a substantial portion of its total revenues from admissions and event-related revenue attributable to its motorsports events which are currently held in June and September. As a result, the Company's business has been, and is expected to remain, highly seasonal. The seasonality was offset to some degree by the year-round video lottery (slot) machine gaming operations and year-round simulcasting. At June 30, 1998, the Company had a total of 401 full-time employees and 134 part-time employees. The Company hires temporary employees to assist during its auto racing events and its live harness racing season. ITEM 2. PROPERTIES The Company maintains its headquarters, motorsports superspeedway, harness racetrack, and video lottery casino all on approximately 825 acres of land owned by the Company in Dover, Delaware. The Nashville racing facility is located on approximately 12 acres and is leased from the Metropolitan Board of Fair Commissioners. Subsequent to the completion of the merger with Grand Prix Association of Long Beach, the Company owns permanent motorsports facilities in Madison, Illinois (near St. Louis, Missouri) and in Millington, Tennessee (near Memphis, Tennessee). The racing facility in Madison, Illinois is located on 269 acres owned by the Company. The Company also leases 145 acres of land surrounding the speedway. The Millington, Tennessee racing facility is located on 375 acres of land owned by the Company. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party to any material legal proceedings. The Company and its subsidiaries are engaged in ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. A Special Meeting of Shareholders of Dover Downs Entertainment, Inc. was held on June 30, 1998. The purpose of the meeting was to consider and vote upon the following: (i) the Merger with Grand Prix Association of Long Beach, (ii) the issuance of up to an aggregate of 2,793,946 shares of Dover Common Stock in order to effect the Merger, (iii) the assumption by Dover of the Grand Prix Options outstanding immediately prior to the effective date of the Merger, (iv) the amendment of the Dover Certificate of Incorporation to (a) increase the number of directors serving on the Board of Directors to ten (10) consisting of three (3) classes of directors each with three (3) year staggered terms, Class I to have four (4) members, Class II to have three (3) members and Class III to have three (3) members, (b) increase the number of shares of Dover Common Stock authorized for issuance from 35,000,000 shares to 75,000,000 shares and (c) increase the number of shares of Dover Class A Common Stock authorized for issuance from 30,000,000 shares to 55,000,000 shares and (v) election of one (1) additional Class I Director to the Dover Board of Directors for the remainder of a three- year term expiring in 2000. The results of the votes of security holders are as follows: Votes Cast Broker For Against Abstentions Non-Votes i) 12,837,942 8,921 1,953 683,704 ii) 12,831,802 10,998 6,016 683,704 iii) 12,814,487 18,353 15,976 683,704 iv) 12,895,865 628,945 7,710 - v) 13,507,714 14,790 10,017 - ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Common Stock of Dover Downs Entertainment, Inc. has traded on the New York Stock Exchange under the symbol "DVD" since the Company's initial public offering on October 3, 1996. There is no established public trading market for the Company's Class A Common Stock. As of July 31, 1998, there were 5,517,179 shares of Common Stock and 12,249,380 shares of Class A Common Stock outstanding. There were 636 record holders of Common Stock and 13 record holders of Class A Common Stock at July 31, 1998. The range of share prices for the Common Stock on the New York Stock Exchange and per share dividends paid on Common Stock for the fiscal years ended June 30, 1998 and 1997 are as follows: Prices Dividends 1998 1997 1998 1997 High Low High Low Fiscal Quarter First ...... $21 1/8 $16 3/4 $ - $ - $.08 $ - Second ..... 23 9/16 19 7/16 26 7/8 17 1/4 .08 - Third ...... 30 21 3/8 20 1/2 16 5/8 .08 .08 Fourth ..... 33 5/8 28 3/8 19 7/8 16 1/8 .08 .08 ITEM 6. SELECTED FINANCIAL DATA Five Year Selected Financial Data (Dollars in Thousands, Except Per Share Data) Year Ended June 30, 1998 1997 1996 1995 1994 Revenues: Motorsports $ 25,874 $ 20,516 $18,110 $16,282 $13,561 Gaming (1) 115,071 81,162 31,980 1,250 796 140,945 101,678 50,090 17,532 14,357 Earnings before income taxes 37,655 28,239 15,593 7,239 5,791 Net earnings 21,913 16,472 9,196 4,284 3,562 Earnings per common share-basic 1.44 1.11 .67 .31 .26 -diluted 1.40 1.08 .63 .30 .26 Dividends per common share .32 .16 - - - At June 30, Total assets $ 95,777 $ 71,261 $42,311 $25,422 $19,776 Long-term debt, less current portion 741 760 766 698 776 Shareholders' equity $ 71,365 $ 54,300 $23,715 $14,225 $ 9,923 (1) Gaming revenues from the Company's video lottery (slot) machine gaming operations include the total win from such operations. The Delaware State Lottery Office collects the win and remits a portion thereof to the Company as its commission for acting as a Licensed Agent. The difference between total win and the amount remitted to the Company is reflected in operating expenses. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Fiscal Year 1998 Compared With Fiscal Year 1997 Revenues increased by $39,267,000 to $140,945,000 primarily as a result of expanding the casino facility and increasing the number of video lottery (slot) machines from an average of 869 in fiscal 1997 to 1,000 machines during the entire fiscal year ended June 30, 1998. More significant marketing efforts also led to the increase in revenue in fiscal 1998. Motorsports revenues increased by $5,358,000 or 26.1% to $25,874,000. Approximately $1,791,000 of the revenue increase resulted from increased attendance, $295,000 from increased ticket prices, and $1,692,000 from the inclusion of the operating results of Nashville Speedway USA in the consolidated results of Dover Downs Entertainment, Inc. for six months in fiscal 1998. The remainder of the increase was from increased sponsorship, concessions and marketing related revenues. Operating expenses increased by $28,316,000 reflecting the higher revenues. Amounts retained by the State of Delaware, fees to the manager who operates the video lottery (slot) machine operation, and the amount collected by the State of Delaware for payment to the vendors under contract with the State who provide the video lottery machines and associated computer systems increased by $14,902,000 in 1998. Amounts allocated from the video lottery operation for harness horse racing purses were $12,721,000 in 1998 compared with $9,157,000 in 1997. Advertising, promotional and customer complimentary cost increases of $2,534,000 were the other significant cost increases. Motorsports' operating expenses increased principally due to a $358,000 increase in purse and sanction fee expenses and increased advertising costs of $626,000 as a result of the addition of motorsports events during the 1998 fiscal year. The inclusion of the operating results of Nashville Speedway USA in the consolidated results of Dover Downs Entertainment, Inc. for six months in fiscal 1998 is the other significant operating cost increase. Depreciation increased by $623,000 or 29.9% to $2,707,000 from $2,084,000 as a result of a full year of depreciation expense related to the Company's video lottery casino expansion being recognized in 1998 compared with the eight months in 1997. Capital expenditures for the expansion of the Company's motorsports facilities also contributed to the increase in depreciation. General and administrative expenses increased by $1,345,000 to $4,410,000 from $3,065,000. Wage and benefit costs increased by $469,000 and consulting and professional services increased by $223,000 principally due to the Company's expansion of video lottery (slot) machine operations and the acquisition of Nashville Speedway USA. The Company's effective income tax rates for fiscal 1998 and fiscal 1997 were 41.8% and 41.7%, respectively. Net earnings increased by $5,441,000 due to the expansion of the video lottery (slot) machine operation and increased marketing efforts in the casino. The net earnings increase is also due to higher attendance and related revenues at the Company's NASCAR-sanctioned events in September 1997 and June 1998. Fiscal Year 1997 Compared With Fiscal Year 1996 Revenues increased by $51,588,000 to $101,678,000 from $50,090,000 in the prior year. The significant increase in revenues was principally due to the introduction of video lottery (slot) machines which were in operation for the entire fiscal year 1997 compared with six months in fiscal 1996. Video lottery revenues also increased as a result of expanding the casino facility and increasing the number of video lottery (slot) machines from 572 to 1,000 in October of 1996. Motorsports revenues increased by $2,406,000 or 13.3%. Approximately $999,000 of the total motorsports revenue increase resulted from increased attendance and $663,000 resulted from increased ticket prices. The remainder of the revenue increase of $744,000 was principally due to increased marketing and sponsorship revenues. Operating expenses increased by $37,860,000 of which $34,695,000 was due to the video lottery (slot) machines in operation for the entire fiscal year 1997 compared with six months in fiscal 1996. Payments to the State of Delaware, fees to the manager who operates the video lottery (slot) machine operation, and payments to the vendors who provide the video lottery (slot) machines were $32,674,000 in fiscal 1997 and $12,188,000 in fiscal 1996. Amounts allocated from the video lottery operation for harness horse racing purses were $9,157,000 in fiscal 1997 and $3,550,000 in fiscal 1996. Wages and benefits for employees of the video lottery (slot) machine operation were $4,035,000 in fiscal 1997 and $2,277,000 in fiscal 1996. Advertising, promotional and customer complimentary costs of $4,251,000 and costs associated with casino food and beverage sales of $1,923,000 were the other significant operating costs of the video lottery (slot) machine operation. For the horse racing and simulcasting operations, wage and benefit cost increases of $467,000, simulcasting cost increases of $537,000 and purse increases of $155,000 (exclusive of the $9,157,000 of harness horse racing purses allocated from video lottery operations in fiscal 1997) accounted for the most significant operating cost increases. The cost increases were primarily the result of increasing the number of live harness racing days to 97 from 67 in 1996 and from increasing the number of simulcasting days to 363 from 201 in 1996. Motorsports' operating expenses increased principally due to a $394,000 increase in purse obligation expenses. Sanction fees increased by $80,000 and advertising increased by $145,000 during the 1997 fiscal year. Depreciation increased by $615,000 or 41.9% to $2,084,000 from $1,469,000 as a result of a full year of depreciation expense related to the Company's video lottery casino being recognized in 1997 compared with six months of depreciation in 1996. Capital expenditures for the expansion of the Company's motorsports facilities also contributed to the increase in depreciation. General and administrative expenses increased by $992,000 to $3,065,000 from $2,073,000. Wage and benefit costs increased by $363,000 and contracted services increased by $205,000, principally due to the Company's expansion of video lottery (slot) machine and simulcasting operations. The Company's effective income tax rates for fiscal 1997 and fiscal 1996 were 41.7% and 41.0%, respectively. Net earnings increased by $7,276,000 due to the inclusion of video lottery (slot) machine operations for the entire fiscal year 1997 compared with six months in fiscal 1996 and also due to higher attendance and related revenues at the Company's NASCAR-sanctioned events in September 1996 and June 1997. Liquidity and Capital Resources Cash flow from operations for the three years ended June 30, 1998, 1997, and 1996 was $28,991,000, $18,600,000, and $15,317,000 respectively. The significant increase in fiscal 1998 reflected the Company's higher net earnings and increased non-cash charges. Capital expenditures for the year ended June 30, 1998 were $7,504,000 and related primarily to the expansion of and improvements to the racing facility as well to expansion of the administrative facilities. The 1998 expenditures were less than in 1997 and 1996 as the Company was constructing or expanding the casino facility in those years. Capital expenditures for the year ended June 30, 1997 of $16,841,000 related primarily to the purchase of land for $1,060,000, the expansion of the casino for $5,124,000, and the construction of additional permanent motorsports seating for $8,061,000. The capital expenditures were primarily funded with the proceeds from the Company's initial public stock offering. Capital expenditures for the year ended June 30, 1996 of $18,936,000 related to the construction of the casino facility for $1,790,000, the acquisition and improvement of land and construction of additional permanent motorsports grandstand seating and luxury skyboxes, as well as a resurfacing of the raceway. Effective January 2, 1998, the Company acquired all of the outstanding common stock of Nashville Speedway USA, Inc. for $3,000,000 in cash from available funds. The Company and Grand Prix Association of Long Beach, Inc. ("Grand Prix") entered into an Agreement and Plan of Merger on March 26, 1998, pursuant to which Grand Prix would become a wholly owned subsidiary of the Company. The merger, which closed on July 1, 1998, was structured as a tax-free exchange whereby each shareholder of Grand Prix received .63 shares of common stock of Dover Downs Entertainment, Inc. ("Dover") for each share of common stock of Grand Prix owned by such shareholder. The Company purchased 680,000 shares of common stock of Grand Prix from two non-management shareholders in March of 1998 for $10,540,000. The Company has an annually renewable, $20,000,000 committed revolving line of credit from a bank to provide seasonal funding needs and to finance capital improvements. The Company was in compliance with all terms of the facility and there were no amounts outstanding at June 30, 1998. Impact of Recent Accounting Pronouncements In June 1997, The Financial Accounting Standards Board (FASB)issued SFAS No. 130, Reporting Comprehensive Income. This statement requires that comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company plans to adopt this standard on July 1, 1998, as required. The adoption of this standard will not impact results of operations or financial condition. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. This statement established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. The Company plans to adopt this standard on July 1, 1998, as required. The adoption of this standard will not impact results of operations or financial condition. In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures about Pensions and Other Postretirement Benefits, which is effective for financial statements issued for periods beginning after December 15, 1997. This statement standardizes the disclosure requirements of previous standards. The adoption of this standard will not impact results of operations or financial condition. Year 2000 Issues The Company is aware of the issues related to the approach of the year 2000 and has assessed and investigated what steps must be taken to ensure that its critical systems and equipment will function appropriately after the turn of the century. The assessments include a review of what systems and equipment need to be changed or replaced in order to function correctly. The Company believes its accounting and ticketing hardware and software are year 2000 compliant and no corrections will be needed to those systems as a result of the year 2000. The Delaware State Lottery has advised Dover that the systems employed in Dover's lottery operations will be made year 2000 compliant. The Company does not place substantial reliance on any other systems, and no systems have been found to need substantial correction. Forward-Looking Statements The Company may make forward-looking statements relating to anticipated financial performance, business prospects, acquisitions or divestitures, new products, market forces, commitments and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. Forward-looking statements typically contain such words as "anticipates", "believes", "estimates", "expects", "forecasts", "predicts", or "projects", or variations of these words, suggesting that future outcomes are uncertain. Various risks and uncertainties may affect the operation, performance, development and results of the Company's business and could cause future outcomes to differ materially from those set forth in forward-looking statements, including the following factors: general economic conditions, the Company's ability to finance its future business requirements through outside sources or internally generated funds, the availability of adequate levels of insurance, success or timing of completion of ongoing or anticipated capital or maintenance projects, the ability to successfully integrate recently acquired companies, management retention and development, changes in Federal, State, and local laws and regulations, including environmental regulations, weather, relationships with sponsors, broadcast media and sanctioning bodies as well as the risks, uncertainties and other factors described from time to time in the Company's SEC filings and reports. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company and the Independent Auditors' Report included in this report are shown on the Index to the Consolidated Financial Statements on page 18. ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except as presented below, the information called for by this Item 10 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 30, 1998. Executive Officers of the Registrant. As of June 30, 1998, the Executive Officers of the registrant were: Name Position Age Term of Office Robert M. Comollo Treasurer 50 11/81 to date Timothy R. Horne Vice President-Finance 32 11/96 to date Michael B. Kinnard Vice President- 40 6/94 to date General Counsel and Secretary Denis McGlynn President and 52 11/79 to date Chief Executive Officer John W. Rollins, Sr. Chairman of the Board 82 10/96 to date Eugene W. Weaver Senior Vice President- 65 10/96 to date Administration Vice President-Finance 1970 to 10/96 Robert M. Comollo has been employed by the Company for 18 years, of which 17 years have been in the capacity of Treasurer. Timothy R. Horne became Vice President-Finance in November of 1996. From 1988 until 1996, Mr. Horne was employed by KPMG Peat Marwick LLP, where he most recently served as an assurance senior manager. Michael B. Kinnard has been Vice President-General Counsel to the Company since 1994. Mr. Kinnard also serves as Vice President-General Counsel and Secretary to Matlack Systems, Inc. and Vice President- General Counsel and Secretary to Rollins Truck Leasing Corp. Prior to 1995, Mr. Kinnard was a partner in the law firm of Baker, Worthington, Crossley, Stansberry & Woolf (now known as Baker, Donelson, Bearman & Caldwell). ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 30, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by this Item 12 is incorporated by reference from the Company's Proxy Statement filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 30, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the year ended June 30, 1998, the following officers and/or directors of the Company were also officers and/or directors of Rollins Truck Leasing Corp.; Patrick J. Bagley, Michael B. Kinnard, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following officers and/or directors of the Company were also officers and/or directors of Matlack Systems, Inc.; Patrick J. Bagley, Michael B. Kinnard, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns directly and of record 12.1% and 11.4% of the outstanding shares of common stock of Rollins Truck Leasing Corp. and Matlack Systems, Inc., respectively, at June 30, 1998. The description of transactions between the Company and Rollins Truck Leasing Corp. appears under the caption "Related Party Transactions" on page 33 of this 1998 Annual Report on Form 10-K. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits (1) Financial Statements - See accompanying Index to Consolidated Financial Statements on page 16. (2) Financial Statement Schedules - None. (3) Exhibits: 2.1 Share Exchange Agreement and Plan of Reorganization dated June 14, 1996 between Dover Downs Entertainment, Inc., Dover Downs, Inc., Dover Downs International Speedway, Inc. and the shareholders of Dover Downs, Inc. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 2.2 Agreement and Plan of Merger, dated as of March 26, 1998, by and among Dover Downs Entertainment, Inc. FOG Acquisition Corp., and Grand Prix Association of Long Beach as filed with the Company's Registration Statement Number 333-53077 on Form S-4 on May 19, 1998 is incorporated herein by reference. 3.1 Certificate of Incorporation of Dover Downs Entertainment, Inc., amended June 14, 1996, and further amended on June 28, 1996 as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 3.2 Amended and Restated Bylaws of Dover Downs Entertainment, Inc. incorporated by reference to the Annual Report on Form 10-K for the year ended June 30, 1997. 3.3 Amendment to Certificate of Incorporation of Dover Downs Entertainment, Inc. dated June 30, 1998. 3.4 Amendment to Bylaws of Dover Downs Entertainment, Inc. dated June 30, 1998. 4.2 Rights Agreement dated as of June 14, 1996 between Dover Downs Entertainment, Inc. and ChaseMellon Shareholder Services, L.L.C. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.1 Credit Agreement between PNC Bank and Dover Downs Entertainment, Inc. dated January 31, 1997 incorporated by reference to the Annual Report on Form 10-K for the year ended June 30, 1997. 10.2 Dover Downs Entertainment, Inc. $20 Million Dollar Committed Line of Credit Note in favor of PNC Bank dated January 31, 1997 incorporated by reference to the Annual Report on Form 10-K for the year ended June 30, 1997. 10.5 Guaranty and Suretyship Agreement dated January 30, 1998 in favor of PNC Bank. 10.6 Amendment to Loan Documents dated January 30, 1998. 10.7 Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars World Gaming Development Corporation dated May 10, 1995 as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.9 Dover Downs Entertainment, Inc. 1996 Stock Option Plan as filed with the Company's Registration Statement Number 333- 8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.10 Dover Downs Entertainment, Inc. 1991 Stock Option Plan as filed with the Company's Registration Statement Number 333- 8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 21.1 Subsidiaries 23.1 Consent of Independent Accountants 27 Financial Data Schedule for current Fiscal Year ended June 30, 1998 27.1 Restated Financial Data Schedule for Quarter ended September 30, 1997 27.2 Restated Financial Data Schedule for Fiscal Year ended June 30, 1997 27.3 Restated Financial Data Schedule for Quarter ended April 30, 1997 27.4 Restated Financial Data Schedule for Quarter ended January 31, 1997 27.5 Restated Financial Data Schedule for Quarter ended October 31, 1996 (b) Reports on Form 8-K A Form 8-K was filed by Dover Downs Entertainment, Inc. on April 13, 1998 to disclose that the Company, FOG Acquisition Corporation and Grand Prix Association of Long Beach, Inc. entered into an agreement and Plan of Merger dated March 26, 1998. Also disclosed was the passage of legislation permitting an additional 1,000 slot machines at any of the currently licensed facilities in the State of Delaware and eliminating the existing sunset provision for the state's video lottery operations. A Form 8-K was filed by Dover Downs Entertainment, Inc. on July 15, 1998 to disclose that the Company had completed its acquisition of Grand Prix Association of Long Beach. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: August 31, 1998 DOVER DOWNS ENTERTAINMENT, INC. Registrant BY:/s/ Denis McGlynn Denis McGlynn President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ Timothy R. Horne Vice President-Finance August 31, 1998 Timothy R. Horne /s/ John W. Rollins Chairman of the Board August 31, 1998 John W. Rollins /s/ Henry B. Tippie Vice Chairman of the Board August 31, 1998 Henry B. Tippie /s/ Eugene W. Weaver Senior Vice President- August 31, 1998 Eugene W. Weaver Administration and Director /s/ John W. Rollins, Jr. Director August 31, 1998 John W. Rollins, Jr. /s/ Patrick J. Bagley Director August 31, 1998 Patrick J. Bagley INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page(s) Independent Auditors' Reports on Financial Statements 19 Consolidated Statement of Earnings for the years ended June 30, 1998, 1997 and 1996 20 Consolidated Balance Sheet at June 30, 1998 and 1997 21 Consolidated Statement of Cash Flows for the years ended June 30, 1998, 1997 and 1996 22 Notes to Consolidated Financial Statements 23-30 Independent Auditors' Report The Shareholders and Board of Directors, Dover Downs Entertainment, Inc.: We have audited the accompanying consolidated balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of earnings and of cash flows for each of the years in the three year period ended June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Philadelphia, Pennsylvania July 17, 1998 CONSOLIDATED STATEMENT OF EARNINGS Year ended June 30, 1998 1997 1996 Revenues: Motorsports $ 25,874,000 $ 20,516,000 $18,110,000 Gaming 115,071,000 81,162,000 31,980,000 Total revenues 140,945,000 101,678,000 50,090,000 Expenses: Operating 96,875,000 68,559,000 30,699,000 Depreciation 2,707,000 2,084,000 1,469,000 General and administrative 4,410,000 3,065,000 2,073,000 103,992,000 73,708,000 34,241,000 Operating earnings 36,953,000 27,970,000 15,849,000 Interest (income) expense (702,000) (269,000) 256,000 Earnings before income taxes 37,655,000 28,239,000 15,593,000 Income taxes 15,742,000 11,767,000 6,397,000 Net earnings $ 21,913,000 $ 16,472,000 $ 9,196,000 Earnings per common share: Basic $ 1.44 $ 1.11 $ .67 Diluted $ 1.40 $ 1.08 $ .63 Average shares outstanding (000): Basic 15,246 14,856 13,723 Diluted 15,603 15,275 14,511 The Notes to the Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED BALANCE SHEET June 30 1998 1997 ASSETS Current assets: Cash and cash equivalents $ 18,694,000 $ 15,503,000 Accounts receivable 2,818,000 1,613,000 Due from State of Delaware 2,099,000 1,983,000 Inventories 310,000 402,000 Prepaid expenses 2,319,000 775,000 Deferred income taxes 328,000 124,000 Total current assets 26,568,000 20,400,000 Property, plant and equipment, at cost Land 10,563,000 10,563,000 Casino facility 11,548,000 11,566,000 Racing facilities 44,877,000 38,546,000 Machinery and equipment 5,785,000 5,357,000 Furniture and fixtures 659,000 573,000 Construction in progress 799,000 83,000 74,231,000 66,688,000 Less accumulated depreciation (18,456,000) (15,827,000) 55,775,000 50,861,000 Investments 10,540,000 - Goodwill, net 2,894,000 - Total assets $ 95,777,000 $ 71,261,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,343,000 $ 1,860,000 Purses due horsemen 1,885,000 1,387,000 Accrued liabilities 5,006,000 2,280,000 Income taxes payable 3,951,000 2,507,000 Current portion of long-term debt 19,000 19,000 Deferred revenue 9,755,000 7,542,000 Total current liabilities 22,959,000 15,595,000 Long-term debt 741,000 760,000 Deferred income taxes 712,000 606,000 Commitments (see Notes to the Consolidated Financial Statements) Shareholders' equity: Preferred stock, $.10 par value; 1,000,000 shares authorized; issued and outstanding: none Common stock, $.10 par value; 75,000,000 shares authorized; issued and outstanding: 1998-2,998,950; 1997-2,939,000 300,000 294,000 Class A common stock, $.10 par value; 55,000,000 shares authorized; issued and outstanding: 1998-12,249,380 shares; 1997-12,286,830 shares 1,225,000 1,229,000 Additional paid-in capital 21,109,000 21,081,000 Retained earnings 48,731,000 31,696,000 Total shareholders' equity 71,365,000 54,300,000 Total liabilities and shareholders' equity $ 95,777,000 $ 71,261,000 The Notes to the Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENT OF CASH FLOWS Years ended June 30, 1998 1997 1996 Cash flows from operating activities: Net earnings $21,913,000 $16,472,000 $ 9,196,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 2,707,000 2,084,000 1,469,000 Loss on disposition of property 3,000 - - (Increase) decrease in assets: Accounts receivable (1,180,000) (392,000) 48,000 Due from affiliate - - 333,000 Due from State of Delaware (116,000) (1,082,000) (901,000) Inventories 92,000 (46,000) (250,000) Prepaid expenses (1,539,000) (242,000) (39,000) Increase (decrease) in liabilities: Accounts payable 335,000 671,000 152,000 Purses due horsemen 498,000 (49,000) 1,436,000 Accrued liabilities 2,719,000 (88,000) 1,497,000 Current and deferred income taxes 1,346,000 (267,000) 1,927,000 Deferred revenue 2,213,000 1,539,000 449,000 Net cash provided by operating activities 28,991,000 18,600,000 15,317,000 Cash flows from investing activities: Sale of short-term investments - - 3,200,000 Investment in Grand Prix Association of Long Beach (10,540,000) - - Acquisition of business, net of cash acquired (2,889,000) - - Capital expenditures (7,504,000) (16,841,000) (18,936,000) Net cash used in investing activities (20,933,000) (16,841,000) (15,736,000) Cash flows from financing activities: Short-term borrowings (repayments) - (3,500,000) 3,500,000 Repayment of long-term debt (19,000) (9,000) (786,000) Repayment to shareholder - - (200,000) Net proceeds from initial public offering - 16,360,000 - Dividends paid (4,878,000) (2,429,000) - Proceeds from stock options exercised, including related tax benefit 30,000 182,000 294,000 Net cash (used in) provided by financing activities (4,867,000) 10,604,000 2,808,000 Net increase in cash and cash equivalents 3,191,000 12,363,000 2,389,000 Cash and cash equivalents, beginning of year 15,503,000 3,140,000 751,000 Cash and cash equivalents, end of year $18,694,000 $15,503,000 $ 3,140,000 Supplemental disclosures of cash flow information: Interest paid $ 61,000 $ 168,000 $ 373,000 Income taxes paid $14,395,000 $12,034,000 $ 4,413,000 Non-cash investing and financing activities: Land acquired $ - $ - $ 1,300,000 Cash paid $ - $ - $ (500,000) Mortgage incurred $ - $ - $ 800,000 The Notes to the Consolidated Financial Statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1-Business Operations Dover Downs Entertainment, Inc. (the Company or Dover Downs) owns and operates the Dover Downs International Speedway and the Dover Downs Raceway at a multi-purpose gaming and entertainment complex located on approximately 825 acres owned by the Company in Dover, Delaware. The Company hosts a variety of NASCAR and Indy Racing League (IRL) sanctioned events and harness horse racing events throughout the year. With expanded facilities completed at the end of 1995, the Company is now open 363 days per year both for video lottery (slot) machine gaming and for pari-mutuel wagering on simulcast harness and thoroughbred horse races across the country. Video lottery (slot) machine gaming began on December 29, 1995 pursuant to video lottery legislation enacted in the State of Delaware. Dover Downs also operates the historic NASCAR racing facility at the Tennessee State Fairgrounds in Nashville, Tennessee ("Nashville Speedway"). Nashville Speedway's current racing schedule includes events in several NASCAR Series. Dover Downs, Inc. is authorized to conduct video lottery operations as a "Licensed Agent" under the Delaware State Lottery Code. Pursuant to Delaware's Horse Racing Redevelopment Act, enacted in 1994, the Delaware State Lottery Office administers and controls the operation of the video lottery. For the video lottery operations, the difference between the amount wagered by bettors and the amount paid out to bettors is referred to as the win. The win is included in the amount recorded in the Company's financial statements as gaming revenue. The Delaware State Lottery Office sweeps the winnings from the video lottery operations, collects the State's share of the winnings and the amount due to the vendors under contract with the State who provide the video lottery machines and associated computer systems, collects the amount allocable to purses for harness horse racing, and remits the remainder to the Company as its commission for acting as a Licensed Agent. Operating expenses include the amounts collected by the State (i) for the State's share of the winnings, (ii) for remittance to the providers of the video lottery machines and associated computer systems, and (iii) for harness horse racing purses. The Company's license from the Delaware Harness Racing Commission must be renewed on an annual basis. In order to maintain its license to conduct video lottery operations, the Company is required to maintain its harness horse racing license. Due to the nature of the Company's business activities, it is subject to various federal, state and local regulations. NOTE 2-Reorganization On June 14, 1996, Dover Downs Entertainment, Inc. effected a tax-free restructuring pursuant to which all former shareholders of Dover Downs, Inc. exchanged each share of common stock held in Dover Downs, Inc. for 4,500 shares of Class A Common Stock of the Company. As a result of this share exchange, Dover Downs, Inc. became a wholly-owned subsidiary of the Company and the former shareholders of Dover Downs, Inc. acquired an equal percentage of the equity of the Company. As part of the restructuring, the Company acquired by dividend from Dover Downs, Inc. all of the outstanding capital stock of Dover Downs International Speedway, Inc. (which was not operational), and the motorsports operation of Dover Downs, Inc. was transferred to Dover Downs International Speedway, Inc. Additionally, in June 1996, the Company formed Dover Downs Properties, Inc. for the initial purpose of holding some or all of the real estate of the Company. This reorganization has been accounted for on an as if pooled basis. All common share and per share amounts have been restated to give effect to the reorganization assuming the transaction had occurred on June 30, 1995. Results of operations for all prior years were not affected by the reorganization. On July 14, 1997, the Company changed its fiscal year-end from July 31 to June 30 and has accordingly presented restated results for the two years ended June 30, 1997. Certain amounts in the 1996 consolidated financial statements have been reclassified to conform to the 1997 presentation. The change in year-end did not have a significant effect upon previously reported earnings. NOTE 3-Summary of Significant Accounting Policies Consolidation-The consolidated financial statements include the accounts of all subsidiaries. Intercompany transactions and balances among these subsidiaries have been eliminated. Revenue and expense recognition-Tickets to motorsports races are sold and certain expenses are incurred in advance of the race date. Such advance sales and corresponding expenses are recorded as deferred revenue and prepaid expenses, respectively, until the race is held. Gaming revenues represent the net win from video lottery (slot) machine wins and losses and commissions from pari-mutuel wagering. Payments to the State of Delaware pursuant to the lottery legislation are reported in operating expenses. Advertising costs-Subsequent to the opening of the Company's casino facility in December of 1995, all advertising costs are expensed as incurred. Earnings per share-The number of weighted average shares used in computing basic and diluted earnings per share (EPS) are as follows: 1998 1997 1996 Basic EPS 15,246 14,856 13,723 Effect of options 357 419 788 Diluted EPS 15,603 15,275 14,511 Cash and cash equivalents-The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. Inventories-Inventories, primarily food, beverage and novelty items, are stated at the lower of cost or market with cost being determined on the first-in, first-out (FIFO) basis. Property, plant and equipment-Property, plant and equipment is stated at cost. Depreciation is computed on a straight-line basis over the following estimated useful lives: Racing and casino facilities 10 - 40 years Machinery and equipment 5 - 10 years Furniture and fixtures 5 years Goodwill-Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized over a period of 40 years. Income taxes-Deferred income taxes are provided in accordance with the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" on all differences between the tax bases of assets and liabilities and their reported amounts in the financial statements based upon enacted statutory tax rates in effect at the balance sheet date. Use of estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Values of Financial Instruments-The carrying amount reported in the balance sheet for current assets and current liabilities approximates their fair value at June 30, 1998. Accounting for Stock Options-The Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, on July 1, 1996. SFAS No. 123 defines a fair-value based method of accounting for stock-based compensation plans, however, it allows the continued use of the intrinsic value method under Accounting Principles Board Opinion, No. 25, Accounting for Stock Issued to Employees. The Company has elected to continue to use the intrinsic value method. NOTE 4-Indebtedness The Company has an annually renewable, $20,000,000 committed revolving line of credit from a bank to satisfy seasonal funding needs and to finance capital improvements. The Company must pay an annual commitment fee of 7.5 basis points on the average unused portion of the commitment and interest monthly on amounts outstanding at the bank's prime minus three-quarters of one percent. There were no amounts outstanding at June 30, 1998 or 1997. Long-term debt consists of an 8% mortgage note payable in quarterly principal and interest installments through January 2006, and collateralized by land with a carrying value of $1,300,000. The mortgage note matures as follows: 1999-$19,000; 2000-$22,000; 2001-$24,000; 2002-$26,000; 2003-28,000 and thereafter $641,000. NOTE 5-Income Taxes The current and deferred income tax provisions (benefit) are as follows: Years ended June 30, 1998 1997 1996 Current: Federal $12,544,000 $ 9,207,000 $ 4,971,000 State 3,296,000 2,498,000 1,329,000 15,840,000 11,705,000 6,300,000 Deferred: Federal (78,000) 49,000 81,000 State (20,000) 13,000 16,000 (98,000) 62,000 97,000 Total income taxes $15,742,000 $11,767,000 $ 6,397,000 Deferred income taxes relate to the temporary differences between financial accounting income and taxable income and are primarily attributable to depreciation using different methods for tax purposes. A reconciliation of the effective income tax rate with the applicable statutory federal income tax rate is as follows: Years ended June 30, 1998 1997 1996 Federal tax at statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 5.7% 5.7% 5.7% Other 1.1% 1.0% .3% Effective income tax rate 41.8% 41.7% 41.0% NOTE 6-Pension Plan Prior to August 1, 1996, the Company participated in a multiple employer defined-benefit pension plan covering substantially all full-time employees. On August 1, 1996, the Dover Downs Entertainment, Inc. Pension Plan was established and the related assets were transferred from the multiple employer pension plan to the new Dover Downs Entertainment, Inc. Trust. The provisions of the Dover Downs Entertainment, Inc. Pension Plan are identical to those of the aforementioned multiple employer defined-benefit pension plan. Plan benefits are based on years of service and employees' remuneration over their employment with the Company. Pension costs are funded in accordance with the provisions of the Internal Revenue Code. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheet at June 30, 1998: Actuarial present value of accumulated benefit obligation: Vested $413,216 Non-vested 139,693 $552,909 Projected benefit obligation $924,846 Plan assets at market value 687,431 Funded status (237,415) Unrecognized net loss 110,925 Unrecognized prior service cost 173,476 Prepaid pension cost $ 46,986 At June 30, 1998, the assets of the plan were invested 60% in equity funds, 39% in intermediate bond funds and the balance in other short-term interest-bearing accounts. The discount rate in 1998 and 1997, was 7.5% and 8%, respectively. The assumed rate of compensation increase was 5% in both years. The expected long-term rate of return on assets was 9% for 1998 and 1997. The components of net periodic pension cost for 1998 are as follows: Service cost $131,829 Interest cost 52,864 Return on plan assets (104,185) Net amortization 32,775 Deferral of net gain 62,893 $176,176 Net periodic pension costs for 1997 and 1996 were $77,007 and $24,000, respectively. The Company also maintains a nonqualified, noncontributory defined benefit pension plan for certain employees to restore pension benefits reduced by federal income tax regulations. The cost associated with the plan is determined using the same actuarial methods and assumptions as those used for the Company's qualified pension plan. The Company also maintains a defined contribution 401(k) plan which permits participation by substantially all employees. NOTE 7-Shareholders' Equity Changes in the components of shareholder's 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, 1995 $ - $1,372,000 $ 4,396,000 $ 8,457,000 Net earnings 9,196,000 Exercise of stock options 21,000 171,000 Tax benefit related to stock option plans 102,000 Balance at June 30, 1996 - 1,393,000 4,669,000 17,653,000 Net earnings 16,472,000 Issuance of common stock, net 288,000 (180,000) 16,252,000 Dividends on common stock, $.16 per share (2,429,000) Exercise of stock options 22,000 160,000 Conversion of Class A shares 6,000 (6,000) Balance at June 30, 1997 294,000 1,229,000 21,081,000 31,696,000 Net earnings 21,913,000 Dividends on common stock, $.32 per share (4,878,000) Exercise of stock options 2,000 28,000 Conversion of Class A shares 6,000 (6,000) Balance at June 30, 1998 $ 300,000 $1,225,000 $21,109,000 $48,731,000 Holders of Common Stock have one vote per share and holders of Class A Common Stock have ten votes per share. Shares of Class A Common Stock are convertible at any time into shares of Common Stock on a share for share basis at the option of the holder thereof. Dividends on Class A Common Stock cannot exceed dividends on Common Stock on a per share basis. Dividends on Common Stock may be paid at a higher rate than dividends on Class A Common Stock. The terms and conditions of each issue of Preferred Stock are determined by the Board of Directors. No Preferred shares have been issued.
The Company has adopted Rights Plans with respect to its Common Stock and Class A Common Stock which include the distribution of Rights to holders of such stock. The Rights entitle the holder, upon the occurrence of certain events, to purchase additional stock of the Company. The Rights are exercisable if a person, company or group acquires 10% or more of the outstanding combined equity of Common Stock and Class A Common Stock or engages in a tender offer. The Company is entitled to redeem each Right for one cent. On October 3, 1996, the Company completed its initial public offering. The Company issued 1,075,000 shares of the Company's Common Stock and received proceeds of approximately $16,360,000, net of issuance costs of approximately $1,913,000. The Company has two stock option plans pursuant to which the Company's Board of Directors may grant stock options to officers and key employees at not less than 100% of the fair market value at the date of the grant. Options granted under the 1991 Stock Option Plan are exercisable for Class A Common Stock while options granted under the 1996 Stock Option Plan are exercisable for Common Stock. The 1991 Stock Option Plan has been amended so that no additional options may be granted thereunder. The 1991 and 1996 stock options have 7 and 8 year terms, respectively, and generally vest equally over a period of 5 and 6 years from the date of grant, respectively. In all other material respects, the 1991 Stock Option Plan is structured the same as the 1996 Stock Option Plan. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. For disclosure purposes, the Company determined compensation cost for its stock options based upon the fair value at the grant date using the Black Scholes option-pricing model with the following assumptions: expected dividend yield - .46%, risk-free interest rate - 5.3%, an expected life of six years and volatility of 26%. Had compensation cost been recognized in accordance with SFAS No. 123, the Company's diluted earnings per share disclosed in the accompanying financial statements would be reduced by less than $.03 and $.01 per share in 1998 and 1997 respectively. Option activity was as follows: June 30 1998 1997 1996 Number of options: Outstanding at beginning of year 472,764 585,000 787,500 Granted 67,500 112,764 - Exercised (22,500) (225,000) (202,500) Outstanding at June 30 517,764 472,764 585,000 At June 30: Options available for grant 569,736 637,236 750,000 Options exercisable 131,000 22,500 90,000 Weighted Average Exercise Price Options granted $ 23.16 $ 17.13 - Options exercised $ 1.33 $ .81 $ .95 Options outstanding $ 6.75 $ 5.10 $ 1.13 Options exercisable $ 3.56 $ 1.33 $ .46 NOTE 8-Related Party Transactions In prior years, management services were provided to a company principally-owned by the majority shareholder. Management fees for the year ended June 30, 1996 were $122,000. In June 1996, the Company acquired for cash several tracts of undeveloped land comprising a total of 206 acres for $6,200,000 from a company wholly-owned by the majority shareholder. The purchase price was determined on the basis of an independent appraisal performed in 1996. During the years ended June 30, 1998, 1997 and 1996, the Company purchased certain paving, site work and construction services involving total payments of $374,971, $584,000 and $586,000 from a company wholly-owned by an employee/director. The Company purchased administrative services from Rollins Truck Leasing Corp. and affiliated companies in 1998, 1997 and 1996. The total cost of these services, which have been included in general and administrative expenses in the Consolidated Statement of Earnings, was $283,000, $178,000 and $36,000 in 1998, 1997 and 1996, respectively. In the opinion of management of the Company, the foregoing transactions were effected at rates which approximate those which the Company would have realized or incurred had such transactions been effected with independent third parties. NOTE 9-Business Segment Information The Company's operations are in motorsports and gaming. Revenues, operating earnings, identifiable assets, capital expenditures and depreciation pertaining to these business segments are presented below: Motorsports Gaming Consolidated Year ended June 30, 1998 Revenue $25,874,000 $115,071,000 $140,945,000 Operating earnings 12,506,000 24,447,000 36,953,000 Identifiable assets at year-end 57,739,000 38,038,000 95,777,000 Capital expenditures 6,085,000 1,419,000 7,504,000 Depreciation $ 1,237,000 $ 1,470,000 $ 2,707,000 Year ended June 30, 1997 Revenue $20,516,000 $ 81,162,000 $101,678,000 Operating earnings 11,079,000 16,891,000 27,970,000 Identifiable assets at year-end 34,801,000 36,460,000 71,261,000 Capital expenditures 9,496,000 7,345,000 16,841,000 Depreciation $ 981,000 $ 1,103,000 $ 2,084,000 Year ended June 30, 1996 Revenue $18,110,000 $ 31,980,000 $ 50,090,000 Operating earnings 10,040,000 5,809,000 15,849,000 Identifiable assets at year-end 26,489,000 15,822,000 42,311,000 Capital expenditures 10,119,000 8,817,000 18,936,000 Depreciation $ 952,000 $ 517,000 $ 1,469,000 NOTE 10-Commitments The Company leases the racetrack at the Tennessee State Fairgrounds pursuant to a lease expiring in 2007. Total rental expense charged to the Company is a function of the profitability of the Nashville operation and was $66,000 for the six months ended June 30, 1998. In May 1995, Dover Downs, Inc., a subsidiary of the Company, entered into a long-term management agreement with Caesars World Gaming Development Corporation (Caesars). The initial term of the agreement expires in December 1998 and Caesars has two additional three-year renewal options which Dover Downs may void if certain financial results are not achieved. Caesars acts as the exclusive agent to supervise, market, manage and operate the Company's video lottery operations. Caesars has been properly licensed by the Delaware State Lottery Office to perform these functions. Caesars' performance-based fee for such services was $7,093,882 in fiscal 1998, $5,184,908 in fiscal 1997 and $2,260,909 in fiscal 1996. Amounts due to Caesars at June 30, 1998 and 1997 totaled $1,246,064 and $431,464, respectively and are included in accrued liabilities. The Company has entered into several sanctioning agreements to conduct various motorsports events at Dover Downs International Speedway and Nashville Speedway, as well as newly acquired venues in Long Beach, California; Madison, Illinois and Millington, Tennessee. The Company has held NASCAR-sanctioned events for 30 consecutive years. Nonrenewal of a NASCAR event license would have a material adverse effect on the Company's financial condition and results of operations. NOTE 11-Subsequent Events - Grand Prix Association of Long Beach Acquisition On July 1, 1998, the Company completed its acquisition of Grand Prix Association of Long Beach (Grand Prix) through the merger of a wholly owned subsidiary of the Company with and into Grand Prix with Grand Prix surviving as a wholly owned subsidiary of the Company. Grand Prix developed and operates the Grand Prix of Long Beach, an annual temporary circuit event which has been run in the streets of Long Beach, California for 25 years, and owns permanent motorsports facilities in Madison, Illinois (near St. Louis, Missouri) and in Millington, Tennessee (near Memphis, Tennessee). The purchase price was comprised of the conversion of the outstanding Grand Prix common stock into 2,510,700 shares of the Company's stock and assumption by the Company of the outstanding stock options of Grand Prix. On March 27, 1998, the Company acquired 680,000 shares of Grand Prix common stock at $15.50 per share in cash pursuant to two separate stock purchase agreements, at which time the Company owned approximately 14.6 % of the outstanding Grand Prix common stock. The cost of these purchases was recorded as a long-term investment at June 30, 1998. The acquisition qualified as a tax free exchange and was accounted for using the purchase method of accounting for business combinations. NOTE 12-Quarterly Results (unaudited) September 30 December 31 March 31 June 30 1998 Revenues $38,821 $25,962 $31,735 $44,427 Gross profit 14,301 5,236 6,649 15,177 Net earnings 7,833 2,518 3,295 8,267 Earnings per common share (diluted) $ .50 $ .16 $ .21 $ .53 1997 Revenues $27,226 $17,246 $21,684 $35,522 Gross profit 10,624 2,836 4,548 13,027 Net earnings 5,659 1,291 2,322 7,200 Earnings per common share (diluted) $ .39 $ .08 $ .15 $ .46 Exhibit 21.1 DOVER DOWNS ENTERTAINMENT, INC. Subsidiaries of Registrant at June 30, 1998 Dover Downs, Inc. Dover Downs International Speedway, Inc. Dover Downs Properties, Inc. Nashville Speedway USA, Inc. Exhibit 23 The Board of Directors and Shareholders Dover Downs Entertainment, Inc. We consent to the incorporation by reference in the registration statement (No. 333-8147) on Form S-3 of Dover Downs Entertainment, Inc. of our report dated July 17, 1998 relating to the consolidated balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended June 30, 1998, which report appears in the June 30, 1998 annual report on Form 10-K of Dover Downs Entertainment, Inc. KPMG Peat Marwick LLP Philadelphia, Pennsylvania August 28, 1998 EX-3 2 CERTIFICATE OF AMENDMENT Exhibit 3.3 OF CERTIFICATE OF INCORPORATION OF DOVER DOWNS ENTERTAINMENT, INC. IT IS HEREBY CERTIFIED THAT: 1. The name of the Corporation is DOVER DOWNS ENTERTAINMENT, INC. (hereinafter, the "Corporation"). 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out paragraph (a) of Article FOURTH in its entirety and substituting in lieu of said paragraph (a) the following new paragraph (a): "FOURTH: (a) Authorized Capital Stock. The total number of shares of stock which the Corporation shall have the authority to issue is 131,000,000 shares, consisting of: 75,000,000 shares of Common Stock, which shares shall have a par value of $.10 per share; 55,000,000 shares of Class A Common Stock, which shares shall have a par value of $.10 per share; and 1,000,000 shares of Preferred Stock, which shares shall have a par value of $.10 per share." 3. The Certificate of Incorporation of the Corporation is hereby further amended by striking out Article SEVENTH in its entirety and substituting in lieu of said Article SEVENTH, the following new Article SEVENTH: "SEVENTH: The property and business of this corporation shall be managed by a Board of up to ten directors. The directors shall be divided into three classes. The first class (Class I) shall consist of four (4) directors and the term of office of such class shall expire at the Annual Meeting of Stockholders in 2000. The second class (Class II) shall consist of three (3) directors and the term of office of such class shall expire at the Annual Meeting of Stockholders in 1998. The third class (Class III) shall consist of three (3) directors and the term of office of such class shall expire at the Annual Meeting of Stockholders in 1999. At each annual election, commencing at the next Annual Meeting of Stockholders in 1998, the successors of the class of directors whose term expires at that time shall be elected to hold office for the term of three years to succeed those whose term expires, so that the term of office of one class of directors shall expire in each year. Each director shall hold office for the term for which he is elected or appointed or until his successor shall be elected and qualified, or until his death or until he shall resign. Directors need not be stockholders nor residents of the State of Delaware. Notwithstanding any of the provisions of this Certificate of Incorporation or the by-laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the by-laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time, but only for cause, and only at a meeting of the stockholders called for that purpose by the affirmative vote of the holders of 75% or more of the shares of the Corporation entitled to vote at an election of directors. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the secretary of the Corporation not less than 14 days nor more than 60 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of business on the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded." 4. This Certificate of Amendment to Certificate of Incorporation as herein certified has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. 5. The effective time of this Certificate of Amendment to Certificate of Incorporation shall be upon filing. IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of Incorporation is executed this 30th day of June, 1998. Dover Downs Entertainment, Inc. BY: /s/ Denis McGlynn Denis McGlynn, President and Chief Executive Officer EX-27 3
5 12-MOS JUN-30-1998 JUN-30-1998 18,694 10,540 4,917 0 310 26,568 74,231 18,456 95,777 22,959 741 0 0 1,525 69,840 95,777 140,945 140,945 0 99,582 0 0 (702) 37,655 15,742 21,913 0 0 0 21,913 1.44 1.40
EX-10 4 Exhibit 10.6 Amendment to Loan Documents PNC Bank THIS AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is made as of January 30, 1998, by and between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation (the "Borrower"), and PNC BANK, DELAWARE (the "Bank"). WITNESSETH: WHEREAS, the Borrower has executed and delivered to the Bank, a $20,000,000.00 committed line of credit promissory note dated January 31, 1997 (the "Note") which is governed by a credit agreement dated January 31, 1997 (the "Credit Agreement"), and irrevocable and unconditional guaranty and suretyship agreements dated January 31, 1997, under which Dover Downs, Inc., a Delaware corporation; Dover Downs International Speedway, Inc., a Delaware corporation; and Dover Downs Properties, Inc., a Delaware corporation (together, the "Guarantys") guaranty the payment and performance of all indebtedness of the Borrower (collectively, the "Loan Documents") which evidence or secure the $20,000,000.00 committed line of credit to the Borrower from the Bank, as the Loan Documents may be amended, modified or extended from time to time (the "Obligation"); and WHEREAS, the Borrower has acquired Nashville Speedway USA, Inc., a Tennessee corporation, and such corporation has agreed to guaranty the Obligation of the Borrower; and WHEREAS, Nashville Speedway USA, Inc.; Dover Downs, Inc.; Dover Downs International Speedway, Inc.; and Dover Downs Properties, Inc. (together, the "Guarantors") have agreed to execute and deliver to the Bank a new guaranty and suretyship agreement in form and content satisfactory to the Bank under which the Guarantors shall guaranty the due and punctual payment of all indebtedness of the Borrower, including without limitation the Obligation; and WHEREAS, the Borrower has requested the Bank to extend the Expiration Date of the Obligation; and WHEREAS, the Borrower and the Bank desire to amend the Loan Documents as provided for below; NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows: 1. Each of the Loan Documents is amended as set forth in Exhibit A. Any and all references to any Loan Document in any other Loan Document shall be deemed to refer to such Loan Document as amended hereby. Any initially capitalized terms used in this Amendment without definition shall have the meanings assigned to those terms in the Loan Documents. 2. This Amendment is deemed incorporated into each of the Loan Documents. To the extent that any term or provision of this Amendment is or may be deemed expressly inconsistent with any term or provision in any Loan Document, the terms and provisions hereof shall control. 3. The Borrower hereby represents and warrants that (a) all of its representations and warranties in the Loan Documents are true and correct, (b) no default or Event of Default exists under any Loan Document, and (c) this Amendment has been duly authorized, executed and delivered and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 4. This Amendment may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. 5. This Amendment will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, successors and assigns. 6. Except as amended hereby, the terms and provisions of the Loan Documents remain unchanged and in full force and effect. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any default or Event of Default thereunder, or a waiver or release of any of the Bank's rights and remedies (all of which are hereby reserved). The Borrower expressly ratifies and confirms the confession of judgment and waiver of jury trial provisions. WITNESS the due execution hereof as a document under seal, as of the date first written above. WITNESS / ATTEST: DOVER DOWNS ENTERTAINMENT, INC. _______________________________ By:____________________________ (SEAL) Denis McGlynn President _______________________________ By:____________________________ (SEAL) Robert M. Comollo Treasurer PNC BANK, DELAWARE By:_____________________________ (SEAL) Print Name: Paul L. Frick Title: Assistant Vice President EXHIBIT A The Loan Documents are hereby amended as follows: 1. Section 2 of the Note titled "Advances" is hereby amended by changing the Expiration Date from January 29, 1998, to January 29, 1999. 2. The Credit Agreement is hereby amended as follows: A. Recital 2 on the first page of the Credit Agreement is amended by inserting "Nashville Speedway USA, Inc., a Tennessee corporation" into the list of operating companies referred to as the "Affiliated Companies" in the Credit Agreement. B. Recital 3 on the first page of the Credit Agreement is amended by adding the following subsection (iv): "(iv) Nashville Speedway USA, Inc., a Tennessee corporation, is a fully-owned subsidiary of the Borrower located in Nashville, Tennessee." C. Section A subsection 1 titled "Type of Facility and Use of Proceeds" on the first page of the Credit Agreement is amended by changing the Expiration Date from January 29, 1998, to January 29, 1999. D. The Addendum to Credit Agreement is hereby amended by adding "Nashville Speedway USA, Inc." to the list of Affiliated Companies under the section titled "Directors, Executive Officers, and other Senior Officers:". EX-10 5 GUARANTY AND SURETYSHIP AGREEMENT Exhibit 10.5 with POWER TO CONFESS JUDGMENT In consideration of the extension of credit by PNC BANK, DELAWARE (the "Bank"), with an address at 222 Delaware Avenue, Wilmington, Delaware 19801 to DOVER DOWNS ENTERTAINMENT, INC., (the "Borrower"), and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, DOVER DOWNS, INC., DOVER DOWNS INTERNATIONAL SPEEDWAY, INC., DOVER DOWNS PROPERTIES, INC., and NASHVILLE SPEEDWAY U.S.A., INC. (individually and collectively, the "Guarantor"), with an address at 1131 N. duPont Highway, Dover, Delaware 19901 hereby guarantees, and becomes surety for, the prompt payment of all types of indebtedness, liabilities and obligations of the Borrower to the Bank of every kind and description, direct or indirect, absolute or contingent, joint or several, whether as drawer, maker, endorser, guarantor, surety, pursuant to letter of credit obligations or otherwise, whether due or to become due, and whether now existing or hereinafter arising or contracted, plus interest thereon, and all costs and expenses incurred by the Bank in the collection thereof (hereinafter collectively referred to as the "Obligations"). If the Borrower defaults in the payment of any such Obligations, the Guarantor will pay the amount due to the Bank. 1. Nature of Guaranty; Waivers. This is a guaranty of payment and not of collection and the Bank shall not be required, as a condition of the liability of the Guarantor, to make any demand upon, or to pursue any of its rights against, the Borrower, or to pursue any rights which may be available to it with respect to any other person who may be liable for the payment of the Obligations. This is an absolute, unconditional, irrevocable and continuing guaranty and will remain in full force and effect until all of the Obligations have been indefeasibly paid in full. This Guaranty will extend to and cover any and all amendments, extensions, supplements, substitutions and renewals of the Obligations and any number of extensions of time for payment thereof and will not be affected by any surrender, exchange, acceptance, compromise or release by the Bank of any other party, or any other guaranty or any security held by it for any of the Obligations, by any delay or omission of the Bank in exercising any right or power with respect to any of the Obligations or any guaranty or collateral held by it for any of the Obligations or this Guaranty, by any failure of the Bank to take any steps to perfect or maintain its lien or security interest in or to preserve its rights to any security or other collateral for any of the Obligations or any guaranty, or by any irregularity, unenforceability or invalidity of any of the Obligations or any part thereof or any security or other guaranty thereof. Notice of acceptance of this Guaranty, notice of extensions of credit to the Borrower from time to time, notice of default, diligence, presentment, protest, demand for payment, notice of demand or protest, and any defense based upon a failure of the Bank to comply with the notice requirements of the applicable version of Uniform Commercial Code Section 9-504 are hereby waived. The Bank at any time and from time to time, without notice to or the consent of the Guarantor, and without impairing or releasing, discharging or modifying the liabilities of the Guarantor hereunder, may (a) change the manner, place or terms of payment or performance of or interest rates on, or change or extend the time of payment or performance of, or other terms relating to any of the Obligations; (b) renew, substitute, modify, amend or alter, or grant consents or waivers relating to any of the Obligations, any other guaranties, or any security for any Obligations or guaranties; (c) apply any and all payments by whomever paid or however realized including any proceeds of any collateral, to any Obligations of the Borrower in such order, manner and amount as the Bank may determine in its sole discretion; (d) deal with any other person with respect to any Obligations in such manner as the Bank deems appropriate in its sole discretion; and/or (e) substitute, exchange or release any security or guaranty. Irrespective of the taking or refraining from taking of any action concerning the Obligations, the obligations of the Guarantor shall remain in full force and effect and shall not be affected, impaired, discharged or released in any manner. The Bank in its sole discretion may determine the reasonableness of the period which may elapse prior to the making of demand for any payment upon the Borrower. 2. Repayments or Recovery from the Bank. If any demand is made at any time upon the Bank for the repayment or recovery of any amount or amounts received by it in payment or on account of any of the Obligations and if the Bank repays all or any part of such amount or amounts by reason of any judgment, decree or order of any court or administrative body or by reason of any settlement or compromise of any such demand, the Guarantor will be and remain liable hereunder for the amount or amounts so repaid or recovered to the same extent as if such amount or amounts had never been received originally by the Bank. The provisions of this section will be and remain effective notwithstanding any contrary action which may have been taken by the Guarantor in reliance upon such payment, and any such contrary action so taken will be without prejudice to the Bank's rights under this Guaranty and will be deemed to have been conditioned upon such payment having become final and irrevocable. 3. Bankruptcy, etc. It is specifically understood that any modification, limitation or discharge of the Obligations arising out of or by virtue of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law will not affect, modify, limit or discharge the liability of the Guarantor in any manner whatsoever and this Guaranty will remain and continue in full force and effect and will be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted. The Guarantor waives all rights and benefits which might accrue to it by reason of any such proceeding and will be liable to the full extent hereunder, irrespective of any modification, limitation or discharge of the liability of the Borrower that may result from any such proceeding. 4. Events of Default. In the event of the occurrence of any of the following events of default (each an "Event of Default"): (i) any Event of Default (as defined in any of the Obligations) and the lapse of any notice or cure period provided in the Obligations with respect to such Event of Default; (ii) any default under any of the Obligations that does not have a defined set of "Events of Default" and the lapse of any notice or cure period provided in such Obligations with respect to such default; (iii) [omitted intentionally]; (iv) the failure by the Guarantor to perform any of its obligations hereunder; (v) the falsity, inaccuracy or material breach by the Guarantor of any written warranty, representation or statement made or furnished to the Bank by or on behalf of the Guarantor; or (vi) the termination or attempted termination of this Guaranty, then the Guarantor will, on the demand of the Bank, immediately deposit with the Bank in U.S. dollars all amounts due or to become due under the Obligations and the Bank will use such funds to repay the Obligations. Such amounts will be paid by the Guarantor to the Bank without presentment, demand, protest or notice of any kind, which are hereby expressly waived. The rights and remedies of the Bank, after the occurrence of any such Event of Default, will include but not be limited to the right of the Bank at any time after such occurrence, without notice, to set off against the Obligations the amount of any or all deposits of the Guarantor with the Bank. In addition, upon any such occurrence, the Bank in its discretion may exercise with respect to the collateral any one or more of the rights and remedies provided a secured party under the applicable version of the Uniform Commercial Code. 5. Costs. To the extent that the Bank incurs any costs or expenses in protecting or enforcing its rights under the Obligations or this Guaranty, including but not limited to reasonable attorneys' fees and the costs and expenses of litigation, such costs and expenses will be due on demand, will be included in the Obligations and will bear interest from the incurring or payment thereof at the Default Rate (as defined in any of the Obligations). 6. Power to Confess Judgment. The Guarantor hereby empowers any attorney of any court of record, after the occurrence of any Event of Default hereunder, to appear for the Guarantor and confess judgment, or a series of judgments, against the Guarantor in favor of the Bank or any holder hereof for the entire principal balance of the Obligations and all accrued interest, together with costs of suit and an attorney's commission of $2,500.00 added as a reasonable attorney's fee, and for doing so this Guaranty or a copy verified by affidavit shall be a sufficient warrant. No single exercise of the foregoing power to confess judgment, or a series of judgments, shall be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, but the power shall continue undiminished and it may be exercised from time to time as often as the Bank shall elect until such time as the Bank shall have received payment in full of the Obligations and costs. 7. Indemnification. In addition to the Obligations, the Guarantor will indemnify, defend and hold harmless the Bank, its directors, officers, counsel and employees, from and against all claims, demands, liabilities, judgments, losses, damages, costs and expenses, joint or several (including all accounting fees and attorneys' fees reasonably incurred), that any such indemnified party may incur arising under or by reason of this Guaranty or any act hereunder or with respect hereto or thereto except as a result of the willful misconduct or negligence of such indemnified party. The provisions of this section and the section captioned "Repayments or Recovery from the Bank" of this Guaranty will survive the termination of this Guaranty. 8. Notices. All notices, demands, requests, consents or approvals and other communications required or permitted hereunder must be in writing and will be deemed effective upon receipt if delivered personally to such party, sent by U.S. mail, postage prepaid, or sent by nationally recognized overnight courier service, at the address set forth above or to such other address as any party may give to the other in writing for such purpose. 9. Waiver. No delay or omission on the part of the Bank to exercise any right or power arising from any Event of Default will impair any such right or power or be considered a waiver of any such right or power or a waiver of any such Event of Default or an acquiescence therein nor will the action or non-action of the Bank in case of such default impair any right or power arising as a result thereof. 10. Illegality. In case any one or more of the provisions contained in this Guaranty should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 11. Successors and Assigns. This Guaranty will be binding upon and inure to the benefit of the Guarantor and the Bank and their respective successors and assigns, provided, however, that the Guarantor may not assign this Guaranty in whole or in part without the prior written consent of the Bank and the Bank at any time may assign this Guaranty in whole or in part. 12. Changes in Writing. No modification, amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom, will in any event be effective unless the same is in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantor in any case will entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance. 13. Entire Agreement. This Guaranty (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 14. Gender, etc. Whenever used herein, the singular number will include the plural, the plural the singular and the use of the masculine, feminine or neuter gender will include all genders. If more than one party signs below as the Guarantor, such parties shall be jointly and severally liable hereunder. 15. Liability of the Bank. The Guarantor hereby agrees that the Bank will not be chargeable for any mistake, act or omission of any employee, accountant, examiner, agent or attorney employed by the Bank (except for the willful misconduct, or gross negligence of any person, corporation, partnership or other entity employed by the Bank) in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. 16. Governing Law and Jurisdiction. This Guaranty has been delivered to and accepted by the Bank and will be deemed to be made in the State of Delaware. This Guaranty will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Delaware, except conflict of laws rules. The Guarantor hereby agrees to the jurisdiction of any state or federal court located within the State of Delaware, and consents that all service of process sent by nationally recognized overnight courier service directed to undersigned at the undersigned's address set forth herein for notices and service so made will be deemed to be completed on the date of actual delivery to the Guarantor. Nothing contained herein will prevent the Bank from bringing any action or exercising any rights against any security or against the Borrower individually, or against any property of the Borrower within any other state or nation to enforce any award or judgment obtained in the venue provided above, or such other venue as the Bank chooses. The Guarantor waives any objection to venue and any objection based on a more convenient forum in any action instituted hereunder. 17. NO JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS GUARANTY, OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS AND THE GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. The Guarantor acknowledges that it has read and understood all the provisions of this Guaranty, including the confession of judgment and waiver of jury trial, and has been advised by counsel as necessary or appropriate. WITNESS the due execution and sealing hereof with the intent of being legally bound effective as of , 1998. ATTEST/WITNESS: DOVER DOWNS, INC. ______________________________ By:__________________________(SEAL) Denis McGlynn President ______________________________ By:__________________________(SEAL) Robert M. Comollo Treasurer DOVER DOWNS INTERNATIONAL SPEEDWAY, INC. ______________________________ By:__________________________(SEAL) Denis McGlynn President ______________________________ By:__________________________(SEAL) Robert M. Comollo Treasurer DOVER DOWNS PROPERTIES, INC. ______________________________ By:__________________________(SEAL) Denis McGlynn President ______________________________ By:__________________________(SEAL) Robert M. Comollo Treasurer NASHVILLE SPEEDWAY U.S.A., INC. ______________________________ By:__________________________(SEAL) Denis McGlynn President ______________________________ By:__________________________(SEAL) Robert M. Comollo Treasurer EX-3 6 BY-LAWS Exhibit 3.4 OF DOVER DOWNS ENTERTAINMENT, INC. ------------------------------------------------------------------ ARTICLE I The Corporation Section 1.1 Name. The title of this Corporation is Dover Downs Entertainment, Inc. Section 1.2 Office. The registered office of this Corporation shall be located at P. O. Box 843, Dover, Delaware, or at such other place as the Board of Directors may designate in accordance with Section 133 of the Delaware Corporation Law. Section 1.3 Seal. The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the year of its creation (1994) and the words "Incorporated Delaware". ARTICLE II Stockholders Section 2.1 Annual Meeting. The annual meeting of stockholders shall be held at such place within or without the State of Delaware as the Board of Directors from time to time determine. A majority of the amount of the stock issued and outstanding and entitled to vote shall constitute a quorum for the transaction of all business, except as otherwise provided by law, the charter of the corporation or these by-laws. Each stockholder of Common Stock shall be entitled to one vote and each stockholder of Class A Common Stock shall be entitled to ten votes, either in person or by proxy, for each share of stock standing registered in his or her name on the books of the Corporation on the record date selected by the Board of Directors in accordance with these by-laws, unless different voting is, by law or by the terms of the instrument creating special or preferred shares, conferred upon the holders thereof. Notice of the annual meeting shall be mailed by the Secretary to each stockholder at his or her last known post office address no less than ten days and no more than sixty days prior thereto. Section 2.2 Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee or the President and not by any other person. Section 2.3 Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 2.4 Adjournments. Any meeting of the stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.5 Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.4 of these by-laws until a quorum shall attend. Section 2.6 Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.7 Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock of Common Stock and ten votes for each share of Class A Common Stock held by such shareholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the certificate of incorporation or these by-laws) the Board of Directors may require a larger vote upon any election or question. Section 2.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion of exchange or stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 2.10 Action by Consent Of Stockholders. Unless prohibited by law or the rules and regulations of any national securities exchange on which securities of the Corporation are listed, action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and stockholders shall have the power to consent in writing, without a meeting, to the taking of any action. ARTICLE III Board of Directors Section 3.1 Number; Qualifications. The Board of Directors shall consist up to ten members. Directors need not be stockholders. Section 3.2 Election; Resignation; Removal; Vacancies. At each annual meeting of stockholders, the stockholders shall elect Directors to replace those Directors whose terms then expire. Any Director may resign at any time upon written notice to the Corporation. Stockholders may remove Directors only for cause. Any vacancy occurring in the Board of Directors for any cause may be filled only by the Board of Directors, acting by vote of a majority of the Directors then in office, although less than quorum. Each Director so elected shall hold office until the expiration of the term of office of the Director whom he has replaced. Section 3.3 Notice Of Nomination Of Directors. Nominations for the election of directors may be made by the Chairman acting on behalf of the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than fourteen days nor more than sixty days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than twenty-one days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.4 Non-Discrimination Statement. Consistent with the Corporation's equal employment opportunity policy, nominations for the election of directors shall be made by the Board of Directors and accepted from stockholders in a manner consistent with these By-Laws and without regard to the nominee's race, color, ethnicity, religion, sex, age, national origin, veteran status, handicap or disability. Section 3.5 Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 3.6 Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee, or by the President. Reasonable notice thereof shall be given by the person calling the meeting, not later than the second day before the date of the special meeting. Section 3.7 Telephonic Meetings Permitted. Members of the Board of Directors, or any committee designated by the Board, may participate in any meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 3.8 Quorum; Vote Required For Action; Informal Action. At all meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.9 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as a secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.10 Compensation Of Directors. The Directors and members of standing committees shall receive such fees or salaries as fixed by resolution of the Executive Committee and in addition will receive expenses in connection with attendance or participation in each regular or special meeting. ARTICLE IV Committees Section 4.1 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the certificate of incorporation of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange or all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these by-laws. The Board of Directors shall, at the annual organization meeting thereof, elect an Executive Committee which shall consist of not more than four members, all of whom shall be members of the Board of Directors. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation to the fullest extent permitted by law (as presently allowed under Section 141 (c) to the Delaware General Corporation Law as revised effective July 1, 1996, and as may be allowed in the future pursuant to amendments or revisions to applicable law). Section 4.2 Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these by-laws. ARTICLE V Officers Section 5.1 Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The officers of the Corporation shall consist of a Chairman, Vice Chairmen, President, Vice Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other officers as may from time to time be elected or appointed by the Board of Directors. The President shall be elected from the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person, except that the offices of President and Chairman of the Board shall be separate. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. In the absence of any officer, the Board of Directors may delegate his power and duties to any other officer or to any director for the time being. Section 5.2 President. The President shall be the Chief Executive Officer of the Corporation, shall execute in the name of the Corporation all contracts and agreements authorized by the Board or the Executive Committee, and shall affix the seal to any instrument requiring the same, which shall always be attested by the signature of the President, the Vice President or the Secretary or any Assistant Secretary or the Treasurer. He may sign certificates of stock; he shall have general supervision and direction of all the other officers of the Corporation; he shall submit a complete report of the operations and condition of the Corporation for the year to the Chairman and to the directors at their regular meetings, and from time to time shall report to the directors all matters which the interest of the Corporation may require to be brought to their notice. He shall have the general powers and duties usually vested in the office of a President of a corporation. Section 5.3 Vice President - Finance. The Vice President - Finance shall be the Chief Accounting and Chief Financial Officer of the Corporation and shall be responsible to the Board of Directors, the Executive Committee and the President for all financial control and internal audit of the Corporation and its subsidiaries. He shall perform such other duties as may be assigned to him by the Board of Directors, the Executive Committee or the President. Section 5.4 Vice Presidents. The Vice Presidents elected or appointed by the Board of Directors shall perform such duties and exercise such powers as may be assigned to them from time to time by the Board of Directors, the Executive Committee or the President. In the absence or disability of the President, the Vice President designated by the Board of Directors, the Executive Committee, or the President shall perform the duties and exercise the powers of the President. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. Section 5.5 Secretary. The Secretary shall be ex-officio Secretary of the Board of Directors and of the standing committees. He shall attend all sessions of the Board, act as clerk thereof, record all votes and keep the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for the standing committees when required. He shall see that the proper notices are given of all meetings of stockholders and directors, and perform such other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee, the Chairman or the President, and shall be sworn to the faithful discharge of his duties. He shall keep the accounts of stock registered and transferred in such form and manner and under such regulations as the Board of Directors or Executive Committee may prescribe. Section 5.6 Treasurer. The Treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or Executive Committee. He shall disburse the funds of the Corporation as may be ordered by the Board, the Executive Committee or the President, taking proper vouchers therefor, and shall render to the President and the Executive Committee and Directors, whenever they may require it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and at the annual organization meeting of the Board a like report for the preceding year. Section 5.7 General Counsel. The General Counsel shall be the legal adviser of the Corporation and shall perform such services as the Chairman, President, Board of Directors or Executive Committee may require. ARTICLE VI Stock Section 6.1 Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VII Indemnification Section 7.1. General. The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest extent permitted by applicable law in effect on the adoption of these By-Laws, and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Article. Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.3 to the fullest extent permitted by law if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company. Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or Partly Successful. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7.6. Advancement Of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 7.7. Procedure For Determination Of Entitlement To Indemnification. (a) To obtain indemnification under this Article, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The determination of Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Company of the written request for indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Indemnitee's entitlement to indemnification under any of Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the Board of Directors by a majority vote of a quorum of the Board consisting of Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel (as hereinafter defined), in a written opinion, if (A) a Change of Control (as hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs; or (iii) by the stockholders of the Company; or (iv) as provided in Section 7.8 of this Article. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the Independent Counsel shall be selected as provided in this Section 7.7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, and if so requested by Indemnitee in his written request for indemnification, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 7.13 of this Article, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected shall be disqualified from acting as such. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this Section 7.7(c), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in acting pursuant to Section 7.7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7.7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Section 7.8. Presumptions And Effect Of Certain Proceedings. If a Change of Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request for indemnification in accordance with Section 7.7(a) of this Article, and thereafter the Company shall have the burden of proof to overcome that presumption in reaching a determination contrary to that presumption. Whether or not a Change of Control shall have occurred, if the person or persons empowered under Section 7.7 of this Article to determine entitlement to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 7.9. Remedies Of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification under this Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6 of this Article, or (iii) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7.9 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7.9, unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article. (e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 7.13 of this Article) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of indemnification and to receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. Notwithstanding any amendment, alteration or repeal of any provision of this Article, Indemnitee shall, unless otherwise prohibited by law, have the rights of indemnification and to receive advancement of Expenses as provided by this Article in respect of any action taken or omitted by Indemnitee in his Corporate Status and in respect of any claim asserted in respect thereof at any time when such provision of this Article was in effect. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators. Section 7.11. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 7.12. Certain Persons Not Entitled To Indemnification Or Advancement Of Expenses. Notwithstanding any other provision of this Article, no person shall be entitled to indemnification or advancement of Expenses under this Article with respect to any Proceeding, or any claim therein, brought or made by him against the Company. Section 7.13. Definitions. For purposes of this Article: (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Article. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 7.9 of this Article to enforce his rights under this Article. Section 7.14. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. ARTICLE VIII Miscellaneous Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors, And Committees. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 8.3 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.4 Form Of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.5 Amendment Of By-Laws. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation by a vote of a majority of the entire Board. The stockholders may make, alter or repeal any by-law whether or not adopted by them, provided however, that any such additional by-laws, alterations or repeal may be adopted only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class), unless such additional by-laws, alterations or repeal shall have been recommended to the stockholders for adoption by a majority of the Board of Directors, in which event such additional by-laws, alterations or repeal may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Section 8.6 Restrictive Gaming Legend. All certificates issued for Shares of the $.10 par value Common Stock of the Corporation shall bear the following legend: "Any and all shares of Common Stock of the Corporation are held subject to the condition that if (a) any regulatory authority should request, determine or otherwise advise that the holder or owner is disqualified, or unsuitable, must qualify for or obtain a license, or must submit an application and satisfy a review process, including background checks, in order for the Corporation or any subsidiary to obtain or retain a license or a relicense, or otherwise avoid significant penalties or business disadvantage, and (b) such holder or owner shall fail to submit to qualification within fifteen (15) days following such request, determination or advice, or fail to be found qualified or suitable, then (c) such holder or owner, at the request of the Corporation or the appropriate regulatory authority, shall promptly dispose of such holder's or owner's interest in the Corporation's Common Stock and shall be subject to any order of such regulatory body limiting such holder's or owner's rights pending such disposition. Without limiting the foregoing, any holder or owner that intends to acquire, directly or indirectly, ten percent (10%) or more of the outstanding common stock of the Corporation (regardless of class or series) shall first notify the Corporation and obtain prior written approval from the Delaware State Lottery Office. Since money damages are inadequate to protect the Corporation, it shall be entitled to injunctive relief to enforce the foregoing provision." Section 8.7 Restrictions on Transfer of Class A Common Stock. (a) Restriction. Shares of the Company's Class A Common Stock (the "Shares") may be sold, transferred or disposed of only in accordance with the following: (i) Shares may be sold or transferred to any other holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; or (ii) Shares may be sold, transferred or pass by intestacy, will or inheritance to: (A) one or more members of the immediate family of a holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; (B) a corporation all of the shares of which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; (C) a trust all of the beneficial interests of which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; or (D) a general or limited partnership all of the partnership interests in which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws. (b) Family Member Defined. For purposes of clause (a)(ii) above, "members of the immediate family" shall be limited to any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. (c) Evidence of Compliance. Prior to any sale, transfer or disposition of Shares, the holder may be required, at the option of the Company, to furnish appropriate evidence of compliance with these Bylaws, including but not limited to an opinion of counsel. (d) Conversion. Shares may be converted to shares of the Company's Common Stock and sold, transferred or disposed of without regard to the limitations set forth in clause (a) above. (e) Pledge. The bona fide pledge of Shares as collateral security for indebtedness to the pledgee shall not be deemed to violate clause (a) above, provided that the pledgee provides to the Company a written undertaking not to sell, transfer or dispose of the Shares in violation of these Bylaws. (f) Legend. All certificates evidencing the Shares (and replacement certificates issued in their stead) shall be inscribed with the following legend (in addition to any other legends required hereunder or under federal or state securities laws): "The Shares of Class A Common Stock represented by this certificate may be sold, transferred or otherwise disposed of only in accordance with the terms and conditions set forth in the Company's Bylaws, which terms and conditions restrict, and in some instances prohibit, the transfer or other disposition of such Shares and which terms and conditions may only be amended by shareholders owning 75% or more of the outstanding shares of Class A Common Stock. The terms and conditions set forth in the Company's Bylaws are incorporated herein by reference and copies thereof are available for inspection or will be mailed by the Company to any holder without charge within five days after the Company's receipt of a written request therefor." (g) Vote Required to Amend. This Section 8.7 may only be amended by shareholders owning 75% or more of the outstanding Shares. (h) Injunctive Relief. Since money damages would be inadequate, the Company or any holder of Shares shall be entitled to injunctive relief to enforce this Section 8.7. EX-27.1 7
5 1,000 3-MOS JUL-31-1997 OCT-31-1996 13,964 0 4,532 0 343 19,488 55,932 14,347 61,073 13,479 766 0 0 1,513 44,789 61,073 26,204 26,204 0 16,325 0 0 83 9,129 3,759 0 0 0 0 5,287 .37 .36
EX-27.2 8
5 1,000 6-MOS JUL-31-1997 JAN-31-1997 11,378 0 5,040 0 425 17,943 58,387 14,878 61,452 13,586 761 0 0 1,513 45,040 61,452 44,414 44,414 0 31,266 0 0 (47) 11,789 4,879 0 0 0 0 6,910 .47 .46
EX-27.3 9
5 1,000 9-MOS JUL-31-1997 APR-30-1997 13,731 0 3,128 0 435 18,911 64,624 15,437 68,098 18,789 757 0 0 1,523 46,543 68,098 68,146 68,146 0 49,928 0 0 (165) 16,194 6,739 0 0 0 0 9,455 .64 .62
EX-27.4 10
5 1,000 12-MOS JUN-30-1997 JUN-30-1997 15,503 0 3,596 0 402 20,400 66,688 15,827 71,261 15,595 760 0 0 1,523 52,777 71,261 101,678 101,678 0 70,643 0 0 (269) 28,239 11,767 16,472 0 0 0 16,472 1.11 1.08
EX-27.5 11
5 1,000 3-MOS JUN-30-1998 SEP-30-1997 20,702 0 7,912 0 379 29,878 67,392 16,445 80,825 18,454 755 0 0 1,525 59,421 80,825 38,821 38,821 0 24,520 0 0 (156) 13,390 5,557 0 0 0 0 7,833 .51 .50
-----END PRIVACY-ENHANCED MESSAGE-----