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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2) Form, Schedule or Registration Statement no.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
PENN NATIONAL GAMING, INC.
825 Berkshire Boulevard
Suite 200
Wyomissing, Pennsylvania 19610
------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 20, 1998
--------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Penn
National Gaming, Inc. (the "Company"), a Pennsylvania corporation, will be held
on May 20, 1998, at 10:00 AM, local time, at Charles Town Entertainment Complex,
Flowing Springs Road, Charles Town, West Virginia, 25414, for the following
purposes:
1. To elect two Class II 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 ratify the appointment of BDO
Seidman, LLP as independent public accountants for the Company for the fiscal
year ending December 31, 1998.
3. 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 April 3, 1998 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 20, 1998
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 200
Wyomissing, Pennsylvania 19610
(610) 373-2400
-----------------------------------------------
PROXY STATEMENT
-----------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
MAY 20, 1998
-----------------------------------------------
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
20, 1998, in connection with the solicitation of proxies for use at the
Company's Annual Meeting of Shareholders ("Annual Meeting") to be held May 20,
1998, 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 Charles Town Entertainment
Complex, Flowing Springs Road, Charles Town, West Virginia, 25414. 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 April 3, 1998, 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, 15,155,830 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.
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 ratification of BDO
Seidman, LLP as the independent public accountants for the year ending December
31, 1998; and (iii) 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
<PAGE>
"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 II 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 2001, and until
their respective successors are duly elected and qualified.
The following table sets forth the name, age, principal occupation, and
respective service date of each person who has been nominated to be a director
of the Company:
<TABLE>
<CAPTION>
Director Term
Name of Nominee Age Principal Occupation Since Expires
- --------------- --- -------------------- -------- -------
<S> <C> <C> <C> <C>
William J. Bork 64 President and Chief Operating Officer 1995 2001
of the Company
Robert P. Levy 66 Chairman of the Board of the Atlantic 1995 2001
City Racing Association
</TABLE>
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.
Robert P. Levy. Mr. Levy has been a director of the Company since 1995. He
is Chairman of the Board of the 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.
The following table sets forth the name, age, principal occupation, and
respective service date of each director whose term of office extends beyond the
date of the Annual Meeting:
(2)
<PAGE>
<TABLE>
<CAPTION>
Director Term
Name of Nominee Age Principal Occupation Since Expires
- --------------- --- -------------------- -------- -------
<S> <C> <C> <C> <C>
David A. Handler 33 Senior Vice President of Corporate 1994 2000
Finance of Jefferies & Company, Inc.
John M. Jacquemin 51 President of Mooring Financial Corporation 1995 2000
Peter M. Carlino 51 Chairman of the Board and Chief Executive 1994 1999
Officer of the Company
Harold Cramer 70 Of Counsel to Mesirov Gelman Jaffe Cramer 1994 1999
& Jamieson, LLP
</TABLE>
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.
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").
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, LLP, 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 November 1995, Mr. Cramer was Chairman of the Board and Chief Executive
Officer of Graduate Health System, Inc. ("GHS") and has been a Director of GHS
since November 1996. He also serves as a director of Mountainview and as a
director of Pennsylvania National Turf Club, Inc., a subsidiary of the Company.
Meetings of the Board of Directors and Information About Board Committees
The Board of Directors held five meetings during the fiscal year ended
December 31, 1997. Each director attended 100% of all meetings of the Board and
all meetings of Board committees on which he served except for David A. Handler
who attended 80% 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
(3)
<PAGE>
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. Two meetings of the Audit Committee and one meeting of the Compensation
Committee were held in 1997. 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, 1997, 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 his attendance
at such meetings. In addition, each non-employee Director was granted an initial
option to purchase 5,000 (now 15,000 shares as a result of stock splits) shares
of Common Stock and an option to purchase an additional 15,000 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 grants of options to non-employee Directors vest in
four equal annual installments, commencing on the first anniversary of the date
of grant.
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.
(4)
<PAGE>
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 $335,000, $235,000, and
$135,000 per year, respectively.
Stock Options
Stock options are granted under the provisions of the Company's 1994 Stock
Option Plan (the "Plan") as amended and restated. 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 benefitted. 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 April 3, 1998, 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.
(5)
<PAGE>
Amount and Nature of Beneficial
Ownership of Common Stock
----------------------------------
Percentage of
Number of Outstanding
Name and Address (1) Shares Shares
- -------------------- --------- -------------
Peter D. Carlino (2) 5,696,595 37.6%
Peter M. Carlino (3) 6,436,429 41.4%
David E. Carlino (4) 5,216,533 34.4%
Richard J. Carlino (5) 5,209,189 34.4%
Harold Cramer (6) 5,399,331 35.6%
Carlino Family Trust (7) 5,198,003 34.3%
Carlino Financial Corporation (7) 301,132 2.0%
William J. Bork 133,333 *
Philip T. O'Hara, Jr. 56,250 *
David A. Handler 106,252 *
Robert S. Ippolito 70,350 *
John M. Jacquemin 11,850 *
Robert P. Levy 11,250 *
Robert Abraham 8,000 *
FMR Corp. (8) 1,664,400 11.0%
8 Devonshire Street
Boston, MA 02109
All executive officers and directors 7,035,042 44.2%
as a group (9 persons)(2)(3)(5)
* 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 200, 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 April 3, 1998 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 5,198,003 shares owned
by an irrevocable trust (the "Family Trust") among Peter D. Carlino and his
eight children, as settlors, and certain trustees, as to which Peter D. Carlino
has shared investment and voting power with respect to certain matters; 7,000
shares held by PennTitle, Inc. f/k/a Penn Title Insurance Company ("PennTitle")
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.
(footnotes continued on following page)
(6)
<PAGE>
(footnotes continued from preceding page)
(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; 5,198,003 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; 7,000 shares held by PennTitle as to which Peter M.
Carlino has shared voting and investment power and 530,294 shares owned jointly
by Mr. Carlino and his wife, Marshia Carlino.
(4) The number of shares in the table includes 5,198,003 shares owned by the
Family Trust, as to which David E. Carlino has shared investment power and
shared voting power as to certain matters; 7,000 shares held by PennTitle as to
which David E. Carlino has shared voting and investment power and 182,578 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 5,198,003 shares of Common Stock
owned by the Family Trust, as to which Richard J. Carlino has shared investment
power and shared voting power as to certain matters.
(6) The number of shares in the table includes 5,198,003 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 February 14, 1998. 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 1,516,100 shares (of which 1,510,000 shares
are owned by Fidelity Trend Fund). 148,300 shares are owned by other entities
under common control with FMR Corp. 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.
(7)
<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 1997 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND --------------------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(1) COMPENSATION(2)
- ------------------ ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino, 1997 $315,341 $126,000 -- -- $4,750
Chairman of the Board and 1996 $274,997 $25,000 -- 300,000 $4,750
Chief Executive Officer 1995 $254,273 -- -- -- $4,500
William J. Bork, 1997 $223,666 $84,000 -- -- $3,357
President and Chief 1996 $205,958 -- -- 100,000 $1,615
Operating Officer 1995 $113,077 -- -- 150,000 --
Philip T. O'Hara, Jr. 1997 $179,087 $25,000 -- $3,357
Vice President 1996 $149,501 $25,000 -- -- $2,981
General Manager 1995 $122,346 $ 4,600 -- -- $3,347
Robert S. Ippolito 1997 $127,902 $40,000 -- -- $3,447
Chief Financial Officer 1996 $110,385 $18,600 -- 10,000 $2,959
Secretary/Treasurer 1995 $100,462 -- -- -- $2,735
</TABLE>
- ----------
(1) Adjusted for all stock splits to date.
(2) Includes amounts contributed by the Company to its profit sharing and
401(k) plan for the account of such executive officers.
(8)
<PAGE>
GRANT OF STOCK OPTIONS IN 1997
No stock options were granted to eligible executive officers during
1997.
EXERCISE OF STOCK OPTIONS IN 1997
The following table provides information with respect to the named
executive officers concerning the exercise of stock options during 1997 and
unexercised options held as of December 31, 1997. There are no outstanding stock
appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at December 31, 1997 at December 31, 1997
Acquired on Value ------------------------------ -----------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino 0 $0.00 325,000 275,000 $1,289,174 $429,725
William J. Bork 0 $0.00 133,000 116,667 $ 356,300 $178,150
Robert S. Ippolito 0 $0.00 49,750 26,250 $ 270,727 $107,431
Philip T. O'Hara, Jr. 0 $0.00 37,500 18,750 $ 214,862 $107,431
</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, 1997, Mr. Carlino's annual base salary was increased to
$335,000, and effective June 1, 1997, Mr. Ippolito's annual base salary was
increased to $135,000. 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,
as long as such activities do not materially interfere with his duties to the
Company.
(9)
<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. Effective June
12, 1997, Mr. Bork's annual base salary was increased to $235,000. 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 or 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 year 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 d/b/a USI MidAtlantic, Inc. insurance agency, which is the
broker for all of the Company's property and casualty insurance. In 1997 the
Company paid premiums of $552,000 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.
The Company currently leases 6,183 square feet of office space in an office
building in Wyomissing, Pennsylvania for the Company's executive offices. The
lease expires in April 2005 and provides for an annual rental of $71,100 plus
common area expenses and electric utility charges. The office building is owned
by an affiliate of Peter M. Carlino, the Chairman and Chief Executive Officer of
the Company. The Company believes that the lease terms are not less favorable
than lease terms that could have been obtained from an unaffiliated third party.
(10)
<PAGE>
The Company currently leases an aircraft from a company owned by John
Jacquemin, a director of the Company. The lease expires in August 2007, and
provides for monthly payments of $8,356. The Company believes that the lease
terms are not less favorable than lease terms that could have been obtained from
an unaffiliated third party.
The Company has agreed to pay the premiums on four life insurance policies,
two payable when Peter M. Carlino dies and two payable when the survivor of
Peter M. Carlino and his wife, Marshia M. Carlino, dies, under a "split-dollar"
arrangement by which certain irrevocable trusts established by Peter M. Carlino
are obligated to reimburse the Company for all premiums paid when the insurance
matures or possibly sooner. The owners and beneficiaries of the life insurance
policies are the irrevocable trusts. In 1997, the Company paid a total of
$239,000 in premiums on the life insurance policies pursuant to this
arrangement.
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 Security 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 1997.
(11)
<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]
In the printed version of the document, a line graph appears which depicts the
following plot points:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Legend
Year Ended
- --------------------------------------------------------------------------------------
Symbol Index Description 05/26/94 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- --o-- Penn National Gaming, Inc. 100.0 65.0 128.8 427.3 292.35
- --+-- Nasdaq Market Index 100.0 101.3 131.4 163.3 135.43
- --=-- Peer Group 100.0 85.0 86.1 115.9 199.73
<CAPTION>
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
- --------------------------------------------------------------------------------------
</TABLE>
(12)
<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 1998. 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 1997 Annual Report to Shareholders and a proxy
card together with this proxy statement to all shareholders of record at the
close of business on April 3, 1998. 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.
SHAREHOLDER PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Proxy
Statement for the Company's 1999 Annual Meeting of Shareholders must submit the
same to the Company on or before December 11, 1998, at the Company's principal
executive office, Wyomissing Professional Center, 825 Berkshire Blvd., Suite
200, Wyomissing, Pennsylvania 19610, directed to the attention of the Secretary.
(13)
<PAGE>
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 200, WYOMISSING, PENNSYLVANIA 19610, ATTENTION:
CORPORATE SECRETARY.
Please sign, date and return your Proxy Card as soon as possible.
(14)
<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 May 20, 1998 and at
any and all postponements and adjournments thereof, upon the following matters:
1. For the election of William J. Bork and Robert P. Levy to serve as Class II
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):
William J. Bork Robert P. Levy
[over]
2. To ratify the appointment of BDO Seidman, LLP as independent auditors of
the Company for the year ending December 31, 1998.
___ For ____ Against ___ Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1 AND 2. IF NO
SPECIFICATION IS MADE, SUCH PROXY WILL BE VOTED "FOR" EACH SUCH ITEM.
__________________________________ Dated _______________________, 1998
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
(15)
