-----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, T6wmihAYWkBvf1V/DCfBIZ6YPTRkabttQoTQMjqXR2aAHOUxiPnLUIfg5i2AhMLf Vnpyoc27JYnUv/Rt5rvNqg== /in/edgar/work/20000823/0001017673-00-000015/0001017673-00-000015.txt : 20000922 0001017673-00-000015.hdr.sgml : 20000922 ACCESSION NUMBER: 0001017673-00-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOVER DOWNS ENTERTAINMENT INC CENTRAL INDEX KEY: 0001017673 STANDARD INDUSTRIAL CLASSIFICATION: [7900 ] IRS NUMBER: 510357525 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11929 FILM NUMBER: 708543 BUSINESS ADDRESS: STREET 1: 1131 N DUPONT HIGHWAY CITY: DOVER STATE: DE ZIP: 19901 BUSINESS PHONE: 3027644600 MAIL ADDRESS: STREET 1: 2200 CONCORD PIKE CITY: WILMINGTON STATE: DE ZIP: 19803 10-K 1 0001.txt _________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________________________________________________________ FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2000 or /__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _______________ Commission file number 1-11929 DOVER DOWNS ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0357525 (State of Incorporation) (I.R.S. Employer Identification Number) 1131 North DuPont Highway, Dover, Delaware 19901 (Address of principal executive offices) Registrant's telephone number including area code: (302) 674-4600 Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of exchange on which registered Common Stock, $.10 Par Value NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /__/ The aggregate market value of the voting stock held by non- affiliates of the registrant was $153,149,847 as of July 31, 2000. As of July 31, 2000, the number of shares of each class of the Registrant's common stock outstanding is as follows: Common Stock - 13,796,500 shares Class A Common Stock - 24,054,985 shares The following documents are incorporated by reference: Document Part of this form into which incorporated Proxy Statement in connection with Annual Meeting of Shareholders to be held October 27, 2000 III ITEM 1. BUSINESS. Dover Downs, Inc. was incorporated in Delaware in 1967 and, as a result of a corporate reorganization completed in 1996, it became a 100% owned subsidiary of Dover Downs Entertainment, Inc. ("Dover Downs" or "the Company"). Dover Downs is a leading promoter of motorsports events in the United States. The Company operates five motorsports tracks (four permanent facilities and one temporary circuit) in four states and promoted 15 major events during fiscal 2000 in the four premier sanctioning bodies in motorsports - the National Association for Stock Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART), the Indy Racing League (IRL) and the National Hot Rod Association (NHRA). Dover Downs also owns and operates the Dover Downs Raceway harness racing track and an 80,000 square foot video lottery (slot) casino at a multi-purpose gaming and entertainment complex in Dover, Delaware. The facility is located in close proximity to the major metropolitan areas of Philadelphia, Baltimore and Washington, D.C. (a) Recent Developments On March 3, 2000, the Company completed the issuance of 1,500,000 additional shares of Common Stock through a public offering resulting in net proceeds to the Company of $19,185,000. The Company used the net proceeds of the offering to pay down a portion of its borrowings under its revolving line of credit facility. In December 1999, the Company commenced construction of a luxury hotel, which will be located adjacent to the motorsports and gaming operations in Dover, Delaware. The hotel, which is expected to open by the end of 2001, will be constructed in two phases. The first phase will include 232 rooms, a multi-purpose ballroom/concert hall and fine dining restaurant. Additional construction to occur during the first phase includes renovating the enclosed harness racing grandstand, building a central HVAC plant, and expanding the buffet in the Winners Circle Dining Room. The second phase is expected to include an additional 250 rooms. On November 1, 1999, the Company entered into a $125,000,000 amended and restated revolving credit agreement with several banks. Interest is based, at the Company's option, upon (i) LIBOR plus .75% or (ii) the base rate (the greater of the prime rate or the federal funds rate plus .5%) minus 1%. The agreement, which expires on November 1, 2002, is for seasonal funding needs, capital improvements and other general corporate purposes. The agreement contains certain restrictive covenants and requires the Company to maintain certain financial ratios. On August 26, 1999, the Company broke ground on its state-of-the-art Nashville Superspeedway complex. The new 1.33-mile superspeedway will have an initial capacity of 50,000 seats and an infrastructure in place for more than 150,000 seats. Additionally, the first phase of construction will include lights at the superspeedway to allow for nighttime racing and the foundation work for a dirt track, short track and drag strip to be completed in future phases. The facility is expected to open in April 2001. In February 1999, NASCAR announced that it would retain the television, audio and other electronic media rights for Winston Cup and Busch Series events beginning with the 2001 race season. In November 1999, NASCAR completed negotiations on a new six-year television rights agreement with the NBC and Turner networks and an eight-year agreement with Fox and its FX cable network. NASCAR has announced that the industry-wide domestic television broadcast revenues will be approximately $244 million for the 2001 race season and increase at an average annual rate of approximately 17% through the 2006 race season. During fiscal 2000, 12,500 grandstand seats were added at Dover Downs International Speedway, increasing the total seating capacity to approximately 135,000. Memphis Motorsports Park added approximately 6,000 permanent seats and 13 skybox suites to bring the total capacity at that facility to approximately 26,000. Gateway International Raceway added approximately 18,000 permanent seats to bring the total capacity at the facility to approximately 70,000. Additionally, lights were added to allow nighttime racing and a tunnel was constructed under the racetrack to allow movement in and out of the infield during an event. The Company also expanded its casino gaming facility by 15,000 square feet in March 2000 and concurrently increased the number of slot machines installed to 2,000, the current number allowed by state law. (b) Financial Information About Operating Segments. The Company's principal operations are grouped into two segments: motorsports and gaming. Financial information concerning these businesses is included on pages 11 through 16 and page 39 of this fiscal 2000 Annual Report on Form 10-K. (c) Narrative Description of Business Motorsports Motorsports is one of the fastest growing and most popular spectator sports in the United States. According to the most recent Goodyear Racing Attendance Report, 1998 attendance at all United States motorsports events exceeded 17 million people. According to Nielsen Media Research, more than 258 million people tuned to NASCAR's televised events in 1998. Management believes that the demographic profile of this growing base of spectators and viewing audience has considerable appeal to sponsors and advertisers, including leading consumer product and manufacturing companies that have expanded their participation in the motorsports industry. According to the IEG Sponsorship Report, in 1999 corporate sponsors spent approximately $1.23 billion on motorsports marketing programs in the United States, and, in the year 2000, are expected to spend approximately $1.35 billion, or 23% of all sports sponsorship dollars, on motorsports marketing programs in the United States. Dover Downs International Speedway Dover Downs has presented NASCAR-sanctioned racing events for 32 consecutive years at Dover Downs International Speedway and conducts four major NASCAR-sanctioned events at the facility annually. Two races are associated with the Winston Cup professional stock car racing circuit and two races are associated with the Busch Series, Grand National Division (Busch Series) racing circuit. The Company recently has added a NASCAR Craftsman Truck Series event beginning with the September 2000 race weekend and will become one of only three tracks to host three major NASCAR events at one facility on the same weekend. The Company also hosted an Indy Racing League ("IRL") event at Dover Downs International Speedway in August 1999 and July 1998. Each of the Busch Series events at Dover Downs International Speedway is conducted on the day before a Winston Cup event. Dover Downs International Speedway is one of only six speedways in the country that presents two Winston Cup events and two Busch Series events each year. The June and September dates have historically allowed Dover Downs International Speedway to hold the first and last Winston Cup events in the Maryland to Maine region each year. Dover Downs International Speedway is a high-banked, one-mile long, concrete superspeedway with a current seating capacity of approximately 135,000. Unlike some superspeedways, substantially all grandstand and skybox seats offer an unobstructed view of the entire track. The concrete racing surface makes the auto racing track the only concrete superspeedway (one mile or greater in length) that conducts NASCAR- sanctioned events. Nashville Speedway USA Nashville Speedway USA hosted its first automotive race in 1904, making it one of the oldest tracks in the country. The facility currently hosts events in three of NASCAR's top national series - the Busch Series, the Craftsman Truck Series and the Slim Jim All Pro Series. Based on attendance, the track's Saturday night NASCAR Weekly Racing Series is regarded as one of the most successful weekly programs in the country. The Company acquired Nashville Speedway USA on January 2, 1998. To accommodate the demand for major motorsports in the Nashville area, the Company is constructing a new superspeedway and motorsports complex in Wilson County, Tennessee. The 1.33-mile superspeedway initially will have 50,000 grandstand seats with an infrastructure in place to expand to 150,000 seats should demand require it. The Company expects the new Nashville Superspeedway to open during the 2001 race season with a strong schedule of events, including the NASCAR national events currently held at Nashville Speedway USA. Grand Prix Association of Long Beach For the past 26 years, the Grand Prix Association of Long Beach, Inc. has organized and promoted the CART-sanctioned Grand Prix of Long Beach, an annual temporary circuit professional motorsports event run in the streets of Long Beach, California. The Grand Prix of Long Beach has the second highest paid attendance of any Indy-style car race, second only to the Indianapolis 500. The Grand Prix of Long Beach weekend has attracted in excess of 200,000 spectators in each of the past seven years and is currently broadcast to more than 125 countries throughout the world. The Company acquired the Grand Prix Association of Long Beach, Inc. on July 1, 1998. Gateway International Raceway Gateway International Raceway ("Gateway"), acquired in the Grand Prix Association of Long Beach acquisition, has conducted NASCAR-, CART- and NHRA-sanctioned events since its opening in May 1997. In the 2001 race season, an IRL event will replace the CART event. The auto racing facility includes a 1.25-mile oval track and road course with current seating capacity of 70,000 and a national-caliber drag strip capable of seating approximately 30,000 people. The facility, which is equipped with lights for nighttime racing, is located on approximately 416 acres of land in Madison, Illinois, five miles from the St. Louis Arch. Memphis Motorsports Park Memphis Motorsports Park, also acquired in the Grand Prix Association of Long Beach acquisition, has hosted NHRA-sanctioned events for the past 12 years and NASCAR-sanctioned events since the completion of the 3/4-mile paved tri-oval track in June 1998. The tri-oval track was expanded recently to bring its seating capacity to approximately 26,000 seats and to add luxury suites for the inaugural Busch Series event held in October 1999. The Company currently is adding approximately 5,000 seats and five luxury suites for the October 2000 Busch Series event. The drag strip hosts an NHRA national event and has a seating capacity in excess of 25,000. Other In recent years, television coverage and corporate sponsorship have increased for NASCAR-sanctioned events. The Company's NASCAR- sanctioned events are currently televised live by TNN and the ESPN networks to a nationwide audience and broadcast nationally to a network of radio stations affiliated with the Motor Racing Network. The television and radio contracts historically have been negotiated by the Company. In February 1999, NASCAR announced that it would retain the television, audio and other electronic media rights for Winston Cup and Busch Series events beginning with the 2001 race season. In November 1999, NASCAR completed negotiations on a new six-year television rights agreement with the NBC and Turner networks and an eight-year agreement with Fox and its FX cable network. NASCAR has announced that the industry-wide domestic television broadcast revenues will be approximately $244 million for the 2001 race season and increase at an average annual rate of approximately 17% through the 2006 racing season. Gaming The Company's gaming operations are located at its flagship property in Dover, Delaware. The Dover facility is a multi-purpose gaming and entertainment complex housing an 80,000 square foot Las Vegas-style casino with 2,000 video lottery (slot) machines, which is managed by Caesars World Gaming Development Corporation ("Caesars"). Dover Downs Raceway, a 5/8-mile harness horse racetrack with a state-of-the-art simulcasting parlor, is located adjacent to the casino. In fiscal 2000, approximately 96% of the Company's gaming revenue was attributable to its video lottery (slot) machine casino. Dover Downs Slots The Company's video lottery (slot) machine casino opened in December 1995 with approximately 500 video lottery (slot) machines. Due to its popularity, the video lottery (slot) machine casino has expanded three times since its opening and the number of machines has increased steadily to its current level of 2000. The most recent expansion of the gaming operations was completed in March 2000. The video lottery (slot) machines range from the increasingly popular nickel machines to $20 machines in the newly created Premium Slots area. Additional amenities include the Garden Cafe, which becomes a lounge with live entertainment every evening, the all-you-can-eat buffet in the Winners Circle Dining Room, and a 1,400-seat concert hall featuring national recording acts. The Delaware State Lottery Office administers and controls the video lottery (slot) machine operations. The Company is a licensed agent authorized to conduct video lottery operations under the Delaware State Lottery Code and is one of only three locations permitted to do so in the State of Delaware. Dover Downs is permitted by law to set the payout to customers between 87% and 95%. Since the introduction of the video lottery (slot) machine operations, the Company has maintained an average payout of approximately 91%. The Company has a long-term management agreement with Caesars. Under the agreement, Caesars is the exclusive agent to supervise, manage and operate the Company's video lottery (slot) machine casino. Caesars has been properly licensed by the Delaware State Lottery Office to perform these functions. The Company also is developing a luxury hotel facility adjacent to the Dover gaming operations to attract new patrons and lengthen the stay of current patrons. The hotel, which is expected to open by the end of 2001, will be constructed in two phases. The first phase will include 232 rooms, a multi-purpose ballroom/concert hall and a fine dining restaurant. Additional construction to occur during the first phase includes renovating the enclosed harness racing grandstand, building an HVAC power plant, and expanding the buffet in the Winners Circle Dining Room. The second phase is expected to include an additional 250 rooms. Dover Downs Raceway Dover Downs Raceway has presented pari-mutuel harness racing events for 32 consecutive years. The harness horse racing track is a 5/8-mile track and is lighted for nighttime operations. The track is located inside the one-mile auto racing superspeedway. Live harness races conducted at Dover Downs Raceway are simulcast to tracks and other off-track betting locations across North America on each of the Company's more than 120 live race dates. During fiscal 2000, the Company's races were transmitted to more than 400 tracks and off-track betting locations. Dover Downs Raceway has facilities for pari-mutuel wagering on both live harness horse racing and on simulcast thoroughbred and harness horse racing received from numerous tracks across North America. Within the main grandstand is the simulcast parlor where patrons can wager on harness and thoroughbred races received by satellite into Dover Downs year round. Television monitors throughout the parlor area provide views of all races simultaneously and the parlor's betting windows are connected to a central computer allowing bets to be received on all races from all tracks. Harness racing in the State of Delaware is governed by the Delaware Harness Racing Commission. The Company holds a license from the Commission authorizing it to hold harness race meetings on the Company's premises and to offer pari-mutuel wagering on live and simulcast horse races. Competition Motorsports The Company's racing events compete with other racing events sanctioned by various racing bodies and with other sports and recreational events scheduled on the same dates. Racing events sanctioned by different organizations are often held on the same dates at separate tracks. The quality of the competition, type of racing event, caliber of the event, sight lines, ticket pricing, location, and customer conveniences, among other things, distinguish the motorsports facilities. The two speedways closest to Dover Downs International Speedway that currently sponsor Winston Cup races are in Richmond, Virginia (approximately four hours to the South) and Pocono International Raceway in Long Pond, Pennsylvania (approximately three and one-half hours to the North). Nazareth Speedway in Nazareth, Pennsylvania (approximately three hours to the North) currently conducts Busch Series, Craftsman Truck Series and CART series races. The speedways closest to Nashville Speedway USA and the new Nashville Superspeedway complex are the Atlanta Motor Speedway (approximately four and one-half hours to the southeast) and Talladega Superspeedway (approximately four and one-half hours to the south). Atlanta Motor Speedway currently hosts two Winston Cup races, one Busch Series race and one IRL race. Talladega Superspeedway currently hosts two Winston Cup races and one Busch Series race. The closest motorsports events to the Grand Prix of Long Beach event are CART- and NASCAR-sanctioned events at the California Speedway in Fontana, California (approximately one hour from Long Beach). The speedway closest to Gateway International Raceway is Indianapolis Motor Speedway (approx-imately four and one-half hours to the east), which currently conducts one Winston Cup race and one IRL race, as well as a recently added Formula One event. A new speedway is being constructed near Kansas City, Kansas (approximately four and one-half hours to the west), which is expected to be completed for the 2001 race season. The Kansas Speedway will conduct a Craftsman Truck Series, Busch Series, Winston Cup Series and an IRL event in its first race season. The speedway closest to Memphis Motorsports Park is Talladega Superspeedway (approximately five and one-half hours to the southeast). Based on historical data, management does not believe that any of the competing facilities significantly impact the Company's operations, although they may impact the Company's ability to secure additional events in the future. Gaming The legalization of additional casino and other gaming venues in states close to Delaware, particularly Maryland, Pennsylvania or New Jersey, may have a significant impact on the Company's business. From time to time, legislation has been introduced in these states that would further expand gambling opportunities, including video lottery (slot) machines at horse-tracks. At present, video lottery (slot) machines are only permitted at two other locations in Delaware: Delaware Park and Harrington Raceway. The neighboring states of Pennsylvania and Maryland do not presently permit video lottery (slot) machine operations. Pennsylvania, Maryland and New Jersey all have state-run lotteries. Atlantic City, New Jersey is located approximately 100 miles from Dover Downs and offers a full range of gaming products. Competition in horse racing is varied since racetracks in the surrounding area differ in many respects. Some tracks only offer thoroughbred or harness horse racing; others have both. Tracks have live racing seasons that may or may not overlap with neighboring tracks. Depending on the purse structure, tracks that are farther apart may compete with each other more for quality horses than for patrons. Live harness racing also competes with simulcasts of thoroughbred and harness racing. All racetracks in the region are involved with simulcasting. In addition, a number of off-track betting parlors compete with track simulcasting activities. With respect to the simulcasting of the Company's live harness races to tracks and other locations, its simulcast signals are in direct competition with live races at the receiving track and other races being simulcast to the receiving location. Within the State of Delaware, Dover Downs faces little direct live competition from the State's other two tracks. Harrington Raceway, a south central Delaware fairgrounds track, conducts harness horse racing periodically between May and November. There is no overlap presently with Dover Downs' live race season. Delaware Park, a northern Delaware track, conducts thoroughbred horse racing from April through mid- November. Its race season only overlaps with Dover Downs' for approximately six weeks each year. The neighboring states of Pennsylvania, Maryland and New Jersey all have harness and thoroughbred racing and simulcasting. Dover Downs competes with Rosecroft Raceway in Maryland, Philadelphia Park in Pennsylvania, Garden State Park and The Meadowlands in New Jersey and a number of other racetracks in the surrounding area. The Company also receives simulcast harness and thoroughbred races from approximately 30 race tracks, including the tracks noted above. In addition, the Company's gaming activities compete with other leisure, entertainment and recreational activities. Seasonality The Company derives a substantial portion of its total revenues from admissions and event-related revenue attributable to its major motorsports events which are currently held from April through October. As a result, the Company's business is highly seasonal. The seasonality is offset to some degree by the Company's year-round video lottery (slot) machine gaming operations and year-round simulcasting. Number of Employees At June 30, 2000, the Company had a total of 641 full-time employees and 291 part-time employees. The Company hires temporary employees to assist during its auto racing events and its live harness racing season. ITEM 2. PROPERTIES. Dover Properties The Company maintains its headquarters, motorsports superspeedway (Dover Downs International Speedway), harness racing track, and video lottery casino all on approximately 825 acres of land owned by the Company in Dover, Delaware. Nashville Speedway USA Properties The current Nashville racing facility is located on 12 acres of land in Nashville, Tennessee and is leased from the Metropolitan Board of Fair Commissioners through fiscal 2008. Additionally, the Company has acquired approximately 1,465 acres of land in Wilson and Rutherford counties, Tennessee that currently is being developed into a new superspeedway complex. Long Beach Properties The Company owns its office at 3000 Pacific Avenue, Long Beach, California, which consists of approximately 82,000 square feet of land and a building with approximately 50,000 square feet of office and warehouse space. The Company leases a 750-square foot ticket office in downtown Long Beach for the sale of Grand Prix of Long Beach tickets and leases storage facilities in Long Beach for its equipment and structures. Gateway International Raceway Property Gateway International Raceway is located on approximately 416 acres of land in Madison, Illinois, five miles from the St. Louis Arch. The Company owns approximately 123 acres and has three long-term leases (expiring in 2011, 2026 and 2070) for an additional 259 acres, with purchase options. The Company is also a party to a ten-year lease (with four five-year renewals) of 20 acres for the purpose of providing overflow parking for major events on a neighboring golf course, and a five-year lease of approximately 14 acres for major event parking. The Company has granted a first mortgage lien on all the real property owned and a security interest in all property leased by the Company at Gateway to Southwestern Illinois Development Authority (SWIDA) as security for the repayment of principal and interest on its $21.5 million loan from SWIDA. Memphis Motorsports Park Property Memphis Motorsports Park is located on 374 acres of land owned by the Company approximately ten miles northeast of downtown Memphis, Tennessee. The facility is encumbered by a first trust deed to First Tennessee Bank for the purpose of securing a standby letter of credit issued by First Tennessee Bank to Gateway International Motorsports Corporation to secure its debt service reserve fund obligation to SWIDA. ITEM 3. LEGAL PROCEEDINGS. A group made up of Wilson County and Rutherford County, Tennessee residents filed a complaint in the Chancery Court for Wilson County, Tennessee contesting the rezoning of the land upon which the new Nashville Superspeedway complex will be situated. The litigation, if successful, would prevent, or at least significantly postpone, the development of the facility. Management believes the rezoning was done properly and is vigorously contesting the litigation. On May 30, 2000, the Chancery Court ruled in favor of the Company's position on a motion for summary judgment. That ruling has been appealed by the plaintiffs to the Court of Appeals for the State of Tennessee. Based on the advice of counsel, management continues to believe that the litigation is unlikely to succeed on its merits. The Company is also 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 negative effect on the Company's financial condition or profitability. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Common Stock of Dover Downs Entertainment, Inc. has traded on the New York Stock Exchange under the symbol "DVD" since the Company's initial public offering on October 3, 1996. There is no established public trading market for the Company's Class A Common Stock. As of July 31, 2000, there were 13,796,500 shares of Common Stock and 24,054,985 shares of Class A Common Stock outstanding. There were 1,127 record holders of Common Stock and 20 record holders of Class A Common Stock at July 31, 2000. The range of share prices for the Common Stock on the New York Stock Exchange and per share dividends declared on Common Stock for the fiscal years ended June 30, 2000 and 1999 are as follows: Prices Dividends 2000 1999 2000 1999 High Low High Low Fiscal Quarter (1) First ... $ 17 15/16 $13 1/2 $16 9/16 $12 7/16 $.045 $.04 Second... 20 13 5/8 13 7/8 10 3/16 .045 .045 Third.... 17 13/16 11 1/16 15 1/2 12 1/4 .045 .045 Fourth... 14 11 3/16 19 7/16 14 7/8 .045 .045 (1) Prior year amounts have been adjusted to give retroactive effect to a two-for-one stock split distributed on September 15, 1998. ITEM 6. SELECTED FINANCIAL DATA. Five Year Selected Financial Data (In Thousands, Except Per Share Data) Year Ended June 30, 2000 1999(3) 1998 1997 1996 Revenues: Motorsports $ 77,311 $ 68,683 $ 25,874 $ 20,516 $ 18,110 Gaming (1) 168,561 139,249 115,071 81,162 31,980 245,872 207,932 140,945 101,678 50,090 Earnings before income taxes 54,472 45,771 37,655 28,239 15,593 Net earnings 31,925 26,891 21,913 16,472 9,196 Earnings per common share(2) - basic .88 .76 .72 .55 .34 - diluted .86 .74 .70 .54 .32 Dividends per common share(2) $ .18 $ .175 $ .16 $ .08 $ - At June 30, Total assets $316,778 $255,212 $ 95,777 $ 71,261 $ 42,311 Long-term debt, net of current portion 35,540 36,625 741 760 766 Shareholders' equity $217,791 $172,658 $ 71,365 $ 54,300 $ 23,715 (1) Gaming revenues from the Company's video lottery (slot) machine gaming operations include the total win from such operations. The Delaware State Lottery Office collects the win and remits a portion thereof to the Company as its commission for acting as a Licensed Agent. The difference between total win and the amount remitted to the Company is reflected in operating expenses. (2) Prior year per share amounts have been adjusted to give retroactive effect to a two-for-one stock split distributed on September 15, 1998. (3) The Grand Prix Association of Long Beach, Inc. was acquired on July 1, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. As you read the following, you also should review the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Results of Operations Fiscal Year 2000 Compared With Fiscal Year 1999 Total revenues increased by $37,940,000 to $245,872,000 as a result of growth in both operating segments of the Company. Gaming revenues increased by $29,312,000 or 21.1% to $168,561,000, the result of having an average of 1,723 video lottery (slot) machines in fiscal 2000 compared with an average of 1,191 video lottery (slot) machines in fiscal 1999, and expanded marketing and promotional activities related to the Company's video lottery casino. Motorsports revenues increased by $8,628,000 or 12.6% to $77,311,000. Approximately $2,214,000 of the revenue increase resulted from increased attendance and $995,000 from increased ticket prices for the NASCAR-sanctioned events at Dover Downs International Speedway. The remainder of the increase was principally from increased broadcast rights fees, sponsorship, concessions and marketing-related revenues at Dover Downs International Speedway and the addition of a Busch Series event at Memphis Motorsports Park in the second quarter of fiscal 2000. The aforementioned increases in motorsports revenues were offset somewhat by the rescheduling of the CART-sanctioned event at Gateway International Raceway from May 2000 to September 2000. Operating expenses increased by $27,340,000 reflecting the higher revenues. Amounts retained by the State of Delaware, including amounts collected for payment to the vendors under contract with the State who provide the video lottery machines and associated computer systems and gross fees to the manager who operates the video lottery (slot) machine casino, increased by $11,074,000 in fiscal 2000. Amounts allocated from the video lottery operation for harness horse racing purses were $18,308,000 in fiscal 2000 compared with $15,173,000 in fiscal 1999. Wages and related employee benefits increased by $2,751,000 in fiscal 2000. Motorsports operating expenses increased principally due to a $2,319,000 increase in purse and sanction fee expenses at Dover Downs International Speedway, and from the addition of a Busch Series event at Memphis Motorsports Park in the second quarter of fiscal 2000, offset by the rescheduling of the CART-sanctioned event at Gateway International Raceway. Depreciation and amortization increased by $1,371,000 or 19.3% due to capital expenditures related to the Company's various motorsports facilities and the casino expansions completed in fiscal 2000 and 1999. General and administrative expenses increased by $740,000 to $11,953,000 from $11,213,000, primarily due to the growth at the Company's various motorsports facilities and in its gaming business in Dover, Delaware. As a percentage of total revenues, the Company's general and administrative costs decreased to 4.9% from 5.4% in fiscal 1999. Interest expense was $1,140,000 in fiscal 2000 compared to $1,352,000 in fiscal 1999. The interest expense resulted from borrowings on the revolving credit agreement and interest expense relating to the outstanding long-term debt, offset by the capitalization of $1,975,000 and $682,000 of interest in fiscal 2000 and 1999, respectively, related to the construction of major facilities. The Company's effective income tax rates for the fiscal years ended June 30, 2000 and 1999 were 41.4% and 41.2%, respectively. Net earnings increased by $5,034,000, primarily due to the increased play in the casino, higher attendance and related revenues as well as an increase in the broadcast rights fees for the NASCAR-sanctioned motorsports events presented at Dover Downs International Speedway and the addition of a Busch Series event at Memphis Motorsports Park, offset by the rescheduling of the CART-sanctioned event at Gateway International Raceway from May 2000 to September 2000. Fiscal Year 1999 Compared With Fiscal Year 1998 Revenues increased by $66,987,000 to $207,932,000 as a result of growth in the historical business of the Company and the acquisition of Grand Prix Association of Long Beach, Inc. ("Grand Prix") on July 1, 1998. Gaming revenues increased by $24,178,000 or 21.0% to $139,249,000, the result of having an average of 1,191 video lottery (slot) machines in fiscal 1999 compared with an average of 1,000 video lottery (slot) machines in fiscal 1998, and expanded marketing and promotional activities related to the Company's video lottery casino. Motorsports revenues increased by $42,809,000 or 165.5% to $68,683,000. Approximately $2,432,000 of the revenue increase resulted from increased attendance, $637,000 from increased ticket prices and $1,598,000 from adding an IRL event at Dover Downs International Speedway. Approximately $2,309,000 of the increase resulted from the inclusion of the operating results of Nashville Speedway USA in the consolidated results of Dover Downs Entertainment, Inc. for twelve months in fiscal 1999 as compared to six months in fiscal 1998, and $32,837,000 from the acquisition of Grand Prix Association of Long Beach. The remainder of the increase was from increased sponsorship, concessions and marketing-related revenues at Dover Downs International Speedway. Operating expenses increased by $45,623,000 reflecting the higher revenues. Amounts retained by the State of Delaware, including amounts collected for payment to the vendors under contract with the State who provide the video lottery machines and associated computer systems and fees to the manager who operates the video lottery (slot) machine casino, increased by $9,004,000 in fiscal 1999. Amounts allocated from the video lottery operation for harness horse racing purses were $15,173,000 in fiscal 1999 compared with $12,721,000 in fiscal 1998. Additional advertising, promotional and customer complimentary costs of $2,557,000 were the other significant gaming-related operating cost increases. Motorsports operating expenses increased principally due to a $1,139,000 increase in purse and sanction fee expenses and $1,666,000 from adding an IRL event at Dover Downs International Speedway, and $1,533,000 from the inclusion of the operating results of Nashville Speedway USA in the consolidated results of Dover Downs Entertainment, Inc. for twelve months in fiscal 1999 as compared to six months in fiscal 1998. The remainder of the increase is primarily the result of the acquisition of Grand Prix Association of Long Beach. Depreciation and amortization increased by $4,391,000 due to capital expenditures related to the Company's motorsports facilities and fiscal 1999 casino expansion and the depreciation of facilities and amortization of goodwill related to the acquisition of Grand Prix Association of Long Beach. General and administrative expenses increased by $6,803,000 to $11,213,000 from $4,410,000, $6,341,000 of which is the result of the acquisition of Grand Prix Association of Long Beach. Interest expense was $1,352,000 in fiscal 1999 compared to $702,000 of interest income in fiscal 1998. The interest expense resulted from increased borrowings on the revolving credit agreement and interest expense relating to the outstanding long-term debt, offset by the capitalization of $682,000 of interest in fiscal 1999 related to the construction of major facilities. No interest cost was capitalized in fiscal 1998. The Company's effective income tax rates for the fiscal years ended June 30, 1999 and 1998 were 41.2% and 41.8%, respectively. Net earnings increased by $4,978,000 due to the expansion of the video lottery (slot) machine operations, increased marketing efforts in the casino, higher attendance and the growth in the number of motorsports events presented by the Company, offset by increased interest and amortization expense from the Grand Prix Association of Long Beach acquisition. Liquidity and Capital Resources Cash flow from operations for the fiscal years ended June 30, 2000, 1999 and 1998 was $51,314,000, $34,963,000 and $28,991,000, respectively. The increase in fiscal 2000 was due primarily to the Company's increased net earnings before depreciation and amortization and the timing of certain income tax payments and construction-related payables. Capital expenditures for the year ended June 30, 2000 were $61,906,000. Approximately $21,660,000 related to the expansion of, and improvements to, the Dover, Gateway and Memphis racing facilities, approximately $7,743,000 to the expansion of the casino facility and related furniture, fixtures and equipment, approximately $3,571,000 to the construction of the luxury hotel in Dover, Delaware and approximately $27,489,000 for the construction of the Nashville Superspeedway complex. The remainder of the expenditures were for land and other eqiupment and improvements at the Company's facilities. Capital expenditures for the year ended June 30, 1999 were $50,707,000. Approximately $17,600,000 related to the expansion of, and improvements to, the Dover Downs and Gateway racing facilities, approximately $14,500,000 to the expansion of the casino facility in Dover, Delaware and approximately $11,694,000 for the construction of the proposed Nashville Superspeedway complex. The remainder of the expenditures were for land and other equipment and improvements at the Company's facilities. Capital expenditures for the year ended June 30, 1998 were $7,504,000 and related primarily to the expansion of, and improvements to, the Dover Downs racing facility as well as expansion of the administrative facilities. On March 3, 2000, Dover Downs completed the issuance of 1,500,000 additional shares of Common Stock through a public offering resulting in net proceeds to the Company of $19,185,000. The Company used the net proceeds of the offering to pay down a portion of its borrowings under its revolving line of credit facility. In December 1999, the Company commenced construction on a 10-story, 482-room luxury hotel in Dover, Delaware. The current construction plans consist of two phases and include a multi-purpose ballroom/concert hall and a fine-dining restaurant. The Company has not entered into any material commitments related to the project as of June 30, 2000. The cost of the first phase of the project, which, in addition to the hotel structure, will include renovating the enclosed harness racing grandstand, constructing a central HVAC plant and expanding the buffet in the Winners Circle Dining Room, is estimated to be approximately $70,000,000. On August 26, 1999, the Company's wholly owned subsidiary, Nashville Speedway USA, Inc., began construction of the new Nashville Superspeedway complex in Wilson County, Tennessee. The complex will include a 1.33-mile tri-oval track and may include a paved short track, a dirt track and a drag strip in future phases. The aggregate cost of acquiring the land and developing Phase I of the complex is estimated to be approximately $122,000,000. Of the total, the State of Tennessee will fund approximately $15,300,000 for the construction of an interchange and an access road near the complex. 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 will be 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. Interest only payments are required until September 1, 2002 and will be made from a capitalized interest fund established from bond proceeds. After the opening of the Nashville Superspeedway complex, the bonds will be payable solely from sales and incremental property taxes ("the taxes") generated from that 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 by several banks. The Company has agreed to reimburse the banks for amounts paid by them under the letter of credit. The Company has invested approximately $39,183,000 in the project as of June 30, 2000. Effective January 2, 1998, the Company acquired all of the outstanding common stock of Nashville Speedway USA, Inc. for $3,000,000 in cash from available funds. The Company and Grand Prix entered into an Agreement and Plan of Merger pursuant to which Grand Prix became a wholly owned subsidiary of the Company. The merger, which closed on July 1, 1998, was structured as a tax-free exchange whereby each shareholder of Grand Prix received .63 shares (1.26 shares after the stock split) of common stock of Dover Downs for each share of common stock of Grand Prix owned by such shareholder. The Company purchased 680,000 shares of common stock of Grand Prix from two non-management shareholders in March of 1998 for $10,540,000. The Company has a $125,000,000 long-term, revolving line of credit from several banks to provide seasonal funding needs, to finance capital improvements and for other general corporate purposes. The Company was in compliance with all terms of the facility and there was $15,000,000 outstanding at June 30, 2000. Recent Accounting Pronouncements The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flows. Year 2000 Issues As of the filing date of this Form 10-K, the Company's business operations have not been materially impacted by Year 2000 ("Y2K") matters. The Company will continue to monitor its operations for possible Y2K information technology programming issues. Forward-Looking Statements The Company may make certain forward-looking statements in this Form 10-K within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the Company's 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, the Company notes that a variety of factors could cause the Company's actual results and experience to differ substantially from the anticipated results or other expectations expressed in the Company's 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 Form 10-K, as well as statements containing phrases such as "in the Company's view," "there can be no assurance," "although no assurance can be given," or "there is no way to anticipate with certainty," forward-looking statements are being made in all of these instances. Various risks and uncertainties may affect the operation, performance, development and results of the Company's business and could cause future outcomes to differ materially from those set forth in the Company's forward-looking statements, including the following factors: the Company's growth strategies; the Company's development and potential acquisition of new facilities; anticipated trends in the motorsports and gaming industries; patron demographics; the Company's ability to enter into additional contracts with sponsors, broadcast media and race event sanctioning bodies; the Company's relationships with sponsors; general market and economic conditions; the Company's ability to finance future business requirements; the availability of adequate levels of insurance; the ability to successfully integrate acquired companies and businesses; management retention and development; changes in Federal, state, and local laws and regulations, including environmental and gaming license legislation and regulations; the affect of weather conditions on outdoor event attendance; as well as the risks, uncertainties and other factors described from time to time in the Company's SEC filings and reports. The Company undertakes 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 the Company to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements. Given these risks and uncertainties, investors should not overly rely or attach undue weight to the Company's forward-looking statements as an indication of its actual future results. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The carrying values of the Company's long-term debt approximates its fair value at June 30, 2000 and 1999. The Company is exposed to market risks related to fluctuations in interest rates for its variable rate borrowings of $15,000,000 at June 30, 2000 under its revolving credit facility. A change in interest rates of one percent on the balance outstanding at June 30, 2000 would cause a change in total annual interest costs of $150,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company and the Independent Auditors' Report included in this report are shown on the Index to Consolidated Financial Statements on page 23. ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except as presented below, the information called for by this Item 10 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 27, 2000. Executive Officers of the Registrant. As of June 30, 2000, the Executive Officers of the registrant were: Name Position Age Term of Office Klaus M. Belohoubek Vice President- General Counsel 40 7/99 to date and Secretary Robert M. Comollo Treasurer 52 11/81 to date Timothy R. Horne Vice President-Finance and 34 11/96 to date Chief Financial Officer Denis McGlynn President and 54 11/79 to date Chief Executive Officer Edward J. Sutor Executive Vice President 50 3/99 to date Henry B. Tippie Chairman of the Board 73 4/00 to date Klaus M. Belohoubek has been Vice President-General Counsel and Secretary since 1999 and has represented the Company in various capacities since 1990, most recently as Assistant General Counsel. Mr. Belohoubek also serves as Vice President-General Counsel and Secretary to Rollins Truck Leasing Corp. and Matlack Systems, Inc. Robert M. Comollo has been employed by the Company for 20 years, of which 19 years have been in the capacity of Treasurer. Timothy R. Horne became Vice President-Finance and Chief Financial Officer in November of 1996. From 1988 until 1996, Mr. Horne was employed by KPMG LLP, where he most recently served as an assurance senior manager. Edward J. Sutor became Executive Vice President in March of 1999. From 1983 until 1999, Mr. Sutor served as Senior Vice President of Finance at Caesars Atlantic City. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 27, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item 12 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on October 27, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the year ended June 30, 2000, the following officers and/or directors of the Company were also officers and/or directors of Rollins Truck Leasing Corp.; Patrick J. Bagley, Klaus M. Belohoubek, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following officers and/or directors of the Company were also officers and/or directors of Matlack Systems, Inc.; Patrick J. Bagley, Klaus M. Belohoubek, John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. The Estate of John W. Rollins owns directly and of record 12.3% and 11.4% of the outstanding shares of common stock of Rollins Truck Leasing Corp. and Matlack Systems, Inc., respectively, at June 30, 2000. The description of transactions between the Company and Rollins Truck Leasing Corp. appears under the caption "Related Party Transactions" on page 38 of this 2000 Annual Report on Form 10-K. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements - See accompanying Index to Consolidated Financial Statements on page 23. (2) Financial Statement Schedules - None. (3) Exhibits: 2.1 Share Exchange Agreement and Plan of Reorganization dated June 14, 1996 between Dover Downs Entertainment, Inc., Dover Downs, Inc., Dover Downs International Speedway, Inc. and the shareholders of Dover Downs, Inc. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 2.2 Agreement and Plan of Merger, dated as of March 26, 1998, by and among Dover Downs Entertainment, Inc. FOG Acquisition Corp., and Grand Prix Association of Long Beach as filed with the Company's Registration Statement Number 333-53077 on Form S-4 on May 19, 1998, is incorporated herein by reference. 3.1 Restated Certificate of Incorporation of Dover Downs Entertainment, Inc., dated March 10, 2000 as filed with the Company's Quarterly Report on Form 10-Q dated April 28, 2000, is incorporated herein by reference. 3.2 Amended and Restated Bylaws of Dover Downs Entertainment, Inc. dated July 17, 2000. 4.1 Rights Agreement dated as of June 14, 1996 between Dover Downs Entertainment, Inc. and ChaseMellon Shareholder Services, L.L.C. as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.1 Amended and Restated Credit Agreement Among Dover Downs Entertainment, Inc., the Several Banks and Other Financial Institutions Party Thereto and PNC Bank, Delaware as Agent Dated as of November 1, 1999, as filed with the Company's Quarterly Report on Form 10-Q dated November 5, 1999, is incorporated herein by reference. 10.2 Reimbursement and Security Agreement Between Dover Downs Entertainment, Inc., Nashville Speedway USA, Inc. and PNC Bank, Delaware dated as of September 1, 1999 as filed with the Company's Quarterly Report on Form 10-Q dated November 5, 1999, is incorporated herein by reference. 10.3 Project Consulting and Management Agreement between Dover Downs, Inc. and Caesars World Gaming Development Corporation dated May 10, 1995 as filed with the Company's Registration Statement Number 333-8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.4 Dover Downs Entertainment, Inc. 1996 Stock Option Plan as filed with the Company's Registration Statement Number 333- 8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 10.5 Dover Downs Entertainment, Inc. 1991 Stock Option Plan as filed with the Company's Registration Statement Number 333- 8147 on Form S-1 dated July 15, 1996, which was declared effective on October 3, 1996, is incorporated herein by reference. 21.1 Subsidiaries 23.1 Consent of Independent Accountants 27 Financial Data Schedule for current Fiscal Year ended June 30, 2000 (b) Reports on Form 8-K A Form 8-K was filed by the Company on May 2, 2000 to announce the election of Henry B. Tippie to the position of Chairman of the Board. Mr. Tippie, formerly Vice Chairman of the Board, succeeds John W. Rollins, Sr., who passed away April 4, 2000. A Form 8-K was filed by the Company on April 13, 2000 to disclose a change in control of the Company as a result of the passing of John W. Rollins, Sr., the Company's founder and Chairman. All shares of Class A Common Stock previously owned by Mr. Rollins are now part of his estate pending their distribution under the Last Will and Testament of Mr. Rollins. Mr. Henry B. Tippie, Chairman of the Board of the Company, who, as executor of Mr. Rollins' estate, now controls in excess of 50% of the total voting power of the Company. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: August 23, 2000 DOVER DOWNS ENTERTAINMENT, INC. Registrant BY: /s/ Denis McGlynn Denis McGlynn President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ Timothy R. Horne Vice President-Finance August 23, 2000 Timothy R. Horne and Chief Financial Officer /s/ Henry B. Tippie Chairman of the Board August 23, 2000 Henry B. Tippie /s/ John W. Rollins, Jr. Director August 23, 2000 John W. Rollins, Jr. /s/ Patrick J. Bagley Director August 23, 2000 Patrick J. Bagley /s/ Jeffrey W. Rollins Director August 23, 2000 Jeffrey W. Rollins /s/ Melvin Joseph Director August 23, 2000 Melvin Joseph /s/ R. Randall Rollins Director August 23, 2000 R. Randall Rollins /s/ Christopher R. Pook Director August 23, 2000 Christopher R. Pook /s/ Eugene W. Weaver Director August 23, 2000 Eugene W. Weaver INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page(s) Independent Auditors' Report on Consolidated Financial Statements 24 Consolidated Statement of Earnings for the years ended June 30, 2000, 1999 and 1998 25 Consolidated Balance Sheet at June 30, 2000 and 1999 26 Consolidated Statement of Cash Flows for the years ended June 30, 2000, 1999 and 1998 28 Notes to the Consolidated Financial Statements 30-41 Independent Auditors' Report The Shareholders and Board of Directors, Dover Downs Entertainment, Inc.: We have audited the accompanying consolidated balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Philadelphia, Pennsylvania July 20, 2000 CONSOLIDATED STATEMENT OF EARNINGS (In thousands, except per share data) Year ended June 30, 2000 1999 1998 Revenues: Motorsports $ 77,311 $ 68,683 $ 25,874 Gaming 168,561 139,249 115,071 245,872 207,932 140,945 Expenses: Operating 169,838 142,498 96,875 Depreciation and amortization 8,469 7,098 2,707 General and administrative 11,953 11,213 4,410 190,260 160,809 103,992 Operating earnings 55,612 47,123 36,953 Interest expense (income), net 1,140 1,352 (702) Earnings before income taxes 54,472 45,771 37,655 Income taxes 22,547 18,880 15,742 Net earnings $ 31,925 $ 26,891 $ 21,913 Earnings per common share: Basic $ .88 $ .76 $ .72 Diluted $ .86 $ .74 $ .70 Average shares outstanding: Basic 36,482 35,566 30,492 Diluted 37,326 36,585 31,206 The Notes to the Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED BALANCE SHEET (In thousands, except share and per share data) June 30, 2000 1999 ASSETS Current assets: Cash and cash equivalents $ 12,413 $ 10,847 Accounts receivable 12,700 6,706 Due from State of Delaware 3,176 2,932 Inventories 645 581 Prepaid expenses and other 4,518 4,456 Deferred income taxes 309 327 Total current assets 33,761 25,849 Property, plant and equipment, at cost: Land 28,816 26,739 Casino facility 27,692 22,921 Racing facilities 153,480 128,802 Furniture, fixtures and equipment 17,831 11,570 Construction in progress 31,329 7,902 259,148 197,934 Less accumulated depreciation (30,255) (24,021) 228,893 173,913 Other assets, net 1,453 1,453 Goodwill, net 52,671 53,997 Total assets $316,778 $255,212 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,902 $ 4,629 Purses due horsemen 2,982 3,147 Accrued liabilities 11,588 9,407 Income taxes payable 3,660 2,726 Current portion of long-term debt 585 335 Deferred revenue 17,489 15,906 Total current liabilities 47,206 36,150 Notes payable to bank 15,000 15,500 Long-term debt 20,540 21,125 Other liabilities 174 172 Deferred income taxes 16,067 9,607 Commitments (see Notes to the Consolidated Financial Statements) Shareholders' equity: Preferred stock, $.10 par value; 1,000,000 shares authorized; issued and outstanding: none Common stock, $.10 par value; 75,000,000 shares authorized; issued and outstanding: 2000-13,796,500 shares; 1999-11,403,684 shares 1,380 1,140 Class A common stock, $.10 par value; 55,000,000 shares authorized; issued and outstanding: 2000-24,054,985 shares; 1999-24,262,510 shares 2,405 2,426 Additional paid-in capital 119,222 99,683 Retained earnings 94,784 69,409 Total shareholders' equity 217,791 172,658 Total liabilities and shareholders' equity $316,778 $255,212 The Notes to the Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Years ended June 30, 2000 1999 1998 Cash flows from operating activities: Net earnings $ 31,925 $ 26,891 $ 21,913 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 8,469 7,098 2,707 Loss on disposition of property - - 3 (Increase) decrease in assets, net of effect of acquisition: Accounts receivable (5,994) (1,645) (1,180) Due from State of Delaware (244) (833) (116) Inventories (64) (22) 92 Prepaid expenses and other (62) (2,044) (1,539) Increase (decrease) in liabilities, net of effect of acquisition: Accounts payable 6,273 (450) 335 Purses due horsemen (165) 1,262 498 Accrued liabilities 2,181 464 2,719 Current and deferred income taxes 7,412 1,387 1,346 Deferred revenue 1,583 2,855 2,213 Net cash provided by operating activities 51,314 34,963 28,991 Cash flows from investing activities: Investment in Grand Prix Association of Long Beach - - (10,540) Acquisition of business, net of cash acquired - - (2,889) Capital expenditures (61,906) (50,707) (7,504) Cash acquired in business acquisition - 1,490 - Other (125) - - Net cash used in investing activities (62,031) (49,217) (20,933) Cash flows from financing activities: (Repayments) borrowings on revolving debt (500) 13,161 - Repayment of long-term debt (335) (760) (19) Loan repayments - 207 - Net proceeds from public offering 19,185 - - Dividends paid (6,550) (6,213) (4,878) Proceeds from stock options exercised, including related tax benefit 573 167 30 Other assets (90) (155) - Net cash provided by (used in) financing activities 12,283 6,407 (4,867) Net increase (decrease) in cash and cash equivalents 1,566 (7,847) 3,191 Cash and cash equivalents, beginning of year 10,847 18,694 15,503 Cash and cash equivalents, end of year $ 12,413 $ 10,847 $ 18,694 Supplemental information: Interest paid $ 2,195 $ 1,793 $ 61 Income taxes paid $ 17,087 $ 18,231 $ 14,395 Non-cash investing and financing activities: Land acquired $ - $ 4,707 $ - Cash paid - (3,054) - Land traded $ - $ 1,653 $ - Stock issued in connection with acquisition $ - $ 80,241 $ - The Notes to the Consolidated Financial Statements are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Business Operations Dover Downs Entertainment, Inc. (Dover Downs or the Company) is a leading promoter of motorsports events in the United States. The Company operates five motorsports tracks (four permanent facilities and one temporary circuit) in four states and promoted 15 major events during fiscal 2000 in the four premier sanctioning bodies in motorsports - the National Association for Stock Car Auto Racing (NASCAR), Championship Auto Racing Teams (CART), the Indy Racing League (IRL) and the National Hot Rod Association (NHRA). Dover Downs also owns and operates the Dover Downs Raceway harness racing track and an 80,000 square foot video lottery (slot) casino at a multi-purpose gaming and entertainment complex in Dover, Delaware. The facility is located in close proximity to the major metropolitan areas of Philadelphia, Baltimore and Washington, D.C. Dover Downs, Inc. is authorized to conduct video lottery operations as a "Licensed Agent" under the Delaware State Lottery Code. Pursuant to Delaware's Horse Racing Redevelopment Act, enacted in 1994, the Delaware State Lottery Office administers and controls the operation of the video lottery. The Company's license from the Delaware Harness Racing Commission must be renewed on an annual basis. In order to maintain its license to conduct video lottery operations, the Company is required to maintain its harness horse racing license. Due to the nature of the Company's business activities, it is subject to various federal, state and local regulations. NOTE 2 - Acquisition On July 1, 1998, the Company completed its acquisition of Grand Prix Association of Long Beach (Grand Prix) through the merger of a wholly owned subsidiary of the Company with and into Grand Prix with Grand Prix surviving as a wholly owned subsidiary of the Company. Grand Prix developed and operates the Grand Prix of Long Beach, an annual temporary circuit event which has been run in the streets of Long Beach, California for 26 years, and owns permanent motorsports facilities in Madison, Illinois (near St. Louis, Missouri) and in Millington, Tennessee (near Memphis, Tennessee). The purchase price was comprised of the conversion of the outstanding Grand Prix common stock into 2,518,229 shares (5,036,458 shares after the stock split) of the Company's stock and assumption by the Company of the outstanding stock options of Grand Prix. On March 27, 1998, the Company acquired 680,000 shares of Grand Prix common stock at $15.50 per share in cash pursuant to two separate stock purchase agreements, at which time the Company owned approximately 14.6 % of the outstanding Grand Prix common stock. The cost of these purchases was recorded as a long-term investment at June 30, 1998. The acquisition qualified as a tax free exchange and was accounted for using the purchase method of accounting for business combinations. The excess of the purchase price over fair market value of the underlying assets of $52,551,000 is being amortized on a straight-line basis over 40 years. The following summarized unaudited pro-forma statement of earnings information gives effect to the Grand Prix transaction as though it had occurred on July 1, 1997, after giving effect to certain adjustments, primarily the amortization of goodwill and additional depreciation expense. The pro-forma financial information, which is for informational purposes only, is based upon certain assumptions and estimates and does not necessarily reflect the results that would have occurred had the transaction taken place at the beginning of the period presented, nor are they necessarily indicative of future consolidated results (in thousands, except per share data). For the year ended June 30, 1998 Revenues $170,972 Net earnings $ 19,974 Earnings per diluted share $ .55 NOTE 3 - Summary of Significant Accounting Policies Consolidation-The consolidated financial statements include the accounts of all subsidiaries. Intercompany transactions and balances among these subsidiaries have been eliminated. Revenue and expense recognition-Tickets to motorsports races are sold and certain expenses are incurred in advance of the race date. Such advance sales and corresponding expenses are recorded as deferred revenue and prepaid expenses, respectively, until the race is held. Gaming revenues represent the net win from video lottery (slot) machine wins and losses, commissions from pari-mutuel wagering and other miscellaneous gaming-related income. For the video lottery operations, the difference between the amount wagered by bettors and the amount paid out to bettors is referred to as the win. The win is included in the amount recorded in the Company's financial statements as gaming revenue. The Delaware State Lottery Office sweeps the winnings from the video lottery operations, collects the State's share of the winnings and the amount due to the vendors under contract with the State who provide the video lottery machines and associated computer systems, collects the amount allocable to purses for harness horse racing, and remits the remainder to the Company as its commission for acting as a Licensed Agent. Operating expenses include the amounts collected by the State (i) for the State's share of the winnings, (ii) for remittance to the providers of the video lottery machines and associated computer systems, and (iii) for harness horse racing purses. Advertising costs-The costs of general advertising, promotion and marketing programs are charged to operations as incurred. Earnings per share-The number of weighted average shares used in computing basic and diluted earnings per share (EPS) are as follows (in thousands): 2000 1999 1998 Basic EPS 36,482 35,566 30,492 Effect of options 844 1,019 714 Diluted EPS 37,326 36,585 31,206 Cash and cash equivalents-The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or less. Inventories-Inventories, primarily food, beverage and souvenir items, are stated at the lower of cost or market with cost being determined on the first-in, first-out (FIFO) basis. Property, plant and equipment-Property, plant and equipment is stated at cost. Book depreciation is computed on a straight-line basis over the following estimated useful lives: Racing and casino facilities 10 - 40 years Furniture, fixtures and equipment 5 - 10 years Interest is capitalized in connection with the construction of major facilities. The capitalized interest is amortized over the estimated useful life of the asset to which it relates. In fiscal 2000 and 1999, $1,975,000 and $682,000, respectively, of interest cost was capitalized. No interest was capitalized in fiscal 1998. Goodwill-Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized using the straight-line method principally over a period of 40 years. At June 30, 1999, accumulated amortization was $2,974,000 and $1,522,000, respectively. The Company evaluates any possible impairment of goodwill using estimates of undiscounted future cash flows. Income taxes-Deferred income taxes are provided in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" on all differences between the tax bases of assets and liabilities and their reported amounts in the financial statements based upon enacted statutory tax rates in effect at the balance sheet date. Use of estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments-The carrying amount reported in the balance sheet for current assets and current liabilities approximates their fair value because of the short maturity of these instruments. The carrying value of long-term debt at June 30, 2000 approximates its fair value based on interest rates available on similar borrowings. Accounting for stock options-The Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", on July 1, 1996. SFAS No. 123 defines a fair-value based method of accounting for stock-based compensation plans, however, it allows the continued use of the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". The Company has elected to continue to use the intrinsic value method. Recent accounting pronouncements-The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flows. Reclassifications-Certain prior year amounts have been reclassified to conform to current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity. NOTE 4 - Indebtedness Long-term debt is as follows (in thousands): June 30, 2000 1999 Notes payable to bank $15,000 $15,500 SWIDA loan for Gateway redevelopment 21,125 21,460 36,125 36,960 Less: current portion (585) (335) $35,540 $36,625 On November 1, 1999, the Company entered into a $125,000,000 amended and restated, revolving credit agreement with several banks. Interest is based, at the Company's option, upon (i) LIBOR plus .75% or (ii) the base rate (the greater of the prime rate or the federal funds rate plus .5%) minus 1%. The agreement, which expires on November 1, 2002, is for seasonal funding needs, capital improvements and other general corporate purposes. The Company was in compliance with all terms of the facility and there was $15,000,000 outstanding at June 30, 2000 at a weighted average interest rate of 7.3%. 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 June 30, 2000, $803,000 of the Company's cash balance is restricted by the SWIDA loan. A standby letter of credit for $2,502,000 also was obtained to secure debt service. The SWIDA loan is secured by a first mortgage lien on all the real property owned and a security interest in all property leased by the Company's subsidiary at Gateway International Raceway. The SWIDA loan bears interest at varying rates ranging from 8.35% to 9.25% with an effective rate of approximately 9.1%. The structure of the bonds permits amortization from February 1997 through February 2017 with debt service beginning in 2000 following interest only payments from February 1997 through August 1999. In addition, a portion of the property taxes to be paid by the Company (if any) to the City of Madison Tax Incremental Fund have been pledged to the annual retirement of debt. The scheduled maturities of long-term debt outstanding at June 30, 2000 are as follows: 2001-$585,000; 2002-$635,000; 2003-$15,685,000; 2004- $745,000; 2005-$805,000; and thereafter-$17,670,000. NOTE 5 - Income Taxes The current and deferred income tax provisions (benefits) are as follows (in thousands): Years ended June 30, 2000 1999 1998 Current: Federal $11,354 $13,277 $12,544 State 4,715 3,929 3,296 16,069 17,206 15,840 Deferred: Federal 6,338 1,599 (78) State 140 75 (20) 6,478 1,674 (98) Total income taxes $22,547 $18,880 $15,742 Deferred income taxes relate to the temporary differences between financial accounting income and taxable income and are primarily attributable to differences between the book and tax basis of property, plant and equipment and net operating loss carryforwards (expiring 2016-2018). The Company believes that it is more likely than not that the deferred tax assets will be realized based upon reversals of existing taxable temporary differences and future income. A reconciliation of the effective income tax rate with the applicable statutory federal income tax rate is as follows: Years ended June 30, 2000 1999 1998 Federal tax at statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 5.8% 5.7% 5.7% Other .6% .5% 1.1% Effective income tax rate 41.4% 41.2% 41.8% NOTE 6 - Pension Plan Benefits provided by the Dover Downs Entertainment, Inc. Pension Plan are based on years of service and employees' remuneration over their employment with the Company. Pension costs are funded in accordance with the provisions of the Internal Revenue Code. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheet (in thousands): June 30, 2000 1999 Change in benefit obligation: Benefit obligation at beginning of year $1,425 $ 925 Service cost 363 306 Interest cost 120 79 Amendments - 122 Actuarial loss 89 26 Benefits paid (33) (33) Benefit obligation at end of year 1,964 1,425 Change in plan assets: Fair value of plan assets at beginning of year 1,314 688 Actual return on plan assets 224 273 Employer contribution 483 386 Benefits paid (33) (33) Fair value of plan assets at end of year 1,988 1,314 Funded status 24 (111) Unrecognized net gain (82) (74) Unrecognized prior service cost 263 277 Prepaid pension cost $ 205 $ 92 At June 30, 2000, the assets of the plan were invested 67% in equity funds, 19% in intermediate bond funds and the balance in other short-term interest-bearing accounts. The discount rate in 2000 and 1999 was 8.0%. The assumed rate of compensation increase was 5% in both years. The expected long-term rate of return on assets was 9% for 2000 and 1999. The components of net periodic pension cost are as follows (in thousands): Years ended June 30, 2000 1999 1998 Service cost $ 363 $ 306 $ 132 Interest cost 120 79 53 Return on plan assets (224) (273) (104) Net amortization 12 13 32 Deferral of net gain 97 201 63 $ 368 $ 326 $ 176 The Company also maintains a nonqualified, noncontributory defined benefit pension plan for certain employees to restore pension benefits reduced by federal income tax regulations. The cost associated with the plan is determined using the same actuarial methods and assumptions as those used for the Company's qualified pension plan. The Company also maintains a defined contribution 401(k) plan which permits participation by substantially all employees. NOTE 7 - Shareholders' Equity Changes in the components of shareholders' equity are as follows (in thousands, except per share data): $.10 Par $.10 Par Value Value Class A Additional Common Common Paid-in Retained Stock Stock Capital Earnings Balance at June 30, 1997 $ 294 $1,229 $ 21,081 $31,696 Net earnings 21,913 Dividends on common stock, $.16 per share (4,878) Exercise of stock options 2 28 Conversion of Class A shares 6 (6) Balance at June 30, 1998 300 1,225 21,109 48,731 Net earnings 26,891 Dividends on common stock, $.175 per share (6,213) Exercise of stock options 4 8 155 Grand Prix acquisition 252 80,196 Two-for-one split 556 1,221 (1,777) Conversion of Class A shares 28 (28) Balance at June 30, 1999 1,140 2,426 99,683 69,409 Net earnings 31,925 Issuance of common stock, net 150 19,035 Dividends on common stock, $.18 per share (6,550) Exercise of stock options 11 58 504 Conversion of Class A shares 79 (79) Balance at June 30, 2000 $1,380 $2,405 $119,222 $94,784 Holders of Common Stock have one vote per share and holders of Class A Common Stock have ten votes per share. Shares of Class A Common Stock are convertible at any time into shares of Common Stock on a share for share basis at the option of the holder thereof. Dividends on Class A Common Stock cannot exceed dividends on Common Stock on a per share basis. Dividends on Common Stock may be paid at a higher rate than dividends on Class A Common Stock. The terms and conditions of each issue of Preferred Stock are determined by the Board of Directors. No Preferred shares have been issued. The Company has adopted a Rights Plan with respect to its Common Stock and Class A Common Stock which includes the distribution of Rights to holders of such stock. The Rights entitle the holder, upon the occurrence of certain events, to purchase additional stock of the Company. The Rights are exercisable if a person, company or group acquires 10% or more of the outstanding combined equity of Common Stock and Class A Common Stock or engages in a tender offer. The Company is entitled to redeem each Right for $.005. On March 3, 2000, Dover Downs completed the issuance of 1,500,000 additional shares of Common Stock through a public offering resulting in net proceeds to the Company of $19,185,000. The Company used the net proceeds of the offering to pay down a portion of its borrowings under its revolving line of credit facility. On July 31, 1998, the Board of Directors authorized a two-for-one stock split to be distributed September 15, 1998. All share and per share information included in the accompanying consolidated financial statements and notes thereto have been adjusted to give retroactive effect to this stock split. The Company has two stock option plans pursuant to which the Company's Board of Directors may grant stock options to officers and key employees at not less than 100% of the fair market value at the date of the grant. Options granted under the 1991 Stock Option Plan are exercisable for Class A Common Stock while options granted under the 1996 Stock Option Plan are exercisable for Common Stock. There are no options outstanding pursuant to the 1991 Stock Option Plan as of June 30, 2000, and the Plan has been amended so that no additional options may be granted thereunder. The 1996 stock options have eight-year terms and generally vest equally over a period of six years from the date of grant. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. For disclosure purposes, the Company determined compensation cost for its stock options based upon the fair value at the grant date using the Black Scholes option-pricing model with the following assumptions: 2000 1999 1998 Risk-free interest rate 6% 6% 5.3% Volatility 47% 25% 26% Expected dividend yield 1.35% 1.02% 1.80% Expected life (in years) 6.5 6.5 6.5 The weighted-average fair values of options granted in fiscal 2000, 1999 and 1998 was $5.58, $4.73 and $6.88, respectively. Had compensation cost been recognized in accordance with SFAS No. 123, the Company's diluted earnings per share disclosed in the accompanying financial statements would be reduced by less than $.02 per share in fiscal 2000 and $.01 per share in 1999 and 1998. Option activity was as follows: June 30, 2000 1999 1998 Number of options: Outstanding at beginning of year 1,642,406 1,035,528 945,528 Granted 218,000 734,562 135,000 Exercised (680,884) (127,684) (45,000) Expired (25,000) - - Outstanding at June 30 1,154,522 1,642,406 1,035,528 At June 30: Options available for grant 186,910 404,910 1,139,472 Options exercisable 563,243 932,545 262,000 Weighted Average Exercise Price: Options granted $ 11.48 $ 4.66 $ 11.58 Options exercised $ .83 $ 1.32 $ .67 Options outstanding $ 7.70 $ 4.38 $ 3.38 Options exercisable $ 3.63 $ 1.59 $ 1.78 At June 30, 2000, the range of exercise prices of outstanding options was $.87-$16.19. Included in the 734,562 options and the weighted average exercise price for options granted in 1999 are 512,062 options relating to the Grand Prix Association of Long Beach acquisition. The Grand Prix options were converted into Dover Downs options at an exercise price of $.87 per share. NOTE 8 - Related Party Transactions During the years ended June 30, 2000, 1999 and 1998, the Company purchased certain paving, site work and construction services involving total payments of $432,000, $432,000 and $375,000 from a company wholly-owned by an employee/director. The Company purchased administrative services from Rollins Truck Leasing Corp. and affiliated companies in 2000, 1999 and 1998. The total cost of these services, which have been included in general and administrative expenses in the Consolidated Statement of Earnings, was $457,000, $380,000 and $283,000 in 2000, 1999 and 1998, respectively. At the date of the acquisition of Grand Prix Association of Long Beach, $299,000 was due to Grand Prix from certain shareholders/officers for outstanding loans made for the purpose of purchasing Grand Prix common stock. As of June 30, 2000, $92,000 was outstanding from a current director of the Company. In the opinion of management of the Company, the foregoing transactions were effected at rates which approximate those which the Company would have realized or incurred had such transactions been effected with independent third parties. NOTE 9 - Business Segment Information The Company has two reportable segments, motorsports and gaming. The business is operated and defined based on the products and services provided by these segments. Certain operations within the motorsports segment have been aggregated for purposes of the following disclosures (in thousands): Motorsports Gaming Consolidated Year ended June 30, 2000 Revenue $ 77,311 $ 168,561 $ 245,872 Operating earnings 20,078 35,534 55,612 Identifiable assets at year-end 261,989 54,789 316,778 Capital expenditures 50,592 11,314 61,906 Depreciation and amortization 6,671 1,798 8,469 Interest expense $ 924 $ 216 $ 1,140 Year ended June 30, 1999 Revenue $ 68,683 $ 139,249 $ 207,932 Operating earnings 17,197 29,926 47,123 Identifiable assets at year-end 209,540 45,672 255,212 Capital expenditures 36,209 14,498 50,707 Depreciation and amortization 5,829 1,269 7,098 Interest expense $ 1,267 $ 85 $ 1,352 Year ended June 30, 1998 Revenue $ 25,874 $ 115,071 $ 140,945 Operating earnings 12,506 24,447 36,953 Identifiable assets at year-end 57,739 38,038 95,777 Capital expenditures 6,085 1,419 7,504 Depreciation and amortization $ 1,237 $ 1,470 $ 2,707 NOTE 10 - Commitments The Company leases the racetrack at the Tennessee State Fairgrounds pursuant to a lease expiring in fiscal 2008. Total rental expense charged to the Company is a function of the profitability of the Nashville operation and was $46,000 and $210,000 for the years ended June 30, 2000 and 1999, respectively, and $66,000 for the six months ended June 30, 1998. The Company leases certain property at the Madison, Illinois facility with leases expiring at various dates through 2070. The leases are subject to annual adjustments based on increases in the consumer price index. Total rental payments charged to operations for these leases amounted to $236,000 and $222,000 for the years ended June 30, 2000 and 1999, respectively. The minimum lease payments due under these leases are as follows (in thousands): 2001 $ 231 2002 218 2003 218 2004 218 2005 218 Thereafter 4,473 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 will be 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 is developing through its 100%-owned subsidiary, Nashville Speedway USA. Interest only payments are required until September 1, 2002 and will be made from a capitalized interest fund established from bond proceeds. After the opening of the Nashville Superspeedway complex, the bonds will be payable solely from sales and incremental property taxes ("the taxes") generated from that 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 by several banks. The Company has agreed to reimburse the banks for amounts paid by them under the letter of credit. In May 1995, Dover Downs, Inc., a subsidiary of the Company, entered into a long-term management agreement with Caesars World Gaming Development Corporation (Caesars). The initial term of the agreement expired in December 1998 and Caesars exercised the first of two additional three-year renewal options which Dover Downs may void if certain financial results are not achieved. Caesars acts as the exclusive agent to supervise, market, manage and operate the Company's video lottery casino. Caesars has been properly licensed by the Delaware State Lottery Office to perform these functions. Caesars' performance-based fees for such services were $6,383,000 in fiscal 2000, $6,983,000 in fiscal 1999 and $7,094,000 in fiscal 1998. Amounts owed to Caesars at June 30, 2000 and 1999 totaled $365,000 and $1,147,000, respectively, and are included in accrued liabilities. The Company also has accrued additional amounts which Caesars claims are due as a result of the recent casino expansions. The Company has entered into several sanctioning agreements to conduct motorsports events at its various venues. The Company has held NASCAR-sanctioned events for 32 consecutive years and its subsidiary, Grand Prix Association of Long Beach, has operated the Grand Prix of Long Beach for 26 consecutive years. Nonrenewal of a NASCAR event license or the CART agreement for the Long Beach event would have a material adverse effect on the Company's financial condition and results of operations. NOTE 11 - Quarterly Results - in thousands, except per share data (unaudited) September 30 December 31 March 31 June 30 2000 Revenues $71,301 $44,543 $43,789 $86,239 Gross profit 22,968 7,746 7,451 29,400 Net earnings 11,244 2,527 2,331 15,823 Earnings per common share (diluted) $ .31 $ .07 $ .06 $ .42 1999 Revenues $54,654 $37,651 $36,676 $78,951 Gross profit 17,520 7,188 6,851 26,777 Net earnings 8,278 2,513 2,207 13,893 Earnings per common share (diluted) $ .23 $ .07 $ .06 $ .38 Exhibit 21.1 DOVER DOWNS ENTERTAINMENT, INC. Subsidiaries of Registrant at June 30, 2000 Dover Downs, Inc. Dover Downs International Speedway, Inc. Dover Downs Properties, Inc. Nashville Speedway USA, Inc. Grand Prix Association of Long Beach, Inc. Gateway International Motorsports Corporation, Inc. Gateway International Services Corporation, Inc. Memphis International Motorsports Corporation, Inc. Motorsports Services Corporation of Memphis, Inc. Exhibit 23.1 The Board of Directors and Shareholders Dover Downs Entertainment, Inc. We consent to the incorporation by reference in the registration statement (No. 333-8147) on Form S-8 of Dover Downs Entertainment, Inc. of our report dated July 20, 2000 relating to the consolidated balance sheets of Dover Downs Entertainment, Inc. and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of earnings and cash flows for each of the years in the three-year period ended June 30, 2000, which report appears in the June 30, 2000 annual report on Form 10-K of Dover Downs Entertainment, Inc. KPMG LLP Philadelphia, Pennsylvania August 21, 2000 EX-27 2 0002.txt
5 1,000 12-MOS JUN-30-2000 JUN-30-2000 12,413 0 15,876 0 645 33,761 259,148 30,255 316,778 47,206 35,540 0 0 3,785 214,006 316,778 245,872 245,872 0 178,307 0 0 1,140 54,472 22,547 31,925 0 0 0 31,925 .88 .86
EX-3 3 0003.txt BY-LAWS OF DOVER DOWNS ENTERTAINMENT, INC. ------------------------------------------------------------------ ARTICLE I The Corporation Section 1.1 Name. The title of this Corporation is Dover Downs Entertainment, Inc. Section 1.2 Office. The registered office of this Corporation shall be located at P. O. Box 843, Dover, Delaware, or at such other place as the Board of Directors may designate in accordance with Section 133 of the Delaware Corporation Law. Section 1.3 Seal. The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the year of its creation (1994) and the words "Incorporated Delaware". 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. 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 person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these by-laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting, provided that (except as otherwise required by law or by the certificate of incorporation or these by-laws) the Board of Directors may require a larger vote upon any election or question. Section 2.8 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion of exchange or stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 2.9 List of Stockholders Entitled To Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 2.10 Action by Consent Of Stockholders. Unless prohibited by law or the rules and regulations of any national securities exchange on which securities of the Corporation are listed, action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and stockholders shall have the power to consent in writing, without a meeting, to the taking of any action. ARTICLE III Board of Directors Section 3.1 Number; Qualifications. The Board of Directors shall consist 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 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 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. 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 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. ARTICLE V Officers Section 5.1 Executive Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The officers of the Corporation shall consist of a Chairman, Vice Chairmen, President, Vice Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurers, General Counsel, and such other officers as may from time to time be elected or appointed by the Board of Directors. 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 And The Chairman Of The Executive Committee. The Chairman 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. In all cases, where a Chairman of the Executive Committee is elected, the Chairman of the Executive Committee shall, in the absence of the Chairman of the Board of Directors, act in the latter's capacity. 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 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 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. ARTICLE VI Stock Section 6.1 Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President of the Corporation, certifying the number of shares owned by him in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.2 Lost, Stolen Or Destroyed Stock Certificates; Issuance Of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VII Indemnification Section 7.1. General. The Company shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (as hereinafter defined) to the fullest extent permitted by applicable law in effect on the adoption of these By-Laws, and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Article. Section 7.2. Proceedings Other Than Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.2 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 7.2, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 7.3. Proceedings By Or In The Right Of The Company. Indemnitee shall be entitled to the indemnification rights provided in this Section 7.3 to the fullest extent permitted by law if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 7.3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company. Section 7.4. Indemnification For Expenses Of A Party Who Is Wholly Or Partly Successful. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 7.5. Indemnification For Expenses Of A Witness. Notwithstanding any other provision of this Article, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7.6. Advancement Of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within twenty days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Section 7.7. Procedure For Determination Of Entitlement To Indemnification. (a) To obtain indemnification under this Article, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The determination of Indemnitee's entitlement to indemnification shall be made not later than 60 days after receipt by the Company of the written request for indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Indemnitee's entitlement to indemnification under any of Sections 7.2, 7.3 or 7.4 of this Article shall be determined in the specific case: (i) by the Board of Directors by a majority vote of a quorum of the Board consisting of Disinterested Directors (as hereinafter defined); or (ii) by Independent Counsel (as hereinafter defined), in a written opinion, if (A) a Change of Control (as hereinafter defined) shall have occurred and Indemnitee so requests, or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs; or (iii) by the stockholders of the Company; or (iv) as provided in Section 7.8 of this Article. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7.7(b) of this Article, the Independent Counsel shall be selected as provided in this Section 7.7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, and if so requested by Indemnitee in his written request for indemnification, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 7.13 of this Article, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected shall be disqualified from acting as such. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 7.7(a) hereof, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this Section 7.7(c), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person so appointed shall act as Independent Counsel under Section 7.7(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in acting pursuant to Section 7.7(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 7.7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Section 7.8. Presumptions And Effect Of Certain Proceedings. If a Change of Control shall have occurred, Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request for indemnification in accordance with Section 7.7(a) of this Article, and thereafter the Company shall have the burden of proof to overcome that presumption in reaching a determination contrary to that presumption. Whether or not a Change of Control shall have occurred, if the person or persons empowered under Section 7.7 of this Article to determine entitlement to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. The termination of any Proceeding described in any of Sections 7.2, 7.3, or 7.4 of this Article, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 7.9. Remedies Of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification under this Article, (ii) advancement of Expenses is not timely made pursuant to Section 7.6 of this Article, or (iii) payment of indemnification is not made within five (5) days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7.7 of this Article that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7.9 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Sections 7.7 or 7.8 of this Article that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7.9, unless (i) Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification, or (ii) such indemnification is prohibited by law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7.9 that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Article. (e) In the event that Indemnitee, pursuant to this Section 7.9, seeks a judicial adjudication of, or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Article, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 7.13 of this Article) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 7.10. Non-Exclusivity And Survival Of Rights. The rights of indemnification and to receive advancement of Expenses as provided by this Article shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. Notwithstanding any amendment, alteration or repeal of any provision of this Article, Indemnitee shall, unless otherwise prohibited by law, have the rights of indemnification and to receive advancement of Expenses as provided by this Article in respect of any action taken or omitted by Indemnitee in his Corporate Status and in respect of any claim asserted in respect thereof at any time when such provision of this Article was in effect. The provisions of this Article shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his heirs, executors and administrators. Section 7.11. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, each portion of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 7.12. Certain Persons Not Entitled To Indemnification Or Advancement Of Expenses. Notwithstanding any other provision of this Article, no person shall be entitled to indemnification or advancement of Expenses under this Article with respect to any Proceeding, or any claim therein, brought or made by him against the Company. Section 7.13. Definitions. For purposes of this Article: (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner") (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. (e) "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Sections 7.2, 7.3 or 7.4 of this Article by reason of his Corporate Status. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Article. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 7.9 of this Article to enforce his rights under this Article. Section 7.14. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. ARTICLE VIII Miscellaneous Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 8.2 Waiver Of Notice Of Meetings Of Stockholders, Directors, And Committees. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Section 8.3 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or the committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.4 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 adopted by them, provided however, that any such additional by-laws, alterations or repeal may be adopted only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class), unless such additional by-laws, alterations or repeal shall have been recommended to the stockholders for adoption by a majority of the Board of Directors, in which event such additional by-laws, alterations or repeal may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class). Section 8.7 Restrictive Gaming Legend. All certificates issued for Shares of the $.10 par value Common Stock of the Corporation shall bear the following legend: "Any and all shares of Common Stock of the Corporation are held subject to the condition that if (a) any regulatory authority should request, determine or otherwise advise that the holder or owner is disqualified, or unsuitable, must qualify for or obtain a license, or must submit an application and satisfy a review process, including background checks, in order for the Corporation or any subsidiary to obtain or retain a license or a relicense, or otherwise avoid significant penalties or business disadvantage, and (b) such holder or owner shall fail to submit to qualification within fifteen (15) days following such request, determination or advice, or fail to be found qualified or suitable, then (c) such holder or owner, at the request of the Corporation or the appropriate regulatory authority, shall promptly dispose of such holder's or owner's interest in the Corporation's Common Stock and shall be subject to any order of such regulatory body limiting such holder's or owner's rights pending such disposition. Without limiting the foregoing, any holder or owner that intends to acquire, directly or indirectly, ten percent (10%) or more of the outstanding common stock of the Corporation (regardless of class or series) shall first notify the Corporation and obtain prior written approval from the Delaware State Lottery Office. Since money damages are inadequate to protect the Corporation, it shall be entitled to injunctive relief to enforce the foregoing provision." Section 8.8 Restrictions on Transfer of Class A Common Stock. (a) Restriction. Shares of the Company's Class A Common Stock (the "Shares") may be sold, transferred or disposed of only in accordance with the following: (i) Shares may be sold or transferred to any other holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; or (ii) Shares may be sold, transferred or pass by intestacy, will or inheritance to: (A) one or more members of the immediate family of a holder of Shares, provided that such holder has not acquired Shares in contravention of these Bylaws; (B) a corporation all of the shares of which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; (C) a trust all of the beneficial interests of which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws; or (D) a general or limited partnership all of the partnership interests in which are owned by holders of Shares (or one or more members of the immediate family of a holder of Shares), provided that no such holder has acquired Shares in contravention of these Bylaws. (b) Family Member Defined. For purposes of clause (a)(ii) above, "members of the immediate family" shall be limited to any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. (c) Evidence of Compliance. Prior to any sale, transfer or disposition of Shares, the holder may be required, at the option of the Company, to furnish appropriate evidence of compliance with these Bylaws, including but not limited to an opinion of counsel. (d) Conversion. Shares may be converted to shares of the Company's Common Stock and sold, transferred or disposed of without regard to the limitations set forth in clause (a) above. (e) Pledge. The bona fide pledge of Shares as collateral security for indebtedness to the pledgee shall not be deemed to violate clause (a) above, provided that the pledgee provides to the Company a written undertaking not to sell, transfer or dispose of the Shares in violation of these Bylaws. (f) Legend. All certificates evidencing the Shares (and replacement certificates issued in their stead) shall be inscribed with the following legend (in addition to any other legends required hereunder or under federal or state securities laws): "The Shares of Class A Common Stock represented by this certificate may be sold, transferred or otherwise disposed of only in accordance with the terms and conditions set forth in the Company's Bylaws, which terms and conditions restrict, and in some instances prohibit, the transfer or other disposition of such Shares and which terms and conditions may only be amended by shareholders owning 75% or more of the outstanding shares of Class A Common Stock. The terms and conditions set forth in the Company's Bylaws are incorporated herein by reference and copies thereof are available for inspection or will be mailed by the Company to any holder without charge within five days after the Company's receipt of a written request therefor." (g) Vote Required to Amend. This Section 8.7 may only be amended by shareholders owning 75% or more of the outstanding Shares. (h) Injunctive Relief. Since money damages would be inadequate, the Company or any holder of Shares shall be entitled to injunctive relief to enforce this Section 8.7. -----END PRIVACY-ENHANCED MESSAGE-----