-----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, RTTbRLUSMPkBqQ2Nj6ik3K8RoVrKa6o90abU7m3aGXXTyGl/Z1o53fdAmtjqFvXm x3CMqfld/zL81TPPlueQWQ== 0001021408-02-006588.txt : 20020510 0001021408-02-006588.hdr.sgml : 20020510 ACCESSION NUMBER: 0001021408-02-006588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOVER MOTORSPORTS INC CENTRAL INDEX KEY: 0001017673 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 510357525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11929 FILM NUMBER: 02642343 BUSINESS ADDRESS: STREET 1: 1131 N DUPONT HIGHWAY CITY: DOVER STATE: DE ZIP: 19901 BUSINESS PHONE: 3027644600 MAIL ADDRESS: STREET 1: 2200 CONCORD PIKE STREET 2: P O BOX 843 CITY: WILMINGTON STATE: DE ZIP: 19803 FORMER COMPANY: FORMER CONFORMED NAME: DOVER DOWNS ENTERTAINMENT INC DATE OF NAME CHANGE: 19960627 10-Q 1 d10q.txt FORM 10-Q ________________________________________________________________________________ United States Securities and Exchange Commission Washington, D.C. 20549 ________________________________________________________________________________ Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 Commission file number 1-11929 ------------------------------ Dover Motorsports, Inc. (Exact name of registrant as specified in its charter) Delaware 51-0357525 (State or Other Jurisdiction (I.R.S. Employer of Incorporation) Identification Number) 1131 North DuPont Highway, Dover, Delaware 19901 (Address of principal executive offices) (302) 674-4600 (Registrant's telephone number, including area code) Dover Downs Entertainment, Inc. (Former name, former address and former fiscal year, if changed since last report) 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 [_] As of April 30, 2002, the number of shares of each class of the Registrant's common stock outstanding is as follows: Common Stock - 14,284,252 shares Class A Common Stock - 23,769,085 shares 1 Part I - Financial Information Item 1. Financial Statements DOVER MOTORSPORTS, INC. CONSOLIDATED STATEMENT OF EARNINGS In Thousands, Except Per Share Amounts (Unaudited)
Three Months Ended March 31, ---------------------------- 2002 2001 ------- ------- Revenues ............................................................................ $ 996 $ 1,076 Expenses: Operating ....................................................................... 2,193 1,986 Depreciation and amortization ................................................... 2,357 2,042 General and administrative ...................................................... 3,511 2,707 ------- ------- 8,061 6,735 ------- ------- Operating loss ...................................................................... (7,065) (5,659) Interest income ..................................................................... 13 128 Interest expense, net ............................................................... (897) -- ------- ------- Loss from continuing operations before income taxes ................................. (7,949) (5,531) Income tax benefit .................................................................. (3,586) (2,184) ------- ------- Loss from continuing operations ..................................................... (4,363) (3,347) Earnings from discontinued operation, net of income taxes of $3,542 in 2002 and $3,927 in 2001 ................................................... 5,168 5,729 Direct costs of spin-off, net of income tax benefit of $90 .......................... (691) -- ------- ------- Net earnings ........................................................................ $ 114 $ 2,382 ======= ======= Earnings (loss) per common share - basic: Loss from continuing operations ................................................. $ (0.12) $ (0.09) Earnings from discontinued operation ............................................ 0.12 0.15 ------- ------- Net earnings .................................................................... $ -- $ 0.06 ======= ======= Earnings (loss) per common share - diluted: Loss from continuing operations ................................................. $ (0.12) $ (0.09) Earnings from discontinued operation ............................................ 0.12 0.15 ------- ------- Net earnings .................................................................... $ -- $ 0.06 ======= =======
The Notes to the Consolidated Financial Statements are an integral part of these statements. 2 DOVER MOTORSPORTS, INC. CONSOLIDATED BALANCE SHEET In Thousands, Except Share and Per Share Amounts
(Unaudited) ASSETS March 31, December 31, Current assets: 2002 2001 --------- ------------ Cash and cash equivalents ........................................... $ 4,564 $ 2,948 Accounts receivable ................................................. 5,152 4,170 Inventories ......................................................... 423 423 Prepaid expenses and other .......................................... 7,407 3,127 Receivable from Dover Downs Gaming & Entertainment, Inc ............. 45,000 -- Income taxes receivable ............................................. 6,181 3,819 Deferred income taxes ............................................... 186 120 --------- ------------ Total current assets ........................................... 68,913 14,607 Property and equipment, net .............................................. 243,711 245,143 Restricted cash .......................................................... 1,505 3,161 Other assets, net ........................................................ 1,482 1,503 Goodwill, net ............................................................ 50,489 50,489 Net assets of discontinued operation ..................................... -- 102,653 --------- ------------ Total assets ................................................... $ 366,100 $ 417,556 ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................... $ 3,232 $ 1,024 Accrued liabilities ................................................. 3,057 3,394 Current portion of long-term debt ................................... 685 635 Notes payable to banks (Note 6) ..................................... -- 110,610 Deferred revenue .................................................... 32,536 12,912 --------- ------------ Total current liabilities ...................................... 39,510 128,575 Notes payable to banks (Note 6) .......................................... 103,731 -- Long-term debt ........................................................... 19,220 19,905 Other liabilities ........................................................ 131 131 Deferred income taxes .................................................... 25,047 24,426 Commitments and contingencies (see Notes to the Consolidated Financial Statements) Stockholders' equity: Preferred stock, $.10 par value; 1,000,000 shares authorized; issued and outstanding: none ............................................. -- -- Common stock, $.10 par value; 75,000,000 shares authorized; issued and outstanding: 14,284,252 shares ........................................... 1,428 1,428 Class A common stock, $.10 par value; 55,000,000 shares authorized; issued and outstanding: 23,769,085 shares ................................ 2,376 2,376 Additional paid-in capital ............................................... 120,172 120,080 Retained earnings ........................................................ 54,485 128,425 --------- ------------ 178,461 252,309 Receivable from Dover Downs Gaming & Entertainment, Inc. ................. -- (7,790) --------- ------------ Total stockholders' equity ..................................... 178,461 244,519 --------- ------------ Total liabilities and stockholders' equity ..................... $ 366,100 $ 417,556 ========= ============
The Notes to the Consolidated Financial Statements are an integral part of these statements. 3 DOVER MOTORSPORTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS In Thousands (Unaudited)
Three Months Ended March 31, --------------------------- Cash flows from operating activities: 2002 2001 ---- ---- Net earnings ................................................. $ 114 $ 2,382 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization .............................. 2,357 2,042 Earnings from discontinued operation, net .................. (5,168) (5,729) (Increase) decrease in assets: Accounts receivable ..................................... (982) (373) Inventories ............................................. -- 5 Prepaid expenses and other .............................. (4,641) (4,080) Increase (decrease) in liabilities: Accounts payable ........................................ 2,208 42 Accrued liabilities ..................................... (337) 16 Current and deferred income taxes ....................... (1,807) (1,041) Deferred revenue ........................................ 19,624 21,136 --------- --------- Net cash provided by continuing operations ...................... 11,368 14,400 --------- --------- Cash flows from investing activities: Capital expenditures ......................................... (543) (15,342) Restricted cash .............................................. 1,656 920 Other ........................................................ -- (96) --------- --------- Net cash provided by (used in) investing activities of continuing operations ...................................................... 1,113 (14,518) --------- --------- Cash flows from financing activities: Borrowings from revolving debt .............................. 81,270 172,150 Repayments of revolving debt ................................ (88,149) (163,650) Repayments of long-term debt ................................ (635) (585) Repayment of shareholder loan ............................... 92 -- Dividends paid .............................................. (1,713) (1,706) --------- --------- Net cash (used in) provided by financing activities of continuing operations ...................................................... (9,135) 6,209 --------- --------- Net cash used in discontinued operation ......................... (1,730) (1,202) --------- --------- Net increase in cash and cash equivalents ....................... 1,616 4,889 Cash and cash equivalents, beginning of period .................. 2,948 408 --------- --------- Cash and cash equivalents, end of period ........................ $ 4,564 $ 5,297 ========= ========= Supplemental information: Interest paid ................................................ $ 1,432 $ 107 ========= ========= Income taxes paid ............................................ $ -- $ 1,143 ========= =========
The Notes to the Consolidated Financial Statements are an integral part of these statements. 4 DOVER MOTORSPORTS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - Basis of Presentation The accompanying consolidated financial statements have been prepared in compliance with Rule 10-01 of Regulation S-X and accounting principles generally accepted in the United States of America, but do not include all of the information and disclosures required for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and notes thereto included in the latest annual report on Form 10-K for Dover Motorsports, Inc. (formerly Dover Downs Entertainment, Inc.) and its wholly-owned subsidiaries. In the opinion of management, these statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002 due to the seasonal nature of the Company's business. References in this document to "we," "our," "us," "DVD" or "the Company" mean Dover Motorsports, Inc. and its wholly-owned subsidiaries. NOTE 2 - Business Operations Dover Motorsports, Inc. is a leading promoter of motorsports events in the United States. Its motorsports subsidiaries operate seven motorsports tracks (four permanent facilities and three temporary circuits) in six states and are scheduled to promote 18 major events during 2002 in four of the premier sanctioning bodies in motorsports - the National Association for Stock Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART), the Indy Racing League (IRL) and the National Hot Rod Association (NHRA). The Company owns and operates Dover International Speedway in Dover, Delaware; Nashville Superspeedway near Nashville, Tennessee; Gateway International Raceway near St. Louis, Missouri; and Memphis Motorsports Park near Memphis, Tennessee. The Company organizes and promotes the Toyota Grand Prix of Long Beach in California, and the Grand Prix of Denver in Colorado, beginning with the inaugural event scheduled for September 2002. The Company has also entered into agreements with the City of St. Petersburg in Florida and with CART to organize and promote the Grand Prix of St. Petersburg. The inaugural event is expected to be held in February 2003. The Company's tax-free spin-off of Dover Downs, Inc., its gaming business, was effective March 31, 2002. The Company changed its name to Dover Motorsports, Inc. and will focus on the fixed facility and temporary circuit motorsports operations. To accomplish the spin-off, the Company contributed 100 percent of the issued and outstanding common stock of Dover Downs, Inc. to Dover Downs Gaming & Entertainment, Inc. (Gaming & Entertainment), a newly formed wholly-owned subsidiary of the Company. On the effective date of the spin-off, the Company distributed all of the capital stock of Gaming & Entertainment to the Company's stockholders on a pro-rata basis. Holders of the Company's common stock or Class A common stock received 0.7 shares of Gaming & Entertainment common stock or Class A common stock for each share of the Company's common stock or Class A common stock owned at the close of business on March 18, 2002, the record date for the spin-off. Each share of common stock or Class A common stock distributed was accompanied by one stock purchase right. Accordingly, the operations of this business have been reflected as a discontinued operation in the accompanying consolidated financial statements. No gain or loss was recognized as a result of the spin-off due to the pro-rata nature of the distribution. The Company's continuing operations subsequent to the spin-off consist solely of its motorsports activities. Based on an Internal Revenue Service Private Letter ruling, the spin-off is tax-free to the Company and its stockholders, except for cash received for any fractional shares. Immediately following the spin-off, the Company owned no shares of Gaming & Entertainment, and Gaming & Entertainment became an independent public company. A total of 9,998,976 shares of Gaming & Entertainment common stock and 16,638,359 shares of Gaming & Entertainment Class A common stock were distributed in connection with the spin-off. Also as part of the spin-off, a $9.5 million receivable from Gaming & Entertainment was cancelled. See NOTE 4 - Discontinued Operation for further discussion. 5 NOTE 3 - Summary of Significant Accounting Policies Revenue and expense recognition-Revenues, including admissions, broadcasting rights, sponsorships, concessions, luxury suite rentals, and souvenir sales and vendor commissions, and certain direct expenses pertaining to specific events are deferred until the event is held. Deferred expenses primarily include race purses and sanctioning fees remitted to NASCAR or other sanctioning bodies. Earnings per share-Basic and diluted earnings per share (EPS) are calculated in accordance with Financial Accounting Standards Board (FASB) Statement No. 128, Earnings Per Share. The number of weighted average shares used in computing basic and diluted EPS are as follows: Three Months Ended March 31, --------------------------- 2002 2001 ---------- ---------- Basic EPS 38,053,337 37,909,977 Effect of options - - ---------- ---------- Diluted EPS 38,053,337 37,909,977 ========== ========== Property and equipment-Interest is capitalized in connection with the construction of major facilities. The capitalized interest is amortized over the estimated useful life of the asset to which it relates. During the three months ended March 31, 2001, the Company incurred and capitalized $1,280,000 of interest cost. During the three months ended March 31, 2002, the Company incurred $897,000 of interest cost, none of which was capitalized. Use of estimates-The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment information-Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, has been adopted by the Company for all periods presented in these consolidated financial statements. Statement No. 131 establishes guidelines for public companies in determining operating segments based on those used for internal reporting to management. Based on these guidelines, the Company reports information under a single motorsports segment. Reclassifications-Certain reclassifications have been made to the financial statements for the three months ended March 31, 2001 to conform to the financial statement presentation for the three months ended March 31, 2002. These reclassifications have no effect on net income. Recent accounting pronouncements-In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement No. 142. The Company adopted the provisions of Statement No. 142 effective January 1, 2002, at which time the Company ceased to record amortization expense related to its goodwill. The adoption of Statement No. 142 resulted in a $364,000 reduction in amortization expense in the three months ended March 31, 2002 as compared to the three months ended March 31, 2001. Net earnings and diluted EPS for the three months ended March 31, 2001 would have been $2,746,000 and $0.07, respectively, applying the provisions of Statement No. 142. To comply with the transition provisions of Statement No. 142, we have determined our reporting units and assigned goodwill and other net assets to those reporting units. Goodwill attributable to each of our reporting units is being tested for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value is primarily being determined through the use of a discounted cash flow methodology. We expect to complete our analysis of any potential impairment of our goodwill as a result of adopting this standard by the end of the second quarter of 2002, and therefore it is not practical at this time to estimate the impact, if any, of adopting this statement. 6 In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, a gain or loss on settlement would be recognized. We are required and plan to adopt the provisions of Statement No. 143 in 2003. To accomplish this, we must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. We have not yet completed our analysis of the impact of adoption of this standard. In August 2001, the FASB issued Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. We adopted the provisions of Statement No. 144 effective January 1, 2002. The adoption of Statement No. 144 did not have a significant impact on our results of operations, financial position or cash flows since the spin-off transaction was governed by the prior rules of APB Opinion No. 30. NOTE 4 - Discontinued Operation The Company's gaming segment has been accounted for as a discontinued operation and, accordingly, the accompanying consolidated financial statements have been reclassified to report separately the net assets and operating results of this discontinued operation. The historical financial statements also include an allocation of interest expense of $351,000 and $352,000 for the three months ended March 31, 2002 and 2001, respectively, which has been allocated based upon each company's earnings before interest, taxes, depreciation and amortization, income tax payments and capital expenditures. Management believes this is a reasonable method of allocating interest expense. A summary of the net assets of this discontinued operation is as follows (the March 31, 2002 amounts are immediately prior to the spin-off): March 31, December 31, 2002 2001 ------------- ------------ Current assets $ 18,657,000 $ 24,485,000 Property and equipment, net 115,971,000 106,772,000 Current liabilities (25,819,000) (27,658,000) Deferred income taxes (988,000) (946,000) ------------- ------------ Net assets of discontinued operation $ 107,821,000 $102,653,000 ============= ============ 7 A summary of the operating results of this discontinued operation is as follows: Three Months Ended March 31, ----------------------------- 2002 2001 ------------- ------------- Revenues $ 49,780,000 $ 44,908,000 Operating earnings 8,710,000 9,788,000 Earnings before income taxes 8,710,000 9,656,000 Income taxes 3,542,000 3,927,000 Net earnings $ 5,168,000 $ 5,729,000 In conjunction with the spin-off, the Company and Gaming & Entertainment have entered into various agreements that address the allocation of assets and liabilities between the two companies and that define the companies' relationship after the separation. These are the Agreement Regarding Distribution and Plan of Reorganization, the Real Property Agreement, the Employee Benefits Agreement, the Transition Support Services Agreement, and the Tax Sharing Agreement. The Plan of Reorganization sets forth the principal corporate transactions required to effect the separation of the gaming business from the motorsports business, the continuation of the gaming business following such separation, including the allocation between the Company and Gaming & Entertainment of certain assets and liabilities, and the distribution of shares of Gaming & Entertainment common stock and Class A common stock. After the spin-off, all assets and liabilities relating to the gaming business are owned and assumed by Gaming & Entertainment or its subsidiaries, and all assets and liabilities relating to the motorsports business are owned and assumed by the Company or its subsidiaries. The Real Property Agreement governs certain real property transfers, leases and easements affecting our Dover, Delaware facility. The Employee Benefits Agreement provides for the transition from employee benefits under plans or programs sponsored by the Company to those sponsored by Gaming & Entertainment. In connection with the spin-off and pursuant to the terms of the Employee Benefits Agreement, the Company will transfer to Gaming & Entertainment the assets and liabilities associated with the Company's defined benefit pension plan and the 401(k) plan currently sponsored by the Company with respect to employees who become employees of Gaming & Entertainment (or remain employed by Dover Downs, Inc.) after the spin-off. The Transition Support Services Agreement provides for each of the Company and Gaming & Entertainment to provide each other with certain administrative and operational services. The party receiving the services will be required to pay for them within 30 business days after receipt of an invoice at rates agreed upon by the Company and Gaming & Entertainment. Each party will provide these services until terminated by the party receiving the service or by the party providing the service after the expiration of a one year transition period. The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. With respect to any period ending on or before the spin-off or any tax period in which the spin-off occurs, the Company: ... continues to be the sole and exclusive agent for Gaming & Entertainment in all matters relating to the income, franchise, property, sales and use tax liabilities of Gaming & Entertainment; ... subject to Gaming & Entertainment's obligation to pay for items relating to its gaming business, bears any costs relating to tax audits, including tax assessments and any related interest and penalties and any legal, litigation, accounting or consulting expenses; ... continues to have the sole and exclusive responsibility for the preparation and filing of combined federal and combined state income tax returns; and 8 ... subject to the right and authority of Gaming & Entertainment to direct the Company in the defense or prosecution of the portion of a tax contest directly and exclusively related to any Gaming & Entertainment tax adjustment, generally has the powers, in the Company's sole discretion, to contest or compromise any claim or refund on Gaming & Entertainment's behalf. NOTE 5 - Intercompany Balances Prior to the spin-off, Gaming & Entertainment owed the Company approximately $9.5 million. This balance primarily represented the payment of certain costs by the Company for Gaming & Entertainment and borrowings under the Company's credit facility maintained for the benefit of DVD and all of its subsidiaries. DVD and Gaming & Entertainment have cancelled the intercompany balances and adjusted the Company's stockholders' equity by an equal amount at the date of the spin-off. To reflect the entire spin-off transaction as of March 31, 2002, the accompanying consolidated balance sheet includes a receivable from Gaming & Entertainment for the $45 million of the existing DVD credit facility paid down on April 1, 2002. See NOTE 6 - Indebtedness NOTE 6 - Indebtedness Long-term debt is as follows: March 31, December 31, 2002 2001 ------------- ------------- Notes payable to banks $ 103,731,000 $ 110,610,000 SWIDA loan 19,905,000 20,540,000 ------------- ------------- 123,636,000 131,150,000 Less: current portion (685,000) (111,245,000) ------------- ------------- $ 122,951,000 $ 19,905,000 ============= ============= At March 31, 2002, the Company had two credit facilities with a total capacity of $150,000,000. Interest is based, at the Company's option, upon (i) LIBOR plus .75% or (ii) the base rate (the greater of the prime rate or the federal funds rate plus .5%) minus 1%. The $25,000,000 credit facility expires on June 15, 2002 and the $125,000,000 credit facility expires on September 30, 2002. The agreements are for seasonal funding needs, capital improvements and other general corporate purposes. The $150,000,000 credit facilities are guaranteed by Dover Downs, Inc. and all of its other subsidiaries. At March 31, 2002, the Company was in compliance with all terms of the facilities and there was $103,731,000 outstanding at a weighted average interest rate of 3.0%. The Company entered into a new $105,000,000 credit facility on February 20, 2002, that expires on February 19, 2005. This new facility replaced the prior $150,000,000 facilities on its April 1, 2002 effective date. The new $105,000,000 credit facility does not include Dover Downs, Inc., as it was spun-off. $45 million of the amount outstanding under the existing DVD credit facilities was paid down on April 1, 2002 through a new $55 million credit facility which has been established by Gaming & Entertainment. To reflect the $45 million pay down as of March 31, 2002, the accompanying consolidated balance sheet includes a receivable from Gaming & Entertainment. The new credit facility contains minimum net worth, fixed charge coverage and maximum leverage covenant requirements. Material adverse changes in the Company's results of operation would impact our ability to maintain financial ratios necessary to satisfy these requirements. 9 A subsidiary of the Company entered into an agreement (the "SWIDA loan") with Southwestern Illinois Development Authority ("SWIDA") to receive the proceeds from the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway International Motorsports Corporation Project)", a Municipal Bond Offering, in the aggregate principal amount of $21,500,000. The offering of the bonds closed on June 21, 1996. The repayment terms and debt service reserve requirements of the bonds issued in the Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA loaned all of the proceeds from the Municipal Bond Offering to the Company's subsidiary for the purpose of the redevelopment, construction and expansion of Gateway International Raceway, and the proceeds of the SWIDA loan were irrevocably committed to complete construction of Gateway International Raceway, to fund interest, to create a debt service reserve fund and to pay for the cost of issuance of the bonds. The Company has established certain restricted cash funds to meet debt service as required by the SWIDA loan, which are held by the trustee (BNY Trust Company of Missouri). At March 31, 2002, $1,505,000 of the Company's cash balance is restricted by the SWIDA loan. A standby letter of credit for $2,502,000, which is secured by a Trust Deed on the Company's facilities in Memphis, Tennessee, also was obtained to satisfy debt service reserve fund obligations. The SWIDA loan is secured by a first mortgage lien on all the real property owned and a security interest in all property leased by the Company's subsidiary at Gateway International Raceway. Also, the SWIDA loan is unconditionally guaranteed by Grand Prix Association of Long Beach, Inc., a wholly-owned subsidiary of the Company. The SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an effective rate of approximately 9.1%. The structure of the bonds permits amortization from February 1997 through February 2017 with debt service beginning in 2000 following interest only payments from February 1997 through August 1999. In addition, a portion of the property taxes to be paid by the Company (if any) to the City of Madison Tax Incremental Fund have been pledged to the annual retirement of debt and payment of interest. NOTE 7 - Stockholders' Equity Changes in the components of stockholders' equity are as follows (in thousands): Class A Additional Common Common Paid-in Retained Stock Stock Capital Earnings ----- ----- ------- -------- Balance at December 31, 2001 $ 1,428 2,376 120,080 128,425 Net earnings -- -- -- 114 Repayment of shareholder loan -- -- 92 -- Dividends on common stock -- -- -- (1,713) Cancellation of receivable from Gaming & Entertainment -- -- -- (9,520) Debt paid down from Gaming & Entertainment on April 1, 2002 -- -- -- 45,000 Spin-off transaction -- -- -- (107,821) -------- -------- -------- -------- Balance at March 31, 2002 $ 1,428 2,376 120,172 54,485 ======== ======== ======== ======== The Company has a stock option plan pursuant to which the Company's Board of Directors may grant stock options to officers and key employees at not less than 100% of the fair market value at the date of the grant. The stock options have eight-year terms and generally vest equally over a period of six years from the date of grant. Historically, certain Gaming & Entertainment employees participated in the DVD stock option plan. In conjunction with the spin-off, Gaming & Entertainment adopted a stock option plan under which 1,500,000 shares of common stock have been reserved for issuance to Gaming & Entertainment employees. Following the spin-off, 125,000 outstanding stock option grants under the Dover Downs plan held by Gaming & Entertainment employees were cancelled and replaced with Gaming & Entertainment stock option grants. The Gaming & Entertainment grants have the same relative ratio of the exercise price to market value and the same vesting provisions, option periods and other applicable terms and conditions as the Dover Downs stock option grants replaced. 10 NOTE 8 - Related Party Transactions During the three months ended March 31, 2002 and 2001, Gaming & Entertainment allocated corporate costs of $164,000 and $495,000, respectively, to the Company. The allocation was based on both an allocation to the business that directly incurred the costs and an analysis of each company's share of the costs. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been separate, independent entities and had otherwise managed these functions; however, management believes that these allocations are reasonable. At March 31, 2002, Gaming & Entertainment owed the Company $2.7 million for its portion of the Company's consolidated federal income tax liability for 2002. This receivable is included in the income taxes receivable balance reported on the March 31, 2002 balance sheet. Use by Gaming & Entertainment of the Company's 5/8-mile harness racing track is under an easement granted by the Company which does not require the payment of any rent. Under the terms of the easement Gaming & Entertainment has exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The harness track is located on property owned by the Company and is on the inside of DVD's one-mile motorsports speedway. The indoor grandstands are used by the Company free of charge in connection with its motorsports events and are owned by Gaming & Entertainment. DVD also leases its principal executive office space from Gaming & Entertainment. Various easements and agreements relative to access, utilities and parking have also been entered into between the Company and Gaming & Entertainment. In conjunction with the spin-off, the Company and Gaming & Entertainment entered into various agreements that address the allocation of assets and liabilities between the two companies and that define the companies' relationship after the separation. The Transition Support Services Agreement provides for each of the Company and Gaming & Entertainment to provide each other with certain administrative and operational services subsequent to the spin-off. The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. Refer to Note 4 - Discontinued Operation for further discussion. NOTE 9 - Commitments and Contingencies In September 1999, the Sports Authority of the County of Wilson, Tennessee issued its Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, in the amount of $25,900,000. The proceeds were used to acquire, construct and develop certain public infrastructure improvements in Wilson County, Tennessee, which will be beneficial to the operation of the superspeedway complex the Company constructed through Nashville Speedway, USA. Interest only payments are required until September 1, 2002 and will be made from a capitalized interest fund established from bond proceeds. When the capitalized interest fund is depleted, which is estimated to be in or around September of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes (the taxes) generated from the facility. If the taxes are insufficient to cover the payment of principal and interest on the bonds, payments will be made under a $26,326,000 letter of credit issued on behalf of the Company by several banks and the bonds would become a liability of the Company. The Company received a notice of proposed tax adjustment for the years 1997 through 2000 related to a state sales and use tax audit. The Company is vigorously contesting the notice. Final proposed adjustments have not been received for these years. Management believes that the ultimate outcome of the audit will not have a material adverse impact on the Company's results of operations, financial position or cash flows. 11 On April 4, 2002, the Illinois Supreme Court reversed its earlier decision of April 19, 2001 and ruled that Southwestern Illinois Development Authority ("SWIDA") exceeded its constitutional authority in its acquisition of certain property which it subsequently conveyed to the Company's subsidiary, Gateway International Motorsports Corp. ("Gateway"). The 148.5 acre tract of land at issue was acquired by SWIDA in a quick take eminent domain proceeding and then conveyed to Gateway in 1998 for $1,000,000 in connection with Gateway's need to expand its parking facilities. The circuit court of St. Clair County originally ruled that SWIDA had properly exercised its authority to take the land. This decision was then reversed by an appellate court. In 2001, the Illinois Supreme Court reversed the appellate court's decision and found that the taking was proper. The Court has now reversed that decision and Gateway intends to pursue an appeal to the United States Supreme Court. If the United States Supreme Court does not choose to hear the case or if Gateway is unsuccessful on appeal, it will (a) be required to find other property or alternate means to meet its parking needs, (b) have the $1,000,000 purchase price refunded, and (c) need to expense approximately $350,000 of legal and engineering costs associated with the purchase. In addition, the former land owner has indicated that it intends to make a claim for attorneys fees alleged to approximate $1,000,000. The Company believes that it has viable defenses to and would vigorously contest any such claim. The Company is from time to time a party to ordinary routine litigation incidental to its business. Management does not believe that the resolution of any of these matters is likely to have a serious adverse effect on our results of operations, financial condition or cash flows. Item 2. Management's Discussion And Analysis Of Financial Condition And Results - ------- ----------------------------------------------------------------------- Of Operations - ------------- The following discussion is based upon and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. On July 25, 2001, the Board of Directors of the Company resolved to pursue the separation of its gaming and motorsports business segments into two publicly owned companies. On March 31, 2002, the tax-free spin-off of Dover Downs, Inc., its gaming business, became effective. Accordingly, the operations of this business have been reflected as a discontinued operation and excluded from the accompanying consolidated financial statements and our discussions herein. Results of Operations Three Months Ended March 31, 2002 vs. Three Months Ended March 31, 2001 Revenues decreased by $80,000, or 7.4%, to $996,000, primarily the result of inclement weather negatively impacting several weekly motorsports events promoted by the Company's Mid-West facilities in the first quarter of 2002. Operating expenses increased by $207,000, or 10.4%, in the first quarter of 2002 compared with the first quarter of 2001, primarily due to the opening of Nashville Superspeedway in April 2001. Depreciation and amortization expense increased by $315,000 primarily due to the opening of Nashville Superspeedway in April 2001 and the addition of grandstand seats at Dover International Speedway in June 2001. The aforementioned increase was offset by the adoption of Statement of Financial Accounting Standards No. 142 which reduced the Company's amortization expense by $364,000 in the first quarter of 2002 as compared to the first quarter of 2001. General and administrative expenses increased by $804,000 to $3,511,000 from $2,707,000 in the first quarter of 2001, primarily due to the opening of Nashville Superspeedway in April 2001. Net interest expense increased by $1,012,000 primarily the result of the Company capitalizing $1,280,000 of interest related to the construction of major facilities in the first quarter of 2001. No interest was capitalized in the first quarter of 2002. Capitalization of interest on Nashville Superspeedway ceased when the facility opened in April 2001. 12 The Company's effective income tax rates for the three months ended March 31, 2002 and 2001 were 45.1% and 39.5%, respectively. The increase resulted primarily from the classification of direct costs of the spin-off as part of the discontinued operation and the non-deductibility of some of these costs for tax purposes. The loss from continuing operations increased by $1,016,000, primarily as a result of increased depreciation, interest and general and administrative expenses related to the opening of Nashville Superspeedway in April 2001. Earnings from discontinued operation (net of income taxes) were $4,477,000 in the first quarter of 2002 as compared to $5,729,000 in the first quarter of 2001. The decrease of $1,252,000, or 21.8%, was primarily due to direct costs of the spin-off, and operating and depreciation expenses related to the Dover Downs Hotel and Conference Center, offset by increased play in the casino. Liquidity and Capital Resources Net cash provided by continuing operations was $11,368,000 for the three months ended March 31, 2002 compared to $14,400,000 for the three months ended March 31, 2001. The decrease in 2002 as compared to 2001 was primarily due to an increase in the loss from continuing operations before depreciation and amortization expense from $1,305,000 in 2001 to $2,006,000 in 2002, the decrease in deferred revenue related to our sponsorship agreements for the 2002 race season and the timing of certain income tax payments. Net cash provided by investing activities was $1,113,000 for the three months ended March 31, 2002 compared to net cash used in investing activities of $14,518,000 for the three months ended March 31, 2001. The change from 2001 to 2002 was primarily due to the completion of Nashville Superspeedway in April 2001. Net cash provided by financing activities was $6,209,000 for the three months ended March 31, 2001 as compared to net cash used in financing activities of $9,135,000 for the three months ended March 31, 2002. The change from 2001 to 2002 was primarily due to reduced borrowings under our revolving credit agreement. The repayment of monies advanced to Dover Downs, Inc. is discussed below. At March 31, 2002, the Company had two credit facilities with a total capacity of $150,000,000. These credit facilities are guaranteed by Dover Downs, Inc. and all of its other subsidiaries. Amounts outstanding at March 31, 2002 were $103,731,000. The Company entered into a new $105,000,000 credit facility on February 20, 2002, that expires on February 19, 2005. This new facility replaced the prior $150,000,000 facilities on its April 1, 2002 effective date. The new $105,000,000 credit facility does not include Dover Downs, Inc. as it was spun-off. $45 million of the amount outstanding under the existing DVD credit facilities was paid down on April 1, 2002 through a new $55 million credit facility which has been established by Gaming & Entertainment. The new credit facility contains minimum net worth, fixed charge coverage and maximum leverage covenant requirements. Material adverse changes in the Company's results of operations would impact our ability to maintain financial ratios necessary to satisfy these requirements. We expect to make capital expenditures of approximately $8 million during the remainder of 2002. These projects include improvements necessary to promote our inuagural Grand Prix of Denver event, as well as, various improvements at our fixed facilities. The Company expects that its net cash flows from operating activities and funds available from its credit facility will be sufficient to provide for our working capital needs and capital spending requirements in calendar 2002, as well as any cash dividends the board of directors declares. If there are no significant additions to our race schedule, our future capital expenditure requirements should be significantly less than in 2001. As a result, we would expect cash flows from operating activities and funds available from our credit facility to also provide for long-term liquidity. Prior to the spin-off, Gaming & Entertainment owed DVD approximately $9.5 million primarily representing the payment of certain costs by DVD for Gaming & Entertainment and borrowings under DVD's credit facility maintained for the benefit of DVD and all of its subsidiaries. DVD and Gaming & Entertainment have cancelled the intercompany balances and adjusted DVD's stockholders' equity by an equal amount at the date of the spin-off. 13 Related Party Transactions During the three months ended March 31, 2002 and 2001, Gaming & Entertainment allocated corporate costs of $164,000 and $495,000 respectively, to the Company. The allocation was based on both an allocation to the business that directly incurred the costs and an analysis of each company's share of the costs. The net costs incurred by each company for these services are not necessarily indicative of the costs that would have been incurred if the companies had been separate, independent entities and had otherwise managed these functions; however, management believes that these allocations are reasonable. At March 31, 2002, Gaming & Entertainment owed the Company $2.7 million for its portion of the consolidated federal income tax liability for 2002. This receivable is included in the income taxes receivable balance reported on the March 31, 2002 balance sheet. Use by Gaming & Entertainment of the Company's 5/8-mile harness racing track is under an easement granted by the Company which does not require the payment of any rent. Under the terms of the easement Gaming & Entertainment has exclusive use of the harness track during the period beginning November 1 of each year and ending April 30 of the following year, together with set up and tear down rights for the two weeks before and after such period. The harness track is located on property owned by the Company and is on the inside of DVD's one-mile motorsports speedway. The indoor grandstands are used by the Company free of charge in connection with its motorsports events and are owned by Gaming & Entertainment. DVD also leases its principal executive office space from Gaming & Entertainment. Various easements and agreements relative to access, utilities and parking have also been entered into between the Company and Gaming & Entertainment. In conjunction with the spin-off, the Company and Gaming & Entertainment entered into various agreements that address the allocation of assets and liabilities between the two companies and that define the companies' relationship after the separation. The Transition Support Services Agreement provides for each of the Company and Gaming & Entertainment to provide each other with certain administrative and operational services subsequent to the spin-off. The Tax Sharing Agreement provides for, among other things, the treatment of income tax matters for periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. Refer to Note 4 - Discontinued Operation for further discussion. Contractual Obligations The Company has issued a standby letter of credit to guarantee Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, issued by the Sports Authority of Wilson, Tennessee in the amount of $25,900,000. The proceeds from the bonds were used to acquire, construct and develop certain public infrastructure improvements in Wilson County, Tennessee. Interest only payments are required until September 1, 2002, and will be made from a capitalized interest fund established from the bond proceeds. The principal payments range from $400,000 in September 2002 to $1,600,000 in 2029. When the capitalized interest fund is depleted, which is estimated to be in or around September of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes generated from the facility. If the taxes are insufficient to cover the payment of principal and interest on the bonds, payments will be made pursuant to the aforementioned letter of credit. The Company believes that the sales and incremental property taxes generated from the facility will satisfy the debt service requirements of the bonds. However, if the debt service is not satisfied from the aforementioned sources, the bonds would become a liability of the Company. If we fail to maintain the letter of credit which secures the bonds or we allow an uncured default to exist under our reimbursement agreement relative to the letter of credit, the bonds would be immediately redeemable. The Company has entered into several sanctioning agreements to conduct motorsports events at its various venues. The Company has held NASCAR-sanctioned events for 33 consecutive years and its subsidiary, Grand Prix Association of Long Beach, has operated the Grand Prix of Long Beach for 28 consecutive years. Nonrenewal of a NASCAR event license or the CART agreement for the Long Beach event would have a material adverse effect on the Company's financial condition and results of operations. 14 A subsidiary of the Company entered into an agreement (the "SWIDA loan") with Southwestern Illinois Development Authority ("SWIDA") to receive the proceeds from the "Taxable Sports Facility Revenue Bonds, Series 1996 (Gateway International Motorsports Corporation Project)", a Municipal Bond Offering, in the aggregate principal amount of $21,500,000. The offering of the bonds closed on June 21, 1996. The repayment terms and debt service reserve requirements of the bonds issued in the Municipal Bond Offering correspond to the terms of the SWIDA loan. SWIDA loaned all of the proceeds from the Municipal Bond Offering to the Company's subsidiary for the purpose of the redevelopment, construction and expansion of Gateway International Raceway, and the proceeds of the SWIDA loan were irrevocably committed to complete construction of Gateway International Raceway, to fund interest, to create a debt service reserve fund and to pay for the cost of issuance of the bonds. The Company has established certain restricted cash funds to meet debt service as required by the SWIDA loan, which are held by the trustee (BNY Trust Company of Missouri). At March 31, 2002, $1,505,000 of the Company's cash balance is restricted by the SWIDA loan. A standby letter of credit for $2,502,000, which is secured by a Trust Deed on the Company's facilities in Memphis, Tennessee, also was obtained to satisfy debt service reserve fund obligations. The SWIDA loan is secured by a first mortgage lien on all the real property owned and a security interest in all property leased by the Company's subsidiary at Gateway International Raceway. Also, the SWIDA loan is unconditionally guaranteed by Grand Prix Association of Long Beach, Inc., a wholly-owned subsidiary of the Company. The SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an effective rate of approximately 9.1%. The structure of the bonds permits amortization from February 1997 through February 2017 with debt service beginning in 2000 following interest only payments from February 1997 through August 1999. In addition, a portion of the property taxes to be paid by the Company (if any) to the City of Madison Tax Incremental Fund have been pledged to the annual retirement of debt and payment of interest. Critical Accounting Policies The accounting policies described below are those the Company considers critical in preparing its consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used. The descriptions below are summarized and have been simplified for clarity. Goodwill The Company has made acquisitions in the past that included goodwill. Under accounting principles generally accepted in the United States of America in effect through December 31, 2001, these assets were amortized over their estimated useful lives, and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives. Effective January 1, 2002, goodwill is no longer amortized but is subject to an annual (or under certain circumstances more frequent) impairment test based on its estimated fair value. Estimated fair value is typically less than values based on undiscounted operating earnings because fair value estimates include a discount factor in valuing future cash flows. We expect to complete our analysis of any potential impairment of our goodwill as a result of adopting Statement No. 142 by the end of the second quarter of 2002. There are many assumptions and estimates underlying the determination of an impairment loss. Another estimate using different, but still reasonable, assumptions could produce a significantly different result. Therefore, additional impairment losses could be recorded in the future. Accrued Pension Cost The benefits provided by the Company's pension plans are based on years of service and employee's renumeration over their employment with the Company. The Company establishes accrued pension costs in accordance with the provisions of Statement No. 87, Employers' Accounting for Pensions. Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for discount rate, assumed rate of compensation increase, and expected long-term rate of return on assets. Changes in these estimates would impact the amounts that the Company records in its consolidated financial statements. 15 Recent Accounting Pronouncements In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of Statement No. 142. The Company adopted the provisions of Statement No. 142 effective January 1, 2002, at which time the Company ceased to record amortization expense related to its goodwill. The adoption of Statement No. 142 resulted in a $364,000 reduction in amortization expense in the three months ended March 31, 2002 as compared to the three months ended March 31, 2001. Net earnings for the three months ended March 31, 2001 would have been $2,746,000 applying the provisions of Statement No. 142. To comply with the transition provisions of Statement No. 142, we have determined our reporting units and assigned goodwill and other net assets to those reporting units. Goodwill attributable to each of our reporting units is being tested for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value is primarily being determined through the use of a discounted cash flow methodology. We expect to complete our analysis of any potential impairment of our goodwill as a result of adopting this standard by the end of the second quarter of 2002, and therefore it is not practical at this time to estimate the impact, if any, of adopting this statement. In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, a gain or loss on settlement would be recognized. We are required and plan to adopt the provisions of Statement No. 143 in 2003. To accomplish this, we must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of adoption. We have not yet completed our analysis of the impact of adoption of this standard. In August 2001, the FASB issued Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. We adopted the provisions of Statement No. 144 effective January 1, 2002. The adoption of Statement No. 144 did not have a significant impact on our results of operations, financial position or cash flows since the spin-off transaction was governed by the prior rules of APB Opinion No. 30. 16 Factors That May Affect Operating Results; Forward-Looking Statements In addition to historical information, this Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, proposed acquisitions, market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our forward-looking statements. When words and expressions such as: "believes," "expects," "anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims," "projects," "forecasts," "possible," "seeks," "may," "could," "should," "might," "likely," "enable," or similar words or expressions are used in this document, as well as statements containing phrases such as "in our view," "there can be no assurance," "although no assurance can be given," or "there is no way to anticipate with certainty," forward-looking statements are being made. Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to differ materially from those set forth in our forward-looking statements, including the following factors: ... success of or changes in our growth strategies; ... our development and potential acquisition of new facilities; ... anticipated trends in the motorsports industry; ... patron demographics; ... our ability to enter into additional contracts with sponsors, broadcast media and race event sanctioning bodies; ... our relationships with sponsors; ... general market and economic conditions, including consumer and corporate spending sentiment; ... our ability to finance future business requirements; ... the availability of adequate levels of insurance; ... our ability to successfully integrate acquired companies and businesses; ... management retention and development; ... changes in Federal, state, and local laws and regulations, including environmental regulations; ... the effect of weather conditions on outdoor event attendance; ... military or other government actions; ... air travel; and ... national or local catastrophic events. 17 We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements. Given these risks and uncertainties, stockholders should not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results. Our Relationship With Sanctioning Bodies Is Vital To Our Success In Motorsports Our continued success in motorsports is dependent upon keeping a good working relationship with the governing bodies of motorsports that sanction national racing events. These governing bodies include NASCAR, CART, IRL and NHRA. The governing bodies regularly issue and award sanctioned events and their issuance depends, in large part, on maintaining good working relationships with the sanctioning bodies. Many events are sanctioned on an annual basis. By awarding a sanctioned event or a series of sanctioned events, the sanctioning bodies do not warrant, either expressly or by implication, nor are they responsible for, the financial success of any sanctioned event. Moreover, no existing sanction agreement, unless expressly provided for in the agreement, can be construed to require the sanctioning body to enter into a sanction agreement or to issue a sanction for any other event in the future. Our inability to obtain additional sanctioned events in the future and to maintain sanction agreements at current levels would likely result in lower than anticipated revenues from admissions, sponsorships, hospitality, concessions, and merchandise, which could have a material adverse effect on our business, financial condition and results of operations. We Rely On Sponsorship Contracts To Generate Revenues We receive a substantial portion of our annual revenues from sponsorship agreements, including the sponsorship of our various events, our permanent venues, "official product" sponsorships, billboards, signage and skyboxes. Loss of our title sponsors or other major sponsorship agreements or failure to secure such sponsorship agreements in the future could have a material adverse effect on our business, financial condition and results of operations. Increased Government Regulation Of Sponsors And Restrictions On Advertising Could Substantially Reduce Our Advertising Revenue We receive a significant portion of our revenue from sponsorship and advertising by various companies. Tobacco and liquor companies have traditionally sponsored motorsports events. In June 1997, major tobacco companies entered into an agreement with federal negotiators and various states attorneys general whereby the tobacco companies agreed to give up certain advertising and promotional activity in exchange for liability limits in pending and future lawsuits. New laws or settlements could have a material adverse effect on the tobacco and liquor industry motorsports sponsorship and advertising expenditures. Government regulations and restrictions on advertising by tobacco companies, liquor companies and other potential sponsors could adversely impact revenues as well as the revenues of the motorsports industry as a whole. While we believe that the popularity of motorsports would allow us to secure alternate sponsors, there is no assurance that alternate sponsors could be obtained. Our Motorsports Events Face Intense Competition For Attendance, Television Viewership And Sponsorship We compete with other auto speedways for the patronage of motor racing spectators as well as for promotions and sponsorships. Moreover, racing events sanctioned by different organizations are often held on the same dates at different tracks. The quality of the competition, type of racing event, caliber of the event, sight lines, ticket pricing, location and customer conveniences, among other things, distinguish the motorsports facilities. In addition, all of our events compete with other sports and recreational events scheduled on the same dates. As a result, our revenues and operations are affected not only by our ability to compete in the motorsports promotion market, but also by the availability of alternative spectator sports events, forms of entertainment and changing consumer preferences. 18 Our Street Races Depend On City Permits And Good Relationships With City Officials In order to conduct the Grand Prix of Long Beach, we must obtain an annual permit from the City of Long Beach to hold the race on city streets. Although Grand Prix has operated a racing event on the streets of Long Beach for twenty-eight years, there can be no assurance that this event will continue to be held or be successful. Similarly, the Grand Prix events we have planned for Denver, Colorado and St. Petersburg, Florida require that we obtain a variety of licenses and permits. Our ability to conduct street races requires that we maintain excellent relationships with the host city and its officials. Grand Prix's Ability To Meet Payment Obligations Under A Loan Agreement With An Illinois Government Agency Depends On Revenues From Gateway In order to finance the redevelopment of Gateway International Raceway, Grand Prix entered into a loan agreement with the Southwest Illinois Development Authority, which agreed to fund a loan to Grand Prix by issuing municipal bonds in the aggregate principal amount of $21,500,000. The bonds are unconditionally guaranteed by Grand Prix. Grand Prix issued a 20-year $21,500,000 promissory note to SWIDA which bears interest at an effective rate of approximately 9.1% per annum. Payments on the SWIDA loan are intended to be made primarily from the revenues from the operations of Gateway. Although Grand Prix is current on its obligation and expects to meet its future debt payment obligations out of the revenues from Gateway, and although Grand Prix will receive certain assistance from the City of Madison, Illinois in the form of a tax increment finance fund which should assist it in meeting its debt burdens, there can be no assurance that earnings from the future operations of Gateway will be sufficient to meet Grand Prix's debt service obligations. A default under the SWIDA loan could have a material adverse effect on our business, financial condition and results of operations. The Sales Tax And Property Tax Revenues To Service The Revenue Bonds For Infrastructure Improvements At Nashville May Be Inadequate In September 1999, the Sports Authority of Wilson County, Tennessee issued $25,900,000 in revenue bonds to build local infrastructure improvements which will benefit the operation of Nashville Superspeedway. Interest only payments are required until September 1, 2002 and will be made from a capitalized interest fund established from bond proceeds. When the capitalized interest fund is depleted, which is estimated to be in or around September of 2002, the debt service on the bonds will be payable solely from sales and incremental property taxes generated from the facility. In the event the taxes are insufficient to cover the payment of principal and interest on the bonds, payments will be made under a $26,326,000 irrevocable direct-pay letter of credit issued by several banks pursuant to a reimbursement and security agreement under which we have agreed to reimburse the banks for drawings made under the letter of credit. Such an event could have a material adverse effect on our business, financial condition and results of operations. The Seasonality Of Our Motorsports Events Increases The Variability Of Quarterly Earnings Our business has been, and is expected to remain, seasonal given that it depends on our outdoor events for a substantial portion of revenues. We derive a substantial portion of our motorsports revenues from admissions and event-related revenue attributable to five NASCAR-sanctioned events at Dover, Delaware which are currently held in June and September. This has been offset to some degree by our other motorsports events, but quarterly earnings will vary. Our Insurance May Not Be Adequate To Cover Catastrophic Incidents We maintain insurance policies that provide coverage within limits that are sufficient, in the opinion of management, to protect us from material financial loss incurred in the ordinary course of business. We also purchase special event insurance for motorsports events to protect against race-related liability. However, there can be no assurance that this insurance will be adequate at all times and in all circumstances. If we are held liable for damages beyond the scope of our insurance coverage, including punitive damages, our business, financial condition and results of operations could be materially and adversely affected. 19 Bad Weather Can Have An Adverse Financial Impact On Our Motorsports Events We sponsor and promote outdoor motorsports events. Weather conditions affect sales of tickets, concessions and souvenirs, among other things at these events. Although we sell many tickets well in advance of the outdoor events and these tickets are non-refundable, poor weather conditions may adversely affect additional ticket sales, and concessions and souvenir sales, which could have an adverse effect on our business, financial condition and results of operations. We do not currently maintain weather-related insurance for major events. Due to the importance of clear visibility and safe driving conditions to motorsports racing events, outdoor racing events may be significantly affected by weather patterns and seasonal weather changes. Any unanticipated weather changes could impact our ability to stage events. This could have a material adverse effect on our business, financial condition and results of operations. Item 3. Quantitative And Qualitative Disclosure About Market Risk - ------- --------------------------------------------------------- The carrying values of DVD's long-term debt approximates its fair value at March 31, 2002 and December 31, 2001. DVD is exposed to market risks related to fluctuations in interest rates for its variable rate borrowings of $103,731,000 at March 31, 2002 under its revolving credit facilities. A change in interest rates of one percent on the balance outstanding at March 31, 2002 would cause a change in total annual interest costs of $1,037,000. In September 1999, the Sports Authority of the County of Wilson, Tennessee issued its Variable Rate Tax Exempt Infrastructure Revenue Bonds, Series 1999, in the amount of $25,900,000. DVD is exposed to market risks related to fluctuations in interest rates for these bonds. A significant change in interest rates could result in the Company being responsible for debt service payments not covered by the capitalized interest fund or the sales and incremental property taxes generated from the facility. Part II - Other Information Item 1. Legal Proceedings - ------- ----------------- On April 4, 2002, the Illinois Supreme Court reversed its earlier decision of April 19, 2001 and ruled that Southwestern Illinois Development Authority ("SWIDA") exceeded its constitutional authority in its acquisition of certain property which it subsequently conveyed to the Company's subsidiary, Gateway International Motorsports Corp. ("Gateway"). The 148.5 acre tract of land at issue was acquired by SWIDA in a quick take eminent domain proceeding and then conveyed to Gateway in 1998 for $1,000,000 in connection with Gateway's need to expand its parking facilities. The circuit court of St. Clair County originally ruled that SWIDA had properly exercised its authority to take the land. This decision was then reversed by an appellate court. In 2001, the Illinois Supreme Court reversed the appellate court's decision and found that the taking was proper. The Court has now reversed that decision and Gateway intends to pursue an appeal to the United States Supreme Court. If the United States Supreme Court does not choose to hear the case or if Gateway is unsuccessful on appeal, it will (a) be required to find other property or alternate means to meet its parking needs, (b) have the $1,000,000 purchase price refunded, and (c) need to expense approximately $350,000 of legal and engineering costs associated with the purchase. In addition, the former land owner has indicated that it intends to make a claim for attorneys fees alleged to approximate $1,000,000. The Company believes that it has viable defenses to and would vigorously contest any such claim. We are also a party to ordinary routine litigation incidental to our business. Management does not believe that the resolution of any of these matters is likely to have a serious negative effect on our results of operations, financial condition or cash flows. Item 2. Changes In Securities And Use Of Proceeds - ------- ----------------------------------------- None. 20 Item 3. Defaults Upon Senior Securities - ------- ------------------------------- None. Item 4. Submission Of Matters To A Vote Of Security Holders - ------- --------------------------------------------------- None. Item 5. Other Information - ------- ----------------- None. Item 6. Exhibits And Reports On Form 8-K - ------- -------------------------------- (a) Exhibits -------- 2.1 Amended and Restated Agreement Regarding Distribution and Plan of Reorganization, dated as of February 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 3.1 Amended and Restated By-laws of Dover Motorsports, Inc. dated April 1, 2002. 10.1 Employee Benefits Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.2 Transition Support Services Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.3 Tax Sharing Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.4 Real Property Agreement, dated as of January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. as filed with the Registration Statement of Dover Downs Gaming & Entertainment, Inc. Number 1-16791 on Form 10 dated February 26, 2002, which was declared effective on March 7, 2002, is incorporated herein by reference. 10.5 Credit Agreement among Dover Downs Entertainment, Inc. and PNC Bank, Delaware, as agent, dated as of February 20, 2002 as filed with the Company's Annual Report on Form 10-K dated March 21, 2002, is incorporated herein by reference. 10.6 Guaranty and Suretyship Agreement by and between Dover Downs International Speedway, Inc., Dover Downs Properties, Inc., Gateway International Motorsports Corporation, Gateway International Services Corporation, Grand Prix Association of Long Beach, Inc., Memphis International Motorsports Corporation, M & N Services Corp, Nashville Speedway, USA, Inc., and PNC Bank, Delaware, as agent, dated as of February 20, 2002 as filed with the Company's Annual Report on Form 10-K dated March 21, 2002, is incorporated herein by reference. 21 (b) Reports on Form 8-K ------------------- The Company filed three Form 8-Ks, one on January 16, 2002, the second on March 7, 2002 and the third on April 1, 2002, all relative to the spin-off of Dover Downs, Inc., the gaming business of DVD, to the Company's stockholders. Signatures ---------- Pursuant to the requirements of 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: May 10, 2002 Dover Motorsports, Inc. -------------- ----------------------- Registrant /s/ Denis McGlynn ----------------- Denis McGlynn President and Chief Executive Officer and Director /s/ Timothy R. Horne -------------------- Timothy R. Horne Vice President-Finance and Chief Financial Officer 22 EX-3.1 3 dex31.txt BYLAWS OF DOVER MOTORSPORTS Exhibit 3.1 BY-LAWS ------- OF -- DOVER MOTORSPORTS, INC. ----------------------- ----------------------------------------------------- ARTICLE I --------- The Corporation --------------- Section 1.1 Name. The title of this Corporation is Dover Motorsports, ----------- ---- 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. Section 2.2 Special Meetings. Special meetings of stockholders for ----------- ---------------- any purpose or purposes may be called at any time by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee or the President and not by any other person. Section 2.3 Notice of Meetings. Whenever stockholders are required or ----------- ------------------ permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 2.4 Adjournments. Any meeting of the stockholders, annual or ----------- ------------ special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2 Section 2.5 Quorum. At each meeting of stockholders, except where ----------- ------ otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.4 of these by-laws until a quorum shall attend. Section 2.6 Organization. Meetings of stockholders shall be presided ----------- ------------ over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.7 Voting; Proxies. Unless otherwise provided in the ----------- --------------- certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock of Common Stock and ten votes for each share of Class A Common Stock held by such shareholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A stockholder entitled to vote may authorize a proxy by means of a writing, by telephone, by the Internet, by other forms of electronic transmission or by any other manner permitted by law. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in 3 person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the certificate of incorporation or these by-laws) the Board of Directors may require a larger vote upon any election or question. Section 2.8 Fixing Date for Determination of Stockholders of Record. ----------- ------------------------------------------------------- In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion of exchange or stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of 4 stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.9 List of Stockholders Entitled To Vote. The Secretary ----------- ------------------------------------- shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 2.10 Action by Consent Of Stockholders. Unless prohibited by ------------ --------------------------------- law or the rules and regulations of any national securities exchange on which securities of the Corporation are listed, action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and stockholders shall have the power to consent in writing, without a meeting, to the taking of any action. Section 2.11 Notice of Stockholder Business at Stockholder Meeting. At ------------ ----------------------------------------------------- the annual meeting or any special meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before meeting, business must be a proper subject for stockholder action under the Delaware General Corporation Law and must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of 5 the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section and who shall be entitled to vote at the meeting. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation and received in the form required by this Section and (a) with respect to an annual meeting, not less than ninety days prior to the anniversary of the prior year's annual meeting of stockholders, or (b) with respect to a special meeting, not less than seven days following the day on which notice of the special meeting has been mailed to stockholders or public disclosure of such meeting was first made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting, (b) as to the stockholder giving such notice (i) the name and address, as they appear on the Corporation's stock ledger, of such stockholder, (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder, and (iii) if the stockholder intends to solicit proxies in support of such stockholder's proposal, a representation to that effect; and (c) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a meeting, except in compliance with the procedures set forth in this Section. Stockholders shall also be required to comply with all applicable requirements of the Securities Exchange Act of 1934 and any national securities exchange on which the Corporation's shares shall be listed. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in compliance with the provisions of this Section, and 6 if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 7 ARTICLE III ----------- Board of Directors ------------------ Section 3.1 Number; Qualifications. The Board of Directors shall ----------- ---------------------- consist of up to the number of directors provided for in the Corporation's Certificate of Incorporation. At the time of nomination, a Director must own not less than 500 shares of common stock in the Corporation. Section 3.2 Election; Resignation; Removal; Vacancies. At each annual ----------- ----------------------------------------- meeting of stockholders, the stockholders shall elect Directors to replace those Directors whose terms then expire. Any Director may resign at any time upon written notice to the Corporation. Stockholders may remove Directors only for cause. Any vacancy occurring in the Board of Directors for any cause may be filled only by the Board of Directors, acting by vote of a majority of the Directors then in office, although less than quorum. Each Director so elected shall hold office until the expiration of the term of office of the Director whom he has replaced. Section 3.3 Notice Of Nomination Of Directors. Nominations for the ----------- --------------------------------- election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. Nominations by a shareholder shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation and received in the form required by these By-laws not less than ninety days prior to the anniversary of the prior year's annual meeting of stockholders or not less than seven days following the day on which notice of any special meeting has been mailed to stockholders calling for the election of directors. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee for the past five years and (iii) evidence of such nominee's 8 qualification under Section 3.1 to these By-laws. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 3.4 Non-Discrimination Statement. Consistent with the ----------- ---------------------------- Corporation's equal employment opportunity policy, nominations for the election of directors shall be made by the Board of Directors and accepted from stockholders in a manner consistent with these By-Laws and without regard to the nominee's race, color, ethnicity, religion, sex, age, national origin, veteran status, handicap or disability. Section 3.5 Regular Meetings. Regular meetings of the Board of ----------- ---------------- Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 3.6 Special Meetings. Special meetings of the Board of ----------- ---------------- Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the Chairman of the Executive Committee, or by the President. Reasonable notice thereof shall be given by the person calling the meeting, not later than the second day before the date of the special meeting. Section 3.7 Telephonic Meetings Permitted. Members of the Board of ----------- ----------------------------- Directors, or any committee designated by the Board, may participate in any meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. No electronic recording or stenographic transcription of any meeting of the Board or any committee shall be permitted without the consent of a majority of the Board or committee members present at the meeting and no recording or 9 transcription made in violation of these By-laws shall be disclosed to any third person, admissible in any proceeding or used in any fashion. Section 3.8 Quorum; Vote Required For Action; Informal Action. At all ----------- ------------------------------------------------- meetings of the Board of Directors a majority of the whole Board shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation or these by-laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee. Section 3.9 Organization. Meetings of the Board of Directors shall be ----------- ------------ presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the President, or in his absence by the Chairman of the Executive Committee, if any, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as a secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.10 Compensation Of Directors. The Directors and members of ----------- ------------------------- standing committees shall receive such fees or salaries as fixed by resolution of the Executive Committee and in addition will receive expenses in connection with attendance or participation in each regular or special meeting. 10 ARTICLE IV ---------- Committees ---------- Section 4.1 Committees. The Board of Directors may, by resolution ----------- ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the certificate of incorporation of the Corporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange or all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these by-laws. The Board of Directors shall, at the annual organization meeting thereof, elect an Executive Committee which shall consist of not more than three members, all of whom shall be members of the Board of Directors. The Executive Committee shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation to the fullest extent permitted by law (as presently allowed under Section 141 (c) to the Delaware General Corporation Law as revised effective July 1, 1996, and 11 as may be allowed in the future pursuant to amendments or revisions to applicable law). Any Director may be removed from any committee of the Board with or without cause by the affirmative vote of a majority of the entire Board of Directors. Section 4.2 Committee Rules. Unless the Board of Directors otherwise ----------- --------------- provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these by-laws. 12 ARTICLE V --------- Officers -------- Section 5.1 Executive Officers; Election; Qualifications; Term of ----------- ----------------------------------------------------- Office; Resignation; Removal; Vacancies. The officers of the Corporation shall - --------------------------------------- consist of a President, Vice Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other officers as may from time to time be elected or appointed by the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. In the absence of any officer, the Board of Directors may delegate his power and duties to any other officer or to any director for the time being. Section 5.2 Duties Of The Chairman Of The Board. The Chairman of the ----------- ----------------------------------- Board shall preside at all meetings of the shareholders and the Board, shall have general and active management of the business of the Corporation and shall perform such duties as the Board of Directors may prescribe. The Chairman of the Board shall not be deemed an executive officer of the Corporation if he is a non-employee director and shall otherwise be an executive officer of the Corporation only if specifically designated as such by the Board of Directors at the time of his election or appointment. Section 5.3 President. The President shall be the Chief Executive ----------- --------- Officer of the Corporation, may execute in the name of the Corporation all contracts and agreements authorized by the Board or the Executive Committee. He may sign certificates of stock; he shall have general supervision and direction of all the other officers of the Corporation; he shall submit a complete 13 report of the operations and condition of the Corporation for the year to the Chairman and to the directors at their regular meetings, and from time to time shall report to the directors all matters which the interest of the Corporation may require to be brought to their notice. He shall have the general powers and duties usually vested in the office of a President of a corporation. Section 5.4 Vice President - Finance. The Vice President - Finance ----------- ------------------------ shall be the Chief Accounting and Chief Financial Officer of the Corporation and shall be responsible to the Board of Directors, the Executive Committee and the President for all financial control and internal audit of the Corporation and its subsidiaries. He shall perform such other duties as may be assigned to him by the Board of Directors, the Executive Committee or the President. Section 5.5 Vice Presidents. The Vice Presidents elected or appointed ----------- --------------- by the Board of Directors shall perform such duties and exercise such powers as may be assigned to them from time to time by the Board of Directors, the Executive Committee or the President. In the absence or disability of the President, the Vice President designated by the Board of Directors, the Executive Committee, or the President shall perform the duties and exercise the powers of the President. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties. Section 5.6 Secretary. The Secretary shall be ex-officio Secretary of ----------- --------- the Board of Directors and of the standing committees. He shall attend all sessions of the Board, act as clerk thereof, record all votes and keep the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for the standing committees when required. He shall see that the proper notices are given of all meetings of stockholders and directors, and perform such other duties as may be prescribed from time to time by the Board of Directors, the Executive Committee, the Chairman or the President, and shall be sworn to the faithful discharge of his duties. Section 5.7 Treasurer. The Treasurer shall keep full and accurate ----------- --------- accounts of receipts 14 and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or Executive Committee. He shall disburse the funds of the Corporation as may be ordered by the Board, the Executive Committee or the President, taking proper vouchers therefor, and shall render to the President and the Executive Committee and Directors, whenever they may require it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and at the annual organization meeting of the Board a like report for the preceding year. Section 5.8 General Counsel. The General Counsel shall be the legal ----------- --------------- adviser of the Corporation and shall perform such services as the Chairman, President, Board of Directors or Executive Committee may require. 15 ARTICLE VI ---------- Stock ----- Section 6.1 Certificates. Every holder of stock shall be entitled to ----------- ------------ have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of ----------- --------------------------------------------------------- New Certificates. The Corporation may issue a new certificate of stock in the - ---------------- place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. 16 ARTICLE VII ----------- Indemnification --------------- Section 7.1. General. The Company shall indemnify, and advance ----------- ------- Expenses (as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest extent permitted by applicable law in effect on the adoption of these By-Laws, and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Article. Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of ----------- -------------------------------------------------------- The Company. Indemnitee shall be entitled to the indemnification rights provided - ----------- in this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee ----------- --------------------------------------------- shall be entitled to the indemnification rights provided in this Section 7.3 to the fullest extent permitted by law if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against Expenses, 17 judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company. Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or ----------- -------------------------------------------------------- Partly Successful. Notwithstanding any other provision of this Article, to the - ----------------- extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding ----------- ----------------------------------------- any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7.6. Advancement Of Expenses. The Company shall advance all ----------- ----------------------- reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to 18 repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 7.7. Procedure For Determination Of Entitlement To ----------- --------------------------------------------- Indemnification. - --------------- (a) To obtain indemnification under this Article, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The determination of Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Company of the written request for indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Indemnitee's entitlement to indemnification under any of Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the Board of Directors by a majority vote of a quorum of the Board consisting of Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel (as hereinafter defined), in a written opinion, if (A) a Change of Control (as hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs; or (iii) by the stockholders of the Company; or (iv) as provided in Section 7.8 of this Article. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the Independent Counsel shall be selected as provided in this Section 7.7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change 19 of Control shall have occurred, and if so requested by Indemnitee in his written request for indemnification, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 7.13 of this Article, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected shall be disqualified from acting as such. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this Section 7.7(c), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in acting pursuant to Section 7.7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7.7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Section 7.8. Presumptions And Effect Of Certain Proceedings. If a ----------- ---------------------------------------------- Change of Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request for indemnification in accordance with Section 7.7(a) of this Article, and thereafter the Company shall have the burden of proof to overcome that presumption in reaching a determination contrary to that 20 presumption. Whether or not a Change of Control shall have occurred, if the person or persons empowered under Section 7.7 of this Article to determine entitlement to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, --------------- shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 7.9. Remedies Of Indemnitee. ----------- ---------------------- (a) In the event that (i) a determination is made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification under this Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6 of this Article, or (iii) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or 21 award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7.9 shall be conducted in all respects as a de novo trial, or ------- arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7.9, unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article. (e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 7.13 of this Article) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the 22 indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of ------------ -------------------------------------- indemnification and to receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. Notwithstanding any amendment, alteration or repeal of any provision of this Article, Indemnitee shall, unless otherwise prohibited by law, have the rights of indemnification and to receive advancement of Expenses as provided by this Article in respect of any action taken or omitted by Indemnitee in his Corporate Status and in respect of any claim asserted in respect thereof at any time when such provision of this Article was in effect. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators. Section 7.11. Severability. If any provision or provisions of this ------------ ------------ Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 23 Section 7.12. Certain Persons Not Entitled To Indemnification Or ------------ -------------------------------------------------- Advancement Of Expenses. Notwithstanding any other provision of this Article, no - ----------------------- person shall be entitled to indemnification or advancement of Expenses under this Article with respect to any Proceeding, or any claim therein, brought or made by him against the Company. Section 7.13. Definitions. For purposes of this Article: ------------ ----------- (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (b) "Corporate Status" describes the status of a person who is or was a director, 24 officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Article. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 25 7.9 of this Article to enforce his rights under this Article. Section 7.14. Miscellaneous. Use of the masculine pronoun shall be ------------ ------------- deemed to include usage of the feminine pronoun where appropriate. 26 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 27 the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.4 Attorneys' Fees in Shareholder Actions. No ----------- -------------------------------------- stockholder shall bring any action against the Corporation or any officer or director of the Corporation (in their respective capacities), unless such stockholder and any person controlling such stockholder shall have entered an agreement with the Corporation, reasonably satisfactory to it, requiring the losing party to pay to the prevailing party the attorneys' fees and expenses incurred by the prevailing party in such action. As used in this Section 8.4, the term "person" shall have the meaning given it in Section 13(d) of the Securities Exchange Act of 1934 ("Exchange Act"), and the term "controlling" shall have the meaning given it in Rule 12b-2 under the Exchange Act. This provision shall not apply to any action or claim arising before this provision shall have become effective. Section 8.5 Form Of Records. Any records maintained by the ----------- --------------- Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, tape, disc, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.6 Amendment Of By-Laws. The Board of Directors of the ----------- -------------------- Corporation is expressly authorized to adopt, amend or repeal the by-laws of the Corporation by a vote of a majority of the entire Board. The stockholders may make, alter or repeal any by-law whether or not 28 adopted by them, provided however, that any such additional by-laws, alterations or repeal may be adopted only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class), unless such additional by-laws, alterations or repeal shall have been recommended to the stockholders for adoption by a majority of the Board of Directors, in which event such additional by-laws, alterations or repeal may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Section 8.7 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 29 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 30 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. 31 -----END PRIVACY-ENHANCED MESSAGE-----