SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PENN NATIONAL GAMING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
PENN NATIONAL GAMING, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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4) Date Filed:
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<PAGE>
PENN NATIONAL GAMING, INC.
825 Berkshire Boulevard
Suite 203
Wyomissing, Pennsylvania 19610
------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held April 30, 1997
--------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Penn
National Gaming, Inc., (the "Company"), a Pennsylvania corporation, will be held
on April 30, 1997, at 10:00 AM, local time, at the offices of Mesirov Gelman
Jaffe Cramer & Jamieson, 38th Floor, 1735 Market Street, Philadelphia,
Pennsylvania, for the following purposes:
1. To elect two Class I directors for a term of three years and until
their successors are duly elected and qualified.
2. To consider and act upon a proposal to amend the Company's 1994
Stock Option Plan.
3. To consider and act upon a proposal to ratify the appointment of BDO
Seidman, LLP as independent public accountants for the Company for
the fiscal year ending December 31, 1997.
4. To consider and transact such other business as may properly come
before the Annual Meeting or any postponement or adjournment
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting.
Only shareholders of record at the close of business on March 18, 1997
are entitled to notice of and to vote at the Annual Meeting and any postponement
or adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. Any shareholder attending the Annual Meeting may vote in person even if
such shareholder previously signed and returned a proxy.
FOR THE BOARD OF DIRECTORS
Robert S. Ippolito
Secretary
Wyomissing, Pennsylvania
April 1, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE PROVIDED FOR THAT PURPOSE TO ASSURE REPRESENTATION OF YOUR SHARES. NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
<PAGE>
PENN NATIONAL GAMING, INC.
Wyomissing Professional Center
825 Berkshire Boulevard, Suite 203
Wyomissing, Pennsylvania 19610
(610) 373-2400
-----------------------------------------------
PROXY STATEMENT
-----------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 30, 1997
-----------------------------------------------
This Proxy Statement and the enclosed Proxy are first being sent or
given to shareholders of Penn National Gaming, Inc. (the "Company") on or about
April 1, 1997, in connection with the solicitation of proxies for use at the
Company's Annual Meeting of Shareholders ("Annual Meeting") to be held April 30,
1997, at 10:00 a.m., local time, or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting will be held at the offices of Mesirov Gelman Jaffe
Cramer & Jamieson, 38th Floor, 1735 Market Street, Philadelphia, Pennsylvania.
This solicitation is being made on behalf of the Board of Directors of the
Company.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date and Shares Outstanding
The Board of Directors has fixed the close of business on March 18,
1997, as the record date ("Record Date") for the determination of shareholders
of the Company entitled to notice of, and to vote at, the Annual Meeting. At the
Record Date, 15,109,040 shares of the Company's Common Stock were issued and
outstanding and entitled to vote at the Annual Meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
(2)
<PAGE>
Voting and Solicitation
The presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes which all shareholders are entitled to cast is
necessary for a quorum to be present at the Annual Meeting. Each share of the
Company's Common Stock outstanding is entitled to one vote on each matter which
may be brought before the Annual Meeting.
Proxies given in the form enclosed, unless previously revoked, will be
voted at the Annual Meeting in accordance with the instructions contained
therein, and if no choice is specified, will be voted in favor of the proposals
set forth in the notice of meeting. Assuming a quorum is present, the
affirmative vote of a majority of the votes cast at the Annual Meeting is
required for (i) the election of directors; (ii) the approval of the amendment
to the 1994 Stock Option Plan; (iii) the ratification of BDO Seidman, LLP as the
independent public accountants for the year ending December 31, 1997; and (iv)
the approval of any other matters which may properly come before the Annual
Meeting or any postponement or adjournment thereof. For purposes of determining
the number of votes cast, only those cast "for" or "against" are counted.
Abstentions and broker non-votes are counted only for purposes of determining
whether a quorum is present at the Annual Meeting. Under Pennsylvania law, a
quorum is required to conduct business at the Annual Meeting.
It is expected that the solicitation of proxies will be conducted
primarily by mail. Proxies may also be solicited personally or by telephone,
telegraph, or telecopy. The cost of this solicitation will be borne by the
Company. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and employees, without
additional compensation, personally or by telephone, telegram, or telecopy.
ELECTION OF DIRECTORS
Information about Nominees and Other Directors
Two Class I directors will be elected at the Annual Meeting to hold
office, subject to the provisions of the Company's By-Laws, until the annual
meeting of shareholders of the Company to be held in the year 2000, and until
their respective successors are duly elected and qualified.
(3)
<PAGE>
The following table sets forth the name, age, principal occupation, and
respective service dates of each person who has been nominated to be a director
of the Company:
Director Term
Name of Nominee Age Principal Occupation Since Expires
- --------------- --- -------------------- ----- -------
David A. Handler 32 Senior Vice President of 1994 1997
Corporate Finance of Jefferies &
Company, Inc.
John M. Jacquemin 50 President of Mooring Financial 1995 1997
Corporation
David A. Handler. Mr. Handler has been a Director of the Company since
1994. From 1995 to the present, Mr. Handler has been an investment banker and is
currently a Senior Vice President of Corporate Finance at Jefferies & Company,
Inc. From 1991 to 1995, he was a Vice President at Fahnestock & Co., Inc.
John M. Jacquemin. Mr. Jacquemin has been a director of the Company
since 1995 and is President of Mooring Financial Corporation, a financial
services group specializing in the purchase and administration of commercial
loan portfolios and equipment leases. Mr. Jacquemin joined Mooring Financial
Corporation in 1982 and has served as its President since 1987.
The following information sets forth the name, age, principal
occupation, and respective service dates of each director whose term of office
extends beyond the date of the Annual Meeting:
(4)
<PAGE>
Director Term
Name of Nominee Age Principal Occupation Since Expires
- --------------- --- -------------------- ----- -------
Peter M. Carlino 50 Chairman of the Board and Chief 1994 1999
Executive Officer of the
Company
William J. Bork 63 President and Chief Operating 1995 1998
Officer of the Company
Harold Cramer 69 Of Counsel to Mesirov Gelman 1994 1999
Jaffe Cramer & Jamieson
Robert P. Levy 65 Chairman of the Board of the 1995 1998
Atlantic City Racing Association
Peter M. Carlino. Mr. Carlino has served as Chairman of the Board and
Chief Executive Officer of the Company since April 1994, and has devoted a
significant amount of time to the activities of the Company as a director since
1991. From 1984 to 1994, Mr. Carlino devoted a substantial portion of his
business time to developing, building and operating residential and commercial
real estate projects located primarily in Central Pennsylvania. Since 1976 he
has been President of Carlino Financial Corporation ("Carlino Financial"), a
holding company which owns and operates various Carlino family businesses, in
which capacity he has been continuously active in strategic planning for the
Company and monitoring its operations. From 1972 until 1976, Mr. Carlino served
as President of Mountainview Thoroughbred Racing Association, a predecessor in
interest of the Company ("Mountainview").
William J. Bork. Mr. Bork was elected President, Chief Operating
Officer and a Director in June 1995. From 1987 to June 1995 he was Vice
President for Ladbroke Racing Corporation. Prior to working with Ladbroke, Mr.
Bork served as Vice President of Operations of racetracks previously owned by
Ogden Corporation including Fairmount Park in Collinsville, Illinois;
Mountaineer Park in Chester, West Virginia; Wheeling Downs in Wheeling, West
Virginia; and Suffolk Downs in Boston, Massachusetts.
Harold Cramer. Mr. Cramer has been a director of the Company since
1994. Since November 1996, Mr. Cramer has been Of Counsel to Mesirov Gelman
Jaffe Cramer & Jamieson, a Philadelphia law firm which provides legal services
to the Company. From November 1995 until November 1996, Mr. Cramer was Chairman
of the Board and Chief Executive Officer of HSI Management Co., Inc. From 1989
until December 1995, Mr. Cramer was Chairman of the Board and Chief Executive
Officer and a director of Graduate Health System, Inc. ("GHS"). In December 1996
he was re-elected as a director of GHS. He also serves as a director of
Mountainview and as a director of Pennsylvania National Turf Club, Inc., a
subsidiary of the Company.
(5)
<PAGE>
Robert P. Levy. Mr. Levy has been a director of the Company since 1995.
He is Chairman of the Board of Atlantic City Racing Association and served a
two-year term from 1989 to 1990 as President of the Thoroughbred Racing
Association. Mr. Levy has served as the Chairman of the Board of DRT Industries,
Inc., a diversified business based in the Philadelphia metropolitan area, since
1960. Mr. Levy owns the Robert P. Levy Stable, a thoroughbred racing and
breeding operation which has bred and owned several award-winning horses,
including the 1987 Belmont Stakes winner, Bet Twice.
Meetings of the Board of Directors and Information About Board Committees
The Board of Directors held four meetings during the fiscal year ended
December 31, 1996. Each director attended at least 75% of all meetings of the
Board and all meetings of Board committees on which he served except Mr. Levy
who attended 60% of such meetings.
The Company has two standing Committees: The Audit and Compensation
Committees. David A. Handler and John M. Jacquemin are members of the Audit
Committee, and Harold Cramer and Robert P. Levy are members of the Compensation
Committee. The principal functions of the Audit Committee are to recommend
engagement of the Company's independent auditors, to consult with the Company's
auditors concerning the scope of the audit, to review with the auditors the
results of the examination, to review and approve any material accounting policy
changes affecting the Company's operating results, and to review the Company's
financial control procedures and personnel. The Compensation Committee reviews
compensation and benefits for the Company's executives and administers the grant
of stock options to executive officers under the Company's 1994 Stock Option
Plan. One meeting of the Audit Committee and one meeting of the Compensation
Committee were held in 1996. The Board of Directors does not have a nominating
committee.
The Company pays director's fees to each Director who is not an
employee of the Company. During the year ending December 31, 1996, each outside
Director received an annual fee of $12,000, plus $1,000 for each Board meeting
attended and reimbursement for out-of-pocket expenses in connection with their
attendance at such meetings. In addition, each non-employee Director was granted
an option to purchase 5,000 (now 15,000 shares as a result of stock splits)
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of the grant. All initial grants of options to
non-employee Directors vest in four equal annual installments, commencing on the
first anniversary of the date of grant.
(6)
<PAGE>
COMPENSATION COMMITTEE REPORT
The Company's executive officer compensation program is administered
and reviewed by the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Compensation Committee consists of two
independent, non-employee Directors of the Company.
Policies and Mission
The Compensation Committee has determined that compensation of
executive officers should include a mixture of short and long range compensation
plans which attract, motivate and retain competent executive personnel, increase
executive ownership interests in the Company and encourage increases in the
Company's productivity and profitability. As such, the Company's policy is that
executive compensation should be directly and materially related to the
short-term and long-term operating performance and objectives of the Company. To
achieve these ends, executive compensation, including base salary and stock
option grants, is to a significant extent dependent upon the Company's financial
performance and the return on its Common Stock. However, to ensure that the
Company is strategically and competitively positioned for the future, the
Compensation Committee also attributes significant weight to other factors in
determining executive compensation, such as maintaining competitiveness,
implementing capital improvements, expanding markets and achieving other
long-range business and operating objectives.
Compensation Plan
To determine appropriate levels of executive compensation, the
Compensation Committee periodically reviews the executive compensation programs
and policies of the Company's competitors, in addition to a broader group of
companies in its marketplace, to ensure that the Company's plans and practices
are competitive and appropriately based on the Company's performance and
compensation philosophy.
Base Salary
The objective for computing executive base salaries is to structure
salaries that are competitive with those of similarly situated companies. In
setting base salary levels for individual executives in the future, the
Compensation Committee will consider such factors as the executive's scope of
responsibility, current performance, future potential and overall competitive
positioning relative to comparable positions at other companies. The base
salaries for Peter M. Carlino, William J. Bork, and Robert S. Ippolito are set
pursuant to employment agreements and currently are $275,000, $210,000, and
$115,000 per year, respectively.
(7)
<PAGE>
Stock Options
Stock options are granted under the provisions of the Company's 1994
Stock Option Plan (the "Plan"). Stock options are granted to reinforce the
importance of improving shareholder value over the long-term and to encourage
and facilitate executive stock ownership. Stock options are granted at not less
than 100% of the fair market value of the stock on the date of grant to ensure
that executives can only be rewarded for appreciation in the price of the Common
Stock where the Company's shareholders are similarly benefited. For future
grants, the Compensation Committee will establish levels of participation for
the stock option program based upon each executive officer's or other employee's
position in the Company. The number of options to be granted to each executive
officer will be contingent on the individual executive's performance, tenure and
future potential.
Compensation Committee of the Board of Directors
Harold Cramer and Robert P. Levy
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 18, 1997, by (i)
each person known to the Company to own beneficially more than five percent of
the Company's outstanding Common Stock, (ii) each director, (iii) the chief
executive officer and each of the four other most highly compensated executive
officers of the Company, and (iv) all of the executive officers and directors of
the Company as a group.
(8)
<PAGE>
Amount and Nature of Beneficial
Ownership of Common Stock
---------------------------------
Percentage of
Outstanding
Name and Address (1) Number of Shares Shares
- -------------------- ---------------- -------------
Peter D. Carlino (2) 6,031,178 39.9%
Peter M. Carlino (3) 6,673,842 43.7%
David E. Carlino (4) 5,534,838 36.6%
Richard J. Carlino (5) 5,522,494 36.6%
Harold Cramer (6) 5,701,386 37.7%
Carlino Family Trust (7) 5,511,308 36.5%
Carlino Financial Corporation (7) 301,132 2.0%
William J. Bork 50,000 *
Philip T. O'Hara, Jr. 18,750 *
David A. Handler 120,000 *
Robert S. Ippolito 29,100 *
John M. Jacquemin 4,350 *
Robert P. Levy 3,750 *
FMR Corp. (8) 1,616,600 10.7%
8 Devonshire Street
Boston, MA 02109
All executive officers and directors
as a group (8 persons)(2)(3)(5) 7,092,270 45.9%
* Less than 1%
- --------------------
(1) The persons named in the above table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them
except as otherwise shown in the succeeding footnotes, and the address of each
such person other than FMR Corp. is c/o the Company, 825 Berkshire Boulevard,
Suite 203, Wyomissing, Pennsylvania 19610. The number of shares included in the
table as to each person(s) also includes shares which may be acquired by such
person(s) within sixty days of March 18, 1997 pursuant to stock options.
(2) The number of shares in the table includes 301,132 shares owned of record by
Carlino Financial Corporation ("Carlino Financial"); such shares are reported as
beneficially owned by Peter D. Carlino because he is the Chairman of the Board
of Carlino Financial and has shared voting and investment power over such
shares. The number of shares in the table also includes 5,511,308 shares owned
by an irrevocable trust (the "Family Trust") among Peter D. Carlino and his
eight
(9)
<PAGE>
children, as settlors, and certain trustees, as to which Peter D. Carlino has
shared investment and voting power with respect to certain matters; 12,000
shares held by Penn Title Insurance Company as to which Peter D. Carlino has
voting and investment power; and 182,578 shares owned by a marital trust for the
benefit of Peter D. Carlino and by a residuary trust for the benefit of Peter D.
Carlino's children as to both of which Peter D. Carlino has shared investment
power and shared voting power.
(3) The number of shares in the table includes 301,132 shares of Common Stock
owned of record by Carlino Financial as to which shares Peter M. Carlino has
shared voting and investment power; 5,511,308 shares owned by the Family Trust,
as to which Peter M. Carlino has sole voting power for the election of directors
and certain other matters, shared voting power with respect to certain matters,
and shared investment power; 12,000 shares held by Penn Title Insurance Company
as to which Peter M. Carlino has shared voting and investment power and 699,402
shares owned jointly by Mr. Carlino and his wife, Marshia Carlino.
(4) The number of shares in the table includes 5,511,308 shares owned by the
Family Trust, as to which the named person has shared investment power and
shared voting power as to certain matters; 12,000 shares held by Penn Title
Insurance Company as to which David E. Carlino has shared voting and investment
power and 5,765 shares owned beneficially by David E. Carlino's children as to
which he disclaims beneficial ownership.
(5) The number of shares in the table includes 5,511,308 shares of Common Stock
owned by the Family Trust, as to which the named person has shared investment
power and shared voting power as to certain matters.
(6) The number of shares in the table includes 5,511,308 shares owned by the
Family Trust, and an aggregate of 182,578 shares owned by a marital trust for
the benefit of Peter D. Carlino and by a residuary trust for the benefit of
Peter D. Carlino's children as to both of which Harold Cramer has shared
investment power and shared voting power.
(7) See note (2).
(8) The information in the table is based on information contained in a
Statement on Schedule 13G filed by FMR Corp. with the Securities and Exchange
Commission dated March 16, 1996, as amended February 14, 1997 and March 10,
1997. Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp., acting as an investment advisor to various investment companies
registered under the Investment Company Act of 1940, as amended, is the
beneficial owner of 1,588,600 shares (of which 1,510,000 shares are owned by
Fidelity Trend Fund). 28,000 shares are owned by other entities under common
control with FMR Corp., but FMR Corp. is of the view that 5,000 such shares are
not beneficially owned by it. Edward C. Johnson, III, Chairman of FMR Corp., and
Abigail P. Johnson, a director of FMR, and other members of the Johnson family
share investment and voting power with respect to these shares.
(10)
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Company for services rendered for the last three fiscal years to
the Company's Chief Executive Officer and each executive officer whose aggregate
cash compensation in 1996 exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
SECURITIES
NAME AND RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) STOCK AWARDS OPTIONS (2) COMPENSATION (3)
------------------ ---- ------ --------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino, 1996 $274,997 $25,000 -- 300,000 $4,750
Chairman of the Board 1995 $254,273 -- -- -- $4,500
and Chief Executive Officer 1994 $131,789 $ 7,078 -- 300,000 $2,250
William J. Bork, 1996 $205,958 -- -- 100,000 $1,615
President and Chief Operating 1995 $113,077 -- -- 150,000 --
Officer 1994 -- -- -- -- --
Philip T. O'Hara, Jr. 1996 $149,501 $25,000 -- -- $2,981
Vice President 1995 $122,346 $ 4,600 -- -- $3,347
General Manger 1994 $112,255 $ 2,481 -- 75,000 $2,160
Robert S. Ippolito 1996 $110,385 $18,600 -- 10,000 $2,959
Chief Financial Officer 1995 $100,462 -- -- -- $2,735
Secretary/Treasurer 1994 $ 52,250 -- -- 75,000 $1,132
</TABLE>
- -------------------------
(1) The Compensation Committee awarded Peter M. Carlino a one-time bonus
of $25,000 for the year 1995 which the Company paid in the first quarter
of 1996.
(2) Adjusted for all stock splits to date.
(3) Includes amounts contributed by the Company to its profit sharing and 401(k)
plan for the account of such executive officers.
(11)
<PAGE>
GRANT OF STOCK OPTIONS IN 1996
The following table provides information with respect to the named
executive officers concerning the stock options which were granted in 1996.
<TABLE>
<CAPTION>
Potential
Realizable value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------- -----------------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise
Granted Employees In Price Per Expiration
Name (1) Fiscal Year Share (2) Date (1) 5% (3) 10% (3)
- ---- ----- ----------- --------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter M. Carlino 300,000 51.7% $17.63 10/23/06 $3,325,280 $8,426,913
William J. Bork 100,000 17.2% $17.63 10/23/03 $717,515 $1,672,114
Robert S. Ippolito 10,000 1.7% $17.63 10/23/03 $71,751 $167,211
Philip T. O'Hara, Jr. -- -- -- -- -- --
</TABLE>
(1) Options granted to Mr. Carlino and Mr. Bork vest one-third on the first
anniversary of the date of grant, and one-third on each succeeding such
anniversary. Options granted to Mr. Ippolito vest one-quarter on the first
anniversary of the date of grant, and one-quarter on each succeeding such
anniversary.
(2) The exercise price is equal to the closing price of the Company's Common
Stock on the date of grant.
(3) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rates, compounded annually, from the
date of grant until the end of the respective option term. These values are
calculated based on requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
appreciation.
(12)
<PAGE>
EXERCISE OF STOCK OPTIONS IN 1996
The following table provides information with respect to the named
executive officers concerning the exercise of stock options during 1996 and
unexercised options held as of December 31, 1996. There are no outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
---------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 1996 December 31, 1996
-------------------------- ---------------------------
Shares
Acquired on Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino -- -- 150,000 450,000 $1,637,500 $1,637,500
William J. Bork -- -- 50,000 200,000 $ 437,500 $ 875,000
Robert S. Ippolito 9,000 $ 63,206 28,500 47,500 $ 311,125 $ 409,375
Philip T. O'Hara, Jr. 18,750 $138,125 18,750 37,500 $ 204,687 $ 409,375
</TABLE>
Employment Agreements
On April 12, 1994, the Company entered into employment agreements with
Peter M. Carlino, its Chairman and Chief Executive Officer, Robert S. Ippolito,
its Chief Financial Officer, Secretary, and Treasurer, at annual base salaries
of $225,000 and $95,000, respectively. The agreements with Messrs. Carlino and
Ippolito were effective beginning June 1, 1994 and terminate on June 30, 1999.
Effective June 1, 1995, Mr. Carlino's annual base salary was increased to
$275,000, and effective June 1, 1996, Mr. Ippolito's annual base salary was
increased to $115,000. Each agreement prohibits the applicable employee from
competing with the Company during its term and for one year thereafter and
requires a death benefit payment by the Company equal to 50% of the employee's
annual salary in effect at the time of his death. Pursuant to his employment
agreement, Mr. Carlino agreed to devote his full time to the Company, except
that Mr. Carlino may complete and monitor certain real estate investments in
which he has a substantial interest and which were previously commenced by him,
so long as such activities do not materially interfere with his duties to the
Company.
(13)
<PAGE>
On June 1, 1995, the Company entered into an employment agreement with
William J. Bork, its president and chief operating officer, at an annual base
salary of $210,000. The agreement terminates on June 12, 1998. The agreement
prohibits Mr. Bork from competing with the Company during its term and for two
years thereafter, and requires a death benefit payment by the Company equal to
50% of the employee's annual salary in effect at the time of his death.
The above employment agreements have been approved by the Pennsylvania
Racing Commission.
Certain Transactions
On April 11, 1994, the Company executed a Plan of Reorganization with
the shareholders and partners of entities now comprising the Company, all of
whom with the exception of one person, are members of the Carlino family. The
total number of shares (2,800,000) issued by the Company in the Reorganization
and the allocation thereof among the respective shareholders was determined by
the interested parties. Pursuant to the Plan of Reorganization, the parties
agreed that any income tax refunds or tax liabilities which relate to a tax
period prior to the effective date of the Plan of Reorganization shall be paid
to or be the responsibility of the appropriate taxpayer, not the Company.
However, if the refund results from a position inconsistent with a prior
position taken by the entities whose shareholders and partners participated in
the Reorganization and in turn results in a tax liability on the part of the
Company, the Company will be entitled to receive from Carlino Financial or the
shareholders and partners of such entities an amount equal to the lesser of such
refund and the increased tax liability. In addition, if the tax liability
results from a position inconsistent with a prior position taken by the entities
whose shareholders and partners participated in the Reorganization and in turn
results in a reduced tax liability to the Company, the Company will pay Carlino
Financial or the shareholders and partners of PNRC Reading Inc., PNRC
Chambersburg, Inc., PNRC Limited Partnership and Carlino Family Partnership an
amount equal to the lesser of such reduction in its tax liability and the
increased liability of the appropriate taxpayers. This provision, however, does
not apply to the tax matters which were the subject of litigation between the
Company and the IRS. Any other refunds or liabilities shall belong to or be the
responsibility of the Company.
Prior to the date of the Plan of Reorganization, Mountainview had
historically joined in filing a consolidated federal income tax return with
Carlino Financial, its previous parent company. Current federal income taxes
have been paid to or recovered from Carlino Financial, based upon the terms of a
tax sharing agreement which applies to the periods prior to the Reorganization.
Such obligations continue for open tax years 1993 and 1994 (short year).
James A. Irwin, the husband of Anne Carlino Irwin, a beneficiary of the
Family Trust, is an officer, director and minority shareholder in Flanigan
O'Hara and Gentry insurance
(14)
<PAGE>
agency, which is the broker for all of the Company's property and casualty
insurance. In 1996 the Company paid premiums of $620,000 for such insurance.
In August 1994, the Company signed a five-year consulting agreement
with Peter D. Carlino, former Chairman of the Company, at an annual fee of
$125,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in ownership
of the Company's Common Stock and any other equity securities of the Company
with the Securities and Exchange Commission (SEC) and the NASD. Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of Forms 3, 4 and 5 furnished
to the Company, or written representations from certain reporting persons that
no such Forms were required to be filed by such persons, the Company believes
that all its executive officers, directors and greater than 10% shareholders
complied with all filing requirements applicable to them during 1996, except
that Mr. Jacquemin did not file two Forms 4 in a timely manner.
(15)
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
The following graph compares the cumulative total shareholder return
for the Company's Common Stock since the Company's initial public offering of
shares of Common Stock on May 26, 1994 to the cumulative total returns of (i)
the NASDAQ Market Index and (ii) a Peer Group Index comprised of the following
gaming and thoroughbred horse racing companies: Churchill Downs, Inc., Global
Casinos, Inc., Hollywood Casino Corp., Hollywood Park, Inc., International
Gaming Technologies, International Thoroughbred Racing Inc., Mirage Resorts,
Inc., President Casinos, Inc., and Primadonna Resorts, Inc.
[GRAPHIC]
The printed document contains a line graph depicting the following plot
points:
- --------------------------------------------------------------------------------
Legend
------
Year Ended
------------------------------------------
Symbol Index Description 05/26/94 12/31/94 12/31/95 12/31/96
- ------ ----------------- -------- -------- -------- --------
Penn-National Gaming, Inc. 100.0 65.0 128.8 427.3
Nasdaq Market Index 100.0 101.3 131.4 163.3
Peer Group 100.0 85.0 86.1 115.9
Notes:
A. The lines represent annual index levels, assuming reinvestment of all
dividends paid during the measurement period.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the annual interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to 100.0 on 05/26/94.
- --------------------------------------------------------------------------------
(16)
<PAGE>
AMENDMENT OF THE 1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan now provides that any director of
the Company who is not an employee shall be granted stock options under the 1994
Stock Option Plan only one time and such option grant is limited to 5,000 shares
(which by virtue of stock splits since the date of adoption of the Plan, is now
15,000 shares). The Company believes that contributions to the success of
Company operations made by non-employee directors is substantial, and
accordingly, the Company desires to reward that contribution and to create
future incentives for additional contributions by removing this limitation in
the Plan. Therefore, the Company is proposing to delete this limitation, which
would permit future stock option grants to non-employee directors. Moreover, in
October, 1996, subject to the approval of the shareholders to delete such
restriction, the Board granted each of the non-employee directors options to
purchase 7,500 shares of Common Stock (15,000 after the Company's stock split
effective December 20, 1996), at an exercise price of $35.25 ($17.625 after the
stock split) per share (the fair market value of such shares at the time of the
grant). Such grant is conditioned upon shareholder approval of this proposed
amendment.
Currently, the number of shares reserved for issuance under the Stock
Option Plan is 1,290,000. The current number of shares which remain available to
be covered by future option grants is 200,000. The Company believes it is
necessary and appropriate to increase the number of authorized shares under the
Stock Option Plan and to broaden the number of employees expected to receive
options, so as to permit management the opportunity to reward employees with
additional stock options where appropriate and to create additional incentives
to enhance their performance for the Company. Accordingly, shareholders are
asked to approve an amendment to the Stock Option Plan increasing the number of
authorized shares underlying stock options to be granted thereunder from
1,290,000 shares to 2,000,000 shares, and broadening the definition of employees
eligible to receive options under the Plan to include all key employees as
determined by the Compensation Committee, rather than only Directors, and
executive and non-executive officers. Moreover, on March 18, 1996 the Board
granted equally to 12 key employees who are not executive or non-executive
officers an aggregate of options to purchase 36,000 shares (108,000 shares after
stock splits) at an exercise price of $16.88 per share ($5.63 per share after
stock splits). Such grants shall be affirmed by the approval by the shareholders
of the proposed amendments to the Stock Option Plan.
The purpose of the proposed amendments to the Plan is to further the
stated purpose of the Plan, which is to help the Company attract, retain and
motivate individuals to make substantial contributions to the success of the
Company.
The Board of Directors recommends that shareholders vote FOR the
amendment of the 1994 Stock Option Plan.
(17)
<PAGE>
APPROVAL OF THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board, which is composed entirely of
non-employee Directors, has selected BDO Seidman, LLP as certified public
accountants to audit the books, records and accounts of Penn National Gaming,
Inc., and its subsidiaries for the year 1997. The Board has endorsed this
appointment and it is being presented to the shareholders for approval.
All audit services provided by BDO Seidman, LLP are approved by the
Audit Committee.
Representatives of BDO Seidman, LLP will be present at the Annual
Meeting, will have an opportunity to make statements if they desire, and will be
available to respond to appropriate questions.
If the shareholders do not approve the appointment of BDO Seidman, LLP,
the Audit Committee will select another firm of auditors for the ensuing year.
The Board of Directors recommends that Shareholders vote FOR the
appointment of BDO Seidman, LLP as Independent Public Accountants.
Other Matters
The Company has mailed a 1996 Annual Report to Shareholders and a proxy
card together with this proxy statement to all shareholders of record at the
close of business on March 18, 1997. The Board of Directors does not know of any
other business which will be presented for consideration at the Annual Meeting.
Except as the Board of Directors may otherwise permit, only the business set
forth and discussed in the Notice of Annual Meeting and Proxy Statement may be
acted on at the Annual Meeting. If any other business does properly come before
the Meeting or any postponement or adjournment thereof, the proxy holders will
vote in regard thereto according to their discretion insofar as such proxies are
not limited to the contrary.
(18)
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Proxy
Statement for the Company's 1998 Annual Meeting of Shareholders must submit the
same to the Company on or before December 11, 1997, at the Company's principal
executive office, Wyomissing Professional Center, 825 Berkshire Blvd., Suite
203, Wyomissing, Pennsylvania 19610, directed to the attention of the Secretary.
FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY
THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K INCLUDING FINANCIAL STATEMENTS AND THE
SCHEDULES THERETO. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE COMPANY AT
825 BERKSHIRE BOULEVARD, SUITE 203, WYOMISSING, PENNSYLVANIA 19610, ATTENTION:
CORPORATE SECRETARY.
Please sign, date and return your Proxy Card as soon as possible.
(19)
<PAGE>
PENN NATIONAL GAMING, INC.
The undersigned hereby appoints Peter M. Carlino and Harold Cramer,
and each of them, the attorneys and proxies of the undersigned, with full power
of substitution, to vote on behalf of the undersigned all of the shares of
Common Stock of Penn National Gaming, Inc., which the undersigned is entitled to
vote at the Annual Meeting of Shareholders thereof to be held on April 30, 1997
and at any and all postponements and adjournments thereof, upon the following
matters:
1. For the election of David A. Handler and John M. Jacquemin to serve
as Class I Directors until the Annual Meeting of Shareholders of the
Company to be held in the year 2000 and until their successors are
elected and qualified:
____ For Both Nominees ___ Against Both Nominees
(INSTRUCTIONS: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME BELOW):
David A. Handler John M. Jacquemin
[over]
2. To approve amendments to the 1994 Stock Option Plan as set forth in
the Proxy Statement.
____ For ____ Against ____ Abstain
3. To ratify the appointment of BDO Seidman, LLP as independent
auditors of the Company for the year ending December 31, 1997.
____ For ____ Against ____ Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1, 2, and 3.
IF NO SPECIFICATION IS MADE, SUCH PROXY WILL BE VOTED "FOR" EACH SUCH
ITEM.
____________________________________ Dated _____________________, 1997
Signature of Shareholder
____________________________________ Please sign exactly as name appears.
Signature of Shareholder For joint accounts, each joint owner
must sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY
[over]
(20)
